HEAD-TO-HEAD: Blackrock versus Capital Group

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INVESTMENT APPROACH

Blackrock GF Global Dynamic follows a process that combines top-down and bottom-up considerations, resulting in a portfolio without large style biases, while Capital Group New Perspective applies a largely bottom-up, growth-oriented approach, according to Wolfstetter.

“However, both funds stand out for having very broadly diversified portfolios with hundreds of stocks,” she said.

BGF Global Dynamic aims to generate equity returns with a lower standard deviation and has a neutral benchmark weighting of 60% US and 40% non-US equities. It sits in Morningstar’s global large-cap blend category.

“Macro views, paired with fundamental bottom-up research, help inform positioning across regions, sectors, and themes,” said Wolfstetter.

The managers have started putting greater emphasis on cash flow growth and balance sheet strength, while the previous approach was more valuation-driven, she added.

The portfolio remains diversified across 400 holdings, but management has reduced the portfolio’s long tail to bolster the impact of stock selection and give the team’s 80-120 highest-conviction ideas more impact on performance.

The team employs various thematic strategies, with each theme expressed through a basket approach. Thematic strategies represent about 5%-10% of the fund’s assets, but more than half of its holdings, according to Wolfstetter.

Capital Group New Perspective is assigned to Morningstar’s global large-cap growth category.

As is typical for the firm, Capital Group splits the asset base of the fund into individual sleeves, which are run by independent managers who have distinct investment approaches.

Although they have their unique skill sets and styles, they all target blue-chip firms that derive at least 25% of their revenues from outside their home regions and invest globally, so the focus is on established, multinational firms, according to Wolfstetter.

“This means the fund won’t own major players that don’t have significant revenue streams outside their home country,” she said.

As a result, the portfolio has only held modest stakes in Chinese companies during the past five years. For example, the managers have not held Tencent or Alibaba, because their revenue comes almost exclusively from China.

The fund’s geographical balance also shifts based on where the managers see the best opportunities, according to Wolfstetter.

For instance, its allocation to US stocks has ranged from more than half to less than a quarter of assets during the past three decades and stood at 55% in Oct 2020.

“It’s also worth noting that due to its large asset base the strategy faces capacity constraints, which prevent the managers from taking sizable stakes in mid-cap firms,” said Wolfstetter.

Despite a roughly 300-stock portfolio, there can be significant concentration risk within the fund’s individual sleeves. For example, although only one manager held Tesla, it was the strategy’s second-largest holding as of June 2020.

Fund characteristics

Sector allocation:

Source: Morningstar, 30 November 2020

Regional equities breakdown:

Source: Factsheets, 30 November 2020

Top 10 holdings:

Source: Factsheets, 20 November 2020

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