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Schroder Global Recovery
This global fund is managed by Schroders’ well-known value investment team. Nick Kirrage and Andrew Lyddon have been co-managers since launch, and have joined more recently by Simon Adler to run this concentrated, unconstrained value portfolio. They take a long-term view, looking for companies with turnaround potential – a strategy that has benefited investors in the Elite Rated Schroder Recovery fund – managed by Nick and Kevin Murphy - over the years.
Our opinion
This fund aims to build on the success of Nick and Kevin's Schroder Recovery fund. The addition of Andrew to the team provides a valuable resource, considering the size of the global opportunity set. We believe this fund could be well-positioned to capture a resurgence in this value investing, which historically performs well over the long term.
Company description
Founded in London in 1804, today Schroders operates in more than 25 countries, employing close to 4,700 people. Schroders is listed on the London Stock Exchange and invests in a range of asset classes, including equity, fixed income, multi-asset and alternatives. The group was awarded the Elite Equities Provider Rating in 2017.
Fund manager
Nick has worked at Schroders for many years on the UK-focused Recovery fund and co-heads the value team at the asset manager with Kevin Murphy. As part of the team-based approach, Kevin continues to analyse and uncover value opportunities globally, but has stepped away from direct management of the Schroder Global Recovery fund to manage UK portfolios only. Andrew joined the fund in 2015, having been a member of the value team since 2010, while Simon became co-manager in November 2018.
Recovery investing requires patience, it doesn’t work every day.
Nick KirrageFund manager
Investment process
The value team has spent years fine-tuning its process. It starts with a quantitative screen to highlight the best value ideas. This covers companies with low profits relative to the economic cycle or low share prices in relation to their assets. Their financial statements are then put under the microscope. The team looks at how the company makes money, what drives profits and, ultimately, whether it is a good business. The financial strength of the firm is then assessed. This involves looking at where it is spending money and where the pressure points may be. This provides the team with some insight into what the business is ultimately worth. The managers then wait patiently for the share price to rise to this level. The portfolio typically holds approximately 50 names from different parts of the globe, depending on where the managers are seeing the best investment opportunities.
ESG
ESG - Integrated
ESG factors are integrated throughout the investment process for the whole of the Schroders fund range. The process begins with the ‘SustainEx’ tool which has been developed in-house by a 25-strong central ESG team.
SustainEx quantifies the positive and negative impacts companies have on society. It has won a number of awards and continues to be upgraded all the time. Most approaches measure impact relative to a benchmark, whereas SustainEx calculates a quantifiable overall impact. There are over 45 positive and negative externalities which have been drawn from over 400 academic studies and are applied to 9,000 global companies. The tool helps fund managers to identify previously unaccounted for ESG risks and helps them to build these risks into their valuation framework. Each individual strategy has its own ESG specialist on the team.
In addition to SustainEx, analysts also use the Context tool which allows them to add their own input. It is also used in the valuation process, with higher discount rates applied to weak ESG companies. Some companies’ ESG will be so weak that they are considered uninvestable. ESG also helps shape portfolio construction: those stocks with a higher ESG risk may have a reduced weight in the portfolio, or if the risk is high enough, no position at all.
Risk
Schroder Global Recovery fund can underperform when the value style is out of favour. The nature of ‘recovery’ investing is that some companies will disappoint and may ultimately go bust, so the skill of the managers comes down to choosing the right stocks. Sometimes it can take time for change to take place and the share price of a company may fall further before it rises.
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