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Why This BlackRock Allocation Fund Earned an Upgrade

Morningstar’s 2023 Outstanding Portfolio Manager Rick Rieder is leaving his mark, and other ratings highlights from May.

Securities In This Article
Capital Group Growth ETF
Alphabet Inc Class C
Capital Group Dividend Value ETF
BlackRock Global Allocation Instl
Invesco Global R6

BlackRock Global Allocation’s MALOX enhanced top-down asset allocation and revamped equity portfolio triggered a Process upgrade to High from Above Average in May, leading to Morningstar Medalist Rating upgrades for its U.S.-domiciled vehicles, which now range from Bronze to Gold, depending on fees. The strategy’s Australian share classes retained their Neutral ratings.

This 60/40 fund is rooted in fundamental and quantitative research. Rick Rieder and his comanagers monitor nontraditional data, such as web traffic and credit card transactions, for economic growth clues that inform top-down allocations. Such practices informed the strategy’s recent U.S. overweight; previous managers paid attention mostly to bottom-up valuations, which led the fund to take bigger stakes in Japan and Europe.

Since 2016, the strategy has reduced the number of names in its fundamental equity portfolio, which accounts for about 80% of stock holdings, to about 80 from more than 400 by selling lower-conviction ideas and focusing on companies with durable cash flows rather than attractive relative valuations.

From the beginning of Rieder’s tenure in April 2019 through April 2023, the strategy’s Institutional shares’ 5.5% annualized gain topped its Morningstar Global Allocation Total Return Index’s 4.6% as well as its median global allocation peer’s 4.1%. The strategy ranked in the 27th percentile against distinct category peers on both an absolute and volatility-adjusted basis during this period.

Waning Confidence

John Delano’s struggles to replicate Invesco Global’s OGLIX past success since taking over in 2019 fueled a May Process downgrade to Average from Above Average and Morningstar Medalist downgrades across most share classes, which now span from Neutral to Negative, depending on fees.

Delano has altered this growth portfolio’s composition since assuming control from his predecessor, Rajeev Bhaman, with whom he worked for eight years. He made it more concentrated by trimming its number of stocks to about 60 from 80 and moving 50% of the portfolio’s assets in its top 10 holdings, up from 35%. The fund’s Alphabet GOOG stake, for instance, was rarely more than 3% under Bhaman, but Delano kept 10% of the fund’s money in it as of March 2023 (that’s down from a peak of 12% a year ago).

Delano has not completely turned this strategy on its head. Like Bhaman, he’s a patient buy-and-hold investor; the fund’s turnover ratio ranks among the lowest in its peer group. Like his predecessor, Delano also favors high-quality companies, as measured by metrics like debt/capital ratios and moat ratings.

While the strategy struggled in 2022, it has fared better in the first half of 2023 as many of its top holdings have done well.

New to Coverage

Capital Group Dividend Value ETF CGDV and Capital Group Growth ETF CGGR, both a part of the firm’s February 2022 first wave of active exchange-traded funds, earned initial Morningstar Medalist Ratings of Silver. The vehicles offer cheap, tax-efficient exposure to Capital Group equity strategies that are similar to open-end versions with long track records of success.

Correction: The subhead of this article was corrected to show that Rick Rieder was our 2023 Outstanding Portfolio Manager, not 2022.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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