BlackRock Wholesale Global High Conviction Fund

International Shares Manager Review

FUND

The BlackRock Wholesale Global High Conviction Fund invests primarily in international shares, with up to 10% invested in cash, both domestic and international, with the aim to maximise capital growth over the medium to long term by investing in a select portfolio of international assets.

ORGANISATION

BlackRock is a provider of global investment management, risk management and advisory services to institutional and retail clients around the world. BlackRock directly manages over US$1.37 trillion of assets on behalf of institutional and retail clients from all over the globe and has asset management teams covering all major asset classes, across many investment styles and regions around the globe.

BlackRock Investment Management (Australia) Limited is the manager and responsible entity for the Fund. Within Australia as at 30 June 2008, BlackRock Investment Management (Australia) Limited managed appoximately A$20.9 billion for investors across a range of products and services including equities, fixed income and property.

INVESTMENT PROCESS

Investment Objective

The primary aim of the BlackRock Global High Conviction Fund is to seek to maximise capital growth over the medium to long term by investing in a select portfolio of international assets. The Fund aims to outperform the MSCI World Index ex Australia (unhedged/hedged in Australian dollars with net dividends reinvested).

Investment Philosophy and Style

BlackRock’s investment philosophy is to identify and exploit market inefficiencies. By focusing on individual company analysis, and with the support of quantitative tools, they look to identify stocks that they believe have a high potential to outperform the global market.

BlackRock seeks to maximize returns in various market environments through a high conviction best ideas portfolio which incorporate effective management of exposures to both individual companies as well as to countries, sectors and risk factors.

There are no constraints on the active weights of stock, sectors or countries relative to the index. Instead, the fund is managed within an internal risk framework to ensure effective diversification of stock and factor positions.

Their currency team implements a passive currency hedging overlay for the fund with the objective of reducing the impact of foreign exchange rate movements on the value of the fund so that the risk and return of the fund is primarily the result of equity investment decisions.

Investment Strategy

The Fund’s strategy is to actively select and manage a portfolio of securities of global companies which have the potential to offer strong returns for investors. The Fund invests primarily in international shares, with up to 10% invested in cash, both domestic and international. The Fund comprises a portfolio of between 100 to 150 shares.

Investment Process

Idea Generation

The first stage of the research process is to generate investment ideas from a universe in excess of 2,000 companies, typically seeking stocks with a market capitalisation of at least $2 billion and sufficient trading liquidity.

Fundamental analysis

Research is typically conducted along sector lines, although individuals in the team are encouraged to look for ideas across the global market. Fundamental research incorporates an analysis of such aspects as company management, growth and return potential, business model, industry dynamics and valuation metrics, with a clear focus on identifying likely catalysts expected to drive underappreciated stocks and over a clear timeframe.

Fundamental research is undertaken by individual specialists but done so in the context of the four research clusters on the team. These clusters comprise sectors that have similar characteristics and common drivers of performance and are broadly grouped into cyclical, defensive, financials, and information. This structure facilitates the sharing of complementary investment ideas, ensures consistency in the assumptions supporting investment ideas and identifies the strongest investment opportunities across broad market segments. The output from each cluster is a dynamic list of investment recommendations ranked by conviction.

The factors that we consider during our evaluation are described below.

•  Management: We believe that management is a key determinant of a company’s future business success and ability to grow value for shareholders.

•  Business evaluation: Industry analysis provides context for the analysis of individual companies and their competitive position. We evaluate prospects for growth, barriers to entry, the regulatory environment and emerging trends.

•  Operating analysis: focuses on how efficiently a company is being managed and how this is expected to change going forward.

•  Valuation analysis: The team also looks at a variety of valuation metrics, including Price to Earnings, Price to Book and Price to Cash Flow.

Portfolio Construction

In aggregate this research process provides high conviction investment recommendations. In consultation with sector specialists, our Investment Group (IG) comprising lead portfolio managers, then identify their highest conviction stocks in a global context. Our research clusters incorporate members of IG, an approach which encourages a team-based process and which ensures dynamic decision making and close interaction between individual specialists and IG members.

PERFORMANCE

Established in June 1992, the Fund has outperformed the MSCI World ex Australia Index in the long term.

* MSCI World ex Australia Index (unhedged in AUD)

COMMENT

BlackRock has strong presences in both the global and Australian fund management industry and has a sound investment philosophy to underpin its investment strategy. The investment process is structured and well disciplined. The Fund offers adequate diversification with a portfolio of between 100 to 150 shares from markets all around the world.

Performance has been consistently above the benchmark, while fees are in line with the average for similar products.