FUND MANAGER PROFILE DENNIS STATTMAN
BIOGRAPHY
Dennis Stattman, managing
director and senior portfolio
manager, is head of
BlackRock’s Global Allocation
team and a member of its
Leadership Committee. His
service with the firm and
the Global Allocation Fund
dates back to 1989, including
his years with Merrill Lynch
Investment Managers (MLIM),
which merged with BlackRock
in 2006. Prior to joining MLIM,
he was an investment officer
at the World Bank, supervising
the management of US
equities in its retirement plan.
Managers
who talk about
concentration are
often focused on
return and upside.
We like return and
upside but it is only
part of the picture
of the risk/return
trade off
“
”
non-US investments,
although this is from the
point of view of an investor
who denominates their
portfolio in dollars.
The portfolio is currently
overweight non-US markets
and overweight Asian
equities. It is also slightly
overweight in non-US fixed
income.
Stattman explains: “We
are looking at emerging
markets more than we did
when we first started – they
were much less liquid than
they are today and much
harder to invest in and
much riskier. They did not
offer the type of opportunity
that we see today where
they are really the leaders
of growth in the world
economy and, ironically
enough, the providers to a
greater extent than the users
of external financing.”
The fund is underweight
US and European equities
and underweight fixed
income generally, especially
in the US.
“Compared to the benchmark
we are very underweight
US nominal duration.
You are not being
paid to take duration risk.
While the curve is very
steep, there is little real
return built in to long-term
US yields and while we do
not see inflation being a
problem in the near term
there is a great deal of risk
that inflation is going to go
up in the long term.”
l Competitive edge
On the equities side, the
team does see areas of the
market which are very
competitive with bonds –
for example, tech companies
such as AT&T currently
offer a 200 to 300bps
yield advantage over government
bonds. Pharma
and integrated oil stocks
are also favoured for similar
reasons.
BGF Global Allocation – regional allocation
Europe equity 8%
Nth America
equity 32%
Cash 10%
Source: BlackRock
All in all, the BlackRock
Global Allocation Fund
holds between 700 and 800
holdings at any one time,
with a turnover typically
ranging from 30% to 50%
pa. With this in mind, the
team’s research process is
of utmost importance.
With a firm as large as
BlackRock, it is no surprise
the team has access to a
selection of proprietary
quantitative tools with
stocks ranked in terms of
attractiveness for return
from both a valuation perspective
and from a growth
and momentum one.
Stattman rarely visits
firms personally but his
analysts do and companies
will come through Black-
Rock’s offices in Princeton
and New York, while other
Japan equity 6%
SECTOR SNAPSHOT
Asia ex Jap equity 7%
Asia fixed inc 8%
Africa/
Latin America 4%
Mid East 2%
research is done globally.
The whole team, including
Stattman, numbers 29 with
eight senior analysts.
l Stock process
Nth America
fixed inc 16%
Europe fixed
income 7%
When the team does
choose to invest in a stock
it is usually held for around
three years.
“We are often involved
with companies when their
operations are performing
below expectations – that
is what gets you a low
price,” he explains.
“Three years gives the
management enough time
to implement improvements
and often those
same firms whose operations
are depressed and
are out of favour will turn
around. Three years gives
EQUITY STRATEGY (56% underweight)
Overweight:
■ Regions: Asia (Japan and Asia ex Japan) and Latin America
■ Sectors: Materials, telecom services, energy and healthcare
Underweight:
■ Regions: US and Europe
■ Sectors: US consumer, financials, information technology,
utilities and industrials
FIXED INCOME STRATEGY (34% underweight)
Overweight:
■ Convertibles (12%) and $ foreign issuers (4%)
Underweight:
■ Nominal US Treasuries and Japanese government bonds
CASH (10% overweight)
Source: BlackRock
investors time to reaffirm
their points of view as to
whether a company is
attractive or not.”
While Stattman and his
team have undoubtedly
proved their worth over the
past 20 years, the fund
management world has also
changed considerably, not
least in terms of the choice
of funds on offer to investors.
Back then to the original
question: why should
an investor favour such a
vastly populated fund over,
say, highly specialised vehicles
which invest in one
region with no more than
100 holdings?
l Risk-averse
Fundamental to Stattman’s
mandate is to aim for lower
risk than rival equity products.
This translates into a
standard deviation that
runs somewhere less than
three-quarters of that of the
equity markets and a beta
that ranges between 0.7%
and 0.4% to the S&P 500.
“While we are willing to
make big bets relative to
our benchmark, we do not
make big bets on individual
securities as doing so
reduces the benefits of
diversification,” Stattman
argues.
“Managers who talk
about concentration are
often focused on return
and upside. We like return
and upside but we are
focused on balancing the
appropriate risk/return
trade-off and preserving
investors capital.
“Managers who like to
concentrate their picks are
often not portfolio managers
who want to engage in
discussions about risk.
They want to say that if
they are right on their
stock picks then the rest
takes care of itself. The
problem is that they are
not always right.”
32 PORTFOLIO ADVISER [www.portfolio-adviser.com] MAY 2010
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