Schroder US SMID Cap Equity
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
The US SMID Cap Equity product investment strategy is a
bottom-up, fundamental and research-based approach.
– Team, led by Jenny Jones, manages about $3.5 billion in
US SMID Cap strategy and $1.9 billion in US Small Cap strategy
The portfolio manager and analysts seek to identify those
companies that have compelling business models, a strong
management team and attractive valuation levels. Sources of
research include company managements, competitors, media
and suppliers. The portfolio of approximately 90-120 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.
– Lead portfolio manager with over 36 years investment
experience
– Dedicated team of 7 investment analysts with an average of 21
years investment experience
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 December 31, 2004
30%
Schroder US SMID Cap Equity (Gross)
Schroder US SMID Cap Equity (Net)
Russell 2500 Index†
20%
†
A broad index featuring 2,500
stocks that cover the small and
mid cap market capitalizations.
The Russell 2500 is a market
cap weighted index that includes
the smallest 2,500 companies
covered in the Russell 3000.
universe of United States-based
listed equities.
10%
0%
4.474.08
0.39
4.474.08
0.39
10.99 9.35
8.58
9.15 7.53
6.47
10.348.71
7.47
1.42
-0.08
-7.31
-10%
-20%
13.1611.49
8.16
QTD
YTD
1 yr
3 yr
5 yr
10 yr
Difference (Gross)
+4.07%
+4.07%
+8.74%
+5.00%
+2.41%
+2.68%
Annual S.I.*
+2.87%
Difference (Net)
+3.69%
+3.69%
+7.23%
+3.33%
+0.77%
+1.07%
+1.24%
2015
2014
2013
2012
2011
2.21%
11.75%
36.15%
11.82%
-0.97%
Net
0.70%
10.10%
34.13%
10.16%
-2.44%
Russell 2500 Index
-2.90%
7.07%
36.80%
17.88%
-2.51%
Difference (Gross)
+5.11%
+4.68%
-0.65%
-6.06%
+1.54%
Difference (Net)
+3.60%
+3.03%
-2.66%
-7.71%
+0.07%
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 US SMID Cap Equity
Sector allocation (%)
Producer Durables
17.9
14.7
15.8
Financial Services
17.1
14.4
Consumer Discretionary
Health Care
13.5
11.1
11.2
10.6
Technology
16.1
6.9
7.5
Materials & Processing
3.6
Utilities
Schroder US SMID Cap Equity
6.1
3.3
3.1
3.2
Energy
Reit
Russell 2500 Index
10.4
2.6
Consumer Staples
3.4
7.6
Cash 0.0
0
5
10
15
20
Source: Schroders, as of March 31, 2016. Representative Portfolio.
Sectors listed are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
Portfolio & risk statistics
Number of holdings
1
Weighted average market cap ($billion)
Schroder US SMID Cap Equity
Russell 2500 Index
119
2,472
6.05
4.20
10.70
5.70
Price to earnings ratio (trailing 12 month)
23.80
28.10
Price to earnings ratio (forward 12 month)4
17.30
17.40
Earnings growth 1 year (trailing 12 month)2
3
5
Price to book (trailing 12 month)
2.67
2.28
Return on equity (5 years)6
14.10
12.20
Tracking error* ( 5 years)7
3.30
–
0.85
–
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
Industry
1.
Aramark
2.
PVH Corp.
3.
Advance Auto Parts, Inc.
4.
VWR Corp.
5.
Carlisle Companies Incorporated
6.
Spectrum Brands Holdings, Inc.
7.
Vantiv, Inc. Class A
8.
Rollins, Inc.
9.
PerkinElmer, Inc.
10.
Dentsply Sirona, Inc.
Total
% of Total Market Value
Environmental, Maintenance & Security Services
2.60
Textiles Apparel & Shoes
2.31
Specialty Retail
2.13
Medical & Dental Instruments & Supplies
1.77
Diversified Manufacturing Operations
1.45
Miscellaneous Consumer Staples
1.44
Financial Data & Systems
1.34
Environmental, Maintenance, and Security Services
1.31
Medical Equipment
1.28
Medical & Dental Instruments & Supplies
1.27
16.90
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. All data and statistics unless otherwise noted are based on
representative account holdings within the strategy. Account holdings may vary within the same strategy.
Schroder US SMID 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.
as an apparel manufacturer rose after reporting strong earnings.
Our underweights in the interest-rate sensitive sectors of utilities
and REITs hindered results, as they were the best performing
sectors in the Russell 2500 over the period.
Smid-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/smid cap
over the past two years, smid caps are now attractive vs. large cap.
Outlook
One area that particularly favors our space is the growth in
household formation and the attendant 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
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 and SMid cap companies over large caps.
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
gold 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 Smid Cap Strategy outperformed the Russell
2500 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 & REIT sectors. Health care
was the top contributor as we benefited from our holdings in the
medical and dental supply industry and our underweight in the
biotechnology and pharmaceutical industries (two of the worst
performing industries in the Russell 2500 over the period). We
also had strong stock selection in producer durables. Consumer
discretionary was another bright spot, with positive stock selection
After almost a year in a half of being underweight in the energy
sector we ended the quarter above the index. Over the period
we added to existing positions, and purchased a natural gas
exploration and production company.
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 are more than reasonable. 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 SMID 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 SMID Cap 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 SMID Cap Equity Composite seek to achieve returns above the Russell 2500 (GDR) index or an equivalent benchmark
by providing capital growth primarily through investment in equity securities of smaller and medium sized US companies. Smaller and medium sized US companies are considered
companies, which at the time of purchase, form the bottom 40% by market capitalization of the US market.
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’s creation date is 01-26-2005
The composite’s start date is 12-31-2005
Calculation Methodology: 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 fee scale 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.
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 Schroder US SMID Cap Equity Composite (the “composite”) has been
examined for the periods January 1, 2005 to December 31, 2014. The verification and performance examination reports are available upon request.
Composite Performance Results
Composite - Schroder US SMID Cap Equity Composite
Benchmark - Russell 2500 (GDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: SIMNA
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Gross Composite
Return
11.75%
36.15%
11.82%
-0.97%
18.28%
35.22%
-31.76%
13.86%
18.25%
14.43%
Net Composite
Return
10.10%
34.13%
10.16%
-2.44%
16.54%
33.22%
-32.77%
12.18%
16.51%
12.74%
Benchmark
Return
7.07%
36.80%
17.88%
-2.51%
26.71%
34.38%
-36.79%
1.38%
16.16%
8.11%
3 Year
1
Composite Risk
10.28%
14.06%
16.06%
18.89%
21.97%
20.23%
17.02%
9.25%
n/a
n/a
As at Dec 2014
Annualized 3 Year
Annualized 5 Year
Annualized 7 Year
Annualized 10 Year
Annualized S.I.3
Gross Composite
Return
19.38%
14.79%
9.09%
10.98%
10.98%
Net Composite
Return
17.61%
13.09%
7.48%
9.33%
9.33%
Benchmark
Return
19.97%
16.36%
8.86%
8.72%
8.72%
Composite Risk1
10.28%
13.98%
17.40%
15.39%
15.39%
3 Year
Benchmark
1
Risk
11.84%
15.85%
19.24%
23.73%
27.18%
24.59%
19.65%
11.68%
n/a
n/a
Benchmark
1
Risk
11.84%
16.64%
21.01%
18.66%
18.66%
Number of
Portfolios
(throughout
period)
5 (5)
5 (4)
5 (5)
5 (4)
<5
<5
<5
<5
<5
<5
Account
Dispersion2
0.14%
n/a
0.22%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Market Value at
end of Period
3,222,277,492
3,271,402,920
2,549,291,510
2,944,652,444
4,109,216,133
2,518,906,716
856,867,698
890,183,626
274,758,792
73,168,008
Average Account
Value at end of
Period
644,455,498
654,280,584
509,858,302
588,930,489
1,027,304,033
629,726,679
214,216,924
222,545,907
91,586,264
24,389,336
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-USSMID
Percentage of
Firm Assets
1.14%
1.28%
1.14%
1.51%
2.02%
1.56%
0.96%
0.55%
0.77%
0.25%
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