Morningstar Magazine - June/July 2017 - 82

Strategies

Patience Rewarded
BlackRock Global Allocation remains one
of the best world-allocation funds.

BEST IDEAS: MANAGER

Thomas Lancereau

This article is adapted from the fund's Morningstar
Global Fund Report dated April 3, 2017. Central to
this report is the Morningstar Analyst Rating, which
evaluates funds on five key pillars.
There have been notable evolutions within
the team of BlackRock Global Allocation MALOX,
but it remains one of the best options
in the world-allocation Morningstar Category.
Its Morningstar Analyst Rating of Gold
is supported by its vast resources; experienced
managers; proven, wide-ranging, absolutereturn-focused approach; and reasonable fees.
Three new comanagers were appointed at
the beginning of 2017 as Aldo Roldan, a comanager
since 2006, stepped off the leadership team. He
remains with the broader group of senior investors
providing research and investment ideas.
The new comanagers are David Clayton and Kent
Hogshire-longtime senior investors within
the team-and Russ Koesterich, BlackRock's
former chief investment strategist, who joined this
team as head of asset allocation in March
2016. Veteran investors Dennis Stattman and Dan
Chamby, who have been running the fund since
1989 and 2003, respectively, remain comanagers.
The fund's prudent approach is unchanged.
Moves are gradual, long-term-oriented,
and absolute-return-minded. Valuation drives
security selection and portfolio positioning; while
the fund is diversified across more than 700
holdings, it displays significant deviations relative
both to the category and its blended benchmark,
a 60%/40% split between stocks and bonds.

82

Morningstar June/July 2017

An aversion to permanent capital loss continues to
drive a prudent approach. Moves tend to be
gradual, long-term-oriented, and absolute-returnminded. As such, the portfolio positioning can
remain out of market favor for extended periods.

The fund has maintained an overweighting in
Japanese stocks in recent years, along with
a modest underweighting in equities and an even
larger underweighting in fixed income, broadly
reflecting the team's opinions on where the
biggest risks and opportunities lie around the
globe. Contrarian leanings, such as its Japan stake,
and a cautious demeanor, signified by its large
cash stake, have made the fund look out of step at
times, particularly during strong rallies.
The fund has been able to make up lost ground in
rougher markets, and it has served long-term
investors well. It has beat its category and benchmark on an absolute and risk-adjusted basis
during the 10- and 15-year periods through Feb. 28.
Process Pillar: Positive ∞
The fund's consistent, absolute-return approach
through nearly three decades earns it a Positive
Process Pillar rating. It is best described as
a vehicle that aims to deliver equity-market-like
returns with less risk, and it is best-suited
for investors looking for a long-term core holding.

Valuation drives security selection and portfolio
positioning with top-down and bottom-up analyses
informing each other. The fund has more than
700 holdings, a mix of stocks, bonds, hybrid
securities, and exchange-traded funds, with all but
a handful of positions kept to 1% of assets or less.
The fund's benchmark is composed of 36%
S&P 500, 24% FTSE World ex U.S. Index, 24% Bank
of America/Merrill Lynch 5-Year U.S. Treasury
Bond Index, and 16% Citigroup Non-U.S. Dollar
World Government Bond Index. The fund's
unconstrained approach can lead to big sector,
region, or asset-class deviations versus this
composite and peers. Cash is generally between
5% and 10%; it is used to actively manage currency
exposure. Derivatives are used occasionally
to hedge a small portion of the equity exposure.
This fund's cash stake was 12.3% of assets
as of Jan. 31, down from 22% at the end of 2015.
The fund's bond exposure was up to 26.7%, still
a large underweighting relative to the benchmark
weighting of 40%. The team remains cautious
on duration but has increased exposure to Treasury
Inflation-Protected Securities and emergingmarkets bonds. Trading activity within fixed income
has been rising, too, as shown in the portfolio's
turnover ratio of 131%, up from 84% for the

BlackRock Global Allocation MALOX
Growth of $10K 04/30/2017

Stats 04/30/2017

11.27
Morningstar Gbl Allocation TR

11.06

BlackRock Global
Allocation Instl

04/2014

04/2015

04/2016

12K
$

Morningstar Category

World Allocation

Expense Ratio

0.79%

Fee Level

Below Average

Morningstar Analyst Rating

Œ

10

3-Yr. Total Annual Return

3.42%

9

3-Yr. Total Rtn Ctgy Rank

28

11



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