HEAD-TO-HEAD: Alliance Bernstein vs JP Morgan

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The two funds, both long-established and managed by experienced teams, are quite similar in their portfolio management approach. Both rely on bottom-up selection of stocks from the MSCI Emerging Markets Index universe. Both tend to focus on growth stocks.

The AB fund tends to remain closer to the benchmark, taking lower relative bets, compared to the JPM fund.

The managers of the AB fund “focus on bottom-up stock selection but they also have a risk management process to make sure that the sector and country allocations don’t deviate much from the benchmark”, Ng said.

In what Ng described as a “quite traditional process”, AB team screens the whole emerging market universe to exclude companies with low growth and low return on equity. On the remaining companies they perform in-depth fundamental analysis, which include company visits, to eventually select 70-90 stocks for the portfolio. The current number of holdings is 71.

By comparison, the managers of the JP Morgan fund, while following a similar process, have a stronger focus on sustainability of company earnings over the long-term. This includes analysis of the industry structure, the political and regulatory context and the company’s governance.

The fund aims to hold between 60 and 100 names, some of them for the long term, others for a more tactical, short-term purpose. It currently holds 74 positions.

“JP Morgan has a stronger conviction in their portfolio. Generally, it is more aggressive. The fund managers are more willing to make active bets relative to the benchmark,” Ng said. “Their sector and country weightings have higher deviations from those in the overall emerging markets index, compared to AB.”

However, the current active share of the AB fund, which measures how far the manager strays from the benchmark, is 73.3 and that of the JP Morgan fund is 71.6, according to Morningstar.

Ng also noted that the JP Morgan fund’s focus on growth stocks is stronger, which has benefited the fund during the stock rally of 2017 when growth stocks outperformed.

Both funds’ top holdings are the largest stocks in the emerging markets universe, in particular, Tencent, Alibaba, Samsung Electronics, Taiwan Semiconductor and AIA Group. They differ by relative over- or under-weighting of specific names rather than investing in different companies. In particular, the AB fund is overweight Samsung and underweight Tencent, while the JP Morgan fund – the opposite.

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