HEAD-TO-HEAD: Investec versus JP Morgan

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Investment Approach

Central to the Investec fund’s process is the firm’s 4-Factor proprietary quant model, which ranks stocks on value, strategy (or quality), earnings momentum and share-price momentum.

“It is a bottom-up stock selection process that takes place within a robust and disciplined framework,” said Ng.

The first two factors – value and strategy – are focused on company fundamentals, including balance sheet strength, cash flow and relative market valuations.

The other two factors – earnings and share-price momentum – are more technically driven.

“They aim to identify improving operating performances in the first instance, and take advantage of market movements in the second instance,” said Ng.

Greg Kuhnert has been the lead manager of the Investec fund since 2005, so he is familiar with the 4-Factor model.

He is helped by seven other Asia and emerging markets members of the 4-Factor team and can also tap into the knowledge of other people at the firm who have sector or over-lapping individual stock expertise.

The fund’s $4.7bn size isn’t unwieldy, according to Ng, but inevitably allocations are mainly to large cap stocks to ensure access to liquidity.

Ultimately, there is a preference for high quality companies, which means that fund performance can suffer during periods when growth stocks are favoured, he added.

In contrast, the JP Morgan fund has more of a growth-tilt, according to Ng.

“The managers, led by Joanna Kwok, are prepared to pay higher multiples for stocks they like compared with other funds within the sector, although there is also a strong emphasis on quality,” he said.

Broadly, they look for companies that have well-established franchises, consistent earnings and solid returns on equity.

The process is aligned to JP Morgan’s global emerging market and Asia-Pacific approach. Country and sector analysts focus on three key areas they designate as economics, duration and governance.

Economics includes a company’s cash generation, balance sheet health and financial strength, which together indicate its growth potential. Duration represents the structure and sustainability of a company’s business model, and governance incorporates its corporate behaviour, transparency and treatment of minority shareholders.

The sector analysts then classify possible holdings into three buckets for investment suitability: premium, quality and trading.

“If they are designated ‘premium’ or ‘quality’, then the stocks are more likely to be chosen and held for a long time,” said Ng.

“A ‘trading’ designation typically indicates a short- or medium-term market opportunity,” he added.

“However, the primary focus is building a conviction portfolio of [around 60] ‘quality-growth’ stocks,” said Ng.

Source: FE Fundinfo, Morningstar (Data in US dollars, 31 October 2019)

Country allocation:

Source: Fund Factsheets, 30 October 2019

Sector allocation:

Source: Fund Factsheets, 30 October 2019

 Top 5 holdings:

Source: Fund Factsheets, 30 October 2019

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