HEAD-TO-HEAD: JP Morgan versus Neuberger Berman

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Investment approach

The two funds have a “value” investment style and a large-cap bias. However, there are differences in emphasis and the flexibility of their strategies.

The $1.69bn JP Morgan US Value Fund focuses on quality companies with strong franchises and conservative balance sheets, according to Poole.

“However, the managers are also opportunistic. If they assess that the risk-reward payoff is appropriate they sometimes take positions in stocks that don’t strictly conform to ‘value’ criteria,” he said.

A quarter of the portfolio is allocated to the financial sector, and top holdings include blue chips such as Bank of America, Morgan Stanley, Blackrock and Berkshire Hathaway.

In contrast, the Neuberger Berman US Multi Cap Opportunities Fund has a more explicit mandate to invest in companies across the market capitalisation spectrum – as indicated by the fund’s name.

It sometimes has a mid-cap tilt, but more often – as now – large caps comprise more than three-quarters of the portfolio, according to Poole.

“The fund also typically blends growth with stocks, which is a function of the managers’ three-layer investment strategy,” he said.

In the first instance, they identify stocks of companies with conservative balance sheets and strong free cash flow; second, they take advantage of restructuring events or special situations, such as spin-offs; and third, they are opportunistic buyers of what they perceive as temporarily undervalued stocks, according to Poole.

“This approach is a critical difference to the JP Morgan fund’s strategy,” he said.

Indeed, the Neuberger Berman fund currently has a large exposure to information technology (20.4%) and to communication services (12.7%), which are usually categorised as growth rather than value sectors.

Major individual holdings include Microsoft, Apple and Alphabet, according to the most recent fund factsheet.

In terms of process, both funds are managed by experienced and knowledgeable teams.

“The JP Morgan process is crisp and simple,” said Poole.

It starts with idea generation and is followed by fundamental analyses, application of valuation metrics (PER, price-to-book, free cash flow etc.), and the construction of a diversified portfolio of between 70 and 100 individual stocks.

The Neuberger Berman fund is more concentrated and is typically made up of between 30 and 40 positions, noted Poole.

“The manager Richard Nackenson makes the final stock selections, but he is supported by a strong team of analysts whose coverage includes small- and mid-cap securities,” he said.

Fund characteristics

Sector allocation:

Source: Morningstar, 31 May 2020

Top 5 holdings:

Source: Fund factsheets, 31 May 2020

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