mutual funds
BALPX capitalizes on mergers, executive turnover and other events.Coloring outside the lines isn’t just for kids in school—adding some color to the edges of your core portfolio can brighten returns. Investors adopted that strategy in 2021, pouring a record of nearly $4 billion in new money into so-called event-driven funds, or funds that invest in companies undergoing fundamental changes, such as a merger or acquisition. BlackRock Event Driven Equity (BALPX) received $2.3 billion of the inflow.
Event-driven funds typically have little relation to stock and bond market ups and downs, so that even in down markets they tend to remain flat or lose less than standard stock or bond fund peers, says Morningstar analyst Bobby Blue. If you’re looking for diversification, a small allocation to an event-driven fund can hedge against volatility elsewhere.
The BlackRock fund is a standout. So far in 2022, the S&P 500 index is down 5.5%. Over the same period, the fund has gained a flat-ish 0.1%.
Mark McKenna, the fund’s lead manager, works with a team of 12 other analysts. The team leverages BlackRock’s extensive network and resources to gain direct access to company executives in order to better understand the changes afoot at their firm.
Those changes can include a range of company events. So-called “hard” events may refer to announced takeovers, for example, or company spin-offs. The fund holds shares in Danaher, for instance, which acquired General Electric’s biopharma business in March 2020. “Soft” events might include management changes or a stock being added or taken out of a particular index. Coty earned a spot in the fund in part because of new initiatives, including a product line revitalization.
McKenna also devotes a small portion of the fund to distressed credit opportunities—specialty finance events, according to Blue, in which a company negotiates directly with BlackRock for financing, whether through a bond underwriting or holding IOUs directly for a short period.
The fund’s hefty expense ratio of 1.57% is still less than the category average of 1.96%. Though the fund charges a load, it trades fee-free at several brokerage firms, including Fidelity and Schwab.