HEAD-TO-HEAD: Capital Group versus JP Morgan

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Investment approach

Although the two funds share a mixed asset mandate, they have different emphases which is reflected in their strategies and portfolio compositions. The Capital Group product seeks a balance of principal conservation, stable income and long-term capital growth, whereas the JP Morgan fund has a greater focus on generating income.

“Capital Group’s strategy follows the firm’s distinct, bottom-up-oriented multimanager approach, which lets the fund’s six managers play to their strengths,” said Claus.

The managers each run separate slices of the portfolio, with four balanced sleeves accounting for 75% of assets. Two fixed-income sleeves make up the other 25%.

“The aim is to achieve long-term capital growth with a below-average downside capture compared with the benchmark and peer,” said Claus.

The equity exposure on the strategy level can range between 45% and 75%, and it is determined by the balanced managers, who may hold up to 40% in cash and bonds.

The bond sleeves are run conservatively, consisting of government and investment-grade corporate bonds with a similar credit quality to the bench- mark.

“Each balanced manager has a unique investment approach, which leads to style and risk diversification on the portfolio level,” said Claus.

Paul Flynn is the “principal investment officer”, responsible for overseeing the portfolio and its risk management, but because of the relatively low overlap between the different investment approaches, adjustments for risk-management considerations have been rare so far, according to Claus.

“It is a high conviction fund that allows its experienced manager to deploy their different bottom-up, strategic styles to create a diversified portfolio,” said Claus.

The benchmark is 60% MSCI AC World index and 40% Bloomberg Barclays Global Aggregate Bond index. The equity portfolio is globally oriented with about half invested in US stocks. The largest sectors are technology and healthcare and technology, followed by financials. The fixed-income portfolio is run conservatively with most allocated to government bonds and to investment-grade corporates issues, including smaller allocations to inflation-linked bonds and mortgage-backed securities.

“With the fixed-income portfolio as ballast, the equity side drives results,” said Claus.

The JP Morgan fund aims to deliver high income with better risk-adjusted returns than its customised benchmark of 35% MSCI World Index (Net) Hedged to EUR, 40% Bloomberg Barclays US High Yield 2% Issuer Cap Index Hedged to EUR, and 25% Bloomberg Barclays Global Credit Index Hedged to EUR.

The customised benchmark is designed to provide mixed-asset exposure with an income bias. It has led the managers to run relatively large weightings in high yield bonds and international equities compared with category peers, according to Claus.

“Although there is a value-emphasis, the fixed income portfolio has significant exposure to high yield bonds,” she said.

The fund’s trailing 12-month yield has typically ranged from 4% to 6%, and this is paid out entirely from income received on the underlying holdings.

“The fund has an income-orientation so there is a tactical, top-down aspect to stock and bond allocation,” said Claus.

Comanagers Michael Schoenhaut and Eric Bernbaum typically make several thematic-based moves a year based on analysis JP Morgan has been refining since 1999, according to Claus.

“Results will differ slightly as they adjust the firm’s views based on perceived relative yield opportunities, but the innovative, team-based approach to allocation and wealth of experience give us confidence that the strategy’s tactical moves will continue to succeed over the long haul,” she said.

Source: FE Analytics, Morningstar (Data in US dollars, 2 October 2019)

Asset allocation:

Source: Morningstar, June 2019 

Top 5 equity sectors

Source: Morningstar, June 2019

Top 5 fixed income sectors

Source: Morningstar, June 2019

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