HEAD-TO-HEAD: Franklin Templeton versus JP Morgan

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The FTI and JP Morgan Funds versus their sector in Hong Kong. Source: FE Analytics. In US dollars. Note: The FTI fund’s benchmark index is not available on FE.

Performance

The performance of the FTI and JP Morgan products has often been dissimilar, according to Ng.

He highlighted the differences in their duration, which explains the performance differences.

He explained that shorter-duration fixed income funds tend to perform better when central banks increase interest rates, while longer-duration products benefit from rate cuts.

This is especially true for the shorter-duration FTI product, which only returned 0.12% this year despite the market rally in Asia bond markets earlier this year, Ng said.

“After 2018, central banks globally became more dovish, [which hurt the FTI product], especially with its negative duration,” he said.

Annual calendar discreet performance

Source: FE Analytics

But negative duration helped the FTI product outperform most Asia fixed income products in 2018, when the US was increasing interest rates. At the time, the product also increased its exposure to US dollar-denominated bonds, which helped the fund when Asian currencies were depreciating.

Turning to the JP Morgan fund, Ng said that the product has generally outperformed the market in most periods.

“It tends to deliver close to, but higher, than the market, as the fund tries to maintain volatility at a certain level by having a larger exposure to US-dollar denominated bonds,” he said.

This explains why the JP Morgan product is less volatile than the sector, Ng said.

Three-year annualised volatility

Source: FE Analytics

“The Templeton fund is more volatile [than the market], especially because it takes an active currency play.”

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