You will see Blackrock Global Equity Income Fund being advertised aggressively in Straits Times, billboards at Raffles Place MRT station. They have also created a BlackRock MRT Nets Flashpay card!
This article will provide a simple analysis of the Blackrock Global Equity Income Fund.
The Blackrock Global Equity Income Fund is a global equity fund which is benchmarked against the MSCI AC World index. This means it invests in developed countries namely US, UK, Switzerland, France, Sweden, Canada, Japan, Belgium and so on.
The Blackrock Global Equity Income Fund asset size is significantly large at US$2.75 billion as at 31 May 2014. The base currency is USD. However, the fund offers a large range of currency choices such as EUR, PLN, SGD, GBP, AUD, CHF and as well as their hedge equivalent. However, what is marketed in Singapore is the SGD Hedge and AUD hedge version.
Positioned as a retirement product
Looking at the marketing materials that was sent to me[1], the Blackrock Global Equity Income Fund is positioned as a retirement product for retirees who are looking for additional source of income and capital gain.
How does it achieve this?
Blackrock Global Equity Income Fund achieve this by investing in high-quality companies with the proven ability to pay and grow their dividends over time. It does not select a stock just because it has the highest dividend yield (like most naive investors). According to the fund managers, “… a very high [dividend] yield often signifies a company is distressed and may not be able to pay its dividend going forward”[2].
How was the Blackrock Global Equity Income Fund performance so far?
The following is the performance of the USD (ISIN code LU0553294199) performance against the MSCI AC World Index. This USD version is not available in Singapore but it is offered in Hong Kong.
In the first chart is the 3 years performance and the second chart is the 1 year performance. You can see that its 3 years performance was good as it outperform the index. However, the 1 year performance shows that the fund underperformed the market significantly by a whopping 5.63%pa ! The performance are dividends reinvested at zero cost and net of taxes.
How about its beta, alphas and volatility?
Of course, we should be looking at both its return and risk.
Blackrock Global Equity Income Fund aims to deliver ¼ less risk compared to the index. I decided to generate the beta, alpha and volatility (standard deviation) based on 1 year, 2 years and 3 years weekly returns.
| Period as at 4 July 2014 | Beta | Alpha | Volatility | Volatility of index |
|---|---|---|---|---|
| 52 weeks (1 year) | 0.84 | -0.95 | 9.16 | 9.19 |
| 104 weeks ( 2 years) | 0.77 | -0.12 | 9.13 | 10.03 |
| 156 weeks (3 years) | 0.66 | 3.22 | 11.40 | 15.46 |
It should be observed the Blackrock Global Equity Income Fund’s volatility over 3 years period was indeed less than ¼ of the index (11.40 vs 15.46). However, in recent years (1 year and 2 years), its volatility is almost the same as the market. So the risk is not ¼ less than market! Still, I must admit that the volatility of the global market is at extremely low point now.
The beta of the Blackrock Global Equity Income Fund was 0.66 over the 3 years period however it has risen sharply to 0.84 recently indicating that its fund’s systematic risk is getting closer to the market risk. To the layman it means a sharp down turn in global equity will have a significant impact on the fund.
Finally the alpha shows that it dropped from 3.22 to a negative -0.95 indicating Blackrock Global Equity Income Fund did not provide value add recently.
Which currency to choose?
The marketing materials stated that the projected dividend payout is 3% and 5%pa for the SGD hedged and AUD hedged share classes. Should you choose the AUD one since the dividend payout is higher? In the first place, why AUD share class is able to give out a higher dividend payout?
For the AUD share class, currency hedging is done by shorting the underlying currency (USD) and long the AUD currency. As AUD has a higher interest rate compared to USD, there is a net interest income.
On the other hand, USD and SGD currency net interest difference is almost zero. That is why the AUD hedged class has a higher payout. It does not mean the underlying dividends produced by the stocks are higher.
If you are a retiree whose expenditure is in Singapore dollar, the AUD hedged version will not be a wise choose as the currency risk exposure to the AUD will be too significant.
Actually the USD unhedged version (the one from Hong Kong) has “natural hedging” because it invests in globally diversified equities which means the underlying currency exposure is global diversified. Unfortunately it is well known that MAS appreciates SGD currency against a basket of unknown currencies. So, it means that our SGD currency will appreciate against others. Hence, the SGD hedged version could be a better choice instead of relying on the natural hedging of the USD unhedged version.
So, should you buy Blackrock Global Equity Income Fund?
No, due to its poor performance recently and the increasing beta and decreasing alpha. If it is possible, invest in a diversified portfolio of index funds. For those who need an income for retirement, read this Retirees, here is an example of converting capital gains to an income stream.
Update 8 July 2014 11pm:
After this post went up, a number of people asked me how to invest in the index. Well, BlackRock does have a number of ETFs listed in many parts of the world tracking many different indices. For tracking MSCI AC World, the BlackRock’s iShares MSCI ACWI UCITS ETF is an example of an ETF which track the index quite well. See the chart below. However, there are foreign regulation and tax impact depending on where the investors are domiciled. Hence, I cannot give specific advice whether such an ETF is suitable. If in doubt, ask your financial adviser.
[1] https://www.blackrock.com.sg/literature/brochure/bgf-global-equity-income-brochure-sg.pdf
[2] https://www.blackrock.com.sg/literature/fund-commentary/bgf-global-equity-income-newsletter-sg.pdf
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Hi Wilfred, thanks for the analysis on blackrock equity fund. What are your views on Allianz Income Fund which is a high yield bond? Is it a good time to invest in this type of bond as it has convertible bond option.
Are you referring to Allianz Income and Growth fund? It appears to me 1/3 are invested in junk bonds and the remaining 1/3 in convertible bonds which are largely junk or unrated. Certainty not for the weak hearted. Moreover, the duration is 3.77.