HEAD-TO-HEAD: Morgan Stanley versus T Rowe Price

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Investment approach

The manager of the Morgan Stanley fund takes a five-year perspective, and looks for companies with strong business models, and which have the potential to disrupt their industries.

“It is a clean and simple investment approach,” said Poole.

Analysts conduct deep-dive research to help Dennis Lynch and his stock pickers identify innovative companies, while other members of the research team provide a backdrop of fundamental macro analysis to give stock selection context. The result is a highly idiosyncratic portfolio, typically composed of only 40 individual holdings which are retained for a long period of time, irrespective of short-term market movements.

Allocations often differ significantly from the fund’s Russell 1000 Growth Index benchmark, and turnover is low. Sector choices tilt towards technology, communication services and healthcare – as expected in a growth-oriented fund.

“It is a high conviction strategy, and the managers are prepared to risk being wrong in the short-term,” said Poole.

The T Rowe Price investment approach and process is also “solid and robust”, according to Poole.

Manager Taymour Tamaddon has a “clear focus on companies’ earnings – preferably likely to increase at a double-digit rate, sustainable growth, the quality of management, the resilience of margins and strong free cash flow,” he said.

Although stock-picking is central to the process, the portfolio typically contains the large tech names found in other US equity growth funds. However, the exposure to the technology, communication services and consumer discretionary sectors is often greater than its Russell 1000 Growth Index benchmark.

The fund’s individual holdings range between 60 and 70 stocks, although the top 20 make up about 50% of the portfolio, according to Poole. Turnover is less than 40% a year, but “Tamaddon can be nimble as he showed last year during the pandemic sell-off,” said Poole.

Fund characteristics

Sector allocation:

Source: Fund factsheets, 30 June 2021

Top 10 holdings:

Source: Fund factsheets, 30 June 2021

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