HEAD-TO-HEAD: Capital Group versus Neuberger Berman

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INVESTMENT PROCESS

Both the Capital Group and the NB funds are multi-cap US equity products, according to Jmili. They have similar allocations toward the market cap spectrum, where large companies make up almost 80% of each portfolio.

Market cap allocation

Source: Morningstar

However, there are huge differences between the two offerings, particularly on how they are managed. The Capital Group product has a multi-manager system, while the NB fund is managed by just one manager.

Jmili explained that the Capital Group fund is managed by eight named managers and two unnamed managers. Each manager overseas his or her own sleeve of the portfolio, which accounts for around 7-10% of the overall fund.

While there are multiple managers in the fund, Jmili noted that they all target quality growth names with long-term growth compounders.

“But they have slightly different styles,” she said. “For example, some are growthier than some, and some may be more conscious of valuations. Some also don’t shy away from going down the capital structure, while some are more cautious of that,” she said.

Given the multi-manager structure of the product, the portfolio is diversified, Jmili said. As of the end of May, it had 187 stocks, according to its fund factsheet.

Turning to the NB fund, Jmili said that the fund is managed by a single portfolio manager, Richard Nakensen. Unlike the Capital Group product, the NB offering is more concentrated, with 51 holdings as of the end of May, according to its fund factsheet.

Top 10 holdings

Source: Fund factsheets. As of 31 May 2020.

While the portfolio is concentrated, Nakensen’s makes an effort to diversify the portfolio by subdividing it into three buckets, according to Jmili. These include “opportunistic bets”, which include companies with attractive valuations, “turnaround companies”, which are undergoing restructuring or spin-offs and “classic stocks”, which are more defensive names that have proven management teams and consistent free cashflows.

As of the end of June, the split of the portfolio is 31% in opportunistic stocks, 41% in classic stocks and 27% in turnaround companies, according to Jmili.

“Nakensen uses those buckets to counterbalance the concentration of the portfolio. While he does not have any formal limits per bucket, he makes sure that no bucket will go above 50% to maintain a little bit of diversity,” she said.

Given the differences in how each fund is managed, both products have different style profiles, according to Jmili. The Capital Group offering has a mild growth profile, while the NB fund is style agnostic.

She also added that the Capital Group fund usually holds a “big junk of cash” in its portfolio, which has been historically between the high single-digits to the mid-teens.

“They may tactically hold on to more cash when the managers think markets are very expensive or if they do not see any opportunities, so they can redeploy cash when the opportunity arises,” she said.

Sector allocation

Source: Morningstar

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