HEAD-TO-HEAD: JP Morgan versus UBS

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Investment approach

The two funds share a similar objective to provide income and achieve long-term capital growth through investments in China.

The JP Morgan China Income Fund has a specific yield threshold for its holdings, requiring a 2% minimum yield and 30% more than the yield on the fund’s benchmark – a composite of five equity and fixed income indices.

“Although the managers have flexibility, the JP Morgan fund’s income requirement follows a disciplined process with quite consistent allocations between asset classes and types of securities,” said Ng.

The managers buy both onshore (A-shares) and offshore listed China stocks, but are agnostic about their preference. Equities make up between 40% and 80% of the total fund.

About 40% of the equity portfolio is allotted to high yielding stocks with stable earnings, such as financials,  30% to lower yielding socks with earnings growth potential, such as telecoms, and 30% to “distressed” sectors, such as property, where there are expectations of earnings recovery, he said.

The fixed income portfolio generally has substantial exposure to offshore US-dollar and renminbi-denominated bonds, with as much 50% currently weighted to dollar bonds. High yield issues comprise only 25% of the fixed income portfolio, so there is “a strong emphasis on quality,” noted Ng.

The lead managers of the equity and fixed income portfolios, Lilian Leung and Shaw Yann Ho respectively, jointly decide the optimum balance between the asset classes. A quantitative model, used extensively by other JP Morgan fund managers, helps determine their strategic weightings, with yield usually the key factor, according to Ng.

Turning to the UBS fund, Ng described its approach as “dynamic, with greater allocation shifts and a willingness to lift cash levels when the managers turn negative about the markets”.

Those allocation decisions are made by the lead manager, Gian Plebani, rather than a committee of equals, according to Ng.

Nevertheless, Plebani is supported by a “strong China research team and well-respected stock and bond specialists who make the selections of individual holdings,” he said.

“The UBS fund tends to have a higher exposure to growth stocks — such as consumer discretionary — than the JP Morgan fund and will take more aggressive positions, for instance when it raised cash levels in a timely fashion last year,” said Ng.

It is also prepared to take more risk in its fixed income exposure, with around half its bond holdings have sub-investment grade credit ratings, he added.

Also, in contrast, to the JP Morgan fund, the UBS  fund does not set an explicit target.

Source: FE Fundinfo; Morningstar

*10 December 2016 – 10 December 2019

Market Exposure:

Equity Sector Weightings (31 October 2019)

Source: Fund factsheets (% of equity portfolios)

 Fixed Income Credit Ratings (31 October 2019)

Source: Fund factsheets (% of fixed income portfolios)

Top 5 equity holdings (31 October 2019)

Source: Fund factsheets

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