When BlackRock's Tony DeSpirito searches for dividend-paying stocks for the firm's flagship equity fund, he's also paying attention to quality and value. That will come in handy in what he calls the market's "new era," now underway. It will be marked by bouts of volatility and greater differentiation between individual equities, he said in an interview with CNBC.
"On average, the Fed is going to be fighting inflation more often, and fighting deflation a lot less often," he said. "That's just a better environment for stock picking, or alpha generation ..
. So, when I think about our clients, they need to be much more discerning." DeSpirito spent the first 18 years of his financial career as a value investor before coming to BlackRock in 2014.
He's now the firm's global chief investment officer of fundamental equities and lead portfolio manager for the BlackRock Equity Dividend fund, as well as value portfolios. Reducing volatility and investing in quality stocks that have the potential for dividend growth is what DeSpirito aims for when managing the BlackRock Equity Dividend Fund , which is rated four stars by Morningstar . Its A-shares for individual investors, MDDVX, has a 30-day SEC yield of 1.
69% and an expense ratio of 0.93%. "DeSpirito and his team have consistently added value through skilled stock-picking over his tenure, starting in August 2014 through December 2023," Morningstar analyst Drew Carter wrote in February.
"A poor result in calendar 2021 was the only year since 2014 that the fund's institutional shares trailed both their benchmark and typical large-value Morningstar Category peer." DeSpirito's team is made up of 20 fundamental investment professionals, organized into sector pods, and three quantitative investors. They also tap BlackRock's experts around the globe.
These days, DeSpirito sees the best opportunity in health care stocks. The fund's largest health care holding is CVS Health , which makes up 2.46% of the portfolio as of July 31, according to Morningstar.
Cardinal Health is its second-largest health care holding at 2.1%. The industry is facing a good macro backdrop, he explained.
"As we age, we consume a disproportionate amount of health care, and we're aging as a society ," he said. "So health care has grown and should continue to grow faster than GDP." It is also a sector that is stable, has many high-quality businesses and a lot of valuation discounts, he noted.
"Companies that show low volatility, high stability, have actually gotten left behind a bit in the market rally, and so they've actually become more discounted over time," DeSpirito said. "Health care is definitely in that bucket." The fund is heavily weighted in health care services and providers and less so in large-cap pharmaceuticals — which can face patent expiration challenges, he said.
However, he was an early investor in GLP-1s, the weight-loss drugs that have propelled stocks such as Eli Lilly and Novo Nordisk higher. He bought Eli Lilly, which currently makes up 0.81% of the fund, in 2022.
"We recognized early on, these are going to be mega blockbusters," he said. "That's become more conventional wisdom." The fund's largest sector holding is financials.
DeSpirito has a heavy weighting on what he calls stable earners, like insurance brokerages and exchanges. He also looks for opportunities in balance-sheet-sensitive banks that have potential to improve their earnings power over time. "The outlook has been better for banks as they've learned to operate under the new regulatory regime," he said.
"The other thing that's sometimes under-appreciated about banks is because of the regulations, they become safer and sounder, and more stable earners.".
