HEAD-TO-HEAD: Blackrock vs Schroders

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Both the Blackrock and Schroders funds invest in Asia-Pacific (ex-Japan) equities and have the MSCI AC Asia-Pacific (ex-Japan) index as their benchmark. However, the funds have different strategies, according to Share.

The Blackrock product has a flexible, style-agnostic investment approach, while the Schroders fund focuses on growth companies with a strong emphasis on quality.

The manager of the Blackrock fund, Andrew Swan, who is also the firm’s Hong Kong-based head of Asian and global emerging market equities and portfolio manager of the Asian Dragon Fund, starts the process by working with the risk and quantitative analysis group to assess various style factors, such as value, growth and quality, according to Share.

He sets the general investment direction by deciding which style factors or sectors to rotate into. His team then conducts fundamental analysis on individual stocks and considers a number of factors, such as profit sustainability, competitiveness and management experience.

Swan then constructs a concentrated portfolio of 50-80 names based on team recommendations.

“He thinks from a top-down perspective first, determining what kind of style he wants to rotate into,” Share said.

The Blackrock fund started to tilt toward value stocks in late 2015. At the time, Swan believed that the world was starting to show synchronised economic growth, which would be a driver for value stocks.

“So he went into the cheaper value sectors like materials and energy,” Share said.

By comparison, the Schroders fund, led by Hong Kong-based head of Asian equity investments Toby Hudson, focuses on both quality and growth stocks. His team first applies quantitative and qualitative screens, using criteria such as liquidity and corporate transparency, and then conducts in-depth reviews of companies and the industries that they are in.

“They care about the management track record, they care about the company’s treatment of minority shareholders, and as a result, you will see that they steer away from the state-owned enterprises in China or the chaebols in Korea,” Share said.

Because of the growth tilt, Hudson favours companies that are able to generate higher returns on investment capital (ROIC) than their weighted average cost of capital (WACC), or those with ROIC currently below WACC but trending toward a positive spread.

He then constructs a concentrated portfolio of 50-60 names.

Because of the difference in strategies, the two funds’ sector and country allocations are also different. For example, the Blackrock product has allocated more to value-orientated sectors and countries, such as materials, energy and China, while the Schroders fund has significantly more in technology stocks.

Sector allocation:

Source: Morningstar

Source: Morningstar

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