HEAD-TO-HEAD: GAM vs JP Morgan

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Both funds employ top-down trend analysis and bottom-up stock-level fundamental research, which includes visiting the companies and meeting with their management, according to Share.

Michael Lai, who manages GAM Star China Equity Fund, invests in quality growth companies, she said. The fund’s investment universe consists of the constituents of MSCI China Index, ADRs and Hong Kong companies.  It usually holds 40-50 names and is fully invested.

Lai’s team looks for companies with high barriers to entry, strong balance sheets, competitive advantages, growing market share and potential for upward earnings revision, Share explained.

The investment process relies heavily on Lai himself for identification of investment themes. He is also deeply involved in the research process.

“He does not refer to a benchmark when he constructs a portfolio,” said Share. “There will be a lot of large deviations from the benchmark in his portfolio, which means the return will be very ‘lumpy’”.

Howard Wang, the lead portfolio manager of JPM Funds China, targets growth companies with sustainable supply-and-demand advantages, high earnings and high cash flow growth, Share said.

His portfolio consists of 30-60 names. “Wang occasionally takes opportunistic positions in distressed stocks he expects will make a strong recovery. They typically make up 20% of the portfolio.”

The portfolio focuses on secular growth stories, and takes into account management track record, corporate governance and capital structure.  To assess a company, Wang’s analysts take into account its ability to generate strong returns, sustainability of its competitive advantages and treatment of shareholders, she said.

Both funds’ largest sector class are cyclical stocks, with GAM Star China Equity allocating 61% of its portfolio and JPM Funds China 52%. The former is more exposed to basic materials and real estate, while the latter allocates more assets to financial services.

The manager of GAM Star China Equity Fund has recently been buying “old economy” stocks, especially in the materials sector, said Share.  “He tries to find very cheaply valued stocks that can benefit from the reflationary cycle,” she explained. “It’s the concept of ‘when the tide rises it lifts all boats’.”

JPM Funds China recently added Ctrip.com, China’s dominant online travel agency, to its holdings, according to Share. Through acquisitions, “the company has been consolidating the industry in which it is the leader”, she said.

Defensive sectors constitute 12% of JPM’s portfolio (mostly healthcare and utilities) and only 2% of GAM’s.

Stocks listed in China amount to 83% of GAM Star China and 87% of JPM Funds China.

Both funds invest mainly in large cap companies, with GAM Star China allocating 2.5% of its portfolio to small caps (JPM Funds China currently holds none).

Sector Allocation

Source: Morningstar

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