HEAD-TO-HEAD: Eastspring vs MFS Meridian

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Investment approach

The Eastspring Investments Pan European Fund, which is sub-managed by M&G, relies on bottom-up stock analysis. The aim is to build a portfolio made up of the best ideas implemented at the right valuations. Stock holdings are for the long-term so turnover is low, but the manager has the flexibility to take advantage of volatility to make purchases at low entry points.

“The fund prefers strong companies with powerful, competitive market positions and also solid balance sheets characterised by low debt-to-equity ratios, high profitability and superior returns on equity than the index average,” said Caquineau.

The manager, John Olsen, has applied this strategy successfully over several years, both since he took over the helm at M&G in April 2014 and previously when he was at Danske Capital, according to Caquineau.

Olsen is unhindered by substantial risk constraints and can deviate significantly from the benchmark. He has done so by concentrating holdings to around 30 stocks and by avoiding particular sectors, notably telecommunications and utilities as well as taking an underweight position in financials. The fund was also significantly overweight in Germany, Denmark (Olsen’s home country) and the Netherlands.

“It is a good quality, focused fund that maintains a disciplined approach to valuations,” said Caquineau.

By comparison, the MFS Meridian European Research Fund also applies a bottom-up approach to portfolio construction. The research-driven process aims to find well-managed companies, with stable earnings and growth upside.

“However, all analysts share a common and consistent dedication to identifying individual stocks that have good growth potential but demonstrate earnings stability and top-quality management,” said Caquineau.

Although the MFS Meridian strategy, like the Eastspring fund, can lead to significant divergence from the index, the investment process is clearly different.

Similar to Eastspring, the MFS Meridian analysts do not make country or sector calls. Instead, each stock pick is based on its individual merits. Unlike Eastspring, the selection process is consensus-driven rather than determined by an individual “star” fund manager, Caquineau said.

Inevitably, the MFS Meridian fund is more diversified, containing around 80 stocks, in contrast to the Eastspring portfolio which is far more concentrated and is comprised of about 30 stocks.

Market exposures:

Source: Morningstar

Source: Fund factsheets

Source: Morningstar

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