Schroder QEP Emerging Markets
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
Schroder QEP Emerging Markets is an active, index-unconstrained
strategy designed to deliver higher long-run returns. We analyze
a universe of over 4,000 stocks across more than 20 emerging
markets, and utilize a bottom-up approach to construct a highly
diversified portfolio of over 300 stocks.
– Over 15 years in managing global equity portfolios
– Team manages approximately over $39 billion in assets
– Investment philosophy is based upon combining fundamental
data and well-researched behavioral insights
– Considerable emphasis is placed on portfolio construction
and genuine diversification of risk
Our strategy invests in stocks on the basis of valuations and
business quality, and seeks a return target of +3% p.a. against
MSCI Emerging Markets.† We seek to gain our advantage from
investing in both Value and Quality opportunities; through this
approach we are able to offer investors the potential for greater
consistency of outperformance across a broad range of market
environments. We believe these two highly complementary
characteristics are the key drivers of long-run equity returns.
Key features
– Stock selection is based on two complementary fundamental
drivers: company valuations and business quality (as defined by
profitability, stability and financial strength).
– A truly diversified, actively managed portfolio: We rank stocks on
a daily basis across multiple valuation and quality criteria to build
a diversified portfolio of over 300 stocks.
– Look beyond the index to maximize the opportunity: We believe
there is ample scope for an active manager to add value in
emerging markets thus we take a benchmark unconstrained
approach.
†
No managed account can guarantee that its performance will match the
performance of its benchmark.
Composite performance
40%
As of March 31, 2016
*Inception March 31, 2012
30%
20%
The MSCI Emerging Markets
10%
Index (Net Dividends) is a
free float-adjusted market
0%
capitalization index that is
designed to measure equity
-10%
market performance in the
global emerging markets.
-20%
Investors may not invest
directly in an index.
Difference (Gross)
Schroder QEP Emerging Markets (Gross)
Schroder QEP Emerging Markets (Net)
MSCI Emerging Markets†
†
Difference (Net)
7.87 7.47
5.71
7.87 7.47
5.71
-3.68 -5.10 -4.50
-1.22 -2.68
-2.92
-11.77
-13.08-12.03
QTD
YTD
1 yr
3 yr
Annual S.I.
+2.16%
+2.16%
+0.25%
+0.82%
+1.70%
+1.76%
+1.76%
-1.05%
-0.60%
+0.24%
2015
2014
2013
Gross
-18.03%
0.04%
1.50%
Net
-19.24%
-1.43%
0.00%
MSCI Emerging Markets
-14.92%
-2.19%
-2.60%
Difference (Gross)
-3.11%
+2.23%
+4.10%
Difference (Net)
-4.32%
+0.75%
+2.60%
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 Emerging Markets
Country allocation
30%
25%
Schroder QEP Emerging Markets
MSCI Emerging Markets
23.9
20.5
20%
15%
15.6
14.8
12.4 12.0
10.6
6.6 6.6
4.5
3.5
1.7
0.3
1.0
0.8 1.4
0.8
0.7 1.3 0.5 0.5 0.4 1.0
0.0
Ch
in
a
Ta
So iwa
n
ut
h
Af
r ic
a
Ko
re
a
In
di
a
Br
az
il
Th
ail
a
nd
Ru
ss Indo
ian
n
Fe esia
de
ra
tio
n
Tu
rk
ey
M
ala
ys
Hu ia
ng
ar
y
Po
lan
d
M
ex
Ph ico
ilip
pi
ne
s
M
or
oc
co
0%
1.5 1.4
0.4 0.4
0.4 0.2 0.3 0.2 0.3 0.4
0.1 0.0
0.0
0.9
ru
kh
st
ab
a
Em n
ir a
te
s
2.2
Ar
1.6
Pe
2.4
za
3.7
Ka
4.0
2.7
d
4.7
2.2
Un
ite
5.2
5%
Ch
ile
om
bi
a
Q
at
a
Cz
G r
re
ec
ec
h
e
Re
pu
bl
ic
Eg
yp
t
7.5 8.1
7.3
Co
l
10%
Source: Schroders, MSCI as of March 31, 2016.
Sector allocation
Portfolio characteristics
16.5
Information Technology
12.3
Banks
Materials
Active share1
72.4%
–
Total weight of non-index stocks
32.0%
–
329
835
27,647
46,892
1.53
1.49
13.08
13.51
Price to Cash Flow
6.60
6.81
Price to Sales7
1.35
1.13
Payout Ratio8
53.82
41.63
5.06
10.94
1 Year Dividend Growth10
7.39
13.85
11
4.03
15.43
10.0
7.8
9.7
10.9
Consumer Discretionary
7.9
8.2
7.6
6.5
6.0
Consumer Staples
Insurers/Asset Mgt
Health Care
2.6
4.3
Industrials
Schroder QEP
Emerging Markets
6.4
3.2
3.2
Utilities
0.7
Real Estate
Number of stocks
MSCI Emerging Markets
Weighted Average Market Cap ($m)3
3.4
0.6
Cash 0.0
0
5
10
15
20
25
Source: Schroders, MSCI as of March 31, 2016.
Price to Book4
Price to Earnings5
6
Size allocation
28.0
Mega > $20bn
43.6
39.2
Large $5bn-$20bn
1 Year Sales Growth9
40.0
24.5
Mid $1bn-$5bn
Micro < $250m
MSCI
Emerging
Markets
10.6
6.9
Energy
Small $250m-$1bn
Schroder
QEP
Emerging
Markets
10.7
6.5
Telecommunication Svcs
19.8
17.7
16.3
1 Year Earnings Growth
6.2
0.0
1.4
0.0
Schroder QEP
Emerging Markets
Return on Equity12
17.79
16.40
MSCI Emerging Markets
Pretax Margin13
23.19
20.47
8.80
6.95
0.6
Cash
0.0
0
14
Return on Assets
15
Source: Schroders, MSCI as of March 31, 2016.
30
45
60
Source: Schroders, MSCI as of March 31, 2016.
1. Is defined as the percentage of the portfolio that differs from the benchmark. Designed to determine the degree of active management in an the portfolio. 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. A valuation metric that compares
a company’s market price to its level of annual free cash flow. In general, the higher this measure, the more expensive the company is considered. 7. A valuation ratio that compares
a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues. 8. The amount of earnings paid
out in dividends to shareholders. 9. The annualized growth rate of sales expressed as a percentage. 10. The annualized percentage rate of growth that a particular stock’s dividend
undergoes over a 1 year period. 11. A measure of growth in a company’s net income. 13. 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. 13. A company’s earnings before tax as a
percentage of total sales or revenues. The higher the pre-tax profit margin, the more profitable the company. 14. Shows how profitable a company’s assets are in generating revenue.
This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they control.
Sectors/Regions are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
Schroder QEP Emerging Markets
Quarterly Commentary
Market Review
After a very weak start to the year where both developed and
emerging equities fell sharply in unison, global markets staged
an impressive rebound from mid-February, largely driven by
accommodative central banks and firmer commodity prices.
Emerging markets pulled ahead of their developed counterparts
by around 6%, due to impressive performance during March. The
strength of emerging market currencies versus major developed
currencies also contributed—many emerging market currencies
marked their best monthly performance since at least the global
financial crisis.
The People’s Bank of China, the Bank of Japan and the European
Central Bank all loosened monetary policy in response to growth
concerns, whilst the US Federal Reserve notably scaled back
its intention to normalize US interest rates. Dovish central banks
underscored a big rebound in commodity prices.
Encouragingly, the March rally in Emerging Markets was broadbased, with all sectors and countries participating. The sectors
that had underperformed the most last year, namely resources and
financials, rebounded the most. Equally, the strongest gains at the
country level were posted by some of 2015’s laggards: Brazil and
other Latin American markets, Turkey, Thailand and Russia. Given
this rotation, it was not surprising to note that the best performing
areas also had the strongest Value credentials. Whilst the trendfollowing strategies that have performed well recently suffered,
Value outperformed Growth by some margin according to the
MSCI EM style indices.
Performance and Strategy
The QEP Emerging Markets strategy ended the quarter well ahead
of the index. From a sector perspective, financials contributed the
most to relative performance. We benefited from avoiding Chinese
financials, particularly in January and February, and the stocks we
held in Thailand and South Africa also contributed strongly. In fact
our broad-based allocation to South Africa as a whole constituted
the most important contribution to outperformance. In addition to
financials, our holdings in materials, especially miners, performed
very well against the backdrop of recovering commodity prices. In
Thailand more broadly, a higher than index weight was beneficial,
including positions in energy and telecoms. Stock selection in
telecoms also contributed in Turkey, where again an overweight
allocation was a positive. Finally, the strategy’s lower than index
position in India was rewarded, particularly in healthcare and autos.
Being underweight Malaysia and Mexico was a modest drag on
relative performance. Both of these countries are beneficiaries of
rising oil prices.
Outlook and Positioning
The key country positions for the strategy remain our overweight
exposure to South Africa, Thailand, Taiwan and Indonesia, funded
by a lower than index allocation to Korea, China and Mexico. From
a sector perspective, the key positions are our lower than index
weight to financials (e.g. China) and expensive staples (e.g. Mexico).
We have a broad-based overweight allocation to telecoms (South
Africa, Thailand, Taiwan, Korea and Turkey) and resources (South
Africa, China, Indonesia & Turkey).
More specifically, we are overweight the EMEA region,
predominantly driven by our long-held preference for South African
stocks. The main exception is media giant Naspers (which owns
a third of Tencent). We are modestly exposed to Hungary (mostly
healthcare) and are also slightly overweight Turkey. Our exposure to
Russia is very selective as we do not hold any Russian financials in
favor of selected resource stocks.
In Asia, we built up a reasonable exposure to Taiwan late in 2015,
which is not exclusive to its dominant technology sector but also
covers stocks in telecoms, healthcare and industrials. We have been
trimming Taiwanese technology stocks in recent months. Within
Thailand, we favor its banks (with some pruning of late), energy
and telecom stocks. In Indonesia the overweight is slightly more
broad-based (telecoms, machinery, construction materials and
banks). Although we have been exploiting China’s recent weakness
to top up selected stocks, we remain underweight overall. Our lower
than index exposure to China is due to a less inflated weighting in
financials, as well as the underweight to the internet giant Tencent.
Within China, we are overweight healthcare, retail, apparel and
construction materials. In Korea, we are underweight Samsung,
which is a key reason for the lower than index allocation to the
market and disguises some reasonable positions in its gaming,
telecoms and chemicals industries. Within India, the strategy is
biased toward the larger international technology stocks (IT services)
whilst being underweight the less profitable domestic industrials
stocks. As with China, we have recently topped up selected
positions in India (e.g. media) which looked attractive following the
market’s underperformance earlier in the quarter.
In Latin America, the key position is the underweight allocation to
Mexico which is primarily a result of expensive valuations and a low
weight to Mexican financials and telecoms. Our level of exposure to
Brazil is similar to the index.
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. 875 Third Avenue,
New York, NY 10022-6225, (212) 641-3800, www.schroders.com/us.
Schroder QEP Emerging Markets
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 QEP Emerging Markets
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 - Emerging Markets 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 Emerging Markets Index (NDR) or comparable index through active investment in diversified,
index-unconstrained, Value and Quality style-biased portfolios. Composite accounts invest predominantly in emerging market countries, and 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, including for
currency hedging. None of these accounts use leverage
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: 03-31-2012
Composite Creation Date: 08-31-2015
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. Verification does not ensure the accuracy of any specific
composite presentation.
Composite Performance Results
Composite - QEP - Emerging Markets
Benchmark - MSCI EM (NDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: UK-INT
Year
2014
2013
2012*
As of Dec 2014
Annualized 3 Year
Annualized 5 Year
Annualized 7 Year
Annualized 10 Year
3
Annualized S.I.
Gross Composite
Return
0.04%
1.50%
6.01%
Gross Composite
Return
n/a
n/a
n/a
n/a
2.72%
Net Composite
Return
-1.43%
0.00%
4.83%
Net Composite
Return
n/a
n/a
n/a
n/a
1.20%
Benchmark
Return
-2.19%
-2.60%
3.64%
Benchmark
Return
n/a
n/a
n/a
n/a
-0.46%
3 Year
1
Composite Risk
n/a
n/a
n/a
Composite Risk1
n/a
n/a
n/a
n/a
12.56%
3 Year
Benchmark
Risk1
n/a
n/a
n/a
Benchmark
1
Risk
n/a
n/a
n/a
n/a
13.77%
Number of
Portfolios
(throughout
period)
7 (4)
<5
<5
Account
Dispersion2
n/a
n/a
n/a
Market Value at
end of Period
1,882,893,655
984,548,261
740,536,641
Average Account
Value at end of
Period
268,984,808
246,137,065
246,845,547
Percentage of
Firm Assets
0.67%
0.39%
0.33%
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 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-QEPEM
Total Firm Assets4
282,697,291,678.31
255,707,099,715.41
223,940,416,622.14