HEAD-TO-HEAD: Invesco vs Morgan Stanley

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Both the Invesco and Morgan Stanley funds invest in global equities. However, there are huge differences in their investment strategies, with one fund targeting low volatility stocks and the other focusing on growth companies, according to Ng.

The Invesco fund, which employs a quantitative strategy, aims to have a portfolio with low volatility, according to Ng. It is run by the firm’s quantitative strategy team, with Michael Fraiklin and Thorsten Paarmann co-managing the fund.

“They believe that equities with lower volatility tend to outperform those with higher volatility over the long-term,” Ng said.

The fund uses a proprietary model that forecasts the risk of a stock. It looks at various metrics, such as earnings momentum, market sentiment, management and quality (such as balance sheet strength), valuations, liquidity and trading costs.

The fund also makes use of an “automisation strategy”, which aids in stock allocation. It helps the managers hold a balanced portfolio by setting investment limits. For example, individual holdings should not go over 2%, 25% for sector weightings and 40% for country allocations, according to Ng.

Turning to the Morgan Stanley fund, it employs what the firm calls the “Warren Buffet investment principle”, but this is applied to growth companies, Ng said.

“The fund invests into high quality companies with a strong competitive advantage but the companies should be undervalued at the time of the purchase,” Ng said.

He noted that the fund’s global opportunities team has a different definition for “undervalued” instead of price-to-earnings or price-to-book data, which is what investors typically use to assess valuation.

“They have their own stock valuation model in which they justify whether a company is undervalued,” Ng said, adding that the firm keeps the details of the model confidential.

For the companies’ growth prospects, earnings should be sustainable over the long-term, he said, adding that these companies would typically have a high return on invested capital.

The global opportunities team is also supported by the firm’s disruptive research team, which evaluates whether a company can be disruptive in its own industry.

Ng said that the differences in both investment strategies are reflected in the funds’ sector allocations. For example, the Invesco fund is more balanced with its sector allocations, while the Morgan Stanley fund has more allocations in growth sectors, such as in consumer discretionary and information technology.

Sector allocations

Source: Fund factsheets

Ng also highlighted the differences in their benchmarks. The Invesco fund makes use of the MSCI World as its benchmark index, which focuses more on developed markets, while the Morgan Stanley fund’s benchmark index is the MSCI All Country World Index, which includes emerging markets.

“Basically, all the countries the Invesco fund invests in are in developed markets, while Morgan Stanley will have investments in emerging markets,” he said.

Country / regional allocations

Source: Fund factsheets

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