“We maintain a firm overweight to Momentum as we continue to see strong relative strength and attractive valuations for the factor,” BlackRock said. “The overweight position is also supported by dispersion levels, which have improved since last month and suggest increasing opportunities for outperformance.”
The minimum volatility factor covers stable stocks that can potentially outperform more volatile stocks on a risk-adjusted basis. For instance, the iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) selects stocks based on variances and correlations, along with other risk factors.
The low-volatility factor investments work on the idea that they help cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, which has been backed by extensive academic research.
“Our view on Minimum Volatility has moderately improved from neutral to a modest overweight,” BlackRock said. “Valuations have improved and our regime model continues to suggest a moderating pace of growth, which is supportive of more defensive factors such as Minimum Volatility.”
For more information on factor-based investments, visit our smart beta category.