HEAD-TO-HEAD: Invesco vs JP Morgan

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Both funds currently hold around 60% of assets in equities and 40% in fixed income, with the allocation to equities slightly higher in the JP Morgan fund (62%) than in the Invesco fund (59.6%), as of 30 November 2017, according to data from FE.

The approach of Mike Shiao, the manager of the Invesco fund responsible for its equity sleeve, is not strictly focused on high-dividend stocks, which would be typical for income-oriented funds, according to Ng.

He said that although “they try to look for stocks with above-average dividend yield, delivering stable and regular income,” Shiao also includes in the portfolio companies paying relatively lower dividends, but with a potential for capital appreciation, an approach more typical of total return funds.

“The primary factor that drives the portfolio composition is the bottom-up security selection,” Ng said. “For the fixed income, top-down macro and sector views play a more important role.”

The JP Morgan product is more clearly focused on income-generation. The managers choose stocks from the top one-third of their equity universe offering the highest dividend yield. This results in an implicit bias toward countries and sectors where those high yields can be found.

The fund had a 19% exposure to China equities, 8.6% to Australia and 8.5% to Hong Kong, with slightly lower allocations to Korea, Taiwan, Singapore and Thailand. Overall, its exposure to areas outside Greater China was around 43% of all assets.

The Invesco fund does not break down exposure to equities and fixed income, but its geographical weighting to China amounted to 44.3% on 30 November, with a further 16.7% to Taiwan and 10.7% to Hong Kong, leaving around 28% to markets outside Greater China.

The investment approach of the JP Morgan fund is dynamic, according to Ng, which means that the fund moves between exposures to cyclical stocks, such as financials and energy, and defensive ones, such as utilities and telecommunications. It aims to hold between 70 and 80 stocks in the portfolio.

The JP Morgan fund also adopts the same dynamic approach to fixed income, with the portfolio shifting between sovereign and corporate bonds, as well as investment grade and high yield. The fund managers are guided in these decisions mainly by macroeconomic factors. “At the moment, they have a stronger weighting in corporate over sovereign and in high yield over investment grade,” Ng said.

The fund also has an active currency management overlay, Ng noted. While the managers maintain a 70%-80% exposure to the US dollar and Hong Kong dollar, “they try to hedge currencies which are overvalued, with a reasonable hedging cost,” he said. “In the past, it has added some value to the fund.”

The Invesco fund does not actively manage currency exposure, according to Ng.

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