Q&A: BlackRock's Alister Hibbert

Professional Adviser’s editorial director Lawrence Gosling spoke to BlackRock’s European Dynamic fund manager Alister Hibbert at the end of 2010 about prospects for equity markets, the euro and dangers from the peripheral nations.

QLawrence Gosling: There has been a lot of negative economic news about the European peripheral nations in the past couple of months. What impact has that had on the performance of the European Dynamic fund and on your view of European equities?

AAlister Hibbert: Well, our basic opinion of the European equity market remains pretty much unchanged. The events that we are seeing in the peripheral countries, most recently in Ireland, are of course quite concerning. But they need to be put into a proper context. So, if I look at the Irish economy, it is about 1.5% of the Continental European economy, excluding the UK.

So it is very small, despite the fact their problems are obviously very severe. Then if I look at the broader periphery, it is only 15% of the overall European economy. Most importantly, it is only 11% of the benchmark and less than 5% of the fund.

Q: The euro has been very strong for the past couple of months. What impact has that had on the performance of the fund?
A: The euro has been a volatile currency this year. It is actually down on a year-to-date basis, but it has been a lot stronger over the past three or four months. We don’t think that over the mid-term it has had a significant impact on the fund itself, nor do we really expect the euro to be anything other than a robust store of value in the mid- to longer-term.

Q: What themes are you playing in the portfolio?
A: We see a lot of investment opportunities out there. One of the very interesting things about Continental Europe is that it has a large exposure to emerging markets. If we look at the aggregated companies, almost 25% of revenues come from emerging markets, and that is a great source of opportunity. But we would add to that the fact that we can see very strong growth, employment trends and economic momentum in the core and northern part of Europe, offering significant opportunities as well.

From a sector standpoint, we are finding opportunities in industrials, which is a big overweight for us within the funds. There are many very high-quality businesses there, with many global operations, taking advantage of some of the trends in the industrialising nations.

Also, in the consumer sectors we have significant overweights in consumer discretionary areas. European luxury goods companies, for example, are doing extremely well on the back of rising demand in emerging markets.

Q: Can you provide us with a quick update about how the fund has performed this year so far?
A: The fund has done well this year, and we are very pleased with the performance up to this point. I believe we are first decile on a year-to-date basis, and that is within a longer-term trend that we are fairly comfortable with.

We have shown that, as an investment group, we have managed to deliver for our fundholders in all of the different, significantly changing market circumstances over the past few years. We managed to perform very solidly all the way through the bear market, to 9 March 2009. We then remembered there is an opportunity at the bottom of every bear market and we did very well thereafter as well. Luckily, in yet another volatile and ever-changing year that was 2010, we managed to put down some good numbers.

Q: Can you tell me a little bit about the BlackRock European Style Diversifier team and the general research capabilities at the organisation?
A:We have very significant capability from within the team. We have 15 career professionals, who are both fund managers and analysts covering all of the different sectors and all market caps, from small companies all the way through to the larger, well-known companies. We have very significant resources at our disposal to try to generate strong ideas for fundholders.

We add to that, I think, a very strong investment process. So every single stock that we buy is going to be templated. That means we forecast the company’s potential over the next five years, both in terms of revenues and margins, and use of cashflow. This is a very powerful tool. It means we can sit down as a team and think long and hard before we commit fund capital into a new idea.

I think within BlackRock as a group we have probably the best risk and quantitative analytical team to try to help us understand risk exposure that is available in the industry. In addition, we sit next to other equities teams, which are incredibly strong and knowledgeable about their specific area.

Q: Why should investors consider Europe as a place to invest, as opposed to some of the other developed markets, such as the US and the UK?
A: We feel that in a developed world context, Europe stands out for a number of reasons. There is a long, deep vein of very high-quality franchises, which are global in nature. As I mentioned before, Europe has significant emerging markets exposure, which is actually higher than its US equivalent.

When we look at the economic perspective, we think out of all the developed world main regions, by far the strongest momentum is being seen in core and northern Europe, so in Germany and in Scandinavia. Those economic trends have resulted in German unemployment hitting a 19-year low. We had real GDP growth, on an annualised basis, in the third quarter of 3.9% for Germany compared with 2% for the US. The fact the developed world economy performing the strongest is Northern Europe, gives great opportunities for investors.