BlackRock fund listing ‘snubbed by disillusioned investors’
BlackRock, one of the world’s largest fund managers, was going to bring its actively managed Greater European Investment Trust (BRGE) to the JSE in the form of a secondary listing. This would have given South African investors more rand exposure to European-listed equities without having to delve into any of their offshore allowances.
At first glance, Europe probably doesn’t look like a compelling area in which to invest at present. But deeper analysis reveals key European indices and indicators are showing recovery and uptrends.
We could see a broadeningout of the European recovery, emanating from improved household consumption and investment, which are well above their historical trend growth. European wage inflation is low and there is plenty of slack in capacity utilisation in the manufacturing arena.
Earnings improvements, rather than valuation changes, are the main reasons for European optimism. And political risk is fading as we see true reform momentum in Europe, starting with France. Risk premia are declining and on a price:earnings basis, European equities are cheaper than their US counterparts.
However, a very surprising Sens announcement told the market that the November 24 scheduled listing of the BRGE fund had been cancelled. Not enough had been raised in the prelisting private placement, which had a target of £35.5m, from a variety of investors who seemed not to have come forward with even the minimum conditional raise of £25m. So, BRGE becomes one of the thousands of offshore funds available to South African investors through their various annual foreign exchange allowances.
In the absence of a BlackRock response, there are two possible key reasons as to why the fund failed to attract enough investor interest. Firstly, that it has underperformed its benchmark; and secondly, that investors are tiring of active funds and their accompanying charges, which are usually more expensive than those of the passive tracker funds.
Investment commentator and independent analyst Karin Richards points out that according to its fact sheet, BRGE’s oneyear performance to June 2017 is 24.7%. “This is a significant underperformance to its referenced benchmark of 29.1%, being the FTSE World Europe ex UK index.”
“For the years 2016 back to 2013, there has only been slight outperformance or slight underperformance, with the year to June 2015 reflecting a 4.4% performance against the benchmark 1.1%, being BRGE’s best performance over the most recent five years.
“This is certainly nothing to warrant paying a premium for an active fund or any reason to get investors excited.”
Richards was not convinced by BRGE’s claim that the fund advantageously has a more concentrated selection of stocks at only 35 to 40. “That is not a compelling argument as the Eurostoxx index used by the passive funds has not that much more, at 50. Additionally, what many investors like about the Stoxx50 is its self-cleansing nature. If a stock tanks too much it will automatically decrease in weighting in the index, or even drop out of the 50, and there is no human emotion or bias involved. The opposite applies in the case of an actively managed ‘concentrated’ portfolio.’’
The withdrawal of the BRGE listing does not surprise Richards. “There is general disillusionment with active funds and their ability to outperform passive trackers, and the ‘best ideas by experienced analysts’ mantra has worn thin.
“And the very public Astoria disaster has damaged the reputation of actively managed foreign investments in the minds of SA retail investors.”