HEAD-TO-HEAD: First State versus Invesco

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Investment approach

Both the First State and Invesco funds are Asia-focused mixed asset products. However, they have key differences in the way assets are allocated.

The First State fund always keeps a 50/50 asset allocation between equities and fixed income, while the Invesco product has the flexibility to invest between 30-70% in both asset classes, according to Nel. Currently, around 65% of the Invesco fund’s assets are in equities.

Nel explained that the Invesco fund will invest in the cheaper asset class, as measured by the historical spread between the earnings yield of the MSCI Asia Pacific ex-Japan Index and the yield-to-maturity of the Markit iBoxx Asian USD Bond Index.

“That means that the Invesco fund can potentially capture equity returns when the market is up, whereas the First State fund might not be able to participate as much during an up market because of its fixed allocation,” he said.

The way both funds invest in equities and fixed income products are also different.

The First State Fund’s equity sleeve invests in the First State Asian Equity Plus Fund, which is composed of high quality stocks and is focused on capital preservation, according to Nel.

For the product’s fixed income sleeve, it invests in the First State Asian Quality Bond Fund, which is focused on investment grade bonds.

Turning to the Invesco product, the equity sleeve is focused on high dividend stocks, according to Nel. However, in 2017, the fund’s strict high dividend mandate was changed to give leeway to include stocks with no dividends but have high growth potential.

“In theory, the combination of both should provide total return instead of just dividends,” Nel explained.

The product’s fixed income sleeve is similar to First State’s, in which it is focused on investment grade bonds. However, the Invesco fund is flexible to invest up to 40% in high yield.

But the allocation to high yield bonds remains low, which is around 5% of the product’s fixed income assets, Nel noted.

Unlike the First State Fund which invests in an equity and fixed income product, the Invesco fund has two dedicated portfolio managers who are responsible for stock and credit selection.

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