You are currently using Internet Explorer. This website is optimised for Google Chrome, Mozilla Firefox and Microsoft Edge. You can download Chrome here, Firefox here or Microsoft Edge here.
A UK equity fund that is managed according to a disciplined value approach. The team looks for companies that have suffered a significant operational and/or share price setback but have the potential to recover over the long term. Within its sector, the fund features in our 'Value-Biased' category.
The fund's KIID Synthetic Risk and Reward Indicator (SRRI) is 6. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 6 means the fund's historic volatility is between 15% and 25%.
The fund's risk characteristics are illustrative of its differentiated nature and the requirement for investors to be prepared for periods of shorter-term pain. Its five-year realised standard deviation is above UK equity benchmarks and its maximum drawdown has also been larger. It also exhibits a high tracking error. We believe these characteristics are a fair reflection of the profile investors should expect. Different share classes could have differing SRRI scores.
The fund is co-managed by Nick Kirrage and Andrew Lyddon, who joined Schroders in 2001 and 2005, respectively. Mr Kirrage heads the Global Value team and has managed assets in the value style at Schroders since 2006. Mr Lyddon has managed value portfolios at Schroders since 2010. The Global Value team consists of several fund managers who run value and income-orientated portfolios across UK, European, global and emerging markets. They benefit from Schroders’ extensive resources.
Contrary to prevailing wisdom, the team believes that stock markets are inefficient because market participants do not always behave in a rational way, and often extrapolate short-term trends, both good and bad. Furthermore, they believe that investors often underestimate the potential for mean reversion in earnings. Therefore, the focus of their approach is the identification of mis-priced securities where they see the potential for a recovery in profits, however challenging the backdrop may appear.
The portfolio comprises 30-70 holdings from across the market-cap spectrum. The maximum position size is 10% and up to 35% may be in a single industry sector. Up to 10% may be held in cash. The managers may invest up to 20% outside the UK stock market when they believe the relative opportunities to be attractive. This may be achieved through individual stocks and/or via a position in the team’s Global Recovery strategy.
The approach is framed by the identification of stocks that appear cheap and, through additional research, the analysis of the degree to which they are trading substantially below their long-term value. This is an innately contrarian style and leads the managers towards companies that have endured significant operational and/or industry headwinds and, consequently, are often unloved and out-of-favour.
The process starts with several quantitative screens designed to help identify potential candidates. Price relative to 10-year average earnings is a key screen, but they also look at other metrics, including enterprise value, net operating profit after tax and price/tangible assets. The screens narrow the investable universe into a subset of undervalued companies that are candidates for proprietary research by the team. They then construct a financial model for each company. This is based on at least 10-years’ worth of company accounts to help them understand how a firm has performed through a full economic cycle. Their analysis of these companies focuses upon the nature of their business models, balance sheets and capital allocation decisions. The balance sheet analysis is designed to ensure the business can survive further adversity, while the business model assessment helps the managers judge the factors that will drive a turnaround and understand the potential extent of any such improvement in profitability. The team can then complete the “7 Red Questions” checklist. This checklist framework is designed to uncover value traps and address key investment risks in a disciplined and repeatable way. The information and analysis gleaned from each of the questions feeds into the overall assessment of whether or not the risk/reward trade-off is attractive for a given company.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
Investment Association sector definition: Funds which invest at least 80% of their assets in UK equities which have a primary objective of achieving capital growth.
Read more >At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
©2021 The Adviser Centre | All Rights Reserved. The Adviser Centre is a trading name of Embark Investments Limited and is not authorised to carry out regulated activities. Embark Investments Limited is a company registered in England (No. 03383730) and a wholly owned subsidiary of Embark Group Limited, with its registered office at 100 Cannon Street, London EC4N 6EU. Embark Investments Limited is authorised and regulated by the Financial Conduct Authority (Registration No. 628981). This website is provided by The Adviser Centre and is a service for financial professionals only. Information on this website, including data and information from asset managers and third party sources, is deemed to be correct at the time of publication but The Adviser Centre takes no responsibility for its accuracy. Opinions are stated honestly and with careful consideration but they can change at any time and should not be solely relied upon. Information featured on the website does not constitute financial or investment advice.
Your use of this website is subject to the terms of use set out in the website. By continuing to use our website we will assume that you are happy to receive non-privacy intrusive cookies. Please be aware that if you disable cookies some functionality on the site will not work. Read our cookies policy to find out more about our cookie use and how to disable cookies.
Alternatively, if you are not a financial professional and are seeking financial advice, you may wish to visit unbiased.co.uk to search for a financial adviser.