e-fundresearch: Since when have you been responsible for the management of the BGF US Flexible Equity Fund (ISIN: LU0154236417)?
Doll: Since the inception of the Fund in October of 2002.
e-fundresearch: Which benchmark do you adhere to?
Doll: Russell 1000® Index
e-fundresearch: Do you also manage other funds?
Doll: Yes, we also manage the BGF US Growth Fund which is also a Luxemburg based SICAV as well as the BlackRock Large Cap Growth, BlackRock Large Cap Core and BlackRock Large Cap Growth Fund which are US Mutual Funds.
e-fundresearch: What is the total volume that you manage in all your funds?
Doll: Total assets under management for the team is just over $30 billion including the funds and separately managed accounts.
e-fundresearch: In regards to the fund´s performance – which results did you manage to get from 2003-2008 (both absolute as well as relative in comparison to the bench mark)?
Doll: For the five year period ending July 31st, 2008, the BGF US Flexible Equity fund was up 8.32% on an annualized basis, ahead of the Russell 1000® Index which was up 7.03% for the period.
e-fundresearch: Are you happy with your overall performance within the last year?
Doll: While it has been a very difficult time for the equity market over the last year, the Fund has held up well relative to the market. After a weary first quarter, the Fund posted a strong second quarter making up some of the lost performance. Overall, we feel the fund is well positioned going forward.
e-fundresearch: How do you manage to generate alpha for your investors?
Doll: The investment approach for the BGF US Flexible Equity Fund blends quantitative models and fundamental research. The strategy is based on the belief that incorporating growth/momentum and valuation factors along with disciplined security selection and portfolio construction will provide consistent and repeatable investment success. Since its inception, the team has applied an active quantitative approach combined with a fundamental override, strict portfolio construction parameters, and risk management controls. Historically, our quantitative model and fundamental research process have contributed equally to our performance results. The team seeks to create diversified equity portfolios of large capitalization US companies that we believe will outperform the market. We look for companies that are well-managed, have strong earnings growth rates, and are selling at reasonable valuations. We believe that these characteristics are displayed by companies that will generate superior long-term performance relative to the specified benchmark. For the BGF US Flexible Equity, it is Russell 1000® Index
e-fundresearch: How long have you been a fund manager already?
Doll: 25 years
e-fundresearch: Can you please comment on the current market environment? How do you regard it?
Doll: The equity market continues to struggle against a backdrop of high oil prices, economic worries and a lack of support from bonds. Valuations seem reasonable, with the dividend yield above the level of the three-month Treasury Bill rate – something that has rarely happened in the past several decades. However, it is important to remember that interest rates are far below their equilibrium level, so it is not a fair comparison. More importantly, time has proved repeatedly that valuation is a poor guide to market timing. Valuation overshoots can become extreme and persist for a long time. The danger in rushing into a market because it seems “cheap” has been highlighted by the performance of bank stocks. Bank stocks appeared to be good value at the beginning of the year: prices had fallen a lot and the price-to-book ratio was at the low end of its historical range. Yet, after a brief pause, prices resumed a waterfall decline, and the price-to-book ratio is now at the lowest level since 1990. Our assessment of overall equity market prospects has not changed. Equities should outperform both bonds and cash over
the coming year, but it will be a grinding upturn in prices, not a powerful bull run. However, there is a good chance that economic disappointment will keep the market under pressure in the near term. Within the market, we would still emphasize globally-oriented sectors rather than those more dependent on domestic activity.
e-fundresearch: How do you position the fund in such an environment?
Doll: We continue to be positioned in companies we believe have good fundamental momentum, above average quality and are selling at below normal valuations. From a sector standpoint, our primary overweight is Information Technology with secondary overweights in Energy, Industrials and Health Care. Our primary underweights are Financials and Consumer Staples with a secondary underweighting in Utilities.
e-fundresearch: What are the specific challenges for you right now?
Doll: These remain challenging times for investors and policymakers. The unfortunate reality is that the US economy faces a protracted period of sub-par growth, and that may be no better than a sharp and short downturn. In some ways it may be worse, as a long period of disappointing performance could have a lasting and corrosive impact on confidence. If businesses start to believe that a decent recovery is a long way off, they may decide to adopt tougher measures to control costs, including bigger cuts in employment and capital spending. We want to again emphasize that we are not among those who expect a dire outcome for the economy and markets. But, neither is there much of a case for taking the opposite extreme: it will take time to work through the aftermath of a major credit bust and we cannot count on further significant help from the monetary authorities given the inflation situation. Certainly, things would look a lot better if the oil price was to suffer a large drop, but that is far from assured. Moreover, the economy would still have to work through the growth-sapping effects of the deleveraging cycle. Crises always create opportunities, and the prices of some equities have fallen by enough to create excellent value by historical
e-fundresearch: Thank you very much!
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