His experience, consistent track record, and the team backing him, combined with Morningstar’s very high conviction in his ability to deliver incremental performance going forward within a risk-aware framework, make Michael Krautzberger of BlackRock Euro Bond Morningstar’s European Fund Manager of the Year for European Fixed Income.
Krautzberger was given his award at a special ceremony Thursday evening as part of the Morningstar Investment Conference Europe in Amsterdam. Other nominees were Richard Klijnstra of Kempen (Lux) Euro Credit Fund and Mikael Lundström who manages Evli Corporate Bond and Evli European High Yield.
“BlackRock Euro Bond is one of Morningstar’s favourite funds in the sector and Michael Krautzberger is key to our favourable view”, says Morningstar analyst Karine Nowak.
“His experience is particularly relevant for this fund as he has run global bond funds before and is used to working as part of a large fixed-income team.”
BlackRock Euro Bond is awarded the highest Morningstar Analyst Rating of Gold, which means that the fund is best-of-breed and distinguishes itself across the five pillars of the Morningstar Analyst Rating (People, Parent, Process, Performance and Price) and has garnered the analysts’ highest conviction.
Long Tenure
Krautzberger took over BlackRock Euro Bond in October 2005, after Merrill Lynch Investment Management merged with BlackRock in May of the same year. Krautzberger is also head of euro fixed income at BlackRock, with approximately €30 billion in fundamental European bond assets under management.
Morningstar thinks Krautzberger adapted well to the environment following the merger with MLIM, helped by his prior experience at large fixed-income houses. He was head of European fixed income at Union Investment in Frankfurt from 1999, and before that he spent five years at Deutsche Bank’s DWS managing global fixed-income portfolios.
“What adds to our confidence is that Krautzberger has also demonstrated a reasonably long tenure at each of the firms he has worked at,” said Nowak.
Active Approach
As head of euro fixed income Krautzberger has built a very strong franchise at BlackRock, applying successfully his risk-controlled investment approach to a wide range of euro bond strategies. In addition, he has made good use of BlackRock’s well-resourced global fixed-income team of experienced investors and analysts, who provide invaluable input into the investment process.
Krautzberger is mindful of his benchmark, but he believes in an active approach to fixed income. This approach is risk-controlled and diversified in terms of holdings and investment strategies, but at the same time alive to new market opportunities when they arise. At the core of the process are relative value plays, but the manager also uses other, more traditional fixed-income strategies such as duration, sector, country or security selection.
Nowak adds: “Krautzberger typically holds more than 200 bonds and seeks to add value in a consistent, incremental manner through a diversified portfolio of relative value ideas. While he is willing to shift asset allocation in response to his views, positions are kept in check by a tracking error target of 0.75%-2.0% per annum, and the portfolio is usually fully hedged back to euros. We think the diversification here should help moderate relative risk.”
Strong Track Record
BlackRock Euro Bond has performed well, achieving first- or second-quartile returns within the Morningstar EUR Diversified Bond Category in all calendar years over his tenure (from 2006 to 2013); the fund has also delivered attractive risk-adjusted returns over three and five years and over the manager’s tenure (November 2005 to February 2014). The fund may at times experience short-term periods of underperformance, as Krautzberger is prepared to back his conviction and take advantage of short-term market opportunities. However, this has not impaired the fund’s excellent long-term track record under Krautzberger.
The breadth of added value, across virtually the whole range of underlying strategies used in the portfolio, is impressive and highlights both the quality of ideas from the underlying team and Krautzberger’s ability to blend these ideas appropriately into a coherent portfolio. The fund’s consistent performance is testament to the discipline with which he implements his process and his ability to understand the aggregate level of risk in the portfolio created by the diverse range of investment ideas.
Nowak has one critical point for BlackRock Euro Bond: “Although the fund’s TER is in line with the category median, we believe it could be lower given the economies of scale available in this large strategy,” she states.
About the Morningstar Fund Manager Awards
The winners of the prestigious, qualitative Morningstar Fund Manager of the Year Awards are nominated and selected by Morningstar’s 30 plus strong team of qualitative fund analysts across Europe. Only managers whom our analysts rate highly - meaning we have recognised the funds they run as Morningstar Medallists with a Gold, Silver, or Bronze Morningstar Analyst Rating - are eligible for nomination.
To be a Morningstar Medallist, funds are put through a rigorous evaluation using our five-pillars methodology. The analysts weigh the quality of management, the strength of the process used to run the fund, the quality of the parent organisation - including how it treats investors in its funds - performance, and costs.
Nominated managers should have had strong performance in 2013, but, most importantly, they should have also shown an ability to serve investors well over the long term.
Only three of these awards are given for all of Europe each year: European Equity Fund Manager of the Year, European Global Equity Fund Manager of the Year and European Fixed-Income Fund Manager of the Year.
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