HEAD-TO-HEAD: BNPP IP vs Schroders

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Both the Parvest and Schroder funds have the aim of outperforming their benchmark index, which is the MSCI EMU Index, according to Brunt.

While both funds have a bottom-up approach to investing, they follow a broad sector mandate (or guidelines) that does not allow them to deviate much versus the benchmark.

For example, there may be some areas where both fund managers may not be inclined to allocate to a sector or industry. But they are still required to hold a position in the sector.

Sector allocations

Source: Morningstar

However, what separates the two funds is how they screen stocks.

The Parvest team screens stocks using the Herfindahl-Hirschman Index, which measures the level of consolidation within an industry.

“[The Parvest team] is trying to find companies that are operating in sectors that have the least competition,” Brunt said, adding that companies that operate in those sectors would have superior pricing power.

The team then refines its search further by assessing firms from a purely company-specific level. The analysts would prefer businesses benefiting from product differentiation and strong bargaining power with suppliers. The team believes these are further factors that defend a firm’s earnings stream, Brunt said.

For the Schroder fund, the manager makes use of various valuation screens, such as P/E and EV/Ebitda relative to their 10-year history and price screens. The fund’s targeted names would have sustainable profit growth above market expectations or improving long-term returns.

Given the differences in the investment screens, the Parvest fund would have a bigger bias toward large-cap companies because the team is looking at those companies that have high marketshare.

Equity style box factors 

Source: Morningstar

In addition, although both funds would have a slight tilt toward growth stocks, the Parvest fund has a slightly larger one, Brunt said.

“That is probably a consequence of their investment approach. They are looking for companies with higher pricing power potential and therefore a better potential for growth,” Brunt said.

On the flipside, the Schroder fund’s investment approach is more flexible, allowing the manager to implement slight portfolio changes when investment opportunities arise.

For example, between 2014 and 2017, the Schroder fund added more value names.

“This reflected a combination of [Martin Skanberg, the fund’s portfolio manager], acknowledging that the portfolio needed a greater exposure to value and that the best ideas coming through from the analyst team also had a greater value bias,” Brunt said.

“The manager will actively tilt the portfolio to where he sees the most opportunities.”

Brunt noted that both funds saw the need to have more exposure to value stocks. However, the Schroders fund “was more effective in implementing that”.

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