How active management can beat the stock market
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Schroder Recovery
Schroder Recovery aims to deliver attractive capital growth by investing in companies that have suffered a severe business or price setback, but where the managers believe long-term prospects are good. Recovery investors need a long-term horizon, but patience in this fund has proved rewarding.
Our opinion
This quietly aggressive, value-driven fund has been run by the same lead managers since 2006, with a continuity of process and a very consistent track record. Their style does lead to shorter periods of underperformance, but their core discipline of buying cheap stocks has delivered strong long-term outperformance. For investors wanting exposure outside the mainstream large-cap UK equities, Schroder Recovery fund offers an intriguing selection of stocks.
Company description
Founded in London in 1804, today Schroders operates in more than 25 countries, employing more than 5,000 people, close to the markets in which they invest. 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 2015, 2016 and 2017.
Fund manager
Nick Kirrage and Kevin Murphy have worked together at Schroders for many years and head the team that runs the global income and recovery mandates. All team members started their careers as investment analysts and Nick says he spends half his day with his nose buried in company reports and accounts; an essential attribute for a value-driven approach.
Recovery investing requires patience, it doesn’t work every day.
Kevin MurphyFund manager
Investment process
The starting point of Schroder Recovery’s investment process is a very basic valuation screen to highlight potential candidates; the team then has a particular focus on stocks that have underperformed the FTSE All Share index over three to five years. The managers then assess the extent to which profit recovery is within the company's own control, or dependent upon external conditions. They look extensively at company balance sheets to ensure companies have enough capital to see them through short and medium-term challenges. Unlike most fund managers, Nick and Kevin are steadfast about not meeting company management teams. They believe the full story of a company can be found in the financial statements and not what they hear from the directors.
Risk
The nature of 'recovery' investing is that some companies will disappoint, and some will go bust. Sometimes the catalyst for change takes time, and often the stocks will first get even cheaper. Schroder Recovery's performance is likely to differ significantly from the index.
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