HEAD-TO-HEAD: AB versus Blackrock

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INVESTMENT APPROACH

While both the AB and Blackrock offerings focus on US-large cap companies, the funds have several differences, according to Wolfstetter.

In terms of style, the AB fund is tilted toward the growthier parts of the market, while the Blackrock fund is more balanced with a value tilt.

Wolfstetter explained that the funds have different investment processes.

The manager of the AB fund focus on profitable growth and high quality, as defined by strong competitive positions, as well as consistently high profitability and returns on capital.

“The team likes firms that can fund their own growth through reinvestment rather than leveraging their balance sheets,” Wolfstetter said.

The team looks at metrics such as high return on assets, earnings per share growth and positive earnings revisions to screen a broad universe of mostly large- and mid-cap growth stocks. They then assess the competitive advantages and cash flows of the highest-ranking companies.

While the fund has flexibility in terms of sector weights versus its index, the Russell 1000 Growth, traditional growth-oriented sectors typically play outsize roles, such as in healthcare (see below).

Turning to the Blackrock fund, Wolfstetter explained that its managers are not constrained by style, but aim to find companies with improving fundamentals that are underappreciated by the broader market.

The product utilises both quantitative and fundamental inputs. The quant screening scores stocks on four dimensions: valuation, quality, accounting and sentiment, helping to narrow down the investment universe.

Wolfstetter noted that the fund previously made use of third-party quant models until a new model was created internally and launched in 2012. The new model was better aligned with the fund’s longer term horizon and enabled analysts to better understand the data.

After the quant screening, the fund’s team apply forward-looking fundamental analysis and assign qualitative scores to stocks. The portfolio is then constructed using an optimiser, which integrates both the quant and fundamental inputs.

Sector allocation:

Source: Morningstar. As of 30 September 2020

Top 10 holdings

Source: Fund factsheets. As of 30 September 2020.

Source: Morningstar

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