HEAD-TO-HEAD: JP Morgan versus Legg Mason

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Investment approach

The two funds are both mandated to invest in high quality fixed income securities, but they have different emphases and strategies.

The much larger JP Morgan fund invests heavily in sovereign bonds, but it has greater flexibility that allows it diversify into asset-backed securities, and to a lesser degree in practice, into corporate credit, according to Poole.

“Therefore, security selection tends to be important, with the managers examining opportunities across the full range of investment grade bonds and determining relative value,” he said.

The team don’t take interest views, maintaining the fund’s duration within 10% of the Bloomberg Barclays US Aggregate Bond Index’s.

Instead, they focus on finding value in mortgaged-backed and other securitised assets, which distinguishes the fund from most of its peers.

“In contrast, the Legg Mason product concentrates exclusively on sovereign government bonds, although its unconstrained [by a benchmark] nature means it has the ability to take tactical duration positions,” said Poole.

The process is top-down, with the managers and analysts weighing up the macroeconomic and political fundamentals of sovereign issuers, combined with an assessment of likely yield curve shifts to decide how much interest rate risk they should take.

The top-down investment approach has been robust over time and has been executed consistently. However, as Morningstar points out, as an approved product within the Singapore Central Provident Fund scheme, the fund cannot short foreign currencies against the Singapore dollar, which ultimately reduces its alpha sources

Source: FE Fundinfo; Fund factsheets. Data in US dollars (29 May 2020)

Market Exposure

Sector Allocation:

Source: Fund factsheets, 31 March 2020

Top 5 Holdings

Source: Fund factsheets, 31 March 2020

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