Schroder Global Active Value Fund
International Shares Manager Review
FUND
The Schroder Global Active Value is an index unconstrained global equity strategy targeting a long run return before fees of 3–4% per annum above the MSCI World ex-Australia Index.
ORGANISATION
Schroders is a global asset management company with over $312.1 billion in assets managed on behalf of institutional and retail investors, financial institutions and high net worth clients from around the world, invested in a broad range of asset classes across equities, fixed income and alternatives as at 31 March 2011. Schroder consists of a team of 2793 employees worldwide operating from 32 offices in 25 different countries across Europe, the Americas, Asia and the Middle East. Schroders has developed under stable ownership for over 200 years.
INVESTMENT PROCESS
Investment Objective
The Fund’s objective is to deliver long run excess returns of +3 to 4% above the MSCI World
ex-Australia Index before fees
Investment Philosophy and Style
Schroder believes that value investing is a powerful long-term investment strategy that works globally and that a well designed value strategy can expect to achieve returns of 3 to 4% per annum (before fees) in excess of capitalisation weighted global indices over the course of a full market cycle.
Intelligent portfolio construction can greatly enhance a skilful manager's ability to generate repeatable returns over time. As such Schroder believes that there are three long term sources of strategic return available to an active investor in global equities. These are:
• having a value bias;
• fully exploiting market breadth; and
• avoiding a capitalisation based weighting scheme.
Schroder invests based upon bottom-up stock decisions and are unconstrained by benchmark related risk controls which can force investors to buy into expensive or low quality sectors and regions.
Investment Strategy
The fund’s manager believes that behavioral biases in investing, together with market imposed constraints such as the use of capitalization weighted benchmarks can be exploited to the advantage of investors. Capturing Value opportunities within the widest possible universe helps exploit these biases and generates superior returns over time. Value opportunities are best captured by an index unconstrained, highly diversified portfolio of global stocks which is actively managed. The Global Active Value investment process is robust and repeatable.
Investment Process
Stage 1: Global Value Rank
After screening for liquidity, a broad investment universe of over 15,000 stocks from more than 40 countries including both developed and Emerging Markets is populated. Each stock is assigned a ‘Global Value Rank’, determined by multiple valuation measures, including dividends, cashflow, earnings, sales and asset based metrics. Schroder’s investment universe is the top third of the Global Value Rank.
Stage 2: Stock selection
There are a number of aspects to the stock selection process but the most significant are:
• Market impact weighting - to maximise both portfolio liquidity and investment breadth. This approach avoids the return drag associated with less efficient index based cap-weighting schemes which tend to be dominated by mega-cap stocks.
• Probability of Value being realised - a systematic assessment of the probability that each stock will outperform its peer group. Higher allocations are made to cheap stocks with superior fundamentals.
• Bottom-up region and sector weightings – Schroder invests where value is found. If opportunities are not available in a particular country or industry Schroder would prefer to hold a zero weighting.
• Diversification - daily portfolio optimisation searching for the best value stocks while also paying careful attention to portfolio diversification across more than 500 stocks.
• Trade execution - tailored to local market conditions in order to minimise costs.
Currency exposure is typically unhedged however currency derivatives may be used with equity index futures in managing cash flows or to reduce significant active currency deviations away from the MSCI World ex Australia Index for risk management purposes.
PORTFOLIO CHARACTERISTICS
|
Sector weightings versus benchmark |
Fund (%) |
Index (%) |
|
Telecommunication Services |
8.9 |
4.3 |
|
Utilities |
6.1 |
3.9 |
|
Financials |
20.9 |
19.0 |
|
Energy |
12.1 |
11.5 |
|
Information Technology |
12.1 |
11.5 |
|
Materals |
7.8 |
7.3 |
|
Consumer Discretionary |
9.0 |
10.7 |
|
Health Care |
7.8 |
10.0 |
|
Consumer Staples |
7.0 |
10.0 |
|
Industrials |
8.1 |
11.6 |
|
Cash |
0.3 |
- |
|
Total |
100.1 |
99.8 |
• Active share 76.6%
• Stock weight Maximum 0.5% per stock at time of purchase
• Beta realtive to MSCI 0.99
• Tracking error % p.a. (not targeted) 3.81
• Distribution Frequency Normally half yearly – June and December
PERFORMANCE
|
Performance (to 31 May 2011) |
3 months (%) |
1 year (%) |
3 years (% p.a) |
5 years (% p.a.) |
|
Schroder Global Active Value Fund |
(2.6) |
2.6 |
(0.9) |
(1.3) |
|
MSCI World ex Australia Index |
(3.5) |
0.5 |
(5.5) |
(4.5) |
|
Value Added |
0.8 |
2.1 |
4.6 |
3.2 |
COMMENT
Schroder is a major player in both the global and Australian fund management industry and follows an investment process that is rigorous and structured. The Fund offers adequate diversification with a portfolio of more than 500 stocks from markets all around the world.
Performance has been consistently above the benchmark and has achieved its objective to deliver returns 3 to 4% above the benchmark, while fees are in line with the average for similar products.