HEAD-TO-HEAD: Aberdeen vs Eastspring

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Both funds belong to Morningstar’s Japan large-cap equity category, which the firm defines as funds that invest principally in the equities of large-cap companies, or those in the top 70% of the capitalisation of the Japanese market.

Both have very concentrated portfolios, although their investment processes are different, according to Yew.

Aberdeen has strict quality criteria, which include the company’s business model, capable management, good corporate governance, strong balance sheet and commitment to shareholders, according to Yew.

“When I talk about good corporate governance, [it is about] good treatment of minority shareholders,” he said, noting that in Japan, a lot of companies are sitting on huge piles of cash but do not return the capital to their shareholders.

Because of its stringent criteria, Aberdeen’s investible universe is relatively smaller compared to Eastspring’s, with around 100 stocks. Eastspring has around 130-150 in its universe, he said.

Currently, the Aberdeen fund has 30-40 holdings in its portfolio, while the Eastspring fund has 30-50 companies.

The difference in the investment processes explains why the Aberdeen fund’s exposure to both large- and mid-cap companies are close to the category average, while Eastpring deviates from it by having more exposure to mid-caps.

Equity style

Source: Morningstar

“A lot of these larger caps tend to be higher quality in nature,” Yew said, noting that because of Aberdeen’s quality criteria, its portfolio has a growth tilt.

Eastspring, on the other hand, has more of a value tilt, so it tends to look for companies that are trading at a discount.

According to Yew, a lot of the smaller, mid-cap names tend to be under the radar or covered by only a few sell-side analysts.

“There tends to be more inefficiencies in the smaller cap names in the Japanese equity market, so Eastspring is seeing more opportunities within the smaller cap names.”

Perhaps the biggest difference between the two funds is sector allocation.

Aberdeen has a higher overweight in consumer staples, Yew said, noting that consumer staples tend to be pricier than other sectors. Unlike Eastspring, Aberdeen is less conscious of valuations, he added.

Since Eastspring is more valuation conscious, it has little or no exposure to consumer staples, according to Yew. He noted however, that the Eastspring fund is not a deep value fund, although valuation is one of the factors it uses to screen out companies.

Sector allocations

Source: Morningstar

“A common trend that we see in the Japan value managers is that they tend to be underweight or have no position in consumer staples,” he added.

In terms of average turnover, both funds have long-term investment horizons. But the Aberdeen fund’s average portfolio turnover over the last five years is at 8%, while Eastspring’s is 31%.

On average, long-term fund managers have turnover rates of around 10-30%, according to Yew.

“Aberdeen is more extreme in terms of being willing to hold their stocks over a period of time,” he said. However, both fund managers tend to be patient when riding out short-term market volatility.

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