Schroder QEP Global Quality Equity
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
Schroder QEP Global Quality Equity is an alternative form of
“growth” investing that offers strategic diversification from the more
traditional Value style. We seek to achieve this by trying to identify
quality companies that offer stable growth, are profitable and are
financially strong while avoiding the disappointment associated with
“glamour” stocks.
– Over 15 years track record in managing global equity portfolios
– Team manages over $39 billion in assets
– Investment philosophy is based upon combining fundamental
data and well-researched behavioral insights
– Considerable emphasis is placed upon portfolio construction
and genuine diversification of risk
We believe the strategy creates significant strategic diversification
for investors looking to construct a more balanced equity portfolio.
Schroder QEP Global Quality Equity targets a long run return of
+3% per annum (gross of fees) above the MSCI AC World Index.
Key features
1. Higher risk adjusted returns: Schroder QEP Global Quality Equity seeks to offer long-term returns in excess of the global market but with
lower risk. We believe that high quality stocks tend to outperform when risk aversion is high such as in economic downturns and stressful
market environments. These are times when longer run value based strategies can struggle.
2. An unconstrained approach: Unconstrained bottom-up regional and sector allocations are the result of analyzing Quality at an individual
stock level. This may lead to a more efficient portfolio and potentially higher long run returns.
3. A highly diversified portfolio: We maximize the opportunity by systematically analyzing more than 5,000 stocks globally and seek to
minimize stock risk by constructing a highly diversified portfolio that avoids the return drag typically associated with the inefficiency of marketcap weighting.
4. An alternative to Value: Schroder QEP Global Quality Equity invests in very different stocks compared with those associated with Value
based strategies, potentially offering strategic diversification benefits from traditional investment approaches.
Composite performance
15%
As of March 31, 2016
*Inception October 31, 2007
Schroder QEP Global Quality Equity (Gross)
Schroder QEP Global Quality Equity (Net)
MSCI AC World Index†
10%
†MSCI ACWI captures large
and mid cap representation
across 23 Developed Markets
(DM) and 23 Emerging
Markets (EM) countries. With
2,480 constituents, the index
covers approximately 85% of
the global investable equity
opportunity set.
7.92
6.32
7.37
5.53
5%
1.53 1.15
0%
0.24
5.78 5.22
4.43
2.88
1.53 1.15
1.32
0.24
-0.44
-1.91
-4.34
-5%
-10%
QTR
YTD
1 yr
3 yr
Difference (Gross)
+1.29%
+1.29%
+3.90%
+2.38%
+2.15%
5 yr
Annual S.I.*
+3.11%
Difference (Net)
+0.92%
+0.92%
+2.43%
+0.79%
+0.56%
+1.57%
2015
2014
2013
2012
2011
0.05%
6.02%
25.23%
16.03%
-4.46%
Net
-1.42%
4.46%
23.38%
14.31%
-5.87%
MSCI AC World Index
-2.36%
4.16%
22.80%
16.13%
-7.35%
Difference (Gross)
+2.42%
+1.86%
+2.43%
-0.10%
+2.89%
Difference (Net)
+0.94%
+0.29%
+0.58%
-1.82%
+1.48%
Gross
Past performance is not a guide to future performance. The value of an investment can go down as well as up and is not guaranteed. Please refer to the disclosures at the end of
the document for important information about the composite, including the definition of the Benchmark. Performance for periods greater than 1 year is annualized. Please see the
disclosures at the end of this document for more details about the composite creation date.
All data and statistics as of March 31, 2016.
Schroder QEP Global Quality Equity
Size allocation (%)
Regional allocation (%)
48.7
Mega (>$20bn)
52.3
56.2
North America
71.0
Large ($5bn-$20bn)
10.2
6.5
United Kingdom
18.2
Mid ($1bn-$5bn)
16.7
15.5
Cont Europe
30.2
25.1
6.1
7.5
Japan
3.9
4.2
4.0
Pacific Ex Japan
0.9
Small ($250m-$1bn)
0.0
0.0
0.0
Micro (<$250m)
Emerging Markets Emea
2.2
1.7
Emerging Markets Latam
0.7
1.4
Cash
1.9
0.0
Schroder QEP Global Quality Equity
MSCI AC World Index
1.9
0.0
Cash
5.5
7.1
Emerging Markets Asia
0
20
40
60
80
0
Schroder QEP Global Quality Equity
MSCI AC World Index
15
30
45
Source: Schroders, MSCI as of March 31, 2016.
Source: Schroders, MSCI as of March 31, 2016.
Sector allocation (%)
Portfolio characteristics
Information Technology
14.4
Health Care
11.7
Industrials
Consumer Discretionary
10.3
11.1
Consumer Staples
11.1
10.6
6.4
6.2
6.3
Insurers/Asset Mgt
Banks
Materials
Energy
Utilities
Real Estate
0.4
0.3
Cash 0.0 1.9
0
Active share1
13.1
Tracking Error (annualized since inception)
3.07
Number of stocks
443
3
Weighted Average Market Cap ($m)
Price to book4
MSCI AC World Index
10
19.4%
2
3.5
5
71.3%
Total Weight of non-index stocks
14.7
Schroder QEP Global
Quality Equity
3.5
15
75
16.6
11.3
6.1
4.1
5.0
4.8
2.7
6.5
Telecommunication Svcs
17.3
60
20
61,664
3.02
Price to earnings5
17.19
Return on equity6
25.29
25
Source: Schroders, MSCI as of March 31, 2016. Sectors/regions/market caps listed are
shown for illustrative purposes and are not to be considered a recommendation to buy
or sell.
Source: Schroders, MSCI as of March 31, 2016. Inception date October 17, 2007.
Characteristics are vs. MSCI AC World Index.
1. Measures the percentage amount the portfolio differs from the benchmark. A reading of 0% suggests holdings are identical to the benchmark. 2. The annualized standard
deviation of the active returns of a portfolio relative to the benchmark. 3. An average that takes into account the proportional relevance of each component, rather than treating each
component equally. Market cap is the market price of an entire company on any given day, calculated by multiplying the number of shares outstanding by the price per share. 4. A
ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share. 5. The
sum of a company’s price-to-earnings, calculated by taking the current stock price and dividing it by the trailing earnings per share for the past 12 months. 6. The amount of net
income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money
shareholders have invested.
Top ten holdings
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Amgen Inc.
Roche Holdings AG
Intel Corporation
Apple Inc.
Telstra Corp Ltd.
Johnson & Johnson
IBM
Microsoft Corporation
Taiwan Semiconductor Manufacturing Company
Kddi Corporation
Total
Source: Schroders, as of March 31, 2016.
Securities listed are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
Country % of Total Market Value
United States
0.79%
Switzerland
0.77%
United States
0.76%
United States
0.76%
Australia
0.76%
United States
0.73%
United States
0.73%
United States
0.72%
Taiwan
0.71%
Japan
0.71%
7.45%
Schroder QEP Global Quality Equity
Quarterly Commentary
Market Review
It was a very volatile start to the year for global equity markets.
By mid-February they had fallen sharply due to concerns about the
strength of the global economy. As has often been the case recently
when investors take fright, policymakers marched to the rescue.
Dovish moves by central banks underscored a big rebound in
commodity prices. Firmer oil prices, which appear to have become
the key barometer of investors’ risk tolerance, played a significant
role in boosting sentiment. Developed markets rallied strongly over
the remainder of the quarter, but it was the new-found strength in
emerging markets and riskier assets more generally that further
reinforced the recovery.
The first quarter bore the hallmarks of a period of market rotation,
as the extremes of the last few years receded and tentative signs
of a recovery in Value as an investment style emerged. Since the
mid-February low, market performance has been broadening out
from the narrow cohort of winners that dominated last year and has
been led by previous laggards. These are reasons to believe that the
momentum-driven market that has been a something of a headwind
to our performance in recent years is at least abating and perhaps
even reversing.
The dominant performance of growth stocks and defensive
equities in recent years has created plenty of opportunities for
investors, particularly those with a valuation anchor. We believe
the common view that value can only be captured today by taking
on excessive risk to be overly simplistic. Opportunities in quality
stocks at attractive valuations are spread much more widely than
the traditional ‘risky’ areas of emerging markets and resources. To
mention just a few, we see significant opportunities in high quality
US industrials, global banks and the UK market.
Performance and Strategy
Over the first quarter of the year the QEP Global Quality strategy
outperformed its reference index. As a sector, consumer
discretionary made the biggest contribution. This was principally
due to the positions we held across a number of industries, but
avoiding some of the larger auto manufacturers in Japan and
Continental Europe also helped. Other ‘glamorous’ names that the
strategy benefited from avoiding lay in North American biotech and
pharmaceuticals. However, we gave some of this back through the
higher quality pharmaceutical stocks we held in other developed
regions. Our holdings in industrials contributed strongly, largely in
the US (especially machinery stocks, where we have a long-held
preference) but also in Continental Europe. Financials performed
poorly as a sector over the quarter and so our lower weights in
Continental Europe, the UK and Japan were beneficial. But this
was partly off-set by our higher allocation to US financials, where
we generally find more quality stocks on reasonable valuations.
A revival of the ‘reach for yield’ trade in US utilities was a headwind
to performance. We still see this area as unattractive and therefore
hold a lower than index exposure.
Outlook and Positioning
We retain our preference for the defensive healthcare and consumer
staples sectors. Within healthcare we like pharmaceuticals and
healthcare equipment stocks. Within consumer staples we like
home & personal products, as well as selected food & drink stocks.
Our low allocation to utilities is a result of a zero weighting in US
utilities, a long-standing and high conviction stance.
In technology we maintain our exposure to the less glamorous and
more attractively-valued ‘mature’ technology stocks. Elsewhere
in cyclical sectors we prefer US and UK industrials, finding
opportunities particularly in commercial services and machinery.
The strategy’s exposure to financials remains driven first by our view
of the quality (risk) of a company and then the right valuation for any
opportunity. Within insurance we maintain our preference for high
quality companies with a focus on long-term business strength and
diversity. We have continued to add to positions in high quality but
over-sold banks in the US. We maintain no exposure to Australian
and Canadian banks due to ongoing concerns over capital
adequacy and dividend sustainability.
In Emerging Markets we have a broad exposure with the exception
of financials, due to a near-zero weighting in Chinese banks.
In country terms we continue to favor South Africa and Taiwan.
Within defensives we have a preference for utilities and telecoms
in Emerging Asia and EMEA. We also continue to find opportunities
amongst Asian semiconductor manufacturers.
Source: Schroders.
Important Information: Schroders is a global asset management company with $466.9 billion under management as of March 31, 2016. Our clients are major financial institutions
including banks and insurance companies, public and private pension funds, endowments and foundations, high net worth individuals, financial intermediaries and retail investors.
Our aim is to apply our specialist asset management skills in serving the needs of our clients worldwide and in delivering value to our shareholders. With one of the largest networks
of offices of any dedicated asset management company and over 450 portfolio managers and analysts covering the world’s investment markets, we offer our clients a comprehensive
range of products and services. Further information about Schroders can be found at www.schroders.com/us. Portfolio data and risk characteristics based on a sample account.
Details may vary from account to account. This document does not constitute an offer to sell or any solicitation of any offer to buy securities or any other instrument described in this
document. The information and opinions contained in this document have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of facts
obtained from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Schroders has
expressed its own views and opinions in this document and these may change. Past performance is not a guide to future performance. The value of investments can go down as
well as up and is not guaranteed. Sectors/securities illustrate examples of types of sectors/securities in which the strategy invested and may not be representative of the strategy’s
current or future investments. Portfolio sectors/securities and allocations are subject to change at any time and should not be viewed as a recommendation to buy/sell. The opinions
stated in this document include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently
know. However, there is no guarantee that any forecasts or opinions will be realized. Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of
Schroders plc and is a SEC registered investment adviser and registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia,
Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan providing asset management products and services to clients in Canada. This document does not purport to provide
investment advice and the information contained in this newsletter is for informational purposes and not to engage in a trading activities. It does not purport to describe the business
or affairs of any issuer and is not being provided for delivery to or review by any prospective purchaser so as to assist the prospective purchaser to make an investment decision in
respect of securities being sold in a distribution. Schroder Investment Management North America Inc. (“SIMNA Inc.”) is an investment advisor registered with the U.S. SEC. It provides
asset management products and services to clients in the U.S. and Canada including Schroder Capital Funds (Delaware), Schroder Series Trust and Schroder Global Series Trust,
investment companies registered with the SEC (the “Schroder Funds”.) Shares of the Schroder Funds are distributed by Schroder Fund Advisors LLC, a member of the FINRA. SIMNA
Inc. and Schroder Fund Advisors LLC are indirect, wholly-owned subsidiaries of Schroders plc, a UK public company with shares listed on the London Stock Exchange.
Schroder QEP Global Quality Equity
Risk
All investments, domestic and foreign, involve risks including the risk of possible loss of principal. The market value of the portfolio may
decline as a result of a number of factors, including adverse economic and market conditions, prospects of stocks in the portfolio, changing
interest rates, and real or perceived adverse competitive industry conditions. Investing overseas involves special risks including among
others, risks related to political or economic instability, foreign currency (such as exchange, valuation, and fluctuation) risk, market entry or
exit restrictions, illiquidity and taxation. Emerging markets pose greater risks than investments in developed markets. Investments in small
capitalization companies generally carry greater risk than is customarily associated with larger capitalization companies, which may include,
for example, less public information, more limited financial resources and product lines, greater volatility, higher risk of failure than larger
companies, and less liquidity.
Schrider QEP Global Quality
As of: December 31, 2014
Definition of the Firm: The Firm is defined as all accounts managed by Schroder Investment Management in the UK and US, by wholly owned subsidiaries of Schroders PLC. Prior
to January 1, 2007 SIM London & SIM North America existed as two separate Firms which were compliant & verified as separate entities until December 31, 2006. The consolidation
of these two Firms was made as part of a move towards creating one global Firm. Composite and Firm assets reported prior to January 1, 2007 represent those of the legacy firm
which managed the product. Prior to January 1, 2011 the SPrIM (Schroder Property Investment Management) Firm existed separate to the Schroder Investment Management UK
and US Firm, from January 1, 2011 these Firms have been combined into a single firm. On April 2, 2013, Schroder U.S. Holdings Inc., a subsidiary of Schroders plc, purchased STW
Fixed Income Management LLC (“STW”) and on July 2, 2013, Schroders plc, purchased Cazenove Capital Holdings; assets managed by STW and Cazenove are included in the Firm
from January 1, 2014. Assets Managed against a liability driven mandate are excluded from the GIPS Firm. A complete list and description of the Firm’s composites and performance
results is available upon request.
Composite Definition: The QEP – Global Quality Composite (the “Composite”) is comprised of all Schroder Investment Management (UK & US), fully discretionary accounts that are
managed in a similar manner and seek to achieve a total return above the MSCI AC World (NDR), MSCI World (NDR) or comparable index through active investment in diversified,
index-unconstrained, Quality style-biased portfolios. Composite accounts invest predominantly in equities and equity-related securities, although other financial instruments are
permitted. Derivatives may be used to achieve the investment objective and to reduce risk or manage the fund more efficiently. None of these accounts use leverage.
This description was redefined on 11/29/2012, the redefinition has been made to enhance the composite description by increasing the level of detail used to describe the investment
strategy. Previous disclosures are available upon request. As of November 2013 the primary benchmark for this composite was changed from MSCI World (NDR) to the MSCI AC
World (NDR) for all periods since inception. The latter is a more appropriate comparison for the strategy, as emerging markets are typically included in the investment universe. No
change was made to the investment process and the benchmark continues to be used only as a reference for performance comparison.
Composite Construction: New accounts are included from the beginning of the first full month of management on a discretionary basis. Terminated accounts are excluded from the
end of the last full month of discretionary management. This Composite has no minimum asset level for inclusion.
The composite currency is US Dollar
Composite Inception Date: 10-31-2007
Composite Creation Date: 02-01-2008
Calculation Methodology: The portfolio returns are time-weighted rates of return that are adjusted for cash flows. Portfolio returns are combined using beginning of period asset
weights to produce the composite return. Periodic returns are geometrically linked to produce annual returns. Dividends on equities are recognized net of irrecoverable withholding
tax. Since January 1999 dividends have been recognized as of the ex-dividend date having previously been recognized on a cash basis. Performance results are presented before
the deduction of management fees and custodian fees but after trading expenses.
Fee Calculation: Net of fees composite returns are prepared by deducting a model fee based on the highest retail management fee of 1.5%. Actual fees paid by institutional accounts
in the composite were less than this amount.
Dispersion: The dispersion of annual returns is measured by the asset weighted standard deviation of portfolio returns represented within the composite for the full year provided a
minimum of 5 portfolios are available.
Additional Information: The exchange rates used are provided by WM. Each currency is valued at 4 pm on the last business day of the month. Additional information regarding
policies for valuing portfolios, calculating and reporting returns and a description of all composites are available on request.
GIPS Compliance and Verification: Schroder Investment Management (UK & US) claims compliance with the Global Investment Performance Standards GIPS® and has prepared
and presented this report in compliance with the GIPS standards. Schroder Investment Management (UK & US) has been independently verified for the periods January 1, 1996 to
December 31, 2014.
Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and
procedures are designed to calculate and present performance in compliance with the GIPS standards. The QEP – Global Quality (the “composite”) has been examined for the periods
January 1, 2011 to December 31, 2014. The verification and performance examination reports are available upon request.
Composite Performance Results
Composite - QEP - Global Quality
Primary Benchmark - MSCI AC World (NDR)
Secondary Benchmark - MSCI World (NDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: UK-INT
Year
2014
2013
2012
2011
2010
2009
2008
Gross Composite
Return
6.02%
25.23%
16.03%
-4.46%
18.02%
34.93%
-38.54%
Net Composite
Return
4.46%
23.38%
14.31%
-5.87%
16.28%
32.94%
-39.45%
As at Dec 2014
Annualized 3 Yea
Annualized 5 Yea
Annualized 7 Yea
Annualized 10 Yea
Annualized S.I 3
Gross Composite
Return
15.50%
11.68%
5.35%
n/a
4.99%
Net Composite
Return
13.79%
10.03%
3.80%
n/a
3.43%
Primary
Benchmark
Return
4.16%
22.80%
16.13%
-7.35%
12.67%
34.62%
-42.20%
Primary
Benchmark
Return
14.10%
9.17%
2.72%
n/a
1.85%
Secondary
Benchmark
Return
4.94%
26.68%
15.83%
-5.54%
11.76%
29.99%
-40.71%
Secondary
Benchmark
Return
15.47%
10.20%
3.27%
n/a
2.41%
3 Year
Composite
Risk 1
10.36%
14.05%
16.48%
18.56%
22.35%
n/a
n/a
3 Year Primary 3 Year Secondary
Benchmark Risk1 Benchmark Risk1
10.64%
10.37%
14.14%
13.73%
17.37%
16.98%
20.88%
20.44%
24.84%
24.05%
n/a
n/a
n/a
n/a
Composite
Risk1
10.36%
13.87%
17.48%
n/a
17.29%
Primary
Secondary
Benchmark Risk1 Benchmark Risk1
10.64%
10.37%
14.57%
14.30%
18.90%
18.35%
n/a
n/a
18.77%
18.22%
Number of
Portfolios
(throughout
period)
13 (11)
11 (9)
10 (6)
7 (6)
6 (4)
4 (3)
3 (1)
Account
Dispersion2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Market Value at
end of Period
8,972,369,919
8,235,006,242
7,602,919,092
5,514,535,045
4,898,645,521
1,793,292,208
737,394,279
Fee Schedule
Net of fees composite returns are prepared by deducting a model fee based on the highest retail management fee of 1.5%. Actual fees paid by institutional accounts in the composite were less than this amount.
1 Annualized standard deviation of gross monthly returns for the composite and monthly returns for the benchma
2 Asset weighted standard deviation of annual gross returns of accounts that have been in the composite for the entire ye
3 Since Inception
4 Since December 31, 2003 Total Firm Assets include non-fee paying accounts. 2003 Total Firm Assets value has been restated due to the inclusion of those non-fee paying accou
Total Firm Assets from 2007 incorporate the UK & US firm merger as detailed in the Definition of the Firm, from the start of 2011 Schroder Property Investment Management M
Manager accounts are included in the Total Firm Asset
N/A - Information is not statistically meaningful due to an insufficient number of portfolios for the entire ye
Source: Schroders
PFS-QEPGLQUAL
Average Account
Value at end of
Period
690,182,301
748,636,931
760,291,909
787,790,721
816,440,920
448,323,052
245,798,093
Percentage of
Firm Assets
3.17%
3.22%
3.40%
2.83%
2.41%
1.11%
0.82%
Total Firm Assets4
282,697,291,678.31
255,707,099,715.41
223,940,416,622.14
194,958,113,724.01
202,946,283,267.48
161,183,088,769.55
89,646,473,691.69