Investors have plenty of choices. The financial services sector encompasses a diverse universe from which portfolio investors can make their selections. Traditionally, banks and insurers dominate, but companies involved in payments, stock exchanges, capital markets, and asset management are also part of the broad range of investment opportunities.
Investors also have different flavours to choose from when it comes to investment funds. This time, we have selected two strategies rated qualitatively by Morningstar analysts that are more adventurous in nature: Robeco New World Financials versus BGF World Financials. In this article, we examine them closely and highlight their similarities and differences.
People
Both Robeco New World Financials and BGF World Financials are managed by experienced fund managers with an extensive track record. They have built in-depth expertise under various monetary regimes and regulatory frameworks and have been shaped by the 2008 financial crisis, fintech disruptions, and multiple banking crises.
With over thirty years of experience in the sector, Patrick Lemmens is a key stabilising factor for the Robeco strategy, which he has overseen since 2008. The sudden departure of co-managers Christian Vondenbusch and Jeroen van Oerle in 2019 brought Michiel van Voorst and Koos Burema on board in 2020. The trio work closely together and make investment decisions collectively. In addition to the broader financials strategy, they are also responsible for Robeco FinTech, while Van Voorst is also the manager of Robeco Next Digital Billion, a technology strategy focused on emerging markets that shares little in common with the financials funds.
For strategy management, analysts within the team provide support, along with colleagues from other teams who act as sparring partners. While the team has potential, the effectiveness of their collaboration needs to become more evident, and workload is a factor to monitor. This results in a People Pillar Rating of «Average».
Blackrock World Financials has been managed since 2015 by Vasco Moreno, a financials veteran who is unafraid to implement his strong preferences in the portfolio. Hashim Bhattee joined Moreno as an analyst in 2022 and was promoted to co-manager in 2024. Nonetheless, Moreno’s presence is highly decisive, particularly in strategy execution, significantly increasing the so-called key-person risk.
The duo can rely on the expertise of a large team of more than twenty equity analysts who track regional financial sectors worldwide for Blackrock. This provides the team with significant leverage for fundamental stock research. Moreno’s experience and expertise, combined with this support, result in a People Pillar Rating of «Above Average».
Process
The investment philosophy and approach of both strategies differ significantly, but they share the characteristic of carrying considerable risks, making them unsuitable for every investor. Both Process Pillar Ratings merit an «Above Average».
The Robeco fund is a distinctive growth-at-a-reasonable-price strategy, where managers select stocks that fall within three main themes: Ageing Finance (banks, wealth managers, insurers, asset managers), Digital Finance (fintech, payments), and Emerging Finance (financials benefiting from the rising middle class in emerging markets). While this multi-thematic approach helps to diversify risk, the strategy’s growth focus, exposure to potentially disruptive companies, investments across the market capitalisation spectrum, and emphasis on emerging markets make it more susceptible to volatility compared to traditional competitors.
The BGF World Financials strategy can be described as a relative value-with-a-catalyst approach. A comprehensive valuation filter, combined with the identification of potential catalysts that can drive revaluation, supplemented by an analysis of top-down factors such as inflation expectations, interest rate outlooks, economic growth, and regulatory frameworks, guides managers towards attractive stocks that undergo further fundamental analysis, stress test scenarios, and liquidity assessments. This approach provides the duo with significant freedom to position the portfolio according to their convictions, which is clearly reflected in the relatively concentrated portfolio.
Portfolio
Robeco’s unconventional approach results in a portfolio with distinctive characteristics, featuring an overweight in emerging markets, smaller market capitalisations, and a combination of traditional financials and fintech companies. Banks are structurally underweighted in the portfolio, with the team typically avoiding the traditional safe havens in Canada, Australia, and the Nordics, instead opting for banks in emerging markets and digitally advanced banks.
Exposure to insurers has gradually declined over the years from 30 percent of the portfolio in 2012 to a historic low of approximately 12 percent at the end of 2024. The team sees more potential in companies active in electronic payments and capital markets. Emerging markets typically account for 15 to 20 percent of the portfolio, significantly higher than the category average, which fluctuates between 0 and 5 percent.
Under Moreno’s leadership, Blackrock’s portfolio has undergone multiple abrupt transformations, illustrating the flexibility and dynamism of the approach. Moreno acts decisively when his vision on the sector and individual companies necessitates a portfolio adjustment, as evidenced by how he has historically altered fintech allocations.
In 2020, this group had a weighting of approximately 20 percent, but the expectation that central banks would raise interest rates to curb rising inflation prompted him to make a dramatic shift. Highly valued and interest-sensitive fintech stocks were replaced with banks, whose allocation surged from 25 percent in 2021 to a peak of 70 percent in 2022. Recently, Moreno made another tactical adjustment, swapping various European banks for American competitors, partly in response to Donald Trump’s election as US president and the anticipated deregulation of the US financial sector.
Performance
Volatility and a higher tracking error characterise the track record of both strategies, but so does their potential to deliver solid results relative to their peer group and the Morningstar Global Financial Services TME Index. The different components of the Robeco portfolio have demonstrated added value at various times, with fintech exposure, for example, acting as a strong driver of returns in 2019 and 2020. However, rising interest rates impacted the growth-oriented portfolio in 2021 and 2022, hitting the Digital Finance segment particularly hard. This segment recovered in 2023, offsetting positions in Chinese financials. The past year was also challenging, as the overweight in emerging markets proved to be a hurdle that harmed the short-term track record of the strategy.
Moreno’s distinctive and outspoken portfolio can also lead to sharply divergent returns, as seen during the market stress in 2023 surrounding regional US banks, when the collapse of institutions such as Signature Bank and Silicon Valley Bank severely impacted the portfolio. Nevertheless, this did not prevent Moreno from closing the year strongly thanks to a remarkable recovery driven by effective stock selections. The risky approach is reflected in elevated risk statistics such as standard deviation, drawdowns, and beta. However, the added value from stock selection, particularly within banks, has compensated investors for the higher risk.
Jeffrey Schumacher is Director of Manager Research at Morningstar Benelux. Morningstar analyses and rates investment funds based on quantitative and qualitative research. Morningstar is part of the expert panel of Investment Officer.