HEAD-TO-HEAD: Alliance Bernstein vs JP Morgan

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Investment strategy

Both the AB and JPM funds are all-cap strategies benchmarked to Japan’s exchange index, Topix. However, their portfolio construction strategies differ markedly from each other.

AB has an emphasis on reasonable valuation while the JPM fund, similar to the firm’s other Asia-Pacific equity funds, invests in quality growth companies, according to Ng.

The AB manager believes the equity market trades in an irrational and inefficient fashion, according to Ng. Therefore, with in-house quantitative analysis, part of the fundamental research on the investible universe is to differentiate whether the inexpensive valuation comes from a ‘value trap’ or from mispricing. The fund consisted of the manager’s outlook on the latter.

In comparison, the JPM manager has strong conviction on high-growth areas in the Japanese equity space. “The manager is willing to pay a higher valuation to make long-term growth bets,” said Ng.

As a result, the JPM fund is historically more expensive in terms of average price-to-earnings and price-to-book ratios than the AB fund.

Ng added that part of the JPM portfolio is invested with leverage, which allows the fund to raise market exposure over 100%. “The gearing ratio could maximise to 120% when the manager has a particular conviction and bullish view.”

For the leverage operation, Hong Kong’s financial watchdog has raised concerns over the risk investing in fund. “The regulator had conversations with the asset manager earlier this year. The fund is found terminating gearing up from April 2018,” Ng said, adding that the other components in the strategy remain unchanged.

According to FE data, around 17% to 20% assets was funded by borrowed money over the one-year period through April 2018. At end-August, the manager reported 0.6% of assets in cash or cash equivalents.

As of end-August, the AB fund had 43 holdings compared with 60 for the JPM fund.

Top five stock holdings

Sector allocation

Source: fund factsheets and Morningstar

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