BlackRock Global Funds (BGF) Global Allocation Fund
August 2016
For professional clients / qualified investors only
RSM-4804
Rating as at August 2016
BGF Global Allocation Fund has delivered on its objective for over 19 years
Our Mission: Provide a rate of return competitive with that of global stocks at a lower level of volatility over a full market cycle
1/3rd less risk
Competitive returns Annualized total return since inception
Annualized standard deviation since inception
18%
8%
15.95%
6.82%
15.65%
6.39% 5.72% 12%
10.52%
4% 6%
0%
0% BGF Global FTSE World Index MSCI World Index Allocation Fund (A) USD
BGF Global FTSE World Index MSCI World Index Allocation Fund (A) USD RSM-4804
Past performance is not a guide to current or future performance and should not be the sole factor of consideration when selecting a product. As of 31 July 2016. Source: BlackRock, Bloomberg, Lipper, Morningstar. Launch date: 3 January 1997 ‘A’ shares. Basis: NAV prices, with gross dividends reinvested, net of expenses, in USD. ISIN code: LU0072462426. Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.
For professional clients / qualified investors only
2
What makes the BGF Global Allocation Fund unique? Incepted in March 1989, partially in response to the December 1987 stock market crash, the strategy is one of the original global multi-asset portfolios The team combines a fundamental, bottom-up process with top-down asset allocation in order to find undervalued investment opportunities around the globe while mitigating macro risks
Unconstrained in search of opportunity Diversified portfolio invested in 700+ securities across 40+ countries and 30+ currencies Combines traditional and non-traditional asset classes and investments across the capital structure Ability to deviate from benchmark to capture opportunity and manage risk
Flexibility to adapt as markets change
One of the most experienced global multi-asset teams*
Proven record of growing & protecting assets
50+ person dedicated team with proven stability
Compelling risk-adjusted results for more than 18 years
Continuous PM management since fund inception in 1989
Independent risk management
Portfolio managers and senior investors average over 20 years of investment experience
Experience through bull & bear markets
Returns in excess of world stocks and bonds with one-third less volatility than world stocks†
RSM-4804
* As of 31 July 2016. Source: BlackRock, Bloomberg, Morningstar. Source: Morningstar. Portfolio managers have the longest tenure among funds within its category. † Volatility is measured by standard deviation. Since inception, annualized standard deviation of BGF Global Allocation Fund is 10.5% and standard deviation of global stock markets (represented by the FTSE World Index) is 16.0%. Fund inception is 3 January 1997.
For professional clients / qualified investors only
3
For professional clients / qualified investors only
RSM-4804
Unconstrained in search of opportunity
Ability to invest across the full opportunity set Benefits of a 50+ person team leveraging BlackRock’s resources: Breadth of exposures: Ability to invest in traditional and difficult to access asset classes, regions, countries, and securities Exposure to complex strategies: Ability to implement hedging (FX, credit, duration, equity beta), fixed income curve trades (steepeners, flatteners, forward markets), interest rate swaps Flexibility to trade in real time: Ability to rebalance portfolio as warranted to capitalize on security price changes Directly holds securities: This is not a “fund of funds” portfolio, securities are purchased and held directly by the fund
• • • • • • • • • • • •
Common stock Preferred stock Single name options Index options Futures Dividend futures Warrants Developed markets Emerging markets Frontier markets ADRs Locally listed shares
Bonds • U.S. Treasuries/Agency • Developed market sovereigns • Emerging markets (USD and local currency) • Investment grade corporates • High yield bonds • Distressed bonds • Inflation-linked • Interest rate swaps • Yield curve trades • Credit default swaps (CDS)
Cash/FX • • • •
U.S. Treasury bills Non-U.S. government bills Foreign exchange forwards Foreign exchange options
Non-Traditional • • • • •
Convertible bonds Private placements Real estate investment trusts Precious metal-related securities Structured products
RSM-4804
Stocks
As of 31 July 2016. Source: BlackRock.
For professional clients / qualified investors only
5
BGF Global Allocation Fund’s reference benchmark The reference benchmark serves as a performance standard. It does not, however, represent the team’s entire investment universe. Consistent benchmark since the strategy’s inception in 1989: Represents a neutral asset mix and a way to communicate overweight and underweight positions Portfolio is unconstrained relative to benchmark: Asset allocation is driven largely by relative valuations and absolute risk across asset classes, currencies, sectors, and securities Risk is primarily defined as “the chance of permanent loss of capital”: Relative risk measures, such as standard deviation and beta, are closely monitored, but are not comprehensive risk indicators. The realized volatilities of the fund and reference benchmark have tracked each other closely across market cycles.
Reference benchmark
Comparable levels of volatility Annualized standard deviation since inception
16%
12%
36%
10.52% 9.57%
24%
S&P 500 FTSE World ex-U.S. BofA/ML Current 5-Yr U.S. Treasury Citi Non-USD World Gov't Bond
Neutral asset class allocation
6%
Neutral regional allocation
• 60% Stocks
• 60% U.S.
• 40% Bonds
• 40% Non-U.S.
0% BGF Global Allocation (A)
Reference Benchmark RSM-4804
24%
Past performance is not a guide to current or future performance and should not be the sole factor of consideration when selecting a product. As of 31 July 2016. Source: BlackRock. The indexes are unmanaged and do not take transaction charges into consideration. It is not possible to invest directly in an index.
For professional clients / qualified investors only
6
Flexibility in practice
Portfolio composition The fund was underweight stocks relative to its benchmark for most of the 1990s
One of the largest stock overweights in the fund’s history was H2’01
Cash equivalents have regularly been held since inception
100%
80%
60%
40%
20%
Commodity-Related
Cash
Jun-16
Jun-15
Jun-14
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Bonds
Benchmark
As of 30 June 2016. Subject to change. This fund is not a “balanced” product, as its weightings are not rigidly adhered to. The fund is actively managed and its characteristics will vary. The information depicted above is for the BlackRock Global Allocation Fund, inception date of 3 March 1989 and is for illustrative purposes only. The investment team uses a similar process for the BGF Global Allocation Fund. Prior to 2015, the fund’s exposure was based on market value and adjusted for the economic value of futures and swaps. From 2015, the fund’s exposure is based on the economic value of securities and is adjusted for futures, options, swaps and convertible bonds. Prior to 2015, commodity-related exposure, which is comprised of precious metals ETFs, was included in stocks. Benchmark referred to is the reference benchmark, which consists of 36% S&P 500 Index, 24% FTSE World (ex-U.S.) Index, 24% BofA/ML Current 5Year U.S. Treasury Index, 16% Citigroup Non-USD World Government Bond Index.
For professional clients / qualified investors only
7
RSM-4804
Stocks
Jun-97
Jun-96
Jun-95
Jun-94
Jun-93
Jun-92
Jun-91
Jun-90
Benchmark
0%
Flexibility in practice
Portfolio composition The team added to North American stocks at attractive valuations after successfully avoiding the technology bubble
The team emphasized high-quality government bonds in response to tightening spreads and concerns around financial and household leverage
The team increased exposure to commodity-related securities prior to the global credit crisis and further added as central bank balance sheets expanded
The team added to non-U.S. stocks due to attractive valuations and accommodative monetary policies
100%
80%
60%
40%
20%
North American Stocks Emerging Market Stocks U.S. Credit
Developed European Stocks Commodity-Related* Non-U.S. Sovereign Debt
Dev. Asia ex-Japan Stocks U.S. Treasuries & Agencies Non-U.S. Credit
Mar-16
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
0%
Japanese Stocks U.S. TIPS Cash Equivalents
RSM-4804
As of 30 June 2016. Source: BlackRock. Subject to change. Asset allocation strategies do not assure profit and do not protect against loss. The information depicted above is for the BlackRock Global Allocation Fund and is for illustrative purposes only. The investment team uses a similar process for the BGF Global Allocation Fund. Prior to 2015, the Fund’s exposure was based on market value and adjusted for the economic value of futures and swaps. From 2015, the Fund’s exposure is based on the economic value of securities and is adjusted for futures, options, swaps and convertible bonds. * Prior to December 2008, commodity-related securities are included in stocks. Commodity-related is comprised of precious metals ETFs.
For professional clients / qualified investors only
8
* Source: Morningstar. Portfolio managers have the longest tenure among funds within its category. For professional clients / qualified investors only
RSM-4804
One of the most experienced global multi-asset teams*
Global Allocation team
Product Strategist Team Oscar Pulido, CFA Matt Estes Brian Miller, CFA Noah Kroll Meghan Colarusso, CFA Simon Rafferty Melissa Barnett
Quantitative Strategy Randy Berkowitz, CFA* Eric Kisslinger Sam Indyawan, CFA* Isabelle Liu
Marketing Strategy & Communications Judy Rice Erica Quinn, CFA Matt Callahan Chris Strayer
Senior Investors Ben Moyer, CFA 34 years experience
Eric Mitofsky 32 years experience
Kate Brady Rauscher, CFA 29 years experience
Lisa Walker, CFA 29 years experience
Asia Pacific Investments, Industrials, Autos
Quantitative Analysis Derivatives, Risk Management
Equity & Fixed Income Utilities, Renewable Power, Insurance
Equity & Fixed Income Financial Services, Banks
Greg Spencer Investment Group Leader 26 years experience Equity & Fixed Income Telecom, Consumer, Financials, Media, Transports, Insurance
Portfolio Management
Dan Chamby, CFA Portfolio Manager 27 years experience
Dennis Stattman, CFA Portfolio Manager 35 years experience
Aldo Roldan, Ph.D Portfolio Manager 31 years experience
Asset Allocation & Investment Strategy
Asset Allocation & Investment Strategy
Asset Allocation & Investment Strategy
Senior Investors David Clayton, CFA, JD Investment Group Leader 25 years experience Equity & Fixed Income Energy, Real Estate, Autos, Industrials, Insurance, Materials, Utilities
Analysts
Mike Walsh, CFA Investment Group Leader 24 years experience Fixed Income, Derivatives
Portfolio Transactions Marie Dwyer Pete Mathern Kim Moore Andy Nielsen Doug Smith
Ariana Berry, JD* – Private Placements, Distressed Debt Randy Berkowitz, CFA* – Healthcare Kevin Bynum, CFA – Fixed Income / Fx Mike Carlucci – Fixed Income / Fx Miguel Crivelli, CFA – Financials Matt Gerard – Energy, Real Estate, Healthcare Sam Indyawan, CFA* – Generalist Lindsay Klitsch, CFA – Consumer Matt Litwin, CFA – Energy Jonathan Lux, CFA – Industrials Chirayu Patel, CFA – Materials Reid Ross, CFA – Autos, Materials Sonia Wang, CFA – Japan, Consumer Angela Yu, CFA – China, Information Technology
Russ Koesterich, CFA, JD Head of Asset Allocation 21 years experience Mike Trudel, CFA, JD Global Strategist 19 years experience Kent Hogshire, CFA Investment Group Leader - Macro 15 years experience
Senior Investors Daniel Daniel, CFA, CMT 18 years experience Equity & Fixed Income Information Technology, Technical Analysis
Patrick Edelmann, CFA Investment Group Leader 16 years experience Equity & Fixed Income Healthcare, Industrials, Information Technology
Portfolio Administration Nicole Apostol Christine Garvey Lisa Gill Wendy Held Lisa Peterson
RSM-4804
Kevin McKenna 32 years experience Lisa O’Donnell, JD, COO 28 years experience ------Cheryl Domenech Ariana Berry, JD* Ken DaPonte Team Development, Risk, Operations, Compliance
As of 30 June 2016. * Dual role.
For professional clients / qualified investors only
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Investment process combines security selection & asset allocation
Top-Down Asset Allocation Top-down overlay applied with relative value comparison among and within asset classes
Evaluates the relative attractiveness of securities within various global market sectors and asset classes Securities evaluated based on expected risk/return profiles
Security Selection
Buy/Sell Approval
Based on fundamental research, not benchmark composition Valuation screens include EV/EBITDA, P/E, P/CF, P/B, and a large variety of other metrics Proprietary tools facilitate information sharing
Portfolio Construction
Investors/Analysts conduct independent research and rate securities
Typically +700 securities across 40+ countries
Process is designed to give Investors / Analysts discretion to make incremental changes in the portfolio
Max 35% of total assets in fixed income rated below investment grade
Initial security purchases typically involve PM approval/collaboration
Flexibility to invest across asset classes
Derivatives can be implemented for hedging purposes, equitize cash, or to seek to enhance returns
Monitoring
Partnership with firm’s internal risk team (RQA) Risk assessment, Performance attribution, Stress testing & Risk alignment Rebalancing occurs regularly, however, major asset allocation changes tend to be gradual
RSM-4804
Bottom-up Research
As of 31 July 2016. Current process for selecting investments in the fund’s portfolio in accordance with its stated investment objectives and policies. Subject to change based on market conditions, portfolio manager’s opinion and other factors.
For professional clients / qualified investors only
11
Risk & Quantitative Analysis (RQA) provides objectivity & independence
• RQA monitors dozens of active risk factors globally on a continuous basis • Helps Global Allocation team ensure the portfolio is not unintentionally overexposed to specific top-down factors
Risk Assessment
Stress Testing
• Risk cannot (and should not) be entirely eliminated, but it can – and must be – identified
• Allows the PM team to pro-actively estimate how changes in identified market prices affect the portfolio in relative and absolute terms • Enables team to quantify portfolio effects of specific market scenarios rather, than relying on intuition
RQA
• Comprehensive portfolio attribution includes asset, country, sector, currency, and individual security analysis
Performance Attribution
Risk Alignment
• Regularly scheduled meetings between RQA and Global Allocation team help ensure current portfolio positioning is consistent with team’s market views
RSM-4804
• Review cumulative effect of investment decisions to identify factors contributing to, and subtracting from, alpha generation
As of 31 July 2016.
For professional clients / qualified investors only
12
For professional clients / qualified investors only
RSM-4804
Proven record of growing & protecting assets
The benefits of active management
Seeking to grow & protect over the long term (Inception through July 2016) 350% Higher Return/Lower Volatility
Higher Return/Higher Volatility
300%
BGF Global Allocation (A)
250%
Reference Benchmark US Credit
UK Gilts 5 Year Treasury Bonds 10 Year Treasury Bonds World Gov't Bonds 150% German Bunds
Cumulative Return
200%
World Gov't Bonds (xUS)
100% 50%
Cash US CPI
US Stocks Global Small Cap Stocks Global Large Cap Stocks European Stocks
Emerging Market Stocks Pac x-Japan Stocks
Morningstar Peer Group†
Japanese Gov't Bonds Japanese Stocks
0% Commodities
-50% -100% Lower Return/Lower Volatility 0% 5%
Lower Return/Higher Volatility
10%
15% 20% Risk (Ann. Standard Deviation)
25%
30%
As of 31 July 2016. Source: BlackRock, Bloomberg, Lipper, Morningstar. Launch date: 3 January 1997 ‘A’ shares. Basis: NAV prices, with gross dividends reinvested, net of expenses, in USD. * Reference benchmark consists of 36% S&P 500 Index, 24% FTSE World (ex-U.S.) Index, 24% BofA/ML Current 5-Year U.S. Treasury Index, 16% Citigroup Non-USD World Government Bond Index. † Morningstar peer group represented by the EAA OE USD Moderate Allocation category average.
For professional clients / qualified investors only
14
RSM-4804
Past performance is not a guide to current or future performance and should not be the sole factor of consideration when selecting a product.
Experience that has weathered bull & bear markets
Cumulative total returns 150% 111.10% 100%
50%
30.16%
0% -5.75%
-2.17% -50%
BGF Global Allocation (A) Reference Benchmark* FTSE World Index Citigroup World Gov't Bond Index Morningstar Peer Group†
Technology Bubble 1/1/00 - 12/31/02 -2.17% -16.88% -39.56% 20.19% -14.22%
Global Market Recovery 1/1/03 - 12/31/07 111.10% 79.67% 133.92% 39.03% 49.16%
Global Credit Crisis 1/1/08 - 12/31/09 -5.75% -6.87% -20.59% 13.71% -13.12%
Global Easing Cycle 1/1/10 - 7/31/16 30.16% 56.17% 67.84% 17.01% 22.27%
Combined Period 1/1/00 - 7/31/16 153.37% 117.20% 88.17% 122.39% 35.91%
As of 31 July 2016. Source: BlackRock, Bloomberg, Lipper, Morningstar. Launch date: 3 January 1997 ‘A’ shares. Basis: NAV prices, with gross dividends reinvested, net of expenses, in USD. * Reference benchmark consists of 36% S&P 500 Index, 24% FTSE World (ex-U.S.) Index, 24% BofA/ML Current 5-Year U.S. Treasury Index, 16% Citigroup Non-USD World Government Bond Index. † Morningstar peer group represented by the EAA OE USD Moderate Allocation category average.
For professional clients / qualified investors only
15
RSM-4804
Past performance is not a guide to current or future performance and should not be the sole factor of consideration when selecting a product.
Consist performance & limited drawdowns for a smoother ride
Cumulative 3-year rolling returns (Inception through July 2016) 150%
100%
Range
Average
BGF Global Allocation (A)
72.2% to -11.7%
24.0%
FTSE World Index
95.1% to -43.4%
22.5%
Citigroup World Gov’t Bond Index
52.3% to -9.4%
16.1%
50%
0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Past performance is not a guide to current or future performance and should not be the sole factor of consideration when selecting a product. As of 31 July 2016. Source: BlackRock, Bloomberg. Launch date: 3 January 1997 ‘A’ shares. Basis: NAV prices, with gross dividends reinvested, net of expenses, in USD. First period shown is January 2000 to account for 3-year rolling return window. The indexes are unmanaged and do not take transaction charges into consideration. It is not possible to invest directly in an index. See ‘Important Notes’ for index descriptions.
For professional clients / qualified investors only
16
RSM-4804
-50% 2000
For professional clients / qualified investors only
RSM-4804
Current portfolio positioning & performance
Key portfolio positioning changes
Asset allocation as of 31 December 2015* 22%
27%
US Equities ▲ from 27% to 29% driven by stockspecific additions in consumer discretionary, financials, information technology, materials and utilities. Non-US Equities ▼ from 30% to 27% as the team reduced risk across regions.
1% 9%
US Fixed Income ▲ from 11% to 17% given additions to US Treasuries and TIPS, and smaller increases to corporate bonds.
11%
30%
Asset allocation as of 31 July 2016* 5%
8% 29%
14%
Non-US Fixed Income ▲ from 9% to 14% led by modest increases to sovereign debt in Europe, Australia, and select emerging markets. Commodity-Related ▲ from 1% to 5% Gold serves as a diversifier and provides a potential hedge against deterioration in global growth. Cash ▼ from 22% to 8% as the team found opportunities to purchase securities at better prices.
17%
As of 31 July 2016. Source: BlackRock. Subject to change. The fund is actively managed and its characteristics will vary. The asset allocations illustrated are shown as a percentage of net assets. Overweight/underweight indicators are relative to fund’s reference benchmark, which consists of 36% S&P 500 Index, 24% FTSE World (ex-U.S.) Index, 24% BofA/ML Current 5Year U.S. Treasury Index, 16% Citigroup Non-USD World Government Bond Index. Positions do not necessarily represent current or future holdings. * % of net assets represents the Fund’s exposure based on the economic value of securities; adjusted for futures, options, swaps and convertible bonds.
For Professional Investors & Professional Intermediaries Only, Not for Public Distribution (Please read important disclosure)
18
RSM-4804
27%
Portfolio snapshot as of 31 July 2016 Equities: 56% (Underweight)
Asset allocation (as % of net assets*)
Overweight:
5%
Regions: Japan, Europe Sectors: Information Technology, Financials, Telecom Underweight:
8% 29%
14%
Regions: U.S. Sectors: Consumer Staples, Industrials, Healthcare, Consumer Discretionary, Utilities, Energy, Materials
Fixed Income: 31% (Underweight)
17% 27%
U.S. Stocks Non-U.S. Stocks U.S. Bonds Non-U.S. Bonds Commodity-Related Cash Equivalents
Overweight:
Currency allocation (as % of net assets)
Underweight: U.S. Treasuries, Japanese Government Bonds, European Sovereign Debt
Commodity-Related: 5% (Overweight) Precious metals ETFs
9%
4% 1%1%
3% 3% 10%
Cash Equivalents: 8% (Overweight) Actively managed, both USD and non-USD
69%
U.S. Dollar Euro British Pound Sterling Other Europe Japanese Yen Other Asia Latin America Rest of the World
As of 31 July 2016. Source: BlackRock. Subject to change. The fund is actively managed and its characteristics will vary. The asset allocations illustrated are shown as a percentage of net assets. Overweight/underweight indicators are relative to fund’s reference benchmark, which consists of 36% S&P 500 Index, 24% FTSE World (ex-U.S.) Index, 24% BofA/ML Current 5Year U.S. Treasury Index, 16% Citigroup Non-USD World Government Bond Index. * % of net assets represents the Fund’s exposure based on the economic value of securities; adjusted for futures, options, swaps and convertible bonds.
For professional clients / qualified investors only
19
RSM-4804
Corporates, Emerging Market Debt, U.S. TIPS
Characteristics as of 31 July 2016 Equity sectors (% of net assets)
35.0%
Information Technology
12.5%
Developed Europe
11.6% 11.4% 9.7% 9.3% 7.6% 7.9% 7.1% 7.3% 6.2% 6.6%
Financials
29.0%
US
Healthcare
12.6%
Cons. Discretionary 9.7%
Japan
Canada
Cons. Staples
2.9%
Emerging Markets
Developed Asia ex-Japan
Industrials
4.7%
3.8%
Energy Materials
1.3% 2.3%
Telecom Services
0.7%
Equity Price/Earnings (FY 1)
Developed Europe
6.5%
Developed Asia ex-Japan
3.7% 3.9% 2.9% 2.9%
Canada
2.1% 2.1% Japan
Top 10 equity holdings (% of net assets) 539 15.5x
Apple
1.5%
Alphabet
1.2%
Marathon Petroleum
0.7%
Fixed Income Effective Duration
4.1 years
General Electric
0.7%
Fixed Income+Cash Effective Duration
3.0 years
Nestle
0.6%
Note: Total portfolio effective duration assumes 0 duration for equities.
4.9% 0.5% 4.9% 9.1% 2.3% 0.4% 0.9% 0.4% 0.9% 5.6%
Fixed income credit quality (% of net assets)
$97.7 bn
1.3 years
24.0%
3.8%
Equity Wtd. Avg. Market Capitalization
Total Portfolio Effective Duration
Emerging Markets
1.9% 2.1% BGF Global Allocation Fund Reference Benchmark*
Characteristics
17.1%
US
Utilities
1.6%
Number of issuers
Fixed income regions (% of net assets)
Facebook
0.6%
JPMorgan Chase
0.5%
Anadarko Petroleum
0.5%
Wells Fargo
0.5%
Uber Technologies
0.5%
TOTAL
7.2%
2% 0%1% 3% AAA AA 4%
15%
A BBB BB B
