blackrock investment insights seminar...as of 30/11/2016. state economic impulses – largest...

BlackRock Investment Insights SeminarThe role of Big Data in investing

Scientific Active EquityIngo Heinen, Managing Director, Head of BlackRock Alternative

Specialists EMEA

September 2017

ICB0917E-265766-797160For use with professional clients / qualified investors only — proprietary and confidential

Scientific Active Equity – Introduction

30 year track record of innovation

One of the pioneers of quantitative investing

+80 investment professionals globally

managing $94bn in assets (at 30 June 17)

Systematic approach to investment

management with an emphasis on

consistent and reliable results

Research driven process blends investment

insight with cutting edge technology

Designed to deliver differentiated and

diversifying returns for clients

Research driven investment approach designed to deliver differentiated returns

2

Fundamental Value

Analyst Sentiment

Earnings Quality

Flows

Macro Themes

Big Data

1985 1990 1995 2000 2005 2010 2015 2017

Machine Learning

Source: BlackRock, June 2017. For illustrative purposes only.


It’s a wonderful time to be a quant

3

Source: BlackRock, 31st December 2016. For illustrative purposes only. Reference to the names of each company mentioned in this communications is merely for illustrative

purposes, and should not be construed as investment advice or investment recommendation of those companies.

Because of Big Data, which is-

• Less structured, larger in volume, faster

• Digital traces of human (or machine) behavior

• Growing exponentially


Big Data - What is relevant to alpha generation has not changed; but what is possible has…

4

Source: BlackRock, 31st December 2016

a

Fundamentals

Macroeconomics

Flows

Competitive dynamics

Quality of management

Supply/demand imbalances

Big Data

Machine Learning

Natural Language Processing

Cloud computing

Text

Internet search

Social media

Vision

Sensors


What type of stocks does SAE invest in?

Stocks underpinned by attractive fundamentals

• Improving & persistent profits

• Rising earnings expectations

• Attractive valuations

Stocks supported by positive sentiment and

market activity

• Views of market participants such as analysts

• Positioning of other investors and expectations of

future flows

• Trading opportunities arising from short term liquidity effects

• Relationships between stocks and other asset classes

Stocks with positive exposure to macro themes

• Domestic economic conditions

• Exporters exposed to the external macro backdrop

• Industries, countries & styles

• Includes beta timing model

Macro

Themes

SAE has 30 years of experience in understanding the drivers of equity returns

Market

Sentiment

Company

Fundamentals

5

? ?


We ask the same questions as any traditional investment manager

Which stocks have strong fundamentals?

Offer positive sentiment?

Are exposed to attractive macro themes?

Our process seeks to analyze a richer information set across 15,000+ global equities on a daily basis

Evaluate industry growth

prospects by analyzing company

intention to hire

Example: Internet Traffic

Fundamentals

Example: Conference Calls

Sentiment

Example: Online Job Listings

Macro Themes

Capture changes to a company’s

website traffic in real time to

identify future growth

Scan vast amounts of text data for

evidence of changing market

sentiment

SAE blends investment insight with technology and Big Data to analyze a deeper & richer information set

Source: BlackRock, December 2016. For illustrative purposes only

400

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6500

7000

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8500

9000

5/1/2015 6/1/2015 7/1/2015 8/1/2015

Job Postings Stock Price

6ICB0917E-265766-797160For use with professional clients / qualified investors only — proprietary and confidential

Further uses of company conference calls

Source: BlackRock & Wordle.net. Data as of January 31st 2017. The larger the word the greater frequency of use in the call.

Topics mentioned in Ambarella Inc. Q3 2016 conference call


Exploiting differences in geographic exposure within the US

Source: BlackRock & Colore Maps.

As of 30/11/2016.

State Economic Impulses –Largest positive/negative

Company Exposures to StatesCaptured from 10-K filings

Portfolio Exposures to StatesCurrent exposures within SC portfolio

Source: Federal Reserve. Data as at 31/12/2016.

“We are also subject to geographic

concentration risks, with nearly 70% of

system Jack in the Box restaurants

located in California and Texas”

Jack in the Box Inc.

“The Bank grants real estate mortgage,

real estate construction, commercial,

agricultural and installment loans and

leases to customers throughout

Oregon, Washington, California,

Idaho, and Nevada”

Umpqua Holdings Corp

We also offer facilities-based integrated

voice and data communications

services and wholesale transport

services to enterprise and residential

customers in New England, primarily in

Vermont and New York”

Atlantic Tele-Network, Inc.


Spotting red-flags in company disclosures

*Source: Discolosurenet, numbers from 2012.

Probability of a red-flag event increases for companies that change

their disclosures**

Over 10,000 10Ks filed

each year*

Longest filing was 359

pages, Average length

of 10K filing is 43

pages*

Close to 24,000 10Qs

filed per year

**Source: BlackRock Research. Measure of change quantifies similarity between

text in company filings. 0= documents identical, 1= no overlap.


Online SearchGPS traffic data E-transactions receipts

Credit card dataWebsite

traffic

Booked sales

Satellite images

More accurate

More leading

How can we track and seek to predict consumption accurately?

Source: BlackRock, 2016. For illustration purposes only

Financial accounts


BSF Americas Diversified Equity Absolute Return

Source: BlackRock

Portfolio construction

Risk forecasting & cost forecasting

US

Large Cap

Portfolio

US

Mid Horizon

Portfolio

Forecasting returns across a 3,500 stock universe

US

Small Cap

Portfolio

Latin

America

Portfolio

Canada

Portfolio

Fundamentals Sentiment Macro Statistical Sentiment Events

• Pan Americas Fund which has generated returns independent of market direction

• 5 underlying sub-portfolios, tailored to the different opportunities

• 5 year track record

• Emphasis on innovation, data and technology


BSF Americas Diversified Equity Absolute Return

12

Performance by calendar year*

*Source BlackRock Performance from 17 February 2012 to 31 August 2017. Returns

are net of fees and based on an the dealing NAV of the $A2 share class, which does

not distribute income. Past performance is not a reliable indicator of future results.

Past performance is not a guide to future performance and should not be the sole

factor of consideration when selecting a product.

BSF ADEAR Fund

31 August 17 YTD 1 year 3 years 5 years ITD*

Return p.a. (%) 4.62 4.33 4.10 3.77 4.48

Volatility p.a. (%) 6.75 6.29 5.89 5.84

Sharpe ratio 0.6 0.7 0.6 0.8

Fund AUM $731.9m

BSF ADEAR risk allocation – 31st August 2017


BSF Style Advantage

Quantitative Investing

13ICB0917E-265766-797160

What is Factor Investing?

Factors are broad, persistent drivers of return

Historically have earned long run returns within and across asset classes*

Many rewarded factors are under-represented in client portfolios

Factor-based investing targets these intuitive investment styles

Takes advantage of economic insight, diversification, and efficient execution

Leverages advancements in data and technology

Investors can apply factor-based investing in various ways

Investment strategies

Deliberately target

rewarded factors to seek

to deliver returns and

outcomes

Asset allocation

Strategic asset allocation

at the enterprise level

Manager Selection

Common language to

evaluate managers’

aggregate exposures and

return drivers

*Bender, Jennifer, Briand, Remy, Melas, Dimitris, and Raman Aylur Subramanian (2013), “Foundations of Factor Investing”, MSCI Research Insight.

ICB0917E-265766-797160For use with professional clients / qualified investors only — proprietary and confidential14

Factors determine a large portion of risk and returns in portfoliosWith style factors seek to capture stock return dispersion, setting up long-short

strategies

Macro factors determine levels

Style factors determine dispersion

Source: BlackRock, illustrative purposes only

Equity

Macro Factors

Risk Free

Rate

Inflation

Economic

Growth

Interest

Rate

Average stock

Value

Growth

Equity Market Level

Value + Growth = Equity Market

Avg Value Stk

Avg Growth Stk

Style

FactorsAverage stock


BSF Style Advantage Fund

Ideally suited to:

Style Advantage is a multi-asset, long/short style strategy seeking liquid and

diversified absolute returns

Style Advantage seeks to provide hedge fund-type exposures at significantly lower fees

Harness style factors

targeting broad, persistent

returns

Style Advantage delivers exposure to four factors across four asset classes*:

A diversified portfolio of

economically intuitive style

factors (value, carry,

momentum, etc.)

Value Carry Momentum Defensive

Provide low correlation to

equity markets and rising

interest rates

Long/short for market neutral

implementation

Target risk: 7%*

Deliver more cost-efficiency,

liquidity and transparency

compared to hedge funds

Efficient implementation

through highly liquid

instruments

*Fixed Income, equities, currencies and commodities. *This is a target and as such is not guaranteed.


For illustrative purposes

Which style factors earn a premium, and why?

Value

Buy low, sell high

Driven by a risk premium

for holding distressed

firms and investors’

behavior bias that leads to

overbuying of growth

Carry

Harvest income

Driven by a risk

premium embedded in

asset prices to incent

potential investors to

hold riskier securities

Momentum

Buy winners,

sell losers

Driven by investors

return following

behavior

Defensive

Seek safety

Quality is driven by

investors’ difficulty in

separating earnings and

cash flows. Low Volatility

is driven by limits to

leverage

Investment insights based upon economic rationale

Applied to deep, liquid global markets

Implemented across 2800 global equities

24 developed and emerging equity markets

21 developed and emerging currency markets

16 developed and emerging bond markets,

Investment grade and high yield credit


Beispiele für Aktientransaktionen

18

-2.0 -1.0 0.0 1.0 2.0

Akzo Nobel: Long-Position

Hypothetische Stilgewichtungen

Überg

ew

ichte

tU

nte

rgew

ichte

t

Arcelor Mittal: Short-Position

Hypothetische Stilgewichtungen

Überg

ew

ichte

tU

nte

rgew

ichte

t

• Hersteller von Chemikalien, Beschichtungen, Farben

• Konsolidierung und sinkende Umsatzkosten lassen

Profitabilität steigen

• Weniger Risiken im Pensionsplan bedeuten geringere

Cashflow-Schwankungen, Pensionsausgleichs-

zahlungen dürften in den nächsten Jahren zurückgehen

• In der Summe verbessert sich dadurch der hohe

Quality-Wert der Aktie, der für die Long-Position den

Ausschlag gab

• Einer der führenden Stahlkonzerne der Welt

• Stark fragmentierte Branche und unflexible

Kapazitätssteuerung haben schwache

Preissetzungsmacht zur Folge

• Starke Verwässerung, da seit 2006 die Zahl im Umlauf

befindlicher Aktien um 74% gestiegen ist

• Nachlassendes Gewinnwachstum: EBITDA-Rückgang

um 34% von 9,8 Mrd. EUR in 2006 auf prognostiziert

6,5 Mrd. EUR in 2017

• Spiegelt sich in niedrigen Quality- und Value-Werten

widerGewichtung im Portfolio (%)

Gewichtung von Positionen im

Werkstoffsektor über alle Stilfaktoren

Quelle: BlackRock. Das Beispiel dient nur der Veranschaulichung und sollte nicht als Empfehlung zum Kauf oder Verkauf dieser Wertpapiere verstanden werden.


The final portfolio is implemented by

portfolio managers

• Net trades across individual factors, leading to a significant

reduction in turnover and transaction costs

• Explicitly incorporate risk, correlations and transactions costs

through portfolio optimization

• Leverage BlackRock’s expertise and scale in market access

The resulting portfolio is well balanced

• Well diversified across many style factors

• Balanced across many asset classes

• Low correlations with traditional stock/bond portfolios

Investment process: implement final portfolio

Target Portfolio Risk Allocation1

1 As of June 30, 2017, Source: Blackrock

Tilts away from an initial equal weighting of factors are based on our quantitative assessment of attractiveness of factors based on decades of experience running style factor portfolios and understanding

their returns, risks, and the environments in which they perform best, as well as a learning algorithm that up-weights factors with the highest realized performance, lowest tail risk, and best performance in

bad economic environment.

Equity Value

Equity Momentum

Equity Low Volatility

Equity Quality

Equity Markets Carry

Equity Markets Momentum

Equity Markets Value

FX Carry

FX Momentum

FX Value

Fixed Income Carry

Fixed Income Momentum Fixed Income Value

Asset Class Risk Allocation

Single-Name Equities 40%

Equity Markets 20%

Fixed Income 20%

FX 20%

Total 100%

Target Risk Allocation by Asset Class Target Risk Allocation by Factor

Stock Non Stock Asset Classes2

Value 25% Value 30%

Momentum 20% Carry 40%

Quality 30% Momentum 30%

Min Vol 25% -

Total 100% Total 100%


20

BSF Style Advantage Fund performance

Fund performance

Historical performance

Source: BlackRock as at 31/08/2017. Returns are for the USD A2 share class (NAV to NAV and

accumulation units) and are shown net of fees and expenses.. Past performance is not a guide to

current or future performance.

1.48%

10.17%

6.75%

0%

4%

8%

12%

YTD 1y ITD (ann.)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2016 - - -1.15% -1.16% 0.93% -0.23% 0.48% 1.27% 0.81% 2.49% 2.15% 2.87% 8.68%

2017 -2.53% 2.23% 1.62% 1.33% 0.63% -0.38% -1.66% 0.35% 1.48%

Source: BlackRock as at 31/08/2017. Returns are for the USD A2 share class (NAV to NAV and accumulation units) and are shown net of fees and expenses. Past performance is not a

guide to current or future performance.

Correlations

Source: BlackRock as at 31/08/2017. ‘Equities’ represents MSCI World, hedged to

USD. ‘Bonds’ represents Barclays Global Aggregate, hedged to USD. ‘Style

Advantage’ represents the BSF Style Advantage Strategy Fund, denominated in

USD, gross of fees and expenses. Correlations are calculated using daily returns

from 1/3/2016.

Since

inception

correlation

Equities BondsStyle

Advantage

Style

Advantage0.19 -0.05 1

Bonds -0.22 1

Equities 1

AUM (31/08/2017)

BSF Style Advantage $1.04bn

Style Advantage strategies $3.43bn


Appendix

Terms

For use with professional clients / qualified investors only — proprietary and confidential21

ICB0917E-265766-797160

Terms – BSF ADEAR

22

Source: BlackRock, September 2017

Product details

Base currency USD

Available currencies USD, EUR, GBP, CHF, SEK, AUD

Hurdle 3 Month USD LIBOR

Liquidity Daily

Cut off 12 pm CET

Pricing 4 pm CET

Administrator/Custodian State Street (Luxembourg)

Main CFD trading counterparties Morgan Stanley, Goldman Sachs, BoAML

Initial fee Up to 5%

Annual management fee 1.50% (A share class ) or 1.00% (D share class)

Performance fee 20%

Hurdle Yes

High water mark Yes

Bloomberg Ticker A Share Class BSADA2U LX/BSADA2E LX

Bloomberg Ticker D Share Class BSADD2U LX/BSADD2E LX

Portfolio characteristics

Forecast volatility Up to 10%

Gross exposure vs NAV 200% - 650%

Net exposure vs. NAV 0%

Forecast Beta 0

Number of long positions 1,000 – 2,000

Number of short positions 1,000 – 2,000

Largest individual stock position vs NAV </> +/- 5%

Largest industry position vs NAV </> +/- 10%

Largest country position vs NAV </> +/- 5%


23

Terms - BSF Style Advantage

1. Per annum. There is no guarantee that the target risk will be met. Assumptions on which targets were calculated may not materialize.

2. PF = performance fee

Fund Details

Umbrella: BlackRock Strategic Funds Liquidity: Daily

Domicile: Luxembourg Notification: T

Fund Structure: UCITS Settlement: T+3

Fund Inception: February 2016 Custodian / Administrator: State Street Bank Luxembourg S.C.A.

Base Currency: USD Transfer Agent: J.P. Morgan Bank Luxembourg S.A.

Risk Target: 7% p.a.1 Manager: BlackRock (Luxembourg) S.A.

Currency Share

Classes Available:USD, EUR, GBP, AUD Auditor: Deloitte Audit S.à.r.l

BlackRock AMC:

Class A: 1.50%

Class D: 0.75%

Class DPF: 0.45% plus 8% PF2

Class E: 1.50%

Class I: 0.75%

Class IPF: 0.45% plus 8% PF2

Class X: Separately negotiated IMA

Minimum Investment:

Class A: $5,000

Class D / DPF: $100,000

Class E: $5,000

Class I / DPF: $10,000,000

Class X: Separately negotiated IMA

Administration Fee: Up to 0.25%

Additional Fees: Up to 0.15%

Source: BlackRock, September 2017


Disclaimer

24

This material is for distribution to Professional Clients (as defined by the FCA or MiFID Rules) and Qualified Investors only and should not be relied

upon by any other persons.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12

Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually

recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

Past performance is not a guide to current or future performance. The value of investments and the income from them can fall as well as rise and is not

guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of

investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall

suddenly and substantially. Levels and basis of taxation may change from time to time.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are

being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not

necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not

been prepared in connection with any such offer.

© 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO

WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and

elsewhere. All other trademarks are those of their respective owners.


Important Information

25

The following notes should be read in conjunction with the attached document:

• This material is for distribution to Professional Clients (as defined by the FCA or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons.

• Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.

Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management

(UK) Limited.

• This is a financial. For further information, the prospectus, Key Investor Information Document, annual report and semi-annual report can be obtained free of charge in hardcopy form from

the Gerpromotionman information centre: BlackRock Investment Management (UK) Limited, German Branch, Frankfurt am Main, Bockenheimer Landstraße 2–4, 60306 Frankfurt am

Main.The paying agent in Germany is J.P. Morgan AG, CIB / Investor Services – Trustee & Fiduciary, Taunustor 1 (Taunus Turm), D-60310 Frankfurt am Main.

• Overseas investment will be affected by movements in currency exchange rates. The fund(s) may invest in structured credit products such as asset backed securities (‘ABS’) which pool

together mortgages and other debts into single or multiple series credit products which are then passed on to investors, normally in return for interest payments based on the cash flows

from the underlying assets. These securities have similar characteristics to corporate bonds but carry greater risk as the details of the underlying loans is unknown, although loans with

similar terms are typically packaged together. The stability of returns from ABS are not only dependent on changes in interest-rates but also changes in the repayments of the underlying

loans as a result of changes in economic conditions or the circumstances of the holder of the loan. These securities can therefore be more sensitive to economic events, may be subject to

severe price movements and can be more difficult and/or more expensive to sell in difficult markets.

• The fund may invest in exchange traded funds which have exposure to property securities and commodities (through an index). Property investments are subject to adverse changes in

economic conditions, adverse local market conditions and risks associated with the acquisition, financing and ownership and operation and disposal of real property. The underlying

commodities index may concentrate investment on selected commodity futures of multinational markets. This makes the exchange traded fund extremely dependent on the performance of

the commodity markets concerned. The Fund may invest more than 10% of its Net Asset Value in the units of UCITS and/or other UCIs. Emerging market investments are usually

associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Fixed income

securities issued by governments can be affected by the perceived stability of the country concerned and proposed or actual credit rating downgrades. Derivatives may be used

substantially for complex investment strategies. These include the creation of short positions where the Investment Manager artificially sells an investment it does not physically own. The

insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Derivatives can also be used to generate exposure to investments greater than the net asset value of the fund / investment trust. Investment Managers refer to this practice as obtaining

market leverage or gearing. As a result, a small positive or negative movement in stock markets will have a larger impact on the value of these derivatives than owning the physical

investments. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the Funds. The strategies utilised by the Fund involve the use of derivatives

to facilitate certain investment management techniques including the establishment of both 'long' and 'synthetic short' positions and creation of market leverage for the purposes of

increasing the economic exposure of a Fund beyond the value of its net assets. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the Funds.

Investors in this fund should understand that the Fund is not guaranteed to produce a positive return and as an absolute return product, performance may not move in line with general

stock market trends as both positive and negative share movements affect the overall value of the fund. The Manager employs a risk management process to oversee and manage

derivative exposure within the Fund.


Important Information (ADEAR)

26

The following notes should be read in conjunction with the attached document:

• Past performance is not a guide to current or future performance and should not be the sole factor of consideration when selecting a product. All financial investments involve an element of

risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Unless indicated the fund information displayed only

provides summary information. Investment should be made on the basis of the relevant booklet together with the Prospectus, the KIID and relevant application forms which are available on

request from the Manager. Please note that BlackRock will not make these documents available to investors in certain jurisdictions where the funds are not authorised for sale, except

where local marketing laws otherwise permit.

• BlackRock Strategic Funds (BSF) is an open-ended investment company established and domiciled in Luxembourg which is available for sale in certain jurisdictions only. BSF is not

available for sale in the US or to US persons. Product information concerning BSF should not be published in the US It is recognised under Section 264 of the Financial Services and

Markets Act 2000. BlackRock Investment Management (UK) Limited is the UK distributor of BSF. Most of the protections provided by the UK regulatory system, and the compensation

under the Financial Services Compensation Scheme, will not be available. A limited range of BSF sub-funds have a distributor status A sterling share class that seeks to comply with UK

Distributor Status requirements. Subscriptions in BSF are valid only if made on the basis of the current Prospectus, the most recent financial reports and the KIID which are available on our

website. Prospectuses, KIIDs and application forms may not be available to investors in certain jurisdictions where the Fund in question has not been authorised.

• Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally.

The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any

part thereof and no assurances are made as to their accuracy.

• This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any

such offer.

• © 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo

are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

– THIS MATERIAL IS FOR DISTRIBUTION TO PROFESSIONAL CLIENTS AND qualified investors only ONLY AND SHOULD NOT BE RELIED UPON BY ANY OTHER PERSONS.


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