Although it didn’t take its present name until January 2005, BlackRock Investment Trust Portfolio/Inv A (CEIAX) has been around in various forms since 1993. The large-cap blend fund got off to a good start, managed in a traditional, fundamental style by PNC Financial Services Group (PNC). In 1998 it was taken over by PNC unit BlackRock Inc`A` (BLK), an investment advisory firm previously known for its fixed-income funds that has moved increasingly into equities. From 1995 through 1999, the fund racked up double-digit increases. But the tech bust in 2000 set off three years of losses ranging from -15.3% to -26.4%.
In 2003, BlackRock decided that enough was enough, and ordained a more disciplined, quantitative-driven management style for the fund. To do that job, it hired away a five-man quantitative team from Weiss, Peck & Greer, led by Frederick Herrmann and David Byrket. The two men restructured the BlackRock portfolio in March 2003. In January 2005, BlackRock acquired State Street Research & Management Holdings Inc. and merged two of the latter’s funds into the revamped BlackRock fund. Renamed BlackRock Investment Trust, the fund retained similar goals and strategies as it held previously.
In short, the aim of BlackRock Investment Trust is to beat the S&P 500 Index by following the sector and capitalization weightings of the benchmark while picking the best-performing individual stocks in each sector. It also strives to resemble the index in terms of style composition (growth versus value), and does not engage in market timing maneuvers. The fund’s R-squared, a statistic that measures how closely a portfolio follows the market, is high, revealing that the fund’s performance is closely tied to its benchmark. Its top five holdings as of Sept. 30, 2005, were General Electric (GE; 3.5%), Microsoft Corp (MSFT; 3.2%), Exxon Mobil (XOM; 2.8%), Intel Corp (INTC); 2.5%). The top five sectors were financial services (19.9%), technology (17.1%), health care (12.9%), energy (10.1%), and consumer noncyclicals (7.9%).
As of September 30, the $552.5-million fund had fractionally exceeded the index over three years, registering an average annualized return of 16.9%, versus 16.7% for the S&P 500, and 14.9% for the average large-cap blend fund. However, the results were achieved with less volatility than its peers, and the benchmark, revealing how management has added value. For the one-year period ended last month, the fund was just a hair above the index, returning 12.3%. BlackRock Investment Trust, ranked 4 Stars by Standard & Poor’s, holds 118 stocks and carries a 1.26% expense ratio, compared with an average of 1.07% for its large-cap blend peers.
The management team uses two computer models to screen for top candidates while removing sector and other biases from the process. “We’re allowing the model to tell us which stocks to avoid, as opposed to becoming emotionally attached to names because we made a buy decision on them,” Byrket says. Herrmann adds, “Though we do use a quantitative process, there are no gurus, no black boxes — the foundation is quantitative research.”
The team first employs a Barra risk management model to winnow out chancy stocks from its universe of approximately 800 issues, comprising most of the S&P 500 plus 300 more large- and mid-cap stocks. Stocks outside the index are included if they are similar to those in the index but have the potential to outperform.