HEAD-TO-HEAD: Fidelity vs JP Morgan

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Both the Fidelity and JP Morgan funds belong to Morningstar’s Asean equity category and have the MSCI AC Asean Index as their benchmark.

While both funds have a bottom-up approach to investing, the main difference is how actively each manager takes bets on the stock level and the country level, according to Laidlaw.

Gillian Kwek, the manager of the Fidelity fund, does not tend to take large bets on a stock, sector or country level, Laidlaw said. The fund’s guidelines for divergence from the benchmark are lenient. The sector and country allocation can differ by 10%, and the positioning in individual stock by 5%.

Kwek rarely comes close to using this leeway. Her largest difference in sector allocation was around 3%-4%, according to Laidlaw.

Since Kwek does not take large bets, the Fidelity fund’s tracking error is low, below 3%, Laidlaw said.

Kwek looks for companies with above average, sustainable growth earnings, strong free cash flow and a record of  treating minority shareholders well. She also looks for improving profitability in terms of return on equity and return on investment capital.

The manager of the JP Morgan fund, Pauline Ng, is more active in taking large bets, according to Laidlaw.

Although the fund has an asset allocation committee that meets on a quarterly basis to make asset allocation calls at a macro level, Ng’s decisions are still based predominantly on her own views, Laidlaw added.  The firm’s macro calls have little effect on the portfolio.

In her stock selection Ng focuses on quality. She pays attention to the supply and demand dynamics in the industry and barriers to entry. She also looks at sustainability of dividends and earnings growth.

The difference in the investment approach of the two fund managers explains why the funds look different.

For example, the Fidelity fund is more diversified, with around 100 holdings, while the JP Morgan fund has around 70.

Differences can also be seen in the funds’ country allocations.

Country exposure (in percent)

Source: Morningstar (May 2017)

The Fidelity fund is more concentrated on the region’s most developed market, Singapore, while the JP Morgan fund allocates more to Thailand and Indonesia.

The Fidelity fund’s 17.6% exposure to Malaysia, is notably higher than the JP Morgan fund’s 13.6%.

According to Laidlaw, the underweighting of Malaysia in the JP Morgan fund relative to its benchmark is best explained by Ng’s willingness to take large bets.

The underweight position has been there for “quite some time”, Laidlaw noted. He added that Ng had been having a hard time looking for good investment ideas in the country as she was concerned about corporate governance and valuations.

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