Investment strategy
Both the BNY Mellon and Deutsche funds belong to the global equity income peer group, the analysts said.
The funds are fairly concentrated, with high active share. The active share for the BNY fund is 91.43% against the MSCI World Index, while Deutsche’s is 88%. Both funds are value-oriented and do not use a benchmark index.
However, there are huge differences in the investment processes used by the two fund management teams.
The BNY Mellon fund is supported by the firm’s investment strategy group, which provides broad global themes by evaluating the investment environment and valuation of major asset classes. Examples of these themes include “health demand”, “smart revolution”, “China influence”, and “debt burden”.
The investment strategy team group is independent of the fund management team, the analysts noted.
The investment universe is defined by these themes. After that, the fund screens the stocks using valuation models. For example, new positions must have a prospective dividend yield 25% higher than the FTSE World Index’s yield. Any existing positions with a yield that falls below the index level are exited.
The fund also favours companies that have high quality cash flow, a repeatable return on investment and sustainable dividends.
The Deutsche fund, by comparison, looks more at valuation metrics compared to the BNY Mellon fund, which makes the fund more value oriented.
The strategy uses a multi-factor screening model, putting emphasis on dividend yield, dividend growth and pay-out ratio in order to define the investable universe.
Ideas are also generated by the views of Deutsche’s chief investment officer. Around 15% of the fund’s ideas are a result of a top-down analysis, while 85% of the ideas are generated by bottom-up equity research.
The differences in investment processes of the funds are reflected in the sector allocation.
For example, BNY Mellon’s higher weighting to technology relative to the Deutsche fund is a result of some themes that the fund follows that may have captured growth sectors.
Top five sector allocations:
|
BNY Mellon fund |
Deutsche fund |
||
| Consumer goods |
27.0% |
Consumer staples |
21.2% |
| Technology |
14.8% |
Telecomms |
12.2% |
| Healthcare |
14.1% |
Healthcare |
12.1% |
| Consumer services |
13.7% |
Financials |
10.6% |
| Financials |
10.2% |
Utilities |
9.1% |
Source: BNY Mellon, Deutsche Asset Management
