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Financial Intermediaries
On this website, Financial Intermediaries are investors that qualify as both a Professional Client and a Qualified Investor.
In summary, a person who can both be classified as a professional client under the Markets in Financial Instruments Directive II (2014/65/EU, “MiFID”) and a qualified investor in accordance with the Prospectus Regulation ((EU) 2017/1129) will generally need to meet one or more of the following requirements:
(1) An entity required to be authorised or regulated to operate in the financial markets. The following list includes all authorised entities carrying out the characteristic activities of the entities mentioned, whether authorised by an EEA State or a third country and whether or not authorised by reference to a directive:
(a) a credit institution;
(b) an investment firm;
(c) any other authorised or regulated financial institution;
(d) an insurance company;
(e) a collective investment scheme or the management company of such a scheme;
(f) a pension fund or the management company of a pension fund;
(g) a commodity or commodity derivatives dealer;
(h) a local;
(i) any other institutional investor;
(2) a large undertaking that meets two of the following size requirements on a company basis: (i) a balance sheet total of EUR 20,000,000; (ii) an annual net turnover of EUR 40,000,000; (iii) own funds of EUR 2,000,000;
(3) a national or regional government, a public body that manages public debt, a central bank, an international or supranational institution (such as the World Bank, the IMF, the ECB, the EIB) or another similar international organization;
(4) a natural person resident in an EEA State that permits the authorisation of natural persons as qualified investors, who expressly asks to be treated as a professional client and a qualified investor and who meets at least two of the following criteria: (i) he/she has carried out transactions on securities markets at an average frequency of, at least, 10 per quarter over the previous four quarters before the application, (ii) the size of his/her financial instrument portfolio, defined as including cash deposits and financial instruments exceeds EUR 500.000, (iii) he/she works or has worked for at least one year in the financial sector in a professional position which requires knowledge of securities investment.
Please note that the above summary is provided for information purposes only. If you are uncertain as to whether you can both be classified as a professional client under the Markets in Financial Instruments Directive and classed as a qualified investor under the Prospectus Directive then you should seek independent advice.
Terms and conditions
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Risk Warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
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Active portfolios
start with indexing
Through BlackRock Portfolio Analysis and Solutions’ (BPAS)1 interactions with clients, successful investors stand out because of their:
- higher index adoption
- higher adoption of illiquid and ‘real’ alpha-seeking strategies
- deliberate and adaptable approach to blending these solutions
In line with this, we have seen an ongoing shift to index strategies amongst investors2, with both distributors and end investors changing their perception of the role and value of index vehicles.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested.
Download: Active portfolios start with indexing
At BlackRock we believe that actively evaluating your portfolio may lead to a greater role for ETFs and index funds. Download our guide to see examples of how indexing could help you build more efficient portfolios.
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Save time
Constructing portfolios takes time. As the number of products increases, so does the effort required to scout the market and select the best ones.
Indexing can help to reduce the governance burden required to continually search and reassess managers; allowing you more time to focus on finding true alpha in select areas of the portfolio.
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Manage risk
One of the keys to successful portfolio construction is understanding the risks of your investment, given that unlike returns, these can be more easily predicted and controlled.
Indexing gives you more control of your portfolio risk, reducing the potential for misalignment between the target portfolio (the strategic asset allocation or Chief Investment Officer (CIO) view) and the real, implemented portfolio.
Risk: While the investment approach described herein seeks to control risk, risk cannot be eliminated.
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Curb costs
Increased cost transparency coupled with an improved understanding of portfolio return drivers has made indexing tools the more obvious choice for many investors.
Indexing is not only about lowering overall portfolio costs, but about finding potentially more efficient ways you can achieve similar outcomes.
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How can we help you?
BlackRock Portfolio Analysis and Solutions (BPAS) are a team of highly qualified investment consultants which seeks to provide industry leading tools, analysis and insights to empower our clients to make better investment decisions and gain new perspectives on portfolio construction.
Please note you will only be contacted subject to meeting certain BPAS criteria.
3Source: 2019 Greenwich Associates Institutional ETF Study, February 2019. Based on 127 responses.
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Save time with indexing
It takes time, skill and effort to determine which managers deliver true alpha, and to continually monitor and review their performance.
As the number of products available to investors increase, the cost compounds. There are currently 136,752 different funds within Europe1, a growth of 43% from 2009. There is also a large dispersion of assets under management (AUM), which suggests there is no single consistently performing manager.
Index for alpha
In reality, there is no ‘right’ choice, at least not in the long term. Based on an extensive study of 4,500 alpha managers across 21 asset classes between 1997 and 20172, BlackRock Investment Institute (BII) looked at performance persistency of alpha managers within the top quartile over 5 year periods. A meaningful persistency probability would be above 25%. Interestingly, this is only the case for a few asset classes based on the set of confidence bands. The probability highlighted that the selection of a ‘good’ manager could not be set apart from a random probability.
Research from SPIVA3 showed that few firms remain at the top over the long run. Over 5 years, only 27% US equity managers within the top quartile in 2013 remained in the top quartile in 2018. For high yield funds the figure was 28%.
In other words, to build portfolios with consistently top performing managers involves high turnover. This constant search, selection, performance assessment and reselection is a considerable governance cost that should be taken into consideration.
Investors who do not have the capacity to research and regularly monitor their alpha seeking managers may be better to consolidate the number of alpha seeking managers in their portfolio and consider greater index selection. These choices will help to make portfolio monitoring more efficient and minimise implementation, transaction and increasing governance costs.
1 Source: Morningstar, as at March 2019. The number includes share classes.
2 Source: BlackRock Investment Institute, “Blending alpha-seeking, actor and indexing strategies: a new framework”, July 2018
3 Source: S&P Persistence Scorecard, S&P Dow Jones Indices LLC, CRSP as at September 2018. High yield surveyed 144 different managers; whilst US equity managers surveyed 1988 managers.
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Manage risk with indexing
One of the keys to successful portfolio construction is understanding the risks of your investment, because these can be more easily predicted and controlled. This goes beyond looking at product in a siloed approach but understanding the risk in the whole portfolio.
Often, portfolio construction practices separate asset allocation decisions from product choices. This assumes that by fitting products into an asset allocation, the risk of the portfolio will be controlled. In reality, two of the exact same asset allocations can have different risk profiles. For example, a 60/40 stock and bond portfolio4 based on index asset allocation, this would have 5 year annualised risk 7.2% in usd terms, while product implementation could cause this risk to vary from 3.5% to 11.5%5 (depending on the manager).
The blackrock portfolio analysis and solutions (bpas) team leverage the power of blackrock’s risk management platform, Aladdin to help clients understand the risk factor exposures within their portfolios. Through these interactions, we identify that often there is misalignment between risks, the bets that clients have stated they want to take and those they are actually taking. This can be because:
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Manager style drift
i.e. The evolution of alpha seeking manager choices and the strategies overtime, particularly in non-transparent vehicles. -
Over diversification of managers
i.e. Products have been chosen for a specific purpose but may contradict views expressed elsewhere in the portfolio.
Index for control
When it comes to implementing a strategic asset allocation view on a specific market or asset class, indexing can help to control risk and reduce the misalignment between the target portfolio and the implemented portfolio. It allows investors to free up risk budget to express potentially riskier tactical views and to efficiently balance risk with the potential reward.
4 Source: 60/40 Portfolio based on 60% MSCI World Index and 40% Bloomberg Barclays Global Aggregate Bond Index. Source: BlackRock, Morningstar from April 2014 - April 2019. Assumes USD-based investor. Data frequency = Monthly. 5 Source: Analysis based on all European domiciled active managers, with a 5-year track record and benchmarked to MSCI World and Bloomberg Barclays Global Aggregate Bond Index. Source: BlackRock, Morningstar from 30 April 2014 – 30 April 2019. Assumes USD-based investor. Data frequency = Monthly.
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Drive Performance with Indexing
There is more pressure than ever to reduce portfolio costs. Transparency and increased scrutiny on fees are changing revenue models, while technology is creating ‘robo’ advisers and automated offerings that deliver simple and cost-efficient solutions.
“I think costs are a huge issue – clients talk about Value for Money now, that’s something that we didn’t use to have conversations around, but it’s just because costs are under the microscope across every part of the value chain. So clients squeeze us, we squeeze managers.”
- UK Wealth Manager
There is no surprise that indexing is chosen to help lower costs. The average underlying management fees are:
Beyond this, it is also important to consider the cost efficiencies of indexing. By this we refer to the concept of strategic market and style factor tilts that account for a large portion, often more than 90%, of returns generated by traditional long only equity managers. Unless a manager can capture idiosyncratic returns in excess of their management fee, it can often be more cost efficient to implement through indexing.
This is also relevant in large fund-of-fund portfolios where there are multiple active funds - often several within the same asset class. The diversification across many managers have unintendedly cancelled out positions and the potential for idiosyncratic returns, resulting in ultimately a more expensive version of the benchmark.
Index for returns
In the end, what matters most is the returns net of fees. The latest SPIVA8 report states that, net of fees, many alpha managers can underperform if they do not express strong conviction in tilts or exposures different to the benchmark.
Indexing can be an efficient way to express strategic views and control how you tilt between asset classes and factors, whilst freeing up fee budget to invest in high octane alpha and alternatives where true alpha is more likely to be rewarded.
Overall, we see that a portfolio with greater indexing coupled with true alpha-seeking and alternative managers’ results in better returns for investors.
6 Source: BlackRock Portfolio Analysis and Solutions (BPAS) Insights. Based on portfolios received from Jan 2018 – December 2018.
7 Source: BlackRock Global Business Intelligence Report, as at April 2019. Based on ETFs listed in Europe only.
8 Source: S&P Persistence Scorecard, S&P Dow Jones Indices LLC, CRSP as at September 2018.
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