HEAD-TO-HEAD: First State versus Templeton

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Investment process

Both the First State and Templeton funds invest mainly in Asia equities using a bottom-up process for security selection, according to Poole.

However, both funds have different investment processes.

“From a core philosophy perspective, they are different,” Poole said.

The First State fund has a quality bias, which means that its fund managers prefer companies with strong balance sheets and are proven to be industry leaders. It also has “a bit of an income focus”, but it is not a high dividend fund, Poole added.

Turning to the Templeton fund, Poole said that the investment process is focused on growth stocks that are trading at a discount.

Although the funds have different approaches, Poole likes the fact that both of the investment processes are clearly reflected in portfolio allocation.

For example, the quality focus of the First State fund has resulted in larger allocations to consumer staples or well-established companies in defensive sectors.

For the Templeton fund, the allocation is more on the growth areas. In addition, since the manager also looks at valuations, the portfolio is also invested in cyclical stocks.

Sector allocation (%)

Source: Morningstar

“One of the things that we focus on at Oreana is getting a sense of the manager’s core philosophy, and we like funds that have a clear process that is reflected in the portfolio allocation,” he said.

Both funds also have different benchmark indices: the First State Fund uses the MSCI Asia-Pacific (ex-Japan) Index while the Templeton fund’s benchmark is the MSCI Asia (ex-Japan) Index, according to their fund factsheets.

The Asia-Pacific (ex-Japan) index allows the First State fund to have a slightly broader investment universe, Poole said, but he believes that the differences in both indices are “not meaningful”.

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