HEAD-TO-HEAD: JP Morgan versus Schroders

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Investment approach

“Although they are both multi-asset income funds, there are significant differences between their strategies and allocations,” said Ge.

The JP Morgan fund is globally diversified, has multiple sleeves covering 15 asset classes, and it has an explicit yield and volatility target.

In contrast, the Schroders product focuses exclusively on Asia, tends to confine itself to just two asset classes – Asian equities and Asian fixed income – and it doesn’t state specific yield or volatility goals.

Another distinguishing characteristic is their respective assimilation of ESG methodologies in their investment processes, according to Ge.

“The JP Morgan managers use third-party ESG data providers and screening services, but ESG is not their priority for this fund,” said Ge.

However, “Schroders fully integrated ESG methodology into its investment process last year, the managers use a proprietary scoring system, which provides inputs for establishing fair value for prospective stock holdings,” he said.

Nevertheless, the JP Morgan fund’s process is well-integrated and balances opportunities in income with calibrated risk-taking, earning an Above Average Process rating. In the Hong Kong-domiciled vehicle, it aims to produce a high income of between 4% and 6%, while managing risk between 6% and 12% per year over the medium term.

The process starts with the research team generating quantitative signals through its multifactor models, while the strategy team provides qualitative macro views. Decisions on about 15 asset-class sleeves are also dependent on discussions with the underlying sleeve managers for bottom-up intelligence.

“An income focus shapes this strategy’s makeup and the team leans on lower quality credit to generate yield,” said Ge.

As its low-quality credit-focus tends to be highly correlated with equities, steeper drawdowns may be inflicted during market downturns, he noted.

The Schroders strategy has recently shifted. The equity sleeve’s transition from a “purist-income approach to a total return one is sensible but unproven,” according to Ge.

Since December 2020, the income-focused equity sleeve was restructured into two sub-sleeves: an income portfolio that continues to focus on dividend stocks; and a benchmark-aware (relative to MSCI AC Asia Pacific ex-Japan Index) core portfolio that has more growth exposure.

“This change allows better flexibility to navigate different markets but also exposes the strategy to market-timing risk between the income and core,” said Ge.

Patrick Brenner actively manages the allocation between equity, fixed income, global assets, and cash while security selection is at the full discretion of the equity and bond sleeve managers.

The allocation process begins with the strategic investment group – multi asset team, which conduct cross-asset risk-premia research to identify market drivers. Next, the global asset allocation committee (including Brenner and Keiko Kondo) formulates these research findings into asset class preferences, which are translated into portfolio decisions.

Fund characteristics

Equity sector allocation:

Source: Fund factsheets, Morningstar 30 Apr 2021

Equity country allocation:

Source: Fund factsheets, Morningstar, 30 Apr 2021

Top 10 holdings:

Source: Fund factsheets, 30 Apr 2021; *top 5 equity and top 5 bond holdings

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