Flows into BlackRock’s Market Advantage fund have surged 42 per cent in the last quarter as institutions embrace risk factor investing, according to the fund manager.

Big allocations from pension funds and insurers saw $794m invested in the fund to the end of March, bringing it to $7.1bn in assets.

Rather than determining allocations according to asset classes, such as equity, fixed income and alternatives, the fund attempts to provide balanced exposure to a range of fundamental factors driving financial markets: economic growth, interest rates, inflation, credit, political risks and liquidity. It aims to deliver long-term returns similar to equities with less volatility.

BlackRock’s head of institutional business for Europe, the Middle East and Africa Charles Prideaux said: “Risk factor investing and other forms of multi-asset solutions are proving to be tremendously valuable to pension funds and life companies in choppy market conditions… large institutional investors are looking for better risk-adjusted returns with more downside protection than they might get from a traditional balanced portfolio of bonds and equities.”

Over the last three years, the UCITS-compliant fund has produced an annualised gross performance of 8.4 per cent with one third of the volatility of equities, according to BlackRock. Big allocations in the first quarter came from a large US pension fund, a Japanese bank and a French reinsurer.

The strategy has previously found favour in the UK market, with NEST choosing BlackRock’s Aquila Life Market Advantage Fund (‘ALMA’), a sub-strategy for UK life companies, for one of the building blocks for the its Retirement Date funds.

The ALMA fund invests in a wide range of asset classes, and aims to deliver returns similar to a 60 per cent equity/40 per cent bond balanced portfolio over the long run but with 40 per cent lower risk.

BlackRock predicts that auto-enrolment will see an increase in allocation to the strategy and risk factor investing in coming months.

Share Story: