Separately, Schroder’s recently cautioned on the overheating in China’s market while BlackRock said it would prefer a selective investment approach following the surge in A- and H-shares.
Against this backdrop, Fund Selector Asia takes a look at the BlackRock Asian Dragon Fund and the Investec Asian Equity Fund.
Both funds are domiciled in Luxembourg. The BlackRock fund was launched in January 1997 and had $1.4bn in assets under management (AUM) on 31 March.
"Both funds have similarities in sector allocation, holding significant allocation toward financial and information technology sectors."
The Investec Asian Equity Fund has an older vintage and larger AUM than the BlackRock fund. The Investec fund was launched in June 1984 and had $3.8bn in AUM on 31 March.
Both funds invest in companies in Asia ex-Japan, but there is significant difference in their investment approach, said Leonie Yoong, vice president of funds solutions in Asia at Coutts.
The BlackRock fund uses a bottom-up, fundamental stock-picking approach for the majority of its portfolio and will take advantage of mis-priced stocks in the short-term, Yoong said in her comparative analysis of the funds.
In regards to the Investec fund, the investment universe is established on the basis of a quantitative model and the screened stocks are then continuously reviewed through a qualitative filter, she said.
Investment strategy review
The BlackRock fund had been choosing investments primarily through fundamental research. But the management style changed after Andrew Swan joined the firm as head of the Asia fundamental equity team in August 2011, Yoong said.
The team now has a more flexible investment style to take advantage of market conditions for alpha generation, she said.
“The fund has moved from a pure value approach to a more flexible approach. It incorporates both elements of value and growth [investing], depending on prevailing market conditions.”
The BlackRock fund typically holds 50 to 80 stocks.
The Investec fund, by comparison, filters the investment universe by using the firm’s proprietary quantitative-driven “4Factor” process, she said.
Companies that pass the 4Factor screens are then researched by Greg Kuhnert, the portfolio manager and his team of supporting analysts resulting in a portfolio of 70 to 100 stocks.
Investec’s 4factor model is based on four factors: strategy, value, dynamics and technical, as per information on its website.
The model screens for companies that have created value for shareholders in the past, have improving operating performance, look cheap relative to the market index and whose share prices are trending upward due to increasing investor attention.