- A focus on quality, growth companies has held back short-term performance
- Long-term performance buoyed by strong stock selection
- Manager maintains flexible approach and will shift portfolio when he feels investors will be rewarded for doing so
The dynamic of the European stock market has shifted. The share prices of growth companies have raced ahead of their value-oriented peers for several years, but in recent months there has been a reversal of this trend.
Amid economic uncertainty and low interest rates, many investors have been drawn to the safety of high-quality growth companies favoured for their dependable earnings and reliable dividends. However, with inflation expectations rising more recently, which has historically led to rising interest rates, the yield and return available on more ‘defensive’ stocks appears less attractive. There has been a distinct shift in the performance of previously-popular growth sectors, such as consumer goods, healthcare, and technology, towards the once-disliked financials and commodity-related industries.
How has the fund performed in this environment?
Alister Hibbert, manager of the BlackRock European Dynamic Fund, employs a highly-flexible investment approach. He is prepared to tilt the portfolio towards more economically-sensitive areas of the market when he feels investors will be rewarded for doing so, but in recent years the manager has largely focused on higher-quality and more defensive areas of the market, such as healthcare and consumer-related sectors. While the fund has delivered a positive return, this positioning means it has underperformed the broader European market since the end of July.
Despite the recent short-term change in the direction of the market, Alister Hibbert maintains the fund’s bias to quality, growth companies. In his view, while global economic growth remains weak interest rates are likely to remain lower for longer, which is favourable for the companies in which he invests.
Where else is the fund invested?
The fund’s exposure to the healthcare sector has reduced, which is mainly due to the sale of a significant investment in Novo Nordisk. The company announced a set of weak results and detracted from the fund’s performance in the run up to its disposal; however, this investment contributed significantly to the fund’s performance over the longer term.
Proceeds were used to add to other high-conviction investments in British American Tobacco, pharmaceuticals firm Bayer, and a number of financials businesses including AXA, which the manager feels offers an attractive dividend yield, although it should be remembered all dividends are variable and not guaranteed.
The manager remains positive in his outlook for the emerging markets. He invests in several businesses located in Europe that sell their products to consumers in developing economies, including Nokian Tyres, Remy Cointreau, Volvo and Carlsberg. The fund also invests in higher-risk smaller companies.
Our view on this fund
Despite a short-term period of weaker performance compared with the benchmark, Alister Hibbert has added significant value for investors over the longer term. Under his management since March 2008, the fund has grown 164.2%* compared with 66.5% for the FTSE World Europe ex UK index, although past performance is not an indicator of future returns. Our analysis suggests strong stock selection has been a key driver of returns.
|Annual Percentage Growth|
| Nov 11 -
| Nov 12 -
| Nov 13 -
| Nov 14 -
| Nov 15 -
|BlackRock European Dynamic||21.9||31.7||-0.5||12.3||18.3|
|FTSE World Europe ex UK||12.8||31.3||-1.6||6.9||18.7|
Past performance is not a guide to future returns.
The fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors. While we view the fund as a good choice for exposure to European stock markets, the European sector is highly-competitive and we feel we already have a good line up of managers in this sector on the Wealth 150. The fund is also capacity constrained, which means the manager is able to take steps, such as applying a mandatory initial charge, in order to control the size of the fund in future.