HEAD-TO-HEAD: Invesco vs iShares

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Invesco’s Simon Jeong follows the “core quality” investment approach. He looks for stocks with sustainable, predictable earnings growth and a healthy balance sheet.

“These kinds of stocks are hard to find in cyclical areas such as technology,” said Ng. Peculiar to the Korean market, “if you want a stock with sustainable and predictable long-term growth, you need to look at small- and mid-cap companies,” he added. “This also drives Jeong toward consumer and healthcare companies, which do business more locally rather than internationally.”

Such a strict focus on core quality also limits the universe of companies Joeng considers for his portfolio to 40-50 names, according to Ng. On 30 June, the fund held 25 stocks, according to its fact sheet, with a 53% allocation to consumer staples and discretionary, and a 19% allocation to healthcare.

“Core quality” stocks constitute approximately 70% of the fund’s portfolio. However, the fund’s largest holding (9.1%) is Samsung, which is not a “core quality” but “cyclical quality” stock and comprises part of the remaining 30% allocation.

Jeong uses a purely a bottom-up stock-picking approach based on quantitative and qualitative analysis, according to Ng. After identifying a new investment, he tends to initially allocate 3-4% of the portfolio to it, said Ng. Currently, each of the top five holdings, after Samsung, constitute 5.3-6.7% of the portfolio.

Because the pool of investments that satisfy Jeong’s criteria is relatively small, the portfolio turnover is low, according to Ng.

By comparison, the iShares MSCI Korea Ucits ETF follows the MSCI Korea Index, which is composed of 112 names and covers about 85% of Korea’s equity universe, according to MSCI. Its weighting to the information technology sector is 45%, followed by consumer staples/discretionary companies (19%) and financials (13%). Healthcare companies account for only 2.7% of the index.

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