1. BlackRock Strategic Funds – European Opportunities Extension Fund
The strategy behind the BlackRock Strategic Funds European opportunities extension fund is pure bottom-up company analysis.
It’s a skill that both co-portfolio managers, Stephanie Bothwell and Christopher Sykes, have been honing since an early age.
“I made my first real investment in 2008 in the midst of the Global Financial Crisis,” Bothwell said in an email. “It went up four-fold – if only all investments were that easy!”
Prior to making her first big bet in the stock market during one of the most difficult periods in financial history, Bothwell was in charge of book-keeping at her mother’s hairdressers. She was “meticulous” at keeping track of everything.
“This taught me a lot about saving, I even started asking my parents for interest payments on any spare change they loaned from me,” Bothwell said.
Sykes was just as savvy from a young age, making his first investment at 14.
“It was Brakes Brothers, a UK distribution business which I bought, because the van showed up at my school every day,” said Sykes in an email. “It was taken out about 3 months later at a 60% premium – and I was hooked!”
Nowadays, Sykes says stock picking is more based on fundamentals.
Within the fund, the portfolio managers are looking for companies where there is clear potential for them to improve on positioning and strategy.
“We spend a lot of time looking at cashflow and assessing incremental return on capital,” Bothwell said.
The portfolio currently has 139 holdings and uses an extension approach, which means the portfolio managers can enter synthetic short positions to achieve additional investment exposure, according to the fund’s website. The portfolio manager will use proceeds from the shorts to buy additional synthetic long positions, which are broadly the same amount as the short positions.
The fund’s top three sectors are industrials, health care and information technology, according to the fund fact sheet.
For investors looking to get into the bottom-up mindset of these two co-portfolio managers, they shared some of their best financial reads over the past year:
- “Capital Returns by Ed Chancellor is a fascinating collection of stories,” Sykes said.
- “Competition Demystified by Bruce Greenwald is excellent,” Sykes said.
- “I enjoyed reading the Psychology of Money this year,” Bothwell said. “As we know, financial decisions aren’t always made on a spreadsheet but by people who have their own unique views, drives, incentives and egos, that’s why we place so much importance on getting to know management teams really well. The book has lots of short stories exploring the ways in which people think about money and investing.”
Year-to-date return (as of 11/30): 39%
Fund’s benchmark index: S&P Europe BMI index
Fund’s benchmark return (as of 11/30): 19%
What worked in 2021:
Year-to-date, the fund returned 39%, beating the benchmark index by 20 percentage points.
This outperformance comes from sticking to the fund’s philosophy, Sykes said. This involves looking at bottom-up company analysis and focusing on the investment fundamentals, he added.
“The world has changed so quickly this year and continuing to revisit your thesis again and again is still incredibly important,” Sykes said.
Of the fund’s current top 10 holdings, some of the top performers over year-to-date have been Straumann Holding AG (SAUHF), a company that provides tooth replacement and orthodontic solutions, and chemicals company IMCD (IMDZF), respectively returning 82% and 80%.
The events of this year in markets have been unexpected, and often crazy at times, from the rise of the meme stock and crypto to the prolonged supply chain crisis and the extraordinaryacross various regions.
For Sykes, one of the stand-out moments in markets this year were the images of the Suez Canal blockages and its knock-on impact on global supply chains. The speed of the industrial recovery at the start of the year remained the most impressive, he said.
“Adding to that – adaptability, in both people and in companies. Watching this response has been amazing,” Bothwell said.
What’s ahead in 2022:
For the most part in 2022, the fund managers will be sticking to their strategy and focusing on company specifics rather than big themes or trends.
However, they do have to keep an eye out for any key changes that might mean disruption either for an industry or company.
“Spotting change early can be a really powerful driver to an investment case (positive or negative),” Bothwell said.
Decentralized finance is one trend that could present new opportunities and potentially create risks around legacy business models, Bothwell said.
“In life sciences, the changes occurring during the pandemic could be very long lasting and provide ample opportunity for the future,” Bothwell said.
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