BlackRock closes EM fund following poor value assessment findings

Out of its 140 funds, ten delivered value but further action has been taken to improve, while two failed to deliver consistent value.

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The two funds are the BlackRock Aquila Emerging Markets and BlackRock Market Advantage.

The Aquila EM fund’s poor value stemmed from its costs and charges, which scored low when compared to other market rates, services and AFM costs.

BlackRock noted it had already flagged the fund for review before undergoing its value assessment, which resulted in the “decision to close the fund based on several factors including low investor interest, poor commercial viability and anticipated further decline in AUM creating diseconomies of scale, which may lead to increased costs and challenged performance”.

The fund was available for investors in the UK within defined contribution schemes and was benchmarked against the S&P IFCI Emerging Markets Composite Ex Malaysia index.

According to its June 2023 factsheet, the fund had been underperforming for a few years, although had mostly tracked its benchmark.

The BlackRock Market Advantage fund provided low value due to its underperformance over the year to 30 June 2023, the asset manager found, and the company said it will enhance its investment process and performance monitoring of the fund as a result.

BlackRock said: “Our assessment concluded that the fund underperformed its benchmark, net of fees, over the three- and five-year periods. As a consequence of a particularly challenging market environment in 2022, the fund did not meet its objective of providing a 3.5% return in excess of the 3-month SONIA rate, gross of fees, over the five-year period.”

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The company added: “Last year, the fund was identified for enhanced performance monitoring and a review of its investment process. Following a review of the investment process, we remain of the view that the fund’s core strategy has continued to deliver an important benefit of providing balanced exposure to markets for its clients, that are predominantly large, sophisticated institutional investors for whom managing volatility is an important goal in their portfolio.

“The fund performance has also shown signs of recovery since September 2022 and we expect the fund to deliver on its investment objective over the long term. The fund has consistently delivered value to investors on all other aspects of value assessment including fair costs and charges and a high quality of service.”

The remedial action will include greater responsiveness from the team to the prevailing macroeconomic environment and better management of periods of high volatility in the markets, the company explained.

Further enhancement and clarifications will be made on the fund’s prospectus as well to “better articulate to investors how the fund aims to achieve its objective through a balanced exposure to markets,” BlackRock added.

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