Investment Fund Awards 2018

Wealth & Finance International - 2018 Investment Fund Awards 29 Schroders cUK medium-sized companies, those 200 or so just below the FTSE 100, have been a source of strong returns in recent years, and an area of the stock market where active stock-pickers have been able to excel. Over the last 5 years the FTSE 250 Index has returned 55.7% while the FTSE 100 has only returned 40.7%. This reflects the attractive nature of the stocks within the FTSE 250 Index which we can pick from. Past performance is not a guide to future performance and may not be repeated. Our UK mid cap equity team at Schroders has a particular “ABC” stock-picking process. Our emphasis is on identifying dynamic, high-quality “A” companies – those with organic growth – often in markets which themselves are growing structurally (e.g. air travel), pricing power and management teams with a proven track record or potential to succeed. These companies often have a founder/ owner shareholder. We complement these by positions in strong “B” companies – those that are most exposed to the economic cycle, where stock market or industry capacity is decreasing (e.g. the pubs/bars subsector), or are in a turnaround situation, often with new management. Meanwhile, we avoid “C”, companies, typically those in structural or long-term decline, with too much debt to support their business model. This is a common-sense investment philosophy (itself uncommon), based on careful screening of all available stocks, fundamental analysis of company accounts and a subjective evaluation of management and prospects. We use a limited number of internally-developed screens as well as some sourced externally that incorporate growth, return and valuation factors. Screens do not drive stock selection, but they can be useful in helping to prioritise and focus research as well as to reinforce or challenge our fundamental views. A stock screen is not a replacement for reading financial reports and accounts. Additionally, we have a strong sell discipline. As we believe that the bulk of a stock’s performance comes during its time as a nimble mid cap, our policy is to sell a company when it is promoted to the FTSE 100. This policy has served us well. For simple economic reasons, broker coverage on mid-cap companies is limited in quantity and sometimes in quality. Therefore, company visits are a vital part of the research process. We actively seek to meet with the companies we invest in, or are looking to invest in, typically twice a year. The aim is three-fold: to understand and evaluate the strategies pursued by management; to assess the characteristics and competitive dynamics of industries and sectors; and to stay abreast of the latest developments for each industry. It is the knowledge that these meetings or visits provide, and the extent of resources that they dedicate to the product which gives our team an advantage over the competition, with whom we also meet as a cross-referencing exercise. Some issues are of particular focus to markets at present, namely Brexit, although as stock pickers with a bottom-up approach, it is not our focus. We note that over half of FTSE 250 revenues come from outside the UK. At the same time, the backdrop for the more domestically-focussed half the mid cap universe is far from dire. While UK growth has slowed since the EU referendum, the economy has continued to expand at a steady pace against the backdrop of a very low unemployment rate and rising wages. The country’s fiscal position has recovered as tax receipts have picked up (in excess of the rate of economic growth) further underlining the resilience of UK plc, and even allowing for a small fiscal stimulus in the Autumn budget. Despite their depressed levels of confidence in the general economic outlook, UK consumers are positive about their own financial situation and surveys show their confidence to make major purchases, such as furniture and electrical goods, has improved over recent months. We have seen evidence of this confidence in some of our investments, be it on soft furnishings, pet supplies or drinking and eating out. More widely, we continue to find many mid-cap companies that we believe are delivering good levels of organic growth, finding sensible bolt-on acquisitions and are underpinned by strong balance sheets. As such, these companies will remain key as we look towards an exciting, dynamic future. Risk considerations of the Schroder UK Mid Cap Fund plc The trust may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large Mid cap companies can offer better potential for growth. Fund manager Jean Roche explains how the Schroders mid-cap team finds value outside of the FTSE 100. Best UK-Focused Mid Cap Fund (5 Years): Schroder UK Mid Cap Fund & Best Mid Cap Fund Manager - UK Schroders  changes in the value of the fund, both up or down, which may adversely impact the performance of the fund. As a result of fees being charged to capital, the distributable income of the fund may be higher but there is the potential that performance or capital value may be eroded. The trust may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so. Company: Schroders Contact: Scott Mckay Address: 1 London Wall Place, London, EC2Y 5AU, UK Phone: 0800 718 777 Website: https://schroders.com/ Important information This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Information herein is believed to be reliable but we do not warrant its completeness or accuracy. Any data has been sourced by us and is provided without any warranties of any kind. It should be independently verified before further publication or use. Third party data is owned or licenced by the data provider and may not be reproduced, extracted or used for any other purpose without the data provider’s consent. Neither we, nor the data provider, will have any liability in connection with the third party data. The material is not intended to provide, and should not be relied on for accounting, legal or tax advice. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. The views and opinions contained herein are those of the authors, or the individual to whom they are attributed, and may not necessarily represent views expressed or reflected in other communications, strategies or funds. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Past Performance is not a guide to future performance and may not be repeated. Issued in November 2018 by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registration No 4191730 England. Authorised and regulated by the Financial Conduct Authority FD180009