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An Interview with Brian Miller: BlackRock Global Allocation Fund
 

An Interview with Brian Miller: BlackRock Global Allocation Fund

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While visiting BlackRock’s New York offices on a due diligence trip in October, Bryan Zschiesche of Financial Synergies had the opportunity to interview Brian Miller, CFA, Portfolio Specialist for ...

While visiting BlackRock’s New York offices on a due diligence trip in October, Bryan Zschiesche of Financial Synergies had the opportunity to interview Brian Miller, CFA, Portfolio Specialist for the BlackRock Global Allocation fund. The Global Allocation fund is a recent addition to the Alternative Strategies sleeve of our portfolios. The primary purpose of Bryan's meeting with Brian was to get an update on the fund’s outlook and positioning, but he also wanted to take the opportunity to give clients a peek behind the curtain.

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    An Interview with Brian Miller: BlackRock Global Allocation Fund An Interview with Brian Miller: BlackRock Global Allocation Fund Presentation Transcript

    • An Interview with Brian Miller: BlackRock Global Allocation Fund While visiting BlackRock’s New York offices on a due diligence trip in October, I had the opportunity to interview Brian Miller, CFA, Portfolio Specialist for the BlackRock Global Allocation fund. The Global Allocation fund is a recent addition to the Alternative Strategies sleeve of our portfolios. The primary purpose of my meeting with Brian was to get an update on the fund’s outlook and positioning, but I also wanted to take the opportunity to give our clients a peek behind the curtain. Today’s post contains a handful of slides from a presentation Brian and I reviewed together, along with excerpts from our interview. My goal is to provide some insights into our rationale for including the fund in our clients’ portfolios.
    • A Long History of Success According to Miller, “The Fund is very diversified across asset classes, including stocks, bonds, and cash equivalents worldwide, geographic regions, sectors and securities. It is typically invested in more than 700 securities, across 40 countries and 30 currencies, sectors and capital structures.” The Global Allocation fund was started 1989, and its primary objective is to “deliver a competitive rate of total absolute return with less risk than a traditional equity portfolio.” As you can see from the slide above, it has accomplished this objective, posting an annualized return of 10.7% over its 24-year history, with 1/3 less risk than comparable stock indexes.* *From Feb. 3, 1989 – Aug. 31, 2013. Past performance is not a guarantee of future results.
    • An Impressive Management Team The Global Allocation fund boasts one of the most impressive management teams we’ve come across. According to Miller, “The Global Allocation Team consists of more than 40 professionals committed to the management and administration of the fund. Portfolio managers Dennis Stattman, CFA, Dan Chamby, CFA, and Aldo Roldan, PhD, oversee the overall asset mix, geography, industry and currency allocation strategies.” These three managers have a combined 87 years investment experience. In addition, there are 10 senior analysts (who average 23 years experience) and 10 research associates who focus on security selection. Miller explains, “The senior analysts have a wide degree of flexibility in the development of investment ideas and have both equity and fixed income expertise. Strong team interaction and use of BlackRock’s worldwide resources for investment ideas, fundamental analysis, technology and risk analysis drive performance.”
    • An Emphasis on Risk Management One reason that this fund tends to grab peoples’ attention is its superior long-term performance, but a major aspect of the fund that caught our eye during our initial research was its focus on risk management. I asked Brian to help us better understand how the fund has generated such strong returns while keeping a watchful eye on risk. He replied, “BlackRock’s Risk & Quantitative Analysis Group (RQA) provides independent risk oversight of BlackRock’s investment management processes, including the Global Allocation Fund, and monitors portfolio risk metrics. RQA meets with the team regularly to review the portfolio risk profile and provides proprietary quantitative and portfolio analyses on an ongoing basis.” The chart above (a risk/reward scatterplot) illustrates the results of this risk-aware approach over the life of the fund.* The higher the data point, the higher the return experienced. The further to the left, the lower the risk, or volatility, experienced. So the ideal investment, one with the highest return and the lowest risk, would reside in the upper left quadrant. Notice the location of the Global Allocation fund. *From Feb. 28, 1989 – Aug. 31, 2013. Past performance is not a guarantee of future results.
    • A Flexible Approach At Financial Synergies, we use the Global Allocation fund as an “alternative investment” in our clients’ portfolios. I asked Brian to help our clients understand what types of investments the fund can utilize which make it different from its competitors. He notes, “The BlackRock Global Allocation Fund has the flexibility to invest in both traditional asset classes, such as stocks, bonds, and cash, but also has the ability to invest in non-traditional asset classes. In addition to conventional securities, the portfolio has the flexibility to invest in private placements, high yield bonds, convertible bonds, inflation-linked bonds, emerging market bonds, preferred equity, real estate investment trusts (REITS), precious metal-related securities, options and warrants, and equity and fixed income index futures. The fund may also short up to 20% of NAV. This flexibility allows the team to exploit inefficiencies in corners of the global capital markets that most specialized managers typically ignore, or are precluded from investing in.”
    • A Look at Current Positioning I asked Brian to discuss a few investment themes the fund is considering as we finish up 2013 and head into 2014. With regard to stocks, he explains, “In equities, we continue to favor Japan and are increasingly finding opportunities in Europe and select countries within the emerging markets based on attractive valuations. We have a substantial weighting in US equities, but we are modestly underweight compared to our reference benchmark. While US equities have outperformed the rest of the world since the beginning of the year, they lagged global equities in Q3’13. Despite the fact that US corporate profitability remains high, US equities carry more demanding valuations than many of their global peers.” With regard to fixed income, Brian notes, “We are significantly underweight fixed income relative to our reference benchmark and continue to remain cautious on this asset class in general, given uncertainty in Washington, including potential tapering of the Fed’s bond purchases, government debt ceiling, and the possibility of further outflows from fixed income as retail investors react to negative returns across many segments of the asset class. This cautious view leads us to hold additional cash in the fund which allows us to manage volatility and lowers the fund’s interest rate sensitivity.”
    • Conclusion In short, we believe the BlackRock Global Allocation fund provides our clients with the potential for handsome risk-adjusted returns over a long period of time. Capable fund managers and analysts, combined with cutting edge risk control measures, give this fund a distinct advantage over many of the other funds we have considered. As with all of the investments we employ, we will continue to monitor the fund closely (as evidenced by our in-person meetings with fund management) and will keep our clients informed of any changes to our current outlook on the fund.