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A long-standing UK smaller companies fund managed by an experienced practitioner. The team employs a long-term approach, preferring companies with strong balance sheets and the ability to grow organically with a view to becoming the mid and large caps of the future. Within its sector, the fund features in our 'Smaller-Cap, Flexible' 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 realised five-year volatility of the fund is similar to that of mainstream small-cap equity indices. In our view, this reflects the manager’s relatively balanced approach and we would expect it to continue to be the case. Different share classes could have differing SRRI scores.
The fund manager, Andy Brough, joined Schroders in 1987 and heads the well-resourced UK Small and Mid Cap team. He has managed the Schroder UK Smaller companies fund for over 20 years and is responsible for the Schroder UK Mid 250 fund, as well as institutional mandates. He works closely with fund manager, Jean Roche, who joined in 2016 and analyst, James Goodman, who has researched UK small and mid-size companies since 2018.
The team believes they can grow investors' savings by thoroughly analysing smaller companies' accounts and strategies, with the aim of identifying those that are reasonably priced and able to grow organically into the mid and large caps of the future. They believe that pricing power is a strong contributor to profit growth.
The fund typically comprises 70 to 120 holdings and the long-term approach is reflected in a low turnover of stocks. Up to 20% may be invested in mid caps to capture the continued growth of holdings that increase in size. The rest of the portfolio incorporates stocks listed on the AIM and FTSE Fledgling indices as well as the FTSE Small Cap index. The portfolio is subject to a series of risk management and control systems including PRISM, the in-house system, which takes a multi-dimensional approach to assessing potential risks. The team considers the structure of the portfolio, in terms of the stock and sector contributions to risk, to ensure they are comfortable with the levels of risk held in aggregate.
The process starts with quantitative screening of the stock universe using both internal and external sources, incorporating a variety of growth, return and valuation factors which help to prioritise the fundamental research. The team stresses the importance of contact with company management and they undertake an extensive program of meetings with senior management. They aim to understand the strategies being pursued by management and assess the characteristics and competitive dynamics of industries and sectors. Companies and industries are classified within the following framework: “Unique Stocks”, companies that operate in industries where demand for their goods and services exceed supply, which gives them pricing power and drivers organic growth, and strong cash flow; “Flex Stocks”, companies which are cyclical stocks or franchises in transition, amongst which the team search for trading opportunities; “Stocks to Avoid”, companies that operate in industries where supply exceeds demand, which are typically experiencing long-term decline and which will not provide investors with successful growth opportunities. Using these classifications, the team invests in a portfolio of attractively priced Unique and Flex stocks.
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.
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.
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