Schroder US Small Cap Equity
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
The US Small Cap Equity investment strategy is a bottomup, fundamental and research-based approach. The portfolio
manager and analysts seek to identify those companies that have
compelling business models, strong management teams and
attractive valuation levels. Sources of research include company
managements, competitors, media and suppliers.
– Team, led by Jenny Jones, manages about $1.9 billion in
US Small Cap strategy and $3.5 billion in US SMID Cap strategy
– Lead portfolio manager with over 36 years investment
experience
– Dedicated team of 7 investment analysts with an average of 21
years investment experience
The portfolio of 100-150 stocks is diversified by type of company,
with approximately 50-70% of the portfolio invested in mispriced
growth opportunities, 20-50% in “steady eddies” (i.e. companies
with stable and dependable earnings and revenue characteristics),
and 0-20% in turnarounds.
Key features
– Flexible core investment style; able to reflect changing market dynamics throughout the economic cycle
– Bottom-up fundamental research provides the basis for stock selection
– Focus on companies with strong appreciation potential selling at reasonable valuations
– Invests in a combination of three distinct and complementary types of companies; seeks to reduce volatility and tends to offer a level of
protection in down markets
Composite performance
As of March 31, 2016
*Inception March 31, 1990
20%
†
10%
An index measuring the
performance approximately
2,000 small-cap companies
in the Russell 3000 Index,
which is made up of 3,000
of the biggest U.S. stocks.
The Russell 2000 serves as
a benchmark for small-cap
stocks in the United States.
Schroder US Small Cap Equity (Gross)
Schroder US Small Cap Equity (Net)
Russell 2000 Index†
15.86
14.14
10.66 9.02
6.84
9.23
7.617.20
9.20
8.46
6.86
5.26
1.901.52
1.90 1.52
0%
-1.52
-1.52
-10%
-20%
-3.69
-5.12
-9.76
QTD
YTD
1 yr
3 yr
5 yr
10 yr
Annual S.I.*
Difference (Gross)
+3.42%
+3.42%
+6.07%
+3.81%
+2.03%
+3.20%
+6.66%
Difference (Net)
+3.04%
+3.04%
+4.64%
+2.18%
+0.41%
+1.60%
+4.95%
2015
2014
2013
2012
2011
Gross
-0.90%
10.01%
35.99%
13.99%
-3.49%
Net
-2.37%
8.38%
33.98%
12.30%
-4.91%
Russell 2000 Index
-4.41%
4.89%
38.82%
16.35%
-4.18%
Difference (Gross)
+3.51%
+5.11%
-2.84%
-2.36%
+0.69%
Difference (Net)
+2.05%
+3.49%
-4.85%
-4.05%
-0.74%
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 US Small Cap Equity
Sector allocation (%)
17.3
17.3
Financial Services
Producer Durables
15.9
12.5
Health Care
15.4
14.1
13.1
Consumer Discretionary
10.8
Technology
Materials & Processing
8.2
5.7
4.9
Reit
2.8
Utilities
2.6
2.2
Energy
14.9
14.4
10.0
Schroder US Small Cap Equity
5.4
Russell 2000 Index
1.3
ETFs & Futures 0.0
0.6
Consumer Staples
3.4
7.2
Cash 0.0
0
5
Source: Schroders, Russell as of March 31, 2016. Representative Portfolio.
10
15
20
Sectors listed are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
Portfolio & risk statistics
Schroder US Small Cap Equity
Russell 2000 Index
117
1,959
Weighted average market cap ($billion)
3.31
1.90
Earnings growth 1 year (trailing 12 month)2
8.40
5.90
29.80
32.00
18.00
17.30
2.40
2.07
Return on equity (5 years)
13.50
11.00
Tracking error* ( 5 years)7
3.47
–
0.84
–
Number of holdings
1
3
Price to earnings ratio (trailing 12 month)
4
Price to earnings ratio (forward 12 month)
5
Price to book (trailing 12 month)
6
8
Beta* (5 years)
Source: The Bank of New York Mellon as of March 31, 2016.
*Based upon composite. 1. 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. 2. A measure of historical growth in a company’s net
income. 3. 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. 4. 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 projected for the next 12 months. 5. 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. 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. 7 The annualized standard deviation of the active returns of a portfolio relative to the benchmark. 8. A mathematical measure of the sensitivity of rates of
return on a portfolio compared with rates of return on the market as a whole. A beta of 1.0 indicates that an asset closely follows the market; a beta greater than 1.0 indicates greater
volatility than the market.
Top ten holdings
1.
VWR Corp.
2.
Steven Madden, Ltd.
3.
Kennedy-Wilson Holdings, Inc.
4.
Terreno Realty Corporation
5.
Cadence Design Systems, Inc.
6.
CoreLogic, Inc.
7.
Fortinet, Inc.
8.
Hexcel Corporation
9.
Catalent Inc
10.
iShares Russell 2000 ETF
Industry
Medical & Dental Instruments & Supplies
% of Total Market Value
1.80
Textiles Apparel & Shoes
1.49
Real Estate Services
1.48
Equity REIT - Industrial
1.48
Computer Services Software & Systems
1.46
Financial Data & Systems
1.43
Computer Services Software & Systems
1.41
Diversified Materials & Processing
1.37
Pharmaceuticals
1.36
ETF
1.35
14.62
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.
Schroder US Small Cap Equity
Quarterly Commentary
Market Review
In like a lion, out like a lamb. The quarter began with a thud as the
US equity market had its weakest January since 2009. We saw a
global risk-off trade to start the year as volatility spiked over 10%
on fears of a slow-down in China and yuan weakness that would
lead to global deflation. The free-fall continued to mid-February,
however we saw a much needed relief rally when the Fed pushed
back against negative rates, combined with positive consumer
data which cooled concerns about a recession.
Small-cap valuations continue to remain workable in our view after
falling below their 30-year average to begin 2016. Also, due to the
performance dispersion between US large cap and small cap over
the past two years, small caps are now attractive vs. large cap.
At the sector level, utilities, REITs and materials were the strongest
performers. In a reversal of 2015 health care was by far the
poorest performer falling over the quarter as the biotechnology
and pharmaceuticals industries were decimated. The defensive
yield orientated sectors, REITs and utilities also had strong quarter.
Energy also continued to decline in lockstep with energy related
commodity prices. Materials and processing was also strong as
the precious metals & minerals and steel drove returns
Momentum, the leading factor of 2015, faltered this quarter
significantly underperforming. Value was in vogue outperforming
growth stocks across the size spectrum. Companies with higher
international exposure also outperformed their more domestic
counterparts. Also, high return on equity and low beta have led
year-to-date.
Performance and Strategy
The Schroder US Small Cap Strategy outperformed the Russell
2000 this quarter. The strategy outperformed the index in weak
and sideways January and February months, but modestly lagged
in the March rally, which is consistent with our historical
performance pattern. Stock selection continues to be strong across
the board only modestly lagging in the materials and REIT sectors.
Health care was the top contributor as we benefited from our
holdings in the medical and dental supply and health care services
industries as well as our underweight in the biotechnology and
pharmaceutical industries (two of the worst performing industries
in the Russell 2000 over the period). We also had strong stock
selection in producer durables. Technology was another bright
spot due to positive stock selection. Our underweights in the
interest-rate sensitive sectors of utilities and REITs hindered results,
as they were the best performing sectors in the Russell 2000 over
the period.
After almost a year in a half of being underweight in the energy
sector we ended the quarter above the index. We were also
active in the financials sector.
Outlook
One area that particularly favors our space is the growth in
household formation and the impact on the housing market.
Housing has been in a nice recovery since 2011 as seen in new
home starts which have passed the 1 million mark. The uptrend to
us appears to be on a sustainable path and importantly it does not
show any of the frenetic and speculative characteristics of a bubble.
The growth in household formation is in part due to the 15-34 year
old age cohort (the “Millennials”) getting established financially
after a very difficult experience during the Great Recession and
aftermath. Housing is important because of the economic multiplier
effect. A host of products and services are purchased with the
building and purchase of a new home. These range from building
materials and heating/air conditioning systems to mortgage services
and insurance products finally to home furnishings. We have
been investing in the housing improvement for several years now.
Importantly we have not invested in the home builders; we feel the
better business models are in housing related industries as noted
above. Given the demographic trends described above and the
importance of housing in the overall US economy we find this a
fruitful area for investment and one that disproportionately favors
small cap companies over large caps.
The strong dollar is hurting the results of many U.S. companies;
however we are looking add names that have been impacted by
dollar strength. We believe that there are good businesses that
have come under a pall due to their FX exposure. We are also
looking for new ideas within the consumer space as the valuations
within the sector seem more than reasonable. As we believe there
are good businesses to be found that have come under pressure
as the group as a whole has been out of favor.
Source: Schroders
Important Information: Schroders is a global asset management company with $462.1 billion under management as of December 31, 2015. 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 420 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.
875 Third Avenue, New York, NY 10022-6225, (212) 641-3800, www.schroders.com/us.
Schroder US Small Cap Equity
Risk
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. 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.
Schroder US Small Cap Core Equity Composite
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: Accounts included in the Schroder US Small Cap Core Equity Composite seek to achieve returns above the Russell 2000 (GDR) index by providing capital
growth primarily through investment in equity securities of smaller US companies. Smaller US companies are considered companies which, at the time of purchase, form the bottom
30% by market capitalization of the US market. In May 2007 the name of the composite changed from SIMNA Small Cap Core Equity composite to Schroder US Small Cap Core
Equity composite. This change does not affect the composite history or the investment strategy.
Composite Construction: The composite returns include all of the Firm’s separate accounts and commingled funds which are discretionary, fee paying, tax exempt, above $2 million
in size and managed as described above. New accounts are included in the composite one full month after inception date to ensure the account has been fully invested. Terminated
accounts are excluded from the composite at the end of the previous month.
The composite currency is US Dollar
Composite Inception Date: 11-12-2003
Composite Creation Date: 03-31-1990
Performance Calculation: Composite returns are presented as gross returns, including cash, reinvestment of dividends, interest and other income earned in the period and are
calculated on a trade date basis after transaction charges (brokerage commissions). Each account’s investment performance rate of return is calculated monthly in accordance with
the ‘time-weighted’ rate of return method (Modified Dietz). Additional information regarding policies for valuing portfolios, calculating and reporting returns is available upon request.
The Currency of the Composite is USD. Withholding Tax treatment may vary from portfolio to portfolio within this composite.
Fee Calculation: Net returns have been calculated based upon the highest fee rate charged to each account in the composite. The highest fee applied to the composite is 1.50%
per annum.
Dispersion: Internal dispersion is calculated using asset weighted standard deviation of all portfolios where there are at least 5 portfolios that are included in the composite for the
entire year.
Leverage: None of the accounts in the Composite use leverage.
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. The verification report(s) are available upon request. 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.
Verification does not ensure the accuracy of any specific composite presentation.
Composite Performance Results
Composite - Schroder US Small Cap Core Equity Composite
Benchmark - Russell 2000 (GDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: SIMNA
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Gross Composite
Return
10.01%
35.99%
13.99%
-3.49%
21.91%
34.70%
-31.85%
12.38%
22.99%
7.23%
26.94%
39.64%
-18.62%
13.90%
33.55%
15.42%
Net Composite
Return
8.38%
33.98%
12.30%
-4.91%
20.11%
32.71%
-32.86%
10.72%
21.17%
5.65%
25.05%
37.57%
-19.82%
12.22%
31.57%
13.71%
Benchmark
Return
4.89%
38.82%
16.35%
-4.18%
26.85%
27.16%
-33.79%
-1.56%
18.36%
4.56%
18.33%
47.25%
-20.48%
2.48%
-3.02%
21.26%
3 Year
1
Composite Risk
10.68%
14.46%
16.64%
20.70%
23.82%
22.16%
18.70%
11.09%
11.18%
11.95%
15.87%
17.63%
19.44%
17.48%
19.84%
18.31%
As at Dec 2014
Annualized 3 Year
Annualized 5 Year
Annualized 7 Year
Annualized 10 Year
Annualized S.I.3
Gross Composite
Return
19.47%
14.94%
9.11%
10.56%
16.67%
Net Composite
Return
17.70%
13.24%
7.50%
8.93%
14.95%
Benchmark
Return
19.21%
15.55%
8.18%
7.77%
9.95%
Composite Risk
10.68%
14.68%
18.68%
16.72%
16.79%
1
3 Year
Benchmark
1
Risk
13.31%
16.68%
20.48%
25.34%
28.08%
25.19%
20.13%
13.35%
13.95%
15.30%
19.23%
21.95%
24.71%
23.46%
24.67%
20.89%
Number of
Portfolios
(throughout
period)
<5
<5
<5
<5
<5
<5
<5
<5
<5
5 (5)
6 (5)
5 (5)
6 (5)
5 (5)
6 (6)
5 (4)
Account
Dispersion2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.28%
0.93%
0.90%
0.99%
0.59%
2.39%
n/a
Market Value at
end of Period
1,866,376,372
1,609,957,248
1,919,133,752
2,087,456,615
2,838,355,205
2,356,728,526
1,762,651,217
2,843,358,012
2,702,709,429
2,273,234,585
2,220,795,376
1,435,551,515
1,088,838,062
1,283,950,884
852,884,924
712,327,759
Average Account
Value at end of
Period
466,594,093
536,652,416
479,783,438
521,864,154
709,588,801
589,182,132
440,662,804
710,839,503
675,677,357
454,646,917
370,132,563
287,110,303
181,473,010
256,790,177
142,147,487
142,465,552
Benchmark
1
Risk
13.31%
17.98%
22.00%
19.75%
19.19%
1 Annualized standard deviation of gross monthly returns for the composite and monthly returns for the benchmark
2 Asset weighted standard deviation of annual gross returns of accounts that have been in the composite for the entire year
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 accounts
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 Multi
Manager accounts are included in the Total Firm Assets
N/A - Information is not statistically meaningful due to an insufficient number of portfolios for the entire year
* Return from composite inception date to end of year
Source: Schroders
PFS-USSCEQ
Percentage of
Firm Assets
0.66%
0.63%
0.86%
1.07%
1.40%
1.46%
1.97%
1.76%
7.61%
7.81%
7.97%
5.28%
4.87%
4.15%
2.22%
1.50%
4
Total Firm Assets
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
161,124,537,714.28
35,533,229,886.00
29,123,758,149.00
27,861,264,909.00
27,165,162,499.00
22,354,464,000.00
30,975,119,000.00
38,355,527,000.00
47,492,361,000.00