Models take emotion out of investing: BlackRock
Model-based fixed income investing can remove the emotion from investment decisions, delivering clients solutions that are not over-reliant on credit ratings and credit ratios, according to BlackRock.
According to BlackRock global head of fixed income asset allocation, Benjamin Brodsky, a narrow view by fixed income professionals can cause them to ignore the views of investors in other asset classes (such as equity markets) "which may signal manifestations of market sentiment".
"Even the most seasoned investor can be blindsided. A model can vastly expand an investor's scope and by doing so, make an able investor even better," he said.
Although BlackRock's fixed income model portfolios use a number of research techniques to create accurate models, they put the intuition of the investor first.
"The model does not 'data mine'; intuition drives data processing - not the other way round," Brodsky said.
BlackRock's models also "evolve and adapt" to changing economic conditions, he added.
"New financial challenges, such as sovereign risk, can be tested and incorporated (if validated) in the relevant model," Brodsky said.
He added that there are limits to the amount of information an investor can meaningfully absorb at any point in time.
"A model is able to aggregate literally thousands of pieces of information and distil this into intelligence for decision-making," Brodsky said.
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