HEAD-TO-HEAD: Eastspring vs Invesco

123456

Both funds invest in India equities and both managers use a bottom-up approach. However, the main difference between their investment strategies is the focus – one has a bias towards value, while the other prefers growth.

The Eastspring fund’s portfolio manager, Krishna Kumar, is very much value-driven, according to Ng. Kumar’s team makes use of a proprietary valuation screening system and then employs fundamental analysis to choose around 40 stocks for the portfolio.

Ng added that Kumar has been cautious on valuations. The market has priced in strong confidence that reforms will progress and drive economic growth, but Kumar believes that growth may be more gradual than what most investors expect.

On the flipside, Invesco fund’s portfolio manager, Chandrashekhar Sambhshivan, prefers companies with long-term growth potential. His team makes use of a screening process called “FVMC”, which stands for franchise value, valuation, management and cash generation capabilities.

Although Sambhshivan is also aware of India’s high valuations, he believes they are reasonable when compared to historical data and that earnings growth will continue in the long-term.

Ng said that Sambhshivan also likes high-quality stocks, which are defined as industry leaders with demonstrably strong business models and corporate governance, and with earnings that are sustained over different economic cycles.

Like the Eastspring fund, the Invesco fund has a concentrated portfolio of around 35-45 stocks.

Because of the differences in their styles, both portfolios look very different.

The Eastspring fund, for example, has more large-cap companies, which include state-owned enterprises (SOEs). Ng explained that these SOEs tend to have lower valuations.

On the flipside, the Invesco fund focuses more on the private sector and holds far fewer SOEs in the portfolio. Ng added that the Invesco fund has more small- to mid-cap companies than Eastspring.

The sector allocations of the two products are also very different. The Eastspring fund does not deviate much from its index, which is the MSCI India Index.

Ng said that large-cap companies, as well as SOEs, dominatethe index, which explains why the fund and benchmark have some similarities in terms of weighting:

Source: Eastspring (as of 30 June)

For the Invesco fund, given its bias toward growth stocks and its investments in small- and mid-cap companies, the portfolio shows comparatively large deviations from its benchmark, the MSCI India 10/40 Index.

Source: Invesco (as of 30 June)

Both indices measure the performance of the large and mid-cap segments of the India market. The only difference is that the MSCI 10/40 Index has some weighting constraints in line with the Ucits III Directive.

Citing an example of Invesco’s deviation from the benchmark, Ng said that Sambhshivan sees huge opportunities in the financial sector.

“The penetration rate of owning a bank account is very low, and over the past year, around 270 million bank accounts were opened and he sees that set to continue,” Ng said.

Although Eastspring‘s manager Kumar also sees this kind of opportunity, he is cautious about the valuations of banks in the private sector, which explains the fund’s slight underweight toward financials.

123456