Head To Head

Head to Head – Multi-assets funds from Schroders and JP Morgan Asset Management

Fund Selector Asia's Head-to-Head feature puts two funds with similar investment objectives against each other to find out which one has the edge.

by Fund Selector Asia 23 September 20145 August 2022

Following the global financial crisis, multi-asset class funds gradually emerged as a popular investment vehicle because they can offset risk arising from market uncertainty and volatility. In turn, fund houses have been beefing up multi-asset capabilities and expanding product offerings.

As the name suggests, multi-asset funds use dynamic asset allocation strategies, diversifying across various asset classes with an aim to beat different market cycles, generate returns, and at the same time control downside risk.

With this as a theme, FSA takes a look at two of the well-known multi-assets funds from Schroders and JP Morgan Asset Management that are similar in their investment approach, investing into Asian equities and Asian fixed income securities and targeting income and capital growth.

The JP Morgan fund follows a flexible and dynamic asset allocation, maintaining equities and fixed income composition in the range of 25%-75%. Likewise, the Schroders fund has the mandate to deploy 30-70% of the corpus in Asian equities and similar allocation to Asian fixed income.

Performance review

Leonardo Drago, chief investment officer at Al Wealth Partners in Singapore, said: “In terms of two-year performance since May 2012, the JPM fund has outperformed the Schroders fund by approximately 2% per annum.

“However, taking a longer term view since mid-2011, the table turns and the Schroder fund has outperformed the JPM fund by approximately 2% per annum for the entire period.”

The differences in performance can be traced to specific periods during the funds’ history. Drago points out that from February to June 2012, the Schroder fund gained 4.35% while the JPM fund lost 2.07%.

“The JPM fund had a stretch of significant outperformance during the 12-month period from mid-2012 to mid-2013 that preceded the Federal Reserve’s announcement [and subsequent] `taper tantrum’. The JPM fund outperformed the Schroder fund in this period by more than 6%.”

Investment strategy review

The assets under management of the JP Morgan fund were $2.89bn as of July end while the Schroders fund managed assets worth HK$21.4bn ($2.77bn) as of 31 July.

Asset and geographic allocation of the two funds mostly fall within a +/-5% deviation, resulting in high correlation between the two funds, Drago said.

Both funds have Australian equities as their top overweight exposure, and China fixed income as their top exposure.

The differences in exposure are primarily on the equity holdings.

“The JPM fund is significantly overweight financials, where four of the top five holdings are large banks, while Schroder’s top five holdings is more diversified between telecoms, real estate investment trusts, and banks.”

The top holdings of the JPM fund are: BOC Hong Kong (Holdings), HSBC Holdings, China Petroleum and Chemical, DBS Group, and Australia and New Zealand Banking.

Similarly, the top equity holdings of the Schroders fund are: SK Telecom, National Australia Bank and Telstra Corp.

“JPM has a significantly larger exposure to China equities at 9.3% weight as compared to 1.8% for Schroder, while Schroder is overweight Singapore equities (13% weight versus 7.2% for JPM).”

The average bond duration of the JPMorgan fund is 5.4 years whereas Schroders top fixed income holdings have a longer maturity, Drago added.

With the Schroder fund, the top five fixed income holdings have exposure to Indian sovereign bonds maturing in 2023 and Joyous Glory Group paper terminating in 2020. Similarly, other instruments are due for maturity in years 2022 and 2024.

“If interest rates rise as most market participants expect, the JPM fixed income portfolio may be better protected.”

“A large portion of the bonds in the JPM fund (approximately half out of the total 37.8%) are non-rated or below investment grade. This is likely due to their overexposure in China fixed income, the majority of which is not rated.”

Portfolio Managers

The JPMorgan fund is run by Stephen Chang, investment manager and head of the Asian fixed income team. Chang joined the firm in 2004. The fund is co-managed by Jeffrey Roskell, Julie Ho, and Shaw Yann Ho, who have been with the fund house for 14 years, nine years, and three years, respectively.

For the Schroder fund, Richard Coghlan, the head of multi-asset in Hong Kong, has the overall responsibility for the multi-asset portfolio team and overall responsibility of Schroder Asian multi-asset portfolios in Hong Kong, Singapore, Taiwan and Korea. Coghlan has been with Schroder since 2000 and has been managing the scheme since 2011.

Fees

The JP Morgan fund levies an initial fee of 5% of net assets and annual management and advisory fees of 1.5%. The Schroder fund, too, charges a 5% initial fee. The annual management charge is lower at 1.25% on A share class and 0.625% on C share class.

And the winner is….

Drago gives a slight edge to the JPMorgan fund.

“The main share class in Luxembourg has had a long track record since 2001. That can be used to better assess the longevity of the fund strategy as well as its performance during the 2001-2002 bear markets and in 2008.”

Drago likes JP Morgan’s overweight to China equities as he says it is the most undervalued equity market in the world and current valuations are at significant historical discount.

“Any future re-valuation of China equities should benefit JPM’s fund,” he added.

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