Schroder Frontier Markets Equity
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
Schroders Frontier Markets strategy provides access to what we
see as some of the most dynamic and fastest growing economies
in the world, supported in many cases by strong secular growth
drivers. We believe the investment opportunities are similarly
favorable as market liberalization is accelerating. Moreover, Frontier
Markets’ relatively low correlation with developed (and emerging)
markets have the potential to offer investors significant potential
diversification benefits.
– Team manages approximately $23.5 billion in emerging market
equities globally including $1,295 million in Frontier and Middle
East markets.
– Dedicated team of 47 investment professionals, average 14
years’ investment experience.
– Local expertise throughout developing markets including
team members based in Dubai (the Middle East represents a
significant proportion of the MSCI Frontier Markes index).
Key features
–
–
–
–
Targets 50% value added from country and 50% from stock decisions
Country allocation guided by a proprietary country model with judgemental overlay
Stock selection driven by strong proprietary fundamental bottom-up company research
Pro-active approach to risk including disciplined risk controls tools
Composite performance
As of March 31, 2016
*Inception December 31, 2010
30%
20%
Schroder Frontier Markets Equity (Gross)
Schroder Frontier Markets Equity (Net)
MSCI Frontier Markets
10%
0%
5.26
1.25 0.88
-0.94
1.25 0.88
7.25
3.70
1.75
5.67
5.66
1.30
4.11
0.16
-0.94
-10%
-11.91-13.22 -12.54
-20%
QTD
YTD
1 yr
3 yr
5 yr
Annual S.I.*
Difference (Gross)
+2.20%
+2.20%
+0.63%
+3.50%
+5.95%
+5.52%
Difference (Net)
+1.82%
+1.82%
-0.67%
+1.94%
+4.36%
+3.95%
2015
2014
2013
2012
2011
Schroder Frontier Markets Equity Composite (gross)
-15.91%
+6.70%
+46.16%
+20.91%
-16.77%
Schroder Frontier Markets Equity Composite (net)
-17.16%
+5.12%
+44.00%
+19.12%
-18.00%
MSCI Frontier Markets Index Net (TR)
-14.46%
+6.84%
+25.89%
+8.85%
-18.73%
Relative performance (gross)
-1.46%
-0.14%
+20.26%
+12.06%
+1.96%
Relative performance (net)
-2.70%
-1.72%
+18.10%
+10.27%
+0.73%
Tracking Error
6.13
7.85
5.96
5.63
5.05
Information Ratio
-0.24
-0.02
3.40
2.14
0.39
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. The fee scale applied
to the composite is 1.5% p.a. 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 Frontier Markets Equity
Country allocation
Key facts
16.7
Kuwait
December 15, 2010
Strategy launch date
20.3
USD 1,134†
Total strategy size (million)
14.7
United Arab Emirates
0.0
71†
Total number of holdings
14.2
Argentina
13.8
Pakistan
MSCI Frontier Markets
Benchmark
14.4
Allan Conway & Rami Sidani
Portfolio managers
8.6
†
Egypt
As of March 31, 2016.
9.1
0.0
Portfolio & risk allocation
7.0
Georgia
Frontier
Markets
Equity
MSCI
Frontier
Markets
71
121
Weighted average market cap ($millions)1
4,100
4,014
Price to earnings ratio (trailing 12 month)2
10.43
10.11
Price to earnings ratio (forward 12 month)3
8.61
9.50
Price to book (trailing 12 month)4
1.33
1.40
12.79
13.87
0.0
4.1
Kenya
Number of issues/holdings
5.7
4.1
Oman
4.5
Schroder Frontier
Markets Equity
3.3
Saudi Arabia
MSCI Frontier
Markets
0.0
10.8
Other
46.5
Return on equity (5 years)5
2.3
Cash
Source: Schroders, MSCI and Factset as of March 31, 2016
0.0
0
15
30
45
60
Source: Schroders, as of March 31, 2016
Countries listed are shown for illustrative purposes and are not to be considered
a recommendation to buy or sell. Other includes the following countries: Bahrain,
Bangladesh, Bulgaria, Croatia, Estonia, Jordan, Kazakhstan, Lebanon, Lithuania,
Mauritius, Morocco, Nigeria, Romania, Serbia, Slovenia, Sri Lanka, Tunisia and Vietnam.
An average that takes into account the proportional relevance of each component,
rather than treating each component equally. The full 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. Market price per share divided by annual earnings
per share for the most recent 12-month period. 3. Market price per share divided by
annual earnings per share using the estimated net earnings over the next 12 months.
4. A ratio used to compare a stock’s market value to its book value. It is calculated by
dividing the end of-the-period closing price of the stock by the last 12 months book
value per share. 5. Price to book divided by Trailing Twelve Months (TTM) P/E (4/2)
Top ten holdings
Sector
1.
National Bank of Kuwait
2.
Mobile Telecommunications
3.
Engro Corp
4.
Emaar Properties
5.
YPF SA
6.
Banco Macro
7.
Grupo Financiero Galicia
Financials
8.
Bgeo Group Plc
9,
Lucky Cement
10.
United Bank
Country % of Total Market Value
Financials
Kuwait
8.02
Telecommunication Services
Kuwait
7.00
Materials
Pakistan
5.73
Financials
United Arab Emirates
5.46
Energy
Argentina
4.39
Financials
Argentina
4.16
Argentina
3.59
Financials
Georgia
3.52
Materials
Pakistan
3.36
Financials
Pakistan
Total
Source: Schroders, as of March 31, 2016. Representative portfolio.
Securities listed are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
3.18
48.41
Schroder Frontier Markets Equity
Quarterly Commentary
Market Review
Global equities delivered marginally negative returns over the first
quarter of 2016, although this masked a “V”-shaped performance
with losses early in the quarter largely recouped in late February
and March. Concerns over the prospect of tighter liquidity and a
US recession spurred an initial sell-off. However, policy actions,
specifically the Federal Reserve’s deferral of interest rate hikes and
the ECB’s surprisingly large stimulus package, triggered a strong
rally into quarter end. This was accompanied by improvements in
commodity prices, in part due to Chinese stimulus measures. Energy
prices remained relatively depressed but after reaching decade lows
in January, Brent crude rallied to finish the quarter up 6.2%. Despite
sharp moves higher by several frontier markets, poor returns from
some of the largest markets in the index, such as Nigeria and Kuwait,
pulled the aggregate index return lower. The MSCI Frontier Markets
index posted a modest negative return underperforming the MSCI
Emerging Markets (EM) index.
Frontier European equities in general performed strongly. The
majority of these markets are open economies with close trade ties
to the eurozone. The announcement of a larger than forecast ECB
stimulus package, which is expected to boost demand for exports,
was therefore supportive whilst local currency strength compared
to the US dollar further enhanced returns. Given this backdrop, the
small markets of Estonia, Croatia and Lithuania registered robust
returns. Kazakhstan delivered a negative return and underperformed,
with Halyk Savings Bank leading the local market lower. Serbia and
Bulgaria were the weakest regional countries, with both markets
firmly down.
Argentine equities continued to benefit from the new administration’s
reform program, which has exceeded market expectations thus
far. Over the quarter, the government sought to restore credibility in
the central bank and the statistics agency, as well as reconcile the
country’s relations with global capital markets. Other reforms included
the lifting of capital controls and tax cuts on agricultural commodities,
incentivizing a large volume of grain exports, to bolster the external
accounts. These followed the central bank’s move to allow the
peso to float freely in December, a change which had resulted in a
devaluation of the currency.
only regional market to underperform. The government’s ongoing
attempt to defend the currency has led to strict FX rationing and a
parallel currency rate 50% weaker than the official rate, which has
weighed heavily on sentiment.
Frontier Asian markets were comparatively weaker over the
period. The small Mauritian market was the only country to finish in
positive territory. Pakistan performed broadly in line with the index.
Bangladesh lagged, with negative performance reflecting slight
weakness in two large stocks. In Vietnam, the market had performed
well in the run-up to the period and this reversed somewhat in the
first quarter. Sri Lanka underperformed and was the weakest
index market.
In Middle Eastern frontier markets, Tunisia generated the most
significant gain and was the best performing index market. Some
easing in political uncertainty, which had been elevated at the turn
of the year, proved supportive for the less liquid market. Lebanon
modestly outperformed, with Blom Bank underpinning small gains.
Oman performed broadly in line with wider frontier markets. Oman
is comparatively more vulnerable to lower oil prices than other
GCC countries and sentiment towards the local market has been
somewhat dampened. Kuwait is more resilient to lower energy
prices and plans significant development spending as part of its
five year plan.
Strategy Performance
The Frontiers strategy outperformed the benchmark over the first
quarter, with country allocation and stock selection contributing
positively. On a country basis, the underweight to Nigeria and an
off-benchmark allocation to Egypt added the most to relative
returns. An off-benchmark position in Georgia and a zero-weight
to Vietnam also added value. At a stock level, selection in Pakistan
was particularly beneficial. This included an overweight to a fertilizer
producer and an underweight to a commercial bank. An overweight
to a Lebanese Bank and an overweight to a Kuwaiti telecom
company also enhanced relative returns. By contrast, selection
in Kazakhstan detracted, notably an overweight to a bank.
In frontier Africa, Morocco was the best performing market. Kenya
also outperformed, with all of the index stocks posting gains. Despite
the recovery in oil prices, Nigeria posted a steep decline and was the
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 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 Frontier Markets Equity
Risk
Potential investors should be aware that investment in Emerging Markets involves an above average degree of risk and should be seen
as long-term in nature. Less developed markets are generally less well regulated than mature markets, they may be less liquid and have
less reliable custody arrangements. Investments in foreign companies may involve special risk, including; political, liquidity, information,
regulatory or currency risk. In addition, investing in emerging markets may result in an increase in the general foreign investment risks
mentioned above.
Schroder Frontier Markets 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 Frontier Markets seek to achieve returns above the MSCI FM (FRONTIER MARKETS) (NDR) index (or a similar benchmark)
by providing capital growth primarily through investment in equity and equity related securities of frontier markets companies. Frontier markets are countries included in the MSCI
Frontier Markets Index or any other recognized Frontier Markets financial index. None of the accounts in the Composite 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: 12-31-2010
Composite Creation Date: 01-07-2011
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.
Composite Fee: The fee scale applied to the composite is 1.5% p.a.
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. 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 Frontier Markets
Benchmark - MSCI FM (FRONTIER MARKETS) (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
Annualized S.I.3
Gross Composite
Return
6.70%
46.16%
20.91%
Gross Composite
Return
23.54%
n/a
n/a
n/a
11.93%
Net Composite
Return
5.12%
44.00%
19.12%
Net Composite
Return
21.71%
n/a
n/a
n/a
10.27%
Benchmark
Return
6.84%
25.89%
8.85%
Benchmark
Return
13.55%
n/a
n/a
n/a
4.44%
3 Year
1
Composite Risk
14.62%
14.92%
n/a
Composite Risk1
14.62%
n/a
n/a
n/a
15.03%
3 Year
Benchmark
1
Risk
11.14%
11.79%
n/a
Benchmark
1
Risk
11.14%
n/a
n/a
n/a
11.88%
Number of
Portfolios
(throughout
period)
<5
<5
<5
Account
Dispersion2
n/a
n/a
n/a
Market Value at
end of Period
1,613,540,063
347,643,011
57,232,044
Average Account
Value at end of
Period
806,770,032
347,643,011
57,232,044
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-FME
Percentage of
Firm Assets
0.57%
0.14%
0.03%
4
Total Firm Assets
282,697,291,678.31
255,707,099,715.41
223,940,416,622.14