HEAD-TO-HEAD: Alliance Bernstein vs JP Morgan

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Data: FE, in US dollars.

Performance

The JPM fund substantially outperformed the AB fund in terms of category and index on each of a one-, three- and five-year basis. Ng attributed such outperformance to the manager’s ability in active stock-picking as well as the gearing effect.

“Using leverage in the fund indeed helped magnify the outperformance, yet it comes with volatility,” he explained.

The JPM fund, in US dollar terms, has a volatility of 18.5% trailing three years, which is more volatile than the AB fund (15.6%) and the benchmark index (14.78%), FE data shows.

But as mentioned, the Hong Kong-domiciled version of the JPM product is unlikely to use leverage again after the regulator’s comments. Hence, Ng estimated the discrepancy in performance against peers and the index will narrow.

Additionally, since the JPM fund tilts towards quality growth stocks, it benefited from the growth rally of the recent past.

On the flipside, the growth overweight makes it difficult to outperform the market during value stock rally. One example was the second half of 2016. “The sharp turnaround of value stocks, mainly financials, in late 2016 dragged the JPM fund’s full-year performance,” Ng said.

Over the same period, the AB fund with higher exposure to the financial sector was a beneficiary.

“Although the market of recent years is slightly unfavourable for the AB fund, the manager could maintain a return aligning the benchmark and peer average,” Ng continued.

Calendar year performance (%)

Data: FE, in US dollars.

Both strategies invest in highly-active shares compared with the benchmark, Topix, with the AB fund maintaining at around 80% and the JPM fund 85%, according to Ng. Despite that, the AB fund still correlates highly with the benchmark index.

Three-year correlation

 Data: FE, in US dollars.

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