e-fundresearch.com: What is the current size of the fund?
David Tovey: EUR 174.6 million as per 11 February 2014
e-fundresearch.com: Do you also manage other funds or mandates?
David Tovey: I also manage the BGF Swiss Small & Mid-Cap Opportunities Fund and co-manage the BlackRock Aletsch Hedge Fund
e-fundresearch.com: How long have you been in the business as a fund manager?
David Tovey: Since 1998.
e-fundresearch.com: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?
David Tovey: The BlackRock European Opportunities Extension Fund is an enhanced European equity fund that seeks to maximise total returns through the use of an extension strategy. Use of an extension strategy means the fund typically takes both long and short positions, along the following broad criteria. For long positions on the one hand, these are typically companies with a sustainable competitive advantage, steady cash flows and with opportunities to invest, allowing for compounding of returns. On the other hand we take synthetic short positions where we have a strong conviction that the stock price will fall. This can typically be a mix of structurally challenged businesses and stocks with potentially negative earnings surprises.
The fund intends to take full advantage of the ability to invest in derivatives providing synthetic long and/or synthetic short positions with the aim of maximising positive returns. It benefits from BlackRock's extensive real time risk analytics which are available on the desk top as well as regular meetings with the RQA team which provide additional insights into the fund risk profile, such as macro / economic stress tests, style and factor changes, market volatility and correlations.
The fund’s universe captures, in our estimate, in excess of 2,000 companies with a very broad range of styles and characteristics. Idea generation is the first step of the investment process and important to ensure that there is a continuous flow of new ideas entering the team's proprietary research process. Following idea generation, we spend time analysing a company’s market dynamics, revenue drivers, financial statements, valuation and risks to the central scenario. We seek to understand the factors that influence a share price and as well as what the market is anticipating or missing. The portfolio construction process aims to draw from the extensive in-depth company research conducted by teamsector analysts. Sector and factor exposures are principally the result of stockselection. The portfolio typically holds between 100 and 150 stocks.
e-fundresearch.com: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?
David Tovey: As bottom-up stock pickers focusing on fundamental analysis, our investment decisions are not based on index composition. Instead, it is the company’s individual characteristics and valuation which are the main determinantsbehind the purchase of securities, irrespective of the inclusion or weighting of a company within an index. However, risk is measured at the portfolio level relative to the S&P Europe BMI Index (Developed Markets only), so overall positioning is ‘index aware’. Furthermore, where investment ideas are large index weights the ‘active weight’ is considered when sizing the position rather than the absolute.
e-fundresearch.com: Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices?
David Tovey: In 2013, our BSF European Opportunities Extension Fund has gained 44.94 percent, nearly twice as much as the S&P Europe BMI Index (Developed Markets only) with 22.32 percent. In 2012 it has been 22.92 percent for the fund against 19.09 percent for the index, in 2011 minus 8.79 percent versus minus 8.59 percent. In 2010, our fund has advanced by 19.43 percent while the index has made 13.62 percent. In 2009 it has been 46.83 percent for our fund against 43.41 percent for the index. Given those results, our BSF European Opportunities Extension Fund is ranked in the top Morningstar quartile.
e-fundresearch.com: Thank you!