HEAD-TO-HEAD: First State vs Value Partners

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Both the First State and the Value Partners funds belong to the fund category of Asia Pacific ex-Japan. The objective of both is to invest in equities that generate high yield. However, Ng said the two funds slightly deviate from the traditional dividend-focused strategy that prioritises yield over valuation or stock price gain.

The First State fund is not run like a conventional dividend strategy for two reasons, according to Ng.

“The fund looks for income-generating stocks as well as those with a potential to gain from capital appreciation. It also carries a strong bias toward quality stocks, which typically are companies with sound management and financial health.”

Since the fund tends to invest quality stocks, the portfolio holds mainly large-cap companies and it has a lower turnover rate than the Value Partners product.

Ng said such approach brings in a number of stocks with stable growth and strong fundamentals, resulting in consistency in fund performance.

For the Value Partners fund, the core investment process principally follows the firm’s value investing philosophy. When analysing the universe of stocks, the investment team is highly sensitive to valuations, Ng said.

Because of the valuation strategy, the fund maintains a rather low price-to-earnings and price-to-book ratio compared to peer funds.

The team within the firm’s chief investment office also takes part in managing the fund by placing a macro overlay on top of the fund, which results in either an aggressive or defensive view.

“When the Value Partners’ fund turns aggressive, it could own more than 100% of equity assets. To be defensive in the down market, the fund would step up its exposure to bonds and gold,” Ng added.

For example, the fund took a defensive position at the time of the financial crisis in 2008, when non-equity exposure reached around 20%, he said.

The two funds use different benchmarks. The First State fund uses the MSCI Asia-Pacific ex-Japan Index while the Value Partners fund uses MSCI Asia ex-Japan Index.

The First State product is not constrained by the benchmark. It currently holds an overweight position in India (19.1%) and the overall allocation is more diversified to Asean countries.

In 2016, the Value Partners fund switched to the current benchmark from the MSCI Asia-Pacific ex-Japan Index. “Their internal compliance team came up with this decision because the fund had invested less than 1% of fund assets in Australia and New Zealand,” Ng said. “Despite giving out higher dividend yield in general, these markets are rather expensive in valuation.”

He added that the investment process remains unchanged after swapping the benchmark and the new index is appropriate for the fund.

The Value Partners’ fund predominately invests in Hong Kong and China companies, including both onshore and offshore equities. The sector altogether accounted for 66% of assets at the end of April.

Ng said that on average, companies listed in Hong Kong and China are at an attractive valuation level compared to those in other Asian markets.

Additionally, the manager tends to be more willing than the First State manager to invest in small-cap stocks.

Top five geographic holdings

Source: FE. *Includes dual listed H-shares (19%) and large SAR-listed mainland red chips (11%).

The First State fund has a more concentrated portfolio with 69 stocks while the Value Partners fund owns a range of 90-120 stocks, according to Ng.

Additionally, some traditional yield-generating stocks, such as utilities and telecoms, are not among the top sector holdings in either fund.

Top five sector holdings

Source: FE

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