HEAD-TO-HEAD: Eastspring versus Schroders

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Investment approach

Both funds are dividend funds, although there are major differences between the two of them in terms of stock selection.

The Schroders fund tries to focus on companies with sustainable and growing dividends and to do this, it divides the portfolio broadly into three buckets: dividend cows, which comprises the more stalwart dividend payers; dividend growers, which comprises companies whose likelihood of increasing dividends due to earnings growth is high; and dividend surprises, which comprises companies whose payout may increase more than the market expects.

Roughly one-fifth of the portfolio is invested in dividend surprises, while the remaining 80% is split fairly evenly between dividend cows and dividend growers. Lo reckons that the inclusion of dividend surprises provides a nice growthy tilt to the portfolio, while the emphasis on both dividend cows and dividend growers represents a nice balance.

“What is so good about this equal split between these latter categories [dividend cows and dividend growers] is they perform differently in different environments. You can see that in action in the recent volatile quarters,” he said.

“By having these two buckets equally split the portfolio is pretty balanced and it allows the time for the stock picks to work themselves out through the market cycle.”

Meanwhile, the Eastspring strategy underwent a radical shift two years ago when it started to invest in growth stocks as well. Morningstar noted that since its last review meeting, the team has formalised its guidelines so that at least 75% of the portfolio and at least seven of the top 10 holdings should be invested in dividend-paying stocks, although notes that the definition of a dividend-paying stocks is liberal.

Regardless, the fund has been hurt by poor timing when it decided to make the pivot towards growth stocks in July 2020.

“It’s kind of a double whammy for the Eastspring fund. They have missed the rally in these hot tech names, but then when they bought them, these hot tech names got cold,” said Lo.

Despite the pivot, the Schroders fund actually has a higher weighting towards the technology sector at 32.8% compared with 20.2% for Eastspring, which is a reflection of how long it has been investing in growth names versus Eastspring.

Eastspring has a significantly greater weighting towards China at 22.2% compared with 13.6%, reflecting the fact it has piled into growth stocks in recent years like Tencent. Schroders, meanwhile, tends to eschew Chinese stocks more because of their weaker governance, Lo noted.

Fund characteristics

Sector allocation:

Source: Fund factsheets, November 2022

Country allocation:

Source: Fund factsheets, November 2022

Top 5 holdings:

Source: Fund factsheets, November 2022

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