HEAD-TO-HEAD: Blackrock vs UBS AM

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Investment process

Both the Blackrock and UBS AM funds invest in offshore Chinese equity equities, particularly H-shares. Both are also Ucits funds, which means they have a 10% cap restriction when investing in individual stocks.

The funds are also concentrated, with the Blackrock portfolio holding 30-60 stocks and the UBS fund holding 40-70.

However, the funds have different preferences when it comes to style and sector selection, according to Share.

The Blackrock fund, which is managed by Helen Zhu, adopts what the firm calls a “flexible style”.

“The fund is not wedded to a growth or a value style. The head of the Asia-Pacific emerging markets team, Andrew Swan, works with an internal analytics team to form a forward-looking view of what they think the market will look like,” Share said.

Over the past one-to-two years, the team has been tilted toward value stocks, based on expectation that they will benefit the most on the back of a global recovery, according to Share.

This results in the fund’s overweights in cheaply-valued sectors such as energy, materials and financials, and to a lesser extent, industrials, she added.

In terms of stock selection, the team conducts fundamental analysis on stocks within preferred sectors. It considers qualitative factors, such as profit sustainability and management experience. Valuations are also assessed by a range of criteria, such as cash flow. The team then scores stocks from one-to-five, with one representing a strong buy.

Turning to the UBS AM fund, the fund manager, Bin Shi, looks for industry leaders and potential future leaders in their respective sectors.

“He looks for what he describes as the next Tencent,” Share said.

Shi prefers sectors that benefit from secular growth, such as consumer discretionary, technology and healthcare, according to Share.

When analysing individual stocks, Shi’s team conducts fundamental research to find companies with promising business models, strong cash flow, satisfactory disclosure of financials and stock prices that have not yet fully reflected their long-term growth potential.

Shi may also actively manage the fund’s cash position when he feels that the equity market is overheating. For example, during the market meltdown of 2015, he raised cash levels to 16.72%, according to Share.

The different investment approaches are reflected in divergent sector allocations:

Sector allocation (%)

Source: Morningstar

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