How active management can beat the stock market
Leading global stock markets haven’t risen very much over the last 22 years. Despite some peaks and...
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.
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
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.
Read more about this fund
Value vs Growth: which is best?
There has been much talk of value investing and growth investing over recent years. But what...
Answering the million-dollar question: is growth or value investing best?
To mark Black Friday, a day of bargains and deals, we’re considering the age-old investment debate:...
The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a fund, and (5) are not warranted to be correct, complete, or accurate. FundCalibre shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. The Elite Fund rating is subjective in nature and reflects FundCalibre’s current expectations of future events/behaviour as they relate to a particular fund. Because such events/behaviour may turn out to be different than expected, FundCalibre does not guarantee that a fund will perform in line with its FundCalibre benchmark. Likewise, the Elite Fund rating should not be seen as any sort of guarantee or assessment of the creditworthiness of a fund nor of its underlying securities and should not be used as the sole basis for making any investment decision. FundCalibre disclaims any responsibility for trading decisions, damages or other losses resulting from any use of the Elite Fund rating. All performance data, as well as fund size, OCF, AMC, annual income (historic), share price discount or premium, is sourced directly from FE Analytics, and will change periodically.