Investing Beyond Benchmarks: The Case for Unconstrained Equities

Key takeaways

  • An unconstrained equity strategy uses a benchmark-agnostic approach in seeking to assemble a portfolio of market-leading stocks.
  • Fundamental-based analysis drives investment decisions and results in high-conviction positions with potential to outgrow the market across time.
  • It’s a long-term, differentiated approach in a market increasingly dominated by short-termism.

What is unconstrained equity investing?

An unconstrained investing approach gives professional portfolio managers the ability to construct a portfolio free from the prescriptions and dispositions of a market benchmark. The aim is to build a differentiated portfolio of investments with the potential to provide outcomes that are distinct from those offered by the broader market.

Alister Hibbert, Co-Portfolio Manager of the BlackRock Unconstrained Equity Fund (MAEGX), describes benchmarks as an “artificial construct” when it comes to stock selection. His approach to unconstrained investing entails not simply tilting away from a benchmark but starting from “a blank sheet of paper to build the very best portfolio we can based on individual company analysis.”

The opportunity to apply that analysis and parse potential winners and losers is compelling today given wide market dispersion. The chart below shows the percent of high-growth versus low-growth companies in the MSCI World Index across time, with the current gap large enough to suggest potential for skilled stock picking to strive to generate outperformance.