HEAD-TO-HEAD: BEA Union vs Schroders

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The BEA Union fund has notable differences from the Schroders fund – the former uses a combination of top-down and bottom-up approach which reacts more frequently to macro changes, while the latter focuses on bottom-up selection to find companies with long-term quality growth, he said.

“The BEA Union fund will first take in the macro factors to form the allocation view.” For instance, the fund reduced exposure to Hong Kong property developers after the government imposed measures trying to curb the heated residential market. But the team added back some positions after seeing limited impact to home prices.

The investment team uses “4P” to evaluate a company – product, profitability, price and professionalism, Ng noted.

For the Schroders fund, one key factor to assess a stock is its ability to generate stable and consistent shareholder return, he said.

Annual turnover of the fund remains low at about 20%. (The BEA Union fund’s turnover figure was not available).

The Schroders team will compare the return on invested capital (ROIC) versus the weighted average cost of capital (WACC) to judge whether a company uses the invested capital effectively.

“The fund mainly invests in companies which have a ROIC larger than the WACC, or companies that are improving the ROIC,” he said.

The Schroders fund also applies models to evaluate a stock’s valuation and its probabtility to outperform, Ng added.

Another difference is the focus on Chinese companies versus Hong Kong ones, Ng continued.

“The BEA Union fund normally has two-thirds of holdings in Chinese companies, while the rest are from Hong Kong.

“The Schroders fund, on the other hand, typically held about two-thirds of the portfolio in companies that have Hong Kong-oriented businesses.

“However, the Schroders fund added more Chinese internet names last year, including Tencent, Alibaba, JD.com and Ctrip,” Ng said, as these firms have secular growth potential.

It has no exposure in Chinese materials, consumer staples and banks, as the managers do not see a fundamental improvement of the demand for materials, while the Chinese banks also have policy risks and governance issues.

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