HEAD-TO-HEAD: Nordea vs Templeton

123456

Both funds, registered for sale in Singapore, focus on small-caps – defined as $10bn of market capitalisation or less – and use MSCI Emerging Markets Small Cap Index as the benchmark, which has 1,842 constituents. But the two portfolios usually have less than 130 holdings each, Ng said.

The Nordea fund has its management outsourced to Copper Rock Capital Partners, a Boston-based boutique fund house with a focus on global small-caps, he noted.

“Nordea/Copper Rock aims for small sized companies that are under researched and covered [by fund houses and sell-side analysts], and believes it can make use of this market inefficiency to generate alpha,” he said.

“The team uses a combination of quant modeling and fundamental analysis, with a bias toward growth. The latter consists of factors such as the company’s market share, profitability and earnings growth, as well as the management ability.”

The resulting portfolio is a closer match to the benchmark in terms of country and sector allocation, Ng said.

“The team also has a strong sell discipline through a set target price for each holding,” he added.

Selected country allocation %, as of May 31

Source: Fund factsheets

The Templeton fund, on the other hand, has a preference toward value stocks as well as Indian companies, Ng continued.

“The team applies a pure bottom-up approach to find companies with a five-year investment horizon,” he said.

“The underweight in Taiwan and South Korea also shows that this fund is less exposed to cyclical stocks, as the two countries are more export oriented. For example, in Taiwan there are a number of companies which benefit from the iPhone supply chain, but the cycle is short.”

More cyclically driven sectors, such as industrials and materials, have also been underweight.

Turning to the Nordea fund, the manager factors in cyclical growth and judging from the portfolio holdings, Ng also believes the Nordea fund has a higher turnover than the Templeton product.

The turnover ratio of the Templeton fund usually stands below 25% a year, and last year it was only 12%, he added.

“The low turnover might also help performance, as trading costs of emerging markets are usually higher.”

The Templeton fund’s active share, which measures the percentage of the fund holdings that deviate from the benchmark, is high at about 96%, Ng added. The Nordea fund is even higher at 99.2%, according to Morningstar.

123456