HEAD-TO-HEAD: Blackrock versus Threadneedle

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Investment approach

The two funds share a similar objective to achieve long-term growth, and both are allowed some flexibility to invest outside the United Kingdom. In practice, they focus almost exclusively on UK – although Blackrock has 17% allocation to UK firms listed in North America.

Their investment approaches and styles, however, are significantly different.

The Threadneedle fund’s manager Mark Westwood, who has been running it for 13 years, adopts a “contrarian style”, according to Ng.

“His core belief is that markets are inefficient, and that he can buy undervalued, unpopular stocks during periods of volatility that provide his portfolio with long-term opportunities,” said Ng.

“The idea is to invest in companies ahead of re-ratings prompted by higher earnings,” he added.

Westwood uses a proprietary “earnings momentum scanning model” to anticipate future catalysts for improvements in the earnings of lagging stocks.

Although his fund is measured against the FTSE All Share index, which comprises around 600 stocks with a wide range of market capitalisation, Westwood focuses on the more narrowly inclusive FTSE 350 index, therefore the portfolio has large-to-mid cap bias.

“He tends to invest in about 10% of the components of the FTSE 350, so the fund is concentrated to 30 to 35 stocks. The holding period for each is three-to-five years, which means portfolio turnover is low,” said Ng.

Blackrock has a more conventional approach.  The fund combines top-down sector allocation with bottom-up stock analysis.

“The team identify industry trends and then the manager, Nicholas Little, chooses then individual stocks,” said Ng.

“They prefer companies that have undergone positive structural change and have a competitive advantage.”

“There is a bias towards high-quality stocks, but they should also have upward earnings momentum,” he added.

As a result, Blackrock is often prepared to pay higher (price-earnings) multiples than Threadneedle.

In addition, its focus on the FTSE All Share index means that the fund has a bigger proportion of mid- and small-cap stocks, and it is less concentrated, with up to 60 individual holdings.

Source: FE Analytics; Morningstar

*6 May 2016 – 8 May 2019

Market Exposure:

Sector Weightings (31 March 2019)

Source: FE Analytics *FTSE All Share Index factsheet

Top 5 holdings (31 March 2019)

Source: FE Analytics

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