HEAD-TO-HEAD: First State vs JP Morgan

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The First State Global Resources Fund tends to skew toward large cap companies and the JP Morgan Global Natural Resources invests more in small and mid caps, according to Khizou.

First State held 66% of assets in large caps on average during the past three years, while JP Morgan only 50%.

With small caps, JP Morgan allocated 23% on average, compared to only 12% for First State.

First State manager Joanne Warner’s team chooses companies based on five factors: asset quality, production costs, earnings growth, financials and quality of management, while taking into account environmental, social and governance policies.  The team makes no attempt to predict short-term commodity prices, according to Khizou, but monitors relevant macro factors.

Neil Gregson’s JP Morgan team has a strong bias toward undervalued mid- and small-cap companies that it believes show strong growth potential. It applies a strictly bottom-up approach, which includes analysis of the company’s financing, the geology of the natural assets, quality of management and risks.

“First State tends to target larger caps than JPM,” said Khizou. “They will look for quality companies that also exhibit lower cost.”

In contrast, the JPM manager believes that the growth stories come mostly from mid and small cap names, said Khizou.

Four of the top five holdings in both funds are identical: Rio Tinto, Glencore, BHP Billiton and Chevron, accounting for approximately 20% of assets.

The First State portfolio usually holds between 50 and 75 stocks, mostly very familiar names. Up to 15% are small-cap growth stocks.

JP Morgan’s portfolio includes a longer list of higher-risk small-cap stocks, albeit diversified across subsectors to mitigate the risk.

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