Schroder Global Equity Alpha
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
Schroders’ Global Equity Alpha strategy offers a concentrated,
fundamental research-driven approach aimed at delivering strong
outperformance. Our style is to seek companies with a ‘growth
gap’ – where our expectations of forward earnings growth will
exceed that of the markets’. We focus on what we believe to
be only the very best investment ideas that are identified by
Schroders’ team of locally based Equity Analysts and our Global
and International Equities Team of Portfolio Managers and Global
Sector Specialists.
–
–
Team manages approximately $18 billion in Global and EAFE assets
–
Global sector specialists pull our best ideas from around
the world
–
Utilizing more than 70 locally based research analysts in
11 countries
–
Globally integrated research platform
Experienced dedicated team of 13 investment professionals
based in London
Key features
– Typically 40–60 of our best global ideas
– Focus on identifying companies which can deliver a positive earnings surprise or “growth gap”
– Effective, bottom-up investment process
– Well-resourced, highly experienced team incorporating global sector expertise and local knowledge
– Robust, multi-layered approach to risk - fundamental risk scoring utilized to analyze multiple sources of stock risk
Composite performance
15%
As of March 31, 2016
*Inception August 31, 2005
10%
†
The MSCI World Index
captures large and mid cap
representation across 23
Developed Markets countries.
With 1,647 constituents, the
index covers approximately
85% of the free float-adjusted
market capitalization in
each country.
Schroder Global Equity Alpha (Gross)
Schroder Global Equity Alpha (Net)
MSCI World Index†
5%
0%
-5%
-0.35
-3.17-3.41
-0.35
-3.17-3.41
6.82
5.81
4.76
6.51
4.56
3.53
4.92 3.88 4.27
6.21
5.16 5.22
-3.45
-5.92
-6.85
-10%
QTR
YTD
1 yr
3 yr
5 yr
10 yr
Annual S.I.*
Difference (Gross)
-2.82%
-2.82%
-2.47%
-1.01%
-1.95%
+0.65%
+0.99%
Difference (Net)
-3.06%
-3.06%
-3.40%
-2.06%
-2.99%
-0.39%
-0.06%
2015
2014
2013
2012
2011
Gross
0.65%
2.16%
26.57%
17.76%
-13.69%
Net
-0.35%
1.15%
25.32%
16.59%
-14.55%
MSCI World Index
-0.87%
4.94%
26.68%
15.83%
-5.54%
Difference (Gross)
+1.52%
-2.78%
-0.10%
+1.93%
-8.15%
Difference (Net)
+0.52%
-3.79%
-1.36%
+0.76%
-9.01%
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 Global Equity Alpha
Sector allocation (%)
Regional allocation (%)
Information Technology
16.7
Financials
Pacific ex Japan 1.6
Emerging Markets
19.6
14.0
12.7
12.6
11.0
12.5
13.3
11.6
10.9
Health Care
Industrials
Consumer Discretionary
Consumer Staples
Materials
0.0
8.3
United Kingdom
Continental Europe
MSCI World Index
5
10
15
Source: Schroders, MSCI as of March 31, 2016.
56.0
12.4
Schroder Global Equity Alpha
3.5
Cash 0.0 1.7
0
North America
10.8
3.5
3.6
2.9
4.6
Telecommunication Svcs
7.3
Japan
5.8
6.4
Energy
Utilities
Africa/Middle East 1.9
Cash 1.7
18.6
14.4
20
25
Source: Schroders, MSCI as of March 31, 2016.
Sectors/Regions listed are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
Portfolio & risk statistics
Schroder Global Equity Alpha
MSCI World
73
1,641
110.95
97.30
10.47
9.39
18.44
17.51
16.36
16.06
Price to book (trailing 12 months)
2.30
2.05
Tracking error (5 years)6
3.31
–
Beta (5 years)7
1.11
–
Number of holdings
1
Weighted average market cap ($ billions)
2
EPS growth (3 year)
3
Price to earnings ratio (trailing 12 months)
4
Price to earnings ratio (forward 12 month)
5
Source: Schroders, MSCI as of March 31, 2016.
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. The portion of a company’s profit allocated to each outstanding
share of common stock. Earnings per share serves as an indicator of a company’s profitability. 3. Market price per share divided by annual earnings per share for the most recent
12 month period. 4. Market price per share divided by annual earnings per share divided by annual earnings per share using the estimated net earnings over 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 difference between a portfolio’s returns and the benchmark. 7. 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
Country
% of Total Market Value
1.
Alphabet Inc.
United States
3.53
2.
Comcast Corporation
United States
2.71
3.
Citigroup Inc.
United States
2.58
4.
Taiwan Semiconductor Manufacturing Co.
Taiwan
2.39
5.
Reckitt Benckiser Group plc
United Kingdom
2.30
6.
UnitedHealth Group Incorporated
United States
2.29
7.
Visa Inc.
United States
2.19
8.
Pfizer Inc.
United States
2.14
9.
Estee Lauder Companies Inc.
United States
2.13
10.
Thermo Fisher Scientific Inc.
United States
2.10
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.
24.36
Schroder Global Equity Alpha
Quarterly Commentary
Market Review
The first quarter of 2016 was a tale of two halves, characterized
by significant volatility. At the start of the year, instability in the
Chinese equity market and concerns about global growth,
currency dislocations and a much-anticipated rise in US interest
rates, prompted some dramatic equity market declines in January
and early February. Investors have also been worried about the
effectiveness of monetary policy in many countries and this has
added further to the sense of uncertainty prevalent in markets.
The middle of February marked an inflection point however, and
equity markets have since recovered some of their poise, as
a confluence of interrelated factors triggered a shift in market
sentiment. These included an unwinding of dollar strength and
the introduction of a variety of pro-growth policy measures by
the Chinese authorities, which combined to relieve some of the
pressure on commodities and emerging markets. As concerns
about the global outlook began to ease somewhat, investors
rotated into the underperforming areas of the market, spurring
a rally in value sectors. This came at the expense of many
growth stocks, particularly in the technology sector.
Performance and Strategy
The Global Equity Alpha strategy underperformed the benchmark
over the quarter. The growth-bias of the portfolio and subsequent
sharp market rally driven by lower quality, cyclical names towards
quarter-end each had a significant bearing on relative performance.
Stock selection in the US, where the market shift was most
prominent, was particularly unfavorable. Notably, contributors to the
underperformance were broadly based, reflecting the style rotation
within the market that was the root cause of the underperformance,
rather than the negative impact of any one particular name within
the portfolio.
By sector, we suffered the most in financials where some of our
holdings were negatively affected by a combination of concerns
about the banking sectors exposure to the energy sector and the
impact of interest rates staying “lower for longer” (or even negative)
in major economies. We have done extensive due diligence on our
bank holdings’ loan exposures and do not believe that any of our
bank holdings have high or problematic exposure to the energy and
commodities sector. While the impact of ongoing low interest rates
is clearly negative for bank margins, we expect the banks to move
charges to more fee-based mechanisms in time to offset a decline
in interest income. We have therefore taken advantage of share
price weakness to add to our positions in these companies.
On the positive side, our holding in a chip manufacturer was the
top contributor. The market has rewarded the company for its ability
to demonstrate strong operating and financial performance and
for management’s capacity to generate good organic growth and
cashflow conversion in an uncertain market environment.
Outlook
Market sentiment remains skittish at present and at times sentiment,
rather than underlying fundamentals, has been driving equity market
movements. This makes for a particularly volatile environment in
which any number of variables can unexpectedly affect global
markets. Given a backdrop of sub-par global economic growth,
ongoing downward revisions to earnings expectations and equity
valuations that, in aggregate, appear full, instability in equity markets
can be expected to remain a key feature of the next few months.
Increasing cyclical exposure
Monetary policy remains accommodative and there are signs that
global fiscal policy may be becoming more expansive, with the
recent Canadian budget and China’s annual National People’s
Congress (NPC) targets as examples where fiscal spending has
been increased. Additionally, there are tentative indications that
the industrial inventory cycle, particularly in the US, is beginning
to inflect. In anticipation of this, we are gradually increasing our
exposure to more cyclical areas of the market, where we believe
genuine opportunities exist in sectors, such as industrials, energy
and materials.
In addition to the increased focus on unloved areas of the market
where there is significant earnings recovery potential, we continue to
pay particular attention to the disruptors and enablers of new business
models. Our emphasis on the proper evaluation of the business risk
associated with these securities is particularly relevant in these areas
as, in many cases, business models are new and untested.
Focus on stock selection
Despite a challenging market background, we believe that there are
companies that can deliver growth independent of the economic
cycle and these will ultimately be rewarded with positive relative
returns. We remain focused on identifying company situations where
future growth has been unrecognized by the market and we believe
we will benefit from the established relationship that exists between
positive earnings surprise and share price outperformance potential.
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. Schroder Investment Management North America Inc., 875 Third Avenue,
New York, NY 10022-6225, (212) 641-3800, www.schroders.com/us.
Schroder Global Equity Alpha
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.
Schroder Global Equity Alpha 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: The Schroder Global Equity Alpha Composite (the “Composite”) is comprised of all Schroder Investment Management (UK & US), fully discretionary accounts
which seek to achieve returns above the MSCI World (NDR) index or an equivalent benchmark by providing capital growth through investment in global equities. None of the accounts
in the Composite uses leverage. This Composite has no minimum asset level for inclusion. Derivatives may be used to achieve the investment objective and to reduce risk or manage
the fund more efficiently.
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: 08-31-2005
Composite Creation Date: 09-07-2005
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 Schedule: The fee scale applied to the composite is 1% p.a. from inception to 06/30/2010, and 1.15% p.a thereafter
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 Schroder Global Equity Alpha Composite (the
“composite”) has been examined for the periods January 1, 2009 to December 31, 2014. The verification and performance examination reports are available upon request.
Composite Performance Results
Composite - Schroder Global Equity Alpha Composite
Benchmark - MSCI World (NDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: UK-INT
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005*
Gross Composite
Return
2.16%
26.57%
17.76%
-13.69%
14.21%
46.82%
-40.38%
11.10%
23.57%
7.60%
Net Composite
Return
1.15%
25.32%
16.59%
-14.55%
13.08%
45.37%
-40.97%
10.00%
22.35%
7.25%
Benchmark
Return
4.94%
26.68%
15.83%
-5.54%
11.76%
29.99%
-40.71%
9.04%
20.07%
5.74%
3 Year
1
Composite Risk
11.31%
15.94%
19.02%
21.94%
24.88%
22.46%
18.25%
n/a
n/a
n/a
3 Year
Benchmark
1
Risk
10.37%
13.73%
16.98%
20.44%
24.05%
21.70%
17.26%
n/a
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
15.04%
8.46%
3.98%
n/a
7.36%
Net Composite
Return
13.90%
7.39%
2.95%
n/a
6.30%
Benchmark
Return
15.47%
10.20%
3.27%
n/a
6.07%
Composite Risk1
11.31%
15.94%
19.54%
n/a
17.54%
Benchmark
1
Risk
10.37%
14.30%
18.35%
n/a
16.43%
Number of
Portfolios
(throughout
period)
<5
<5
<5
<5
<5
<5
<5
<5
<5
<5
Account
Dispersion2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Market Value at
end of Period
1,868,556,795
2,037,364,573
1,636,176,159
1,454,403,574
1,212,468,056
69,486,439
24,328,485
9,720,095
8,396,990
5,495,000
Average Account
Value at end of
Period
622,852,265
679,121,524
409,044,040
363,600,894
404,156,019
69,486,439
24,328,485
9,720,095
8,396,990
5,495,000
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-GLBEQA
Percentage of
Firm Assets
0.66%
0.80%
0.73%
0.75%
0.60%
0.04%
0.03%
0.01%
0.01%
0.01%
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
161,124,537,714.28
125,031,929,762.39
95,717,167,333.40