HEAD-TO-HEAD: Blackrock versus First State

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Investment process

Both the Blackrock and First State funds invest in Asia bonds and use the JP Morgan Asia Credit Index as their benchmark.

Their strategy and process are also similar; both funds tie-in a top-down and bottom-up analysis of securities.

“For the Blackrock fund, the portfolio manager will set the top-down country and sector allocation, and then identify the best value issuer. For the First State fund, there is an internal five-step process, which includes a macro assessment of country fundamentals, and this ties with the fundamentals of credit research,” he said.

Both funds are also predominantly invested in US-dollar denominated bonds, Ng added, noting the funds have flexibility to invest up to 10% of their assets in local currency.

However, both funds also have some differences.

In terms of concentration, the Blackrock fund tends to have around 200-300 bond holdings, while the First State Fund only has 100 holdings, according to Ng.

The Blackrock fund also is more willing to have off-country benchmark bets. “It has holdings in the Middle East, like Kuwait, Oman and Qatar. Last year, it also made a bet in Mongolia.

“If you look at the First State fund, it focuses more on the core Asian country issuers and has a stronger focus on China,” he said.

Ng acknowledged that the First State fund now has some investments in Mexico and Turkey, but added that he believes these are relatively new positions.

Source: Fund factsheets, FE Analytics. Note: Figures may not add up to 100%

In terms of average credit rating, the Blackrock fund is BBB, while the First State fund is BBB-.

Ng explained the First State fund has a heavier weighting in BBB-rated bonds than the Blackrock fund. But while Blackrock’s key holdings are also in the BBB space, it tends to have a little bit more of the higher- and lower-quality rated bonds, as well as non-rated securities.

Credit rating allocation (%)

Source: Fund factsheets. Note: Figures may not add up to 100% and exclude cash exposure.

While both funds have differences in their market exposure and credit rating allocation, their sector allocations are similar, Ng added.

Sector allocation (%)

Source: Fund factsheets. Note: Figures may not add up to 100% and exclude cash exposure.

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