HEAD-TO-HEAD: JP Morgan AM versus Schroders

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INVESTMENT APPROACH

Both the JP Morgan and Schroders funds employ a bottom-up, fundamental approach to investing, according to Lo.

The funds also have a preference for high quality companies, which include those that have strong balance sheets, good corporate governance and proven management teams.

However, there are notable differences between the two funds in terms of their styles.

“The JP Morgan fund has a much stronger growth profile, while the Schroders portfolio has a value-tilt in it,” Lo said.

Like its other Asia-Pacific funds, the companies within the investment universe of the JP Morgan Japan offering are classified as premium, quality or trading, depending on their economics, duration of competitive position and governance quality. Stocks are then rated from 1-5 (1 being the highest), with all of the portfolio’s 40-80 holdings rated 1 and 2.

Turning to the Schroders fund, Lo said that its portfolio manager will try to look for companies with above-average return on equity, which are trading below key valuation ratios.

“At the same time, the manager wants to maintain the overall price-to-book portfolio close to the benchmark,” he said.

He noted that the price-to-book limitation was put in place during the second half of 2016 to avoid large drawdowns. At the time, the fund’s P/B ratio was higher than the market, which negatively impacted the fund.

The Schroders fund is slightly more diversified than the JP Morgan fund, with the portfolio holding around 70-90 stocks, he added.

The difference in their investment styles is reflected in their sector allocation. For example, the JP Morgan offering has a larger allocation in IT, while the Schroders fund has allocated more to materials and financial services, according to Lo.

Sector allocation (%)

Source: Morningstar Direct. As of end-July 2020.

Another difference between the two products is that the JP Morgan fund is more unconstrained than the Schroders product.

“If you look at the tracking error of the two strategies relative to the Topix Index, it is much higher for the JP Morgan fund, at 9.7% for three years, whereas the Schroders fund’s tracking error is only 3.7%,” he said.

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