HEAD-TO-HEAD: JP Morgan vs Schroders

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Both the JP Morgan and Schroders funds invest in onshore and offshore Chinese equities and fixed income instruments. In spite of both funds having the word “income” in their names, Ng said that both funds employ different strategies, with one fund focusing on value and income, while the other aims for growth investments.

The JP Morgan fund’s equity portion is the more value-biased of the two. The fund managers in charge of the fund’s equity sleeve, Lilian Leung and Emerson Yip, prefer stocks that are cheap and also offer higher yields.

“They require the investment candidate from the equity side to have a 2% dividend yield,” Ng said, adding that it is a “real income strategy”.

Because of the fund’s value bias, it tends to invest more in the old economy sector, such as financials, according to Ng.

On the other hand, the Schroders fund is more growth-oriented.

“It tries to benefit more from the long-term economic growth of China,” Ng said, adding that the fund has a strong focus on new economy stocks that tend to be in the information technology sector. Tencent, Alibaba and China Mobile are among the top five holdings and account for 11.7% of the total portfolio.

Indeed, the differences in style explain the differences in sector allocation.

Source: JP Morgan Asset Management, Schroder Investment Management

Another key difference is in the equity sleeve of both funds. The JP Morgan fund’s allocation to onshore and offshore stocks is more balanced, while the Schroders product tends to invest more in offshore stocks, according to Ng.

For the fixed income sleeve, Ng said both funds tend to have more offshore than onshore exposure.

Volatility

Multi-asset funds invest in more than one asset class with the aim of easing volatility. The two funds appear to be living up to this promise. However, because the Schroders fund launched in late 2016, the data does not show the funds’ behaviour during a significant market downturn such as the one in January 2016.

Source: FE Analytics. The indices are not the funds’ benchmarks and are used for comparison purposes.

Asset allocation

Both funds are flexible when it comes to asset allocation, although there are some slight differences in setting allocation constraints.

The JP Morgan fund can invest 40%-80% of its assets in equities and 20%-60% in fixed income, while the Schroders fund can invest 30%-70% of its assets in both equities or fixed income.

The slight difference may explain why the JP Morgan fund has more equities in its portfolio than the Schroders fund.

 Source: FE Analytics

Because of JP Morgan’s relatively higher allocation range to equities, it would be natural for the fund to have more exposure to equities, Ng said.

Another key difference that Ng noted is the ability of the Schroders fund to invest up to 20% in other asset classes, such as Asia-Pacific or global equities or bonds.

“This gives the fund some flexibility to buy other assets if the Chinese market outlook is not looking good.”

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