Which countries are BlackRock’s funds sold in?
My brief is EMEA so the funds are registered and sold in over 20 countries across the region. I spend a lot of time in Italy, Switzerland, Germany, France, the Netherlands and the Nordic countries when I’m outside of the UK. They are the lions’ share – we have a big footprint in Italy, Germany and the UK.
How does your product range reflect the differing requirements of investors in countries around the world?
The BlackRock Global Funds platform is diverse. We have fixed income funds, equity funds and some alternative funds through Ucits. I would say clients are particularly interested at the minute in those three areas.
A lot of money has gone into fixed income funds for very good reasons over many years. Growing in interest is equity income and that has a useful place in portfolios for two reasons.
One is if you are looking for a re-entry point into the stock market. Take the BlackRock European Equity Income Fund. It has a lower beta than the market so for someone looking for a re-entry point with a bit less volatility, that’s a great fund to look at. The second is that it complements the income stream from fixed income funds and so you get a bit of flexible income from dividend equity strategies and you don’t have all the volatility of the stock market.
I would say the other area where the platform offers clients an opportunity is the “outcome space”.
I’ve spoken to a dozen or so heads of distribution quite meaningfully over the past year or so about the way they think client portfolios need to be positioned for the future. And many of them are juggling the questions of ‘How do I get clients to take steps out of cash?’, ‘How do I meet their income needs for the future?’ and ‘What does outcome mean?’.
I believe introducing an element of flexible income through funds like the BlackRock European Equity Income Fund is a great addition.
When it comes to outcome-based products, such as our consensus funds in the UK and our newish multi-asset income fund, I think clients are looking for accuracy rather than can you beat something. An outcome for them could be quite a personal thing so it could be saving up for a house or a wedding.
We are a robust platform with many different types of funds on it with the aim of offering funds and services locally, so therefore we must be in tune with local requirements.
How does the pattern of BlackRock’s fund sector sales differ from country to country?
Countries like the UK and Italy feel quite advisory-led so that’s tilting more toward the outcome-based products and income-based products. In some countries, for example, Germany, Switzerland or the Nordic region, we appear more as a building block inside someone else’s portfolio. That’s where your fund selection is appraised on quality of performance, quality of service and delivery of alpha.
Are you surprised by any sectors that are not popular?
After having a conversation with a fund selector who owned every fixed income class going and who said ‘What do we do next?’, I’m surprised that more investors have remained overweight in the same fixed income funds that have worked. I think strategic bond funds or fixed income funds that can operate globally and navigate within fixed income should be getting more attention. That’s one area. Probably absolute return funds are also going to get greater adoption.
What are you doing to address the departure of high-profile absolute return fund manager Mark Littleton?
I’m not going to comment on Mark Littleton at all, but absolute return funds should occupy a space in clients’ portfolios because, through Ucits, it allows the risk profile of a product to be changed. So you can extract alpha in a low beta way. There are plenty of funds that do a good job, for example Vincent Devlin’s European Absolute Return Fund and Sam Becks’ Emerging Markets Absolute Return Fund, which is getting a lot of client interest. The adoption of alternative products or uncorrelated returns is going to be, and should remain, a very useful part of clients’ portfolios and I can see more clients demanding that sort of product.
What is the current asset class split in different regions of BlackRock’s total funds?
Cross-border assets in EMEA are somewhere around a trillion dollars and that asset pool has gone overweight in fixed income and underweight in equities. That’s one big trend that has happened for a number of years consistently for very good reasons.
If you then look at BlackRock in that context, we are an important franchise in natural resources. For many years we have supported natural resources inside clients’ portfolios and continue to do so.
We’ve also done incredibly well through some terrific performance from Nigel Bolton’s European equity team. Our European active equity fund assets have grown at a time when clients are going underweight in European equities.
We are increasingly getting more demand for our fixed income and why is that? Our fixed income funds are designed to navigate clients a bit more. The Fixed Income Global Opportunities Fund is growing in popularity and complements some existing funds out there quite well.
Our emerging market debt funds are also getting significant interest from clients. And absolute return. Engineering alpha is incredibly important in an environment where there are low yields.
What are your key distribution channels?
You could couch it all under the wealth management channel. Within that you have private banking, asset management and private wealth. You then have retail banks, so more retail-like distribution which is a step into the financial advisory world. IFAs play a big role in the UK and the financial adviser even more so in Italy.
There are a couple of interesting trends going on under the guise of ‘platform’, which has become a rather loose word for meaning anything. Whether you are a bank distribution platform, an insurance distribution platform or a custody aggregator platform you are looking for fewer partners and for those partners to deliver a greater breadth of proposition to your customer. That is a trend we are definitely feeling the impact of.
Let us say there are roughly 150 sizeable platforms out there in the European space as well as the UK, and we appear on all of them. They are looking to work more closely with fewer asset managers. They are looking for asset managers that have this breadth of product and can offer the breadth of service locally, which is key. The drive towards partnership with platforms and local support is absolutely key to our strategy.
How are regulations impacting on your business plans?
One of the benefits of being a well-resourced firm is that we have a lot of smart people to help with that sort of thing and that is an advantage BlackRock has over some other firms. There is plenty of change going on in the industry, some driven by the regulator, but we are helping our clients through that process and it’s important to get it right.
Peoples’ aspirations for their retirement income and what they are doing to ensure they hit it are misaligned and something has to give. We have to take on a bit of volatility and if we do not we are going to wake up in 25 years and realise that inflation has ravaged our earnings.
RDR seems to have become the catchphrase for everything. We have seen a version of that adopted in the Netherlands so we were able to take our experiences from the UK and work with particular clients out there to help them form their plan for the future.
Take, for example, Metlife. We launched the Managed Volatility Funds in the UK with Metlife as a direct result of Metlife wanting to partner with BlackRock to launch a new generation of products that could participate in auto-enrolement. The next generation Aegon auto-enrolement product is also powered by BlackRock.
What is your prediction for the next big investment theme?
We have to ensure that we monetise the fact that people are living longer. And so the big focus needs to shift from ‘how much have I beaten the index by in the past three months’ to ‘I am probably going to live to 85 or 90. And 25 years ago I was going to live to 65 and the life expectancy has gone up 43% from 1950 to 2010.’
Every third child in the UK today or in many of the countries of the continent is going to live to 100. That last statistic alone should be quite frightening because we run a real risk that we will run out of money before we die.
Equity income is going to play a bigger role because when I talk to clients, they say they like the fixed income stream and the perceived protection from fixed income and they don’t like volatility. I get all that, it’s perfectly sensible.
What I say is ‘keep hold of all those emotions. Does your portfolio today look like it is going to deliver those comfort factors in the future?’
I don’t think it will. I also think that peoples’ aspirations for their retirement income and what they are doing to ensure that they hit it are misaligned and something has to give. We have to take on a bit of volatility and if we don’t we are going to wake up in 25 years and realise that inflation has ravaged our earnings.