Best In ClassJul 24 2018

Best in Class: BlackRock European Dynamic

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Best in Class: BlackRock European Dynamic

It's been a long six years, but investors who believed Mr Draghi would keep his word have been rewarded.

European equities (as measured by the FTSE World Europe ex UK index) are up 118.3 per cent and European government bonds are up 38.97 per cent, according to FE Analytics total returns data from 26 July 2012 to 17 July 2018. 

Having successfully done "whatever it takes", Mr Draghi is now slowly but surely starting to 'undo' it, by tapering his bond buying programme.

When he hinted at such a move last year, markets had a wobble: the euro rose, European government bond yields rose and equities took a tumble.

So he has been treading very carefully – particularly as Italian political uncertainty also rattled investors earlier this year.

Mr Draghi is due to step down at the end of 2019, which poses the question as to who his successor will be, and what their policy will be for quantitative tightening.

The bank is currently buying more than €30bn of assets each month. This will halve to €15bn in September and end completely in December. 

From an economic viewpoint the outlook for the economy as a whole is still healthy: not quite as good as this time last year, but certainly still attractive – as are European equities relative to most other markets.

A fund I particularly like in this sector is BlackRock European Dynamic.

Over the six years, it has significantly outperformed the index and its peer group, returning 160.39 per cent, FE Analytics shows.

The European equity team at BlackRock has had a few changes recently, but remains extremely strong and this particular fund has been run by Alister Hibbert for the past decade. 

Mr Hibbert is unconstrained with regard to company size and sector - around 75 per cent is currently invested in large caps and most of the remainder in mid caps.

He invests in businesses with medium to long-term earnings power that is greater than the market and also those in restructuring and turnaround situations.

He uses a range of screening tools to help filter the investment universe and identify ideas for further in-depth research. The screens are run weekly and focus on valuation metrics and earnings momentum.

A weekly data pack is also produced that contains a range of information from stock, sector and country performance, through to foreign exchange, credit default swap spreads and fund flows.

Research is central to the investment process and a key source of alpha: the team has exceptional access to senior management within the companies they invest, conducting hundreds of meetings every year.

To facilitate this, there is a dedicated research co-ordinator responsible for the day-to-day management of the research schedule, and a research pipeline that prioritises and ensures effective use of team resources.

The output of the investment research process is a clear recommendation and a 12-month price target.

The team uses a rating system from one (strong buy) to five (very negative) when recommending stocks. Mr Hibbert will then determine whether the recommendation is suitable for the portfolio, the position size and point of purchase.

Daily reports generated by BlackRock’s extensive proprietary risk management systems allow him to monitor risk and portfolio construction is a continuous process: Mr Hibbert constantly analyses the impact of new ideas and information on the portfolio as a whole.

Mr Draghi is due to step down at the end of 2019, which poses the question as to who his successor will be, and what their policy will be for quantitative tightening.

For now, however, he and his promise remain in place. Earnings in the region are still improving and I do still like the European equity market as a hunting ground for investment.

This fund has delivered very high and consistent alpha over the manager’s tenure and I see no reason why this would not continue.

Darius McDermott is managing director at FundCalibre