BSF European Absolute Return Fund retains several strengths in its team and investment process, despite the numerous changes we have seen here over the years and its hefty price tag.
This market-neutral strategy lost one comanager when David Tovey left in April 2021 after four years in the post. Tovey was replaced by Stephanie Bothwell, a strong contributor to this portfolio since she joined BlackRock in 2018. While this is her first stint as a portfolio manager, Bothwell has a solid grasp on the process and is well-supported by the broader European team and BlackRock’s investment infrastructure. Stefan Gries, who was appointed comanager here in July 2013 and recently promoted to head the fundamental European equity team, remains in charge alongside Bothwell, providing continuity.
The managers rely heavily on the bottom-up research of the wider 22-strong team, which has been reinforced over time. The process is driven by the bottom-up recommendations of the analysts, with a symmetrical approach to longs and shorts. This leads to a portfolio with marked concentrations in specific pockets of the market at times. For longs, the portfolio overlaps with Gries’ and the team’s European long-only strategies and is typically concentrated in 30 to 40 names. The short book has a longer tail, with around 80 names in total. It tends to have a higher rotation, and position sizes are generally smaller. We expect the strategy to continue to exhibit a tilt to growth and quality factors under the duo. This is largely an outcome of stock-picking and is consistent with Gries’ style on the long-only strategies. While this bias is somewhat compounded in the short book, we think portfolio construction is a strength here. The strategy’s performance has been solid throughout team and process changes, with highly consistent execution on the short book since the removal of short index futures in 2017. The performance fee on 20% of returns delivered above the cash rate continues to limit the fund’s appeal, but the strategy is still a competitive choice in its space. |
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