No one knows how difficult it can be to manage a go-anywhere fund better than Dennis Stattman.
No one knows how difficult it can be to manage a go-anywhere fund better than Dennis Stattman.
Mr. Stattman, 60, has managed BlackRock Inc.'s Global Allocation Fund since its inception in 1989.
When the firm launched Global Allocation, he and two others ran the fund. Today, Mr. Stattman and his co-managers, Dan Chamby and Aldo Roldan, have 41 investment professionals dedicated to the fund.
With $53.4 billion in assets, one would think that Mr. Stattman would be thrilled by the fund's success and popularity. The fund has beaten its peers over the past three-, five- and 10-year periods, according to Morningstar Inc.
Nevertheless, Mr. Stattman is worried.
For one thing, he is concerned that all the fund firms getting into the go-anywhere space may not understand how difficult it can be. And ultimately, he fears that clients may get hurt.
Recently, Mr. Stattman sat down to talk about the fund, his process and what financial advisers need to ask managers when selecting a global-allocation fund.
Q. With so many firms launching global-allocation funds, are you worried that they are becoming gimmicks?
A. I think it's ironic that so many firms are now coming out with these products, because I believe that global flexible investing is what most investors ought to have at the foundation of their portfolios. It's almost nonsensical to me to think, for most investors, that it would be any other way. Why would an investor not elect to choose from the broadest universe of investment possibilities that she or he could?
The industry is just very lately coming around to this, not because it thought it was a good idea but because of poor results that so many traditional mutual funds have delivered in terms of basic risk and return over extended periods of time — and also because the global flexible category has tended to be an exception to that trend.
Someone asked a colleague of mine, “Gee, what you are doing sounds really sensible. Why don't all investors do that?” Because it's really hard.
Q. Does it worry you that firms coming out with these products may not understand how hard it is?
A. They understand there is an opportunity. It's a business proposition for them. That's what's driving this. I am worried for clients who might be drawn into a product that doesn't have a strong resource base in terms of teams and tools. Some of those products will have good initial records. They will pick some area of the world's markets that will happen to work for the first year or years. Because of those results, they will get attention. Some of those results will actually reflect skill. Most of them will simply reflect luck. Investors will find that luck can turn.
Q. With a team-based approach and such flexibility in what you can invest in, how do you agree on everything?
A. We don't agree on every single investment decision. But we are going to agree on the big ones. And we are largely going to agree on the top-down views, but that agreement comes after dialogue and discussion. We like to argue and talk. amongst ourselves. It's part of the excitement.
Q. How do you benchmark the portfolio?
A. We have the same benchmark we started with. It is 60% stock, 40% bond, 60% U.S., 40% non-U.S. If you multiply that out, you get 36% U.S. stock, 24% non-U.S. stock; 24% U.S. fixed; 16% non-U.S. fixed. That is the benchmark in practice. We always have a different asset mix than the benchmark. As of May 31, the asset mix was 65% stock, 28% fixed and 7% cash.
Q. At what point would you close the fund?
A. It's been considered from time to time, starting about 19 years ago. It's an open-end mutual fund; if I wanted to run a closed end fund, I would. It's of course harder to manage the money we have today than when we had $10 billion, but we also have a lot more resources than we would have if we had less to manage.
Q. If you hit a certain amount, would you have to close the fund?
A. There is no number in mind. People ask me this all the time. They want to ask about the capacity of the fund and they want a number. The constraint for me isn't a dollar amount; its complexity, noise and clutter. There are a lot of fund managers out there marketing the fund. We have a four-person team doing that. That gets rid of some noise. We have a transaction system that processes our orders. That gets rid of some complexity. I have a very capable chief operating officer, and that gets rid of some clutter.
Q. What are advisers' biggest concerns about the fund?
A. They do ask about our size, and have been for a decade and a half. Generally, what people have concerns with is that our strategy has been kind of in the middle and the markets have been extreme. In the tech bubble, people thought we were too conservative and we didn't get it. And I didn't get it. I still don't. And lucky for my investors, I didn't.
E-mail Jessica Toonkel at jtoonkel@investmentnews.com.
