The Asean region emerged as an unusual bright spot last year amid the sell-off in both equities and bonds globally.
According to Cambridge Associates, Asean equities returned -0.1% last year in local currency terms, far better than both Asia ex-Japan and developed markets equities, both of which were down more than 15%.
Even though the greenback surged last year, in US dollar terms Asean was down just 4.1% compared with 19.4% for Asia ex-Japan and 17.7% for developed markets.
This outperformance was driven largely by reopening following the Covid-19 pandemic as well as the fact that most markets in Asean are overweight financials with banks one of the few beneficiaries of last year’s unprecedented hike in interest rates globally.
This performance is very much an aberration as Asean has lagged north Asia over the past decade due to the preponderance of growth and technology stocks in China, Taiwan and Korea and the impact of softer commodity prices.
However, some market observers reckon that this is unlikely to be a one-off as Asean benefits from structural headwinds such as favourable demographics, increased investment in renewable energy and rerouting of supply chains away from China.
Market observers also point to the fact that valuations in Asean are favourable both on a historical and comparative basis, leaving plenty of potential upside.
Against this background, FSA asked Hunter Beaudoin, associate analyst of manager research at Morningstar, to select two Asean funds for comparison for this week’s head-to-head. He chose the Eastspring Investments Unit Trusts Singapore Asean Equity fund and the JP Morgan Asean Equity fund.
| Eastspring | JP Morgan | |
| Size | $142.9m | $1.39bn |
| Inception | 2012 | 2009 |
| Managers | Bryan Yeong | Pauline Ng, Desmond Loh, Stacey Neo, Chang Qi Ong |
| Three-year cumulative return | 0.41% | 0.21% |
| Three-year annualised return | 9.45% | 6.01% |
| Three-year annualised alpha | 7.76 | 4.22 |
| Three-year annualised volatility | 13.49 | 14.63 |
| Three-year information ratio | 0.66 | 0.34 |
| Morningstar star rating | *** | **** |
| Morningstar analyst rating | Neutral | Silver |
| FE Crown fund rating | ** | *** |
| OCF (retail share class) | 1.64% | 1.78% |
Investment approach
The JP Morgan fund looks for quality growth companies and the team carry out research to determine companies’ ability to create value based on three main factors: economics, duration and governance.
Economics means whether businesses create value for shareholders, duration refers to whether that is sustainable and governance looks at how governance impacts shareholder value.
“This investment approach has been stable and consistently applied through market cycles with great long-term success,” said Beaudoin.
The portfolio comprises 50 to 100 companies and is benchmarked against the MSCI AC ASEAN 10/40 index.
Meanwhile, the Eastspring fund has a structural bias towards Singaporean equities, which Beaudoin notes is reflected in its custom benchmark of 50% FTSE ST All-Share Index / 50% FTSE Asean (ex-Singapore) Index. This contrasts with the MSCI AC Asean 10/40 Index’s roughly 30-35% exposure to Singapore.
“This investment approach has been stable and consistently applied through market cycles with great long-term success.”
Hunter Beaudoin, Morningstar
Eastspring updated its investment process three years ago to tilt the scales away from value stocks towards more quality and growth, although Beaudoin notes that the 50-80 companies in the portfolio comprise mostly value stocks.
“Given the Eastspring strategy’s focus on valuations, it has had a notable bias towards the real estate sector (including REITs), whereas the JP Morgan strategy has had a historical bias towards the consumer discretionary sector given its emphasis on quality growth,” said Beaudoin.
He also notes that both strategies are overweight financials, although there are nuances. For example, JP Morgan’s top pick is Bank Central Asia, which is higher quality and more growth driven, while Eastspring’s largest weighting in the portfolio is Bank Negara Indonesia, which is more value oriented.
Fund characteristics:
Sector allocation:
| Eastspring | JP Morgan | ||
| Banks | 37.3% | Financials | 44.6% |
| Telecommunications | 11.6% | Industrials | 11.2% |
| Real estate | 11.5% | Communication Services | 10.1% |
| Travel and leisure | 6.7% | Consumer Staples | 7.4% |
| Food, beverage and tobacco | 6.5% | Real Estate | 6.3% |
| Technology | 3.7% | Healthcare | 4.6% |
| Industrial goods and services | 3.3% | Consumer Discretionary | 4.5% |
| Personal care, drug and grocery stores | 3.3% | Materials | 3% |
| Others | 12% | Energy | 3% |
| Cash and cash equivalents | 4.1% | Utilities | 2.5% |
| Information Technology | 1.8% | ||
| Cash | 1% |
Country allocation:
| Eastspring | Weighting | JP Morgan | Weighting |
| Singapore | 47.7% | Singapore | 32.7% |
| Indonesia | 19.6% | Thailand | 24.3% |
| Thailand | 12.5% | Indonesia | 23.5% |
| Philippines | 7.5% | Malaysia | 8.6% |
| Malaysia | 7% | Philippines | 8.5% |
| United States | 1.5% | Vietnam | 1.4% |
| Others | 0.1% | Cash | 1% |
| Cash and cash equivalents | 4.1% |
Top 5 holdings:
| Eastspring | Weighting | JP Morgan | Weighting |
| DBS Group Holdings | 8.3% | Bank Central Asia | 8.1% |
| United Overseas Bank | 5.8% | DBS | 6.5% |
| Oversea-Chinese Banking Corp | 5.1% | Bank Rakyat Indonesia | 5.4% |
| Singapore Telecommunications | 4.7% | United Overseas Bank | 4.8% |
| CapitaLand Investment | 3.7% | CP All | 4.1% |
Performance
Given their different focuses, unsurprisingly the Eastspring fund generally performs better in value-driven market environments and when Singapore performers better than the rest of the region.
This is what occurred over the past 12 months and although both the Eastspring and JP Morgan strategies suffered losses, the Eastspring fund fared better out of the two.
Conversely, the JP Morgan strategy tends to perform better when quality growth companies are in vogue like in 2020, notes Beaudoin.
“For example, Mr DIY Group, a Malaysian home improvement retailer, which the managers expected could maintain a high return on equity by leveraging its vast network of stores and grow in an underpenetrated domestic industry, was a strong contributor to the JP Morgan strategy’s outperformance against its benchmark and peers in 2020,” he said.
Over the long run, Beaudoin said that he expects the JP Morgan fund to perform better due to its strong leadership and its unique investment process.
Beaudoin also said that volatility between the two strategies was comparable. On the one hand, the Eastspring strategy has a bias towards Singapore, which is less volatile than the rest of Asean, but on the other hand, the JP Morgan strategy looks for companies with consistent earnings growth, which helps keep volatility in check.
In terms of fees, the Eastspring strategy is slightly cheaper at 1.64% versus 1.78% for JP Morgan, although both are roughly in lines with their peers.
Discrete calendar year performance:
| Fund | YTD* | 2022 | 2021 | 2020 | 2019 |
| Eastspring | 4.3% | 0.52% | 5.34% | -8.49% | 8.37% |
| JP Morgan | 1.56% | -4.97% | 4.79% | 0.46% | 10.45% |
Manager review
The JP Morgan team is spearheaded by Pauline Ng, who boasts 22 years of investment experience and has led the strategy since January 2009. Beaudoin notes that she is one of Morningstar’s highest conviction managers in the region.
The strategy is co-managed by Stacey Neo, Chang Qi Ong, and Desmond Loh, while Thailand specialist Chate Benchavitvilai provides additional support as well.
“The co-managers have worked together for over 10 years and all members of the team have consistently exhibited impressive collaboration and knowledge of the portfolio during our review discussions,” said Beaudoin.
“They are backed by 13 analysts, who are part of JP Morgan’s well-resourced emerging markets and Asia Pacific equities team that supports multiple other high conviction strategies within Morningstar coverage.”
Meanwhile, Beaudoin describes the Eastspring investment support as “weaker”, noting the high turnover in the past couple of years, which has increased the burden on lead manager Bryan Yeong.
“The co-managers have worked together for over 10 years and all members of the team have consistently exhibited impressive collaboration and knowledge of the portfolio during our review discussions.”
Hunter Beaudoin, Morningstar
Yeong has 11 years of investment experience and was picked to lead the strategy in April last year following the departure of Wing Kin Chow.
The sole Asean equity analyst also left in March last year, while Singapore equities portfolio manager Michael Lim retired in 2020.
“Yeong manages five other Asean portfolios, including single-country funds for Indonesia and the Philippines and though he is supported by head of growth equities John Tsai, Yeong shouldered much of the portfolios’ stock coverage from Chow’s departure in February 2022 until two new hires joined in June 2022 to help alleviate his workload,” said Beaudoin.
“While steps have been taken to rebuild the team, resourcing is still severely lacking compared to JP Morgan Asean Equity and it will take time for us to establish conviction in the managers.”
Conclusion
Overall, Beaudoin favours the JP Morgan strategy.
“We have higher conviction in JP Morgan Asean Equity’s ability to outperform the market over a full market cycle, as reflected in its Morningstar medalist rating of silver for its retail, A (acc) USD, share class.”
He noted that it has a capable lead manager, solid management team, strong analytical support and well-structured investment process that has been tested during multiple market cycles.
“On the other hand, Eastspring Singapore Asean Equity carries a neutral rating given our concerns that its ability to deliver for investors over the longer term may be impeded by the team’s resourcing and turnover issues, manager workload and a lack of evidence that the recent investment process adjustments have been effectively implemented in the portfolio,” he said.
