Performance Review 2008
Nigel Bolton: "I began running the BGF European Fund in March 2008 when I joined as head of the European Style Diversified team at BlackRock. During the 9 months to the end of that year the Fund delivered substantial outperformance, driven primarily by accurate stock selection although our sector allocation strategy was also beneficial. We profited from being underweight in the Materials sector which underperformed significantly as investors sought safety in more defensive areas. For the same reason we were rewarded for an overweight exposure to the Telecoms sector which was also the site of rewarding stock selection. Other areas where our stock selection added value included the Consumer Staples sector where brewer Anheuser-Busch Inbev and Food retailer Ahold outperformed, Financials and Industrials sectors particularly through Capital Goods companies including defence contractor Finmeccanica."Performance Review 2009
Nigel Bolton: "2009 was a very successful year as the BGF European Fund outperformed the MSCI Europe Index by 7% and placed in the top quartile of the peer group. Accurate stock selection was the primary source of alpha generation although we also benefited from well timed asset allocation changes during a year of distinct sector rotation. Having profited from being overweight in higher ‘quality’ companies in more defensive areas at the start of the year, we increased our exposure to out of favour Financials and Consumer Discretionary stocks where we were seeing extreme under ownership and attractive valuations in Q1. This meant that we were ideally positioned during the cyclical-led recovery in Q2 and Q3."
Performance Review 2010 - Year-to-Date
Nigel Bolton and Zehrid Osmani: "Macro-economic factors and fluctuations in risk appetite have been the primary drivers of market returns in 2010, overwhelming company fundamentals. Despite high volatility at an index level, there has been less volatility between sectors and stocks which has made it difficult for stock pickers to add value. In-depth fundamental analysis is at the heart of the investment process for BlackRock’s BGF European Fund so these conditions have obviously been less than ideal. However, despite these headwinds we have still been able to deliver solid returns, outperforming the peer group and performing inline with the benchmark by maintaining a diverse risk profile and closely monitoring positioning in the market. Sector allocation and stock selection have both made a positive contribution with a number of companies within the Automobiles, Media and Consumer Goods areas performing particularly well on the back of exposure to strong emerging market demand. Our positions within the Financials and Information Technology sectors have also been rewarding and include some of our top holdings."
Performance since 2005
Investment Process and Strategy – How does the Fund Manager Invest?
Nigel Bolton and Zehrid Osmani: "The BGF European Fund employs a flexible investment style to be able to take advantage of the best investment ideas in all areas of the market. The Fund is market cap flexible relative to the benchmark but is likely to have a bias to large and mid cap holdings.
The Fund has a disciplined, consistent investment process which combines a structured research framework with highly sophisticated portfolio construction techniques. All team members including fund managers perform fundamental analysis which is allocated on a sector basis. A summary of the three steps involved in the process is below:
Idea Generation:
The European Style Diversified team does not conduct maintenance research, preferring to target resources only towards those ideas most likely to make money for our clients. On that basis we use a wide range of sources to narrow our investable universe and identify the best opportunities worthy of more detailed analysis. Some of these sources include external and proprietary quantitative screens, asset flow data, economic information, external research and insights from various other BlackRock investment teams.
In-depth Fundamental Analysis:
Research is central to the investment process and a key source of alpha for the BGF European Fund. Our experienced analysts spend time examining a company’s market dynamics, revenue drivers, financial statements, valuations and risks to the central scenario. We seek to understand the factors that influence a share price and as well as what the market fears or is missing.
The analysts conduct their research within a structured, consistent framework which includes a proprietary research template that has been designed to capture all relevant data in a concise and easily interpreted format. The analyst presents the completed template to the team at one of our regular research meetings where it is subject to rigorous debate and discussion.
Portfolio Construction:
Risk awareness is an integral component of the investment process. During this stage of the process the Fund managers combine the best investment ideas produced by the research process whilst adhering to a number of portfolio construction parameters which ensure that risks are diverse, deliberate and appropriately scaled. Portfolio construction is a continuous process, with the portfolio managers constantly analysing the changing risk profile of the fund and the impact of new ideas via BlackRock’s best in class desk top systems. We also benefit from a close relationship with BlackRock’s dedicated Risk and Quantitative Analysis team (RQA) which provides extensive additional risk insights at a monthly meeting as well as on an ad-hoc basis."
Investment Outlook
Nigel Bolton and Zehrid Osmani: "Our outlook for European equities remains relatively positive despite the well-publicized economic headwinds within the region. Europe remains under owned and valuations continue to look compelling on a relative and historic basis. The value currently available in Europe is being reflected in increased M&A activity which we expect to continue as companies use net cash on their balance sheets to make attractive strategic investments. Europe also looks attractive on a yield basis with many European companies committing to or confirming dividend policies.
We feel it is essential to distinguish between the economic situation within the region and the outlook for European corporate profitability. Compared to other developed areas Europe has a high degree of international exposure, particularly towards emerging markets. The recent earnings results demonstrated how this exposure, along with economies in core Europe that remain relatively robust, can continue to drive earnings growth despite the impact of austerity measures on peripheral countries."
