HEAD-TO-HEAD: JP Morgan AM versus UBS AM

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Investment process

The JP Morgan and UBS funds both invest in offshore and onshore China equities, which include companies that are listed in mainland China, Hong Kong and ADRs in the US, according to Liang.

The products are also growth-oriented funds. “They have a focus on secular growth opportunities, such as the consumer, education, healthcare and IT sectors,” she said.

However, the way in which the funds are managed differ.

The JP Morgan fund’s managers focus on companies with long-term growth potential, characterised by strong earnings and cash flow growth, according to Liang. It also considers the quality aspect of a company, such as its management and corporate governance. The stocks are then ranked from 1-5, with those ranked 1 expected to outperform significantly.

Turning to the UBS fund, Liang said that it has a focus on identifying current and potential industry leaders in secular growth sectors.

“The UBS fund manager looks at companies that have competitive advantages, such as branding power, price competitiveness and research and development.”

The manager also conducts fundamental analysis and takes into consideration strong cash flows, good quality disclosure and stock prices not fully reflected their long-term growth potential, she added.

But perhaps what makes the funds very different from each other is how they use their benchmark, which for both funds is the MSCI China 10/40 Index. Liang said that the JP Morgan fund is run in a benchmark-aware manner, while the UBS fund is benchmark agnostic.

“Sector bets for the JP Morgan fund are typically within -/+7% relative to the benchmark, while stock bets are around -/+4%.

“The UBS fund makes huge sector bets. You can also see this in the top 10 holdings. Tal Education, which is not very large in the index, accounts for nearly 10% of the UBS portfolio,” she said.

Sector allocation (%)

 Source: Morningstar Direct. As of 28 February 2020.

Top 10 holdings

Source: Fund factsheets. As of 28 February 2020.

Because of its unconstrained approach, Liang added that the UBS fund may have large cash positions when the China equity markets become extremely volatile.

“We have seen the cash position of the UBS fund go up to 15% in 2015 and 2018,” she said. As of the end of March, the fund has 15% in cash, according to data from Morningstar Direct.

“For the JP Morgan fund, it usually remains fully invested in the market,” she said.

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