Unlocking Alpha Opportunity in a World of Higher Dispersion

Key points

  • Dispersion on the rise: The shift from a regime of secular stagnation to one of reflation is contributing to both a broadening of global earnings growth and significantly higher dispersion in company results and performance.
  • Alpha over beta: Along with driving heightened dispersion, the new regime is likely to suppress broad market performance relative to recent decades. This reflects a shifting opportunity set in favor of alpha return sources over beta.
  • Investing for a new era: BlackRock’s Global Equity Market Neutral Fund (BDMIX) takes advantage of higher dispersion to generate uncorrelated alpha—seeking to provide investors with the dynamism and differentiation that’s needed to navigate a changing market environment.

The post-COVID era has marked a shift from decades of stagnant economic growth to a regime of reflation characterized by positive nominal growth and structurally higher inflation (and interest rates).

The below series of charts illustrates the impact of this shift through the lens of corporate earnings. The first chart shows that in the ten years following the Global Financial Crisis (GFC), prior to the pandemic, depressed levels of nominal growth meant that only a small number of tech companies (known as the “Magnificent 7”) were able to significantly grow their earnings.