Schroder QEP Global Value Extension
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
Global Value Extension builds upon our value investing approach
through adding the flexibility to go up to 150% long attractively
valued stocks while also being able to short low quality stocks up to
50%. Shorting stocks which we consider low quality can be a return
enhancing strategy while also acting as a fundamental diversifier
for value stocks. Adding a distinct and diversifying short low quality
strategy potentially creates greater flexibility to add value across
different market environments while retaining a strategic bias towards
high returning value investing. Global Value Extension targets gross
returns of +5% above global indices over a full investment cycle.
– Over 15 years track record in managing global equity portfolios
– Team manages over $39 billion in assets
– Investment philosophy is based upon combining fundamental
data and well-researched behavioral insights
– Considerable emphasis is placed upon portfolio construction
and genuine diversification of risk
Key features
1. Value outperforms in the long run: Our analysis suggests that value investing has ‘worked’ in 36 out of 40 countries on an historical basis.
Academic evidence dating back to the 1920s further supports the idea that value is a powerful long-term investment strategy.1 Our approach
to investing is designed to invest alongside this favorable long-run tailwind from value.
2. Seeks high return without concentrated stock risk: Seeking higher returns can be associated with greater risk, as this is often achieved
through a very concentrated stock portfolio. We seek to reduce stock risk by building a highly diversified portfolio but with no less conviction.
3. Stock weights determined by fundamentals, not market cap: Our approach is to weight stocks based upon their fundamentals and
liquidity. This is more balanced and reduces stock selection ‘mega-cap’ drag which is particularly acute for other value investors.
4. Bottom-up, index unconstrained investing for more efficient: We maximize our investment opportunities by systematically analyzing
over 15,000 global stocks every day. The more attractively-priced stocks we find in a particular region or sector, the greater the subsequent
portfolio allocation. This unconstrained bottom-up approach maximizes the potential return opportunity and avoids dead-money being
allocated to expensive stocks to satisfy index constraints.
1
Graham & Dodd (1934), Barbara & Lyon (1997), Basu (1977), Davies (1994), Fama and French (1992, 1993, 1995, 1998, 2006), Rosenberg, Reid and Lamstein (1985)
Composite performance
As of March 31, 2016
*Inception October 31, 2004
30%
Schroder QEP Global Value Extension (Gross)
Schroder QEP Global Value Extension (Net)
MSCI AC World Index†
20%
†
MSCI ACWI captures large
and mid cap representation
10%
across 23 Developed Markets
(DM) and 23 Emerging
Markets (EM) countries.
0%
With 2,480 constituents, the
index covers approximately
-10%
85% of the global investable
equity opportunity set.
Difference (Gross)
8.06
4.98
1.95 1.51
Difference (Net)
0.24
1.95 1.51
3.17
5.53
5.35
3.54
5.22
6.20
4.07
0.24
-4.34
-3.89
-5.55
QTD
YTD
1 yr
3 yr
5 yr
Annual S.I.*
+1.71%
+1.71%
+0.45%
-0.56%
+0.13%
+3.99%
+1.27%
+1.27%
-1.21%
-2.36%
-1.69%
+2.13%
2015
2014
2013
2012
2011
Gross
-4.60%
1.84%
27.03%
16.54%
-7.89%
Net
-6.24%
0.09%
24.85%
14.53%
-9.47%
MSCI AC World Index
-2.36%
4.16%
22.80%
16.13%
-7.35%
Difference (Gross)
-2.24%
-2.32%
+4.23%
+0.41%
-0.54%
Difference (Net)
-3.88%
-4.07%
+2.04%
-1.60%
-2.13%
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 Global Value Extension
Size allocation (%)
Mega (>$20bn)
Regional allocation (%)
61.5
North America
-19.5
Cont Europe
Large ($5bn-$20bn)
41.3
60.8
-23.2
24.7
-8.8
United Kingdom
-23.8
34.1
Mid ($1bn-$5bn)
Japan
-5.9
18.5
-8.3
9.3
Pacific Ex Japan
-1.7
9.4
Small ($250m-$1bn)
1.3
0.0
Micro (<$250m)
-25
6.6
Emerging Markets Emea
-0.3
Short
25
50
75
0.0
0.0
-40
100
0
Source: Schroders, MSCI as of March 31, 2016.
Source: Schroders, MSCI as of March 31, 2016.
Sector allocation (%)
Portfolio characteristics
Industrials
20.6
-9.4
Information Technology
Consumer Discretionary
18.4
-7.4
Banks
Materials
Insurers/Asset Mgt
-2.9
Consumer Staples
-3.1
-5.2
-5.4
Cash
-15
844 / 169
3
Weighted average market cap ($m)
11.0
-0.9
Telecommunication Svcs
Number of stocks (Long/Short)
4.75
12.2
-2.2
Utilities
49.2%
Tracking Error (annualized since inception)2
13.7
-4.9
Real Estate
120.2%
Total weight of non-index stocks
14.7
-1.3
Energy
80
15.5
-4.0
Health Care
40
Active share1
18.9
-2.6
Short
-1.6
Cash
0
Long
2.5
Emerging Markets Latam
0.0
-50
-3.5
Long
0.0
Cash
13.9
Emerging Markets Asia
-0.1
11.3
-2.1
9.1
Price to book4
8.6
Long
2.8
1.34
Price to earnings5
Short
2.1
11.58
6
Return on equity
0.0
0.0
0
61,409
15
23.07
30
Source: Schroders, MSCI as of March 31, 2016.
Sectors/regions/market caps listed are shown for illustrative purposes and are not
to be considered a recommendation to buy or sell.
Source: Schroders, MSCI as of March 31, 2016. Inception date July 18, 2008.
Characteristics are vs. MSCI AC World Index.
1. Measures the percentage amount the portfolio differs from the benchmark. A reading of 0% suggests holdings are identical to the benchmark. 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. 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.
Top ten holdings
Country
% of Total Market Value
1.
Intel Corporation
United States
1.00
2.
International Business Machines
United States
0.99
3.
Kddi Corporation
Japan
0.92
4.
Telstra Corporation
Australia
0.92
5.
Teva Pharmaceutical Industries Ltd.
Israel
0.90
6.
Taiwan Semiconductor Manufacturing Co.
Taiwan, Province Of China
0.85
7.
Pfizer Inc.
United States
0.84
8.
Roche Holdings AG
Switzerland
0.76
9.
Cisco Systems Inc.
United States
0.75
United Technologies Corp.
United States
10.
Total
0.74
8.67
Source: Schroders as of March 31, 2016.
Securities listed (excluding cash and cash equivalents) are shown for illustrative purposes and not to be considered a recommendation to buy or sell. The top ten holdings are based
on a representative account. Cash and cash equivalents are excluded from the calculations. These holdings are subject to change and should not be viewed as an investment
recommendation. It should not be assumed that any of these holdings were or will be profitable.
Schroder QEP Global Value Extension
Quarterly Commentary
Market Review
While developed equity markets ended the first quarter broadly flat
(in USD terms), this disguised a very volatile start to the year. By
mid-February, the MSCI World Index had fallen by more than 11%,
a decline that was widely attributed to concerns about the
weakness of the global economy. As has recently been the case
when investors take fright, policymakers once again marched to
the rescue. The People’s Bank of China, the Bank of Japan and
the European Central Bank loosened monetary policy further, while
the Federal Reserve notably scaled back its intention to normalize
US interest rates.
Dovish central banks underscored a big rebound in commodity
prices. Firmer oil prices, which appear to have become the key
barometer of investors’ risk tolerance, played a significant role in
boosting sentiment. Developed markets rallied by 13% between
the bottom on February 11th and the end of the quarter, but it
was the new found strength in emerging markets and risky assets
more generally that further reinforced the recovery. The general
perception that the US dollar bull run was close to exhaustion also
helped emerging markets and they ended the quarter 6% ahead
of developed equities. Just over half of their outperformance was
attributable to the strength of emerging market currencies versus
the US dollar.
To some extent the rebound in commodity prices and emerging
markets since mid-February could initially be attributed to classic
short covering / investor underweighting following significant
underperformance in recent years. It was nevertheless notable that
the market recovery was led by cyclical sectors beyond resources,
namely technology, consumer discretionary and industrials. This
may mark the beginnings of a shift in sentiment away from last
year’s winners – low volatility / defensive and growth stocks – and
a re-appearance of Value outperformance.
Performance and Strategy
The QEP Global Value Extension strategy strongly outperformed
the indices over the first quarter, driven by our leveraged long value
positions. Contributions came from across the emerging markets,
partly due to the rebound in commodities. On a country view
contributions from our positioning in South Africa and Brazil stood
out. Other sectors within the emerging markets where our long
positions contributed included technology, financials and telecoms.
More broadly, our holdings were beneficial in industrials (particularly
US machinery) and consumer discretionary (particularly US retail
and apparel). In the latter sector our shorts in Japanese and
European autos contributed strongly.
The strategy gave back some of the gains from earlier in the
quarter and finished behind the index in March. Emerging markets
were a positive for relative performance with contributions spread
across a number of countries and sectors. Highlights included
leveraged long positions in Brazilian materials and utilities, Russian
integrated oil & gas companies, South African insurance firms, and
simple banks across all EM regions. Stock selection was positive
amongst consumer staples, including the benefit of avoiding
underperformance of some of the expensive areas of US consumer
staples. Stock selection within financials was the key headwind
for the strategy, particularly due to our net-short allocation to both
Canadian and Australian banks which rebounded strongly over the
month. The strategy’s shorts or underweights in US REITs also hurt
relative performance against the revival of the ‘reach for yield’ trade.
In financials, banks offer a broad range of value opportunities –
from high quality, over-sold simple banks in the US to lower quality,
recovering banks in Europe – and we have added a number of
positions. Australian and Canadian banks remain unattractive in
our view. Our net weight in real estate is short: although we remain
invested in high quality Asian stocks, these positions are offset by
our short positions in US REITs.
Outlook and Positioning
Amongst defensives, we continue to favor pharmaceuticals globally
and telecoms outside of the US and UK. Utilities in the US, UK and
Japan remain unattractive: we have a zero long position in these
areas and shorts in the US which result in the sector being the
largest net short weight.
In mining, our preference remains for larger, lower cost, diversified
companies. Within energy, large integrated oil & gas stocks tend
to offer attractive dividend yields and strong balance sheets. We
remain short a number of high cost producers with over-extended
balance sheets. Diversified chemical companies, particularly in
Japan, remain good value.
At a regional level, Japan offers a broad range of predominantly high
quality value opportunities – from defensive and more domestically
focused positions through to cyclical sectors like technology
and consumer discretionary. Opportunities within Europe remain
predominantly outside of the Eurozone countries. Our exposure to
emerging markets continues to come principally from three areas of
opportunity: Taiwan, South Korea and South Africa.
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 Global Value Extension
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. Global Value Extension makes use of
OTC financial derivatives to leverage the portfolio and implement short positions. There is no guarantee these derivatives will achieve their
intended outcome, even if the terms of the contract are completely satisfied. If a counterparty to a financial derivative contract were to default,
the unrealized profit on the contract and its market exposure may be lost. The use of leverage and short selling introduces additional risk.
Short sales may result in losses that are greater than the cost of the investment. The use of leverage may amplify gains and losses, increasing
volatility.
Schroder QEP Global Value Extension
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 – Global Value Extension 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 AC World (NDR), MSCI World (NDR) or comparable index through active investment in
diversified, index-unconstrained, portfolios, style-biased towards Value and away from Low Quality. These portfolios have the added flexibility of shorting, with a maximum of 150%
of NAV in long positions and a maximum of 50% of NAV in short positions. Composite accounts invest predominantly 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. The accounts use portfolio swaps to
gain synthetic long and shorty equity exposure and therefore can be considered leveraged. As of November 2013 the primary benchmark for this composite was changed from MSCI
World (NDR) to the MSCI AC World (NDR) for all periods since inception. The latter is a more appropriate comparison for the strategy, as emerging markets are typically included in
the investment universe. No change was made to the investment process and the benchmark continues to be used only as a reference for performance comparison. This description
was redefined on 11/29/2012, the redefinition has been made to enhance the composite description by increasing the level of detail used to describe the investment strategy. Previous
disclosures are available upon request.
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: 07-31-2008
Composite Creation Date: 04-22-2009
Performance Calculation: 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 1.75%. 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, 2013. 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 QEP – Global Value Extension (the “composite”) has
been examined for the periods January 1, 2011 to December 31, 2013. The verification and performance examination reports are available upon request.
Composite Performance Results
Composite - QEP - Global Value Extensio
Primary Benchmark - MSCI AC World (NDR)
Secondary Benchmark - MSCI World (NDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: UK-INT
Year
2014
2013
2012
2011
2010
2009
Gross Composite
Return
1.84%
27.03%
16.54%
-7.89%
21.77%
54.52%
Net Composite
Return
0.09%
24.85%
14.53%
-9.47%
19.68%
51.86%
As at Dec 2014
Annualized 3 Yea
Annualized 5 Yea
Annualized 7 Yea
Annualized 10 Yea
Annualized S.I 3
Gross Composite
Return
14.67%
11.08%
n/a
n/a
10.31%
Net Composite
Return
12.69%
9.17%
n/a
n/a
8.42%
Primary
Benchmark
Return
4.16%
22.80%
16.13%
-7.35%
12.67%
34.62%
Primary
Benchmark
Return
14.10%
9.17%
n/a
n/a
5.24%
Secondary
Benchmark
Return
4.94%
26.68%
15.83%
-5.54%
11.76%
29.99%
Secondary
Benchmark
Return
15.47%
10.20%
n/a
n/a
5.80%
3 Year
Composite
Risk 1
11.47%
15.13%
16.80%
22.85%
n/a
n/a
3 Year Primary 3 Year Secondary
Benchmark Risk1 Benchmark Risk1
10.64%
10.37%
14.14%
13.73%
17.37%
16.98%
20.88%
20.44%
n/a
n/a
n/a
n/a
Composite
Risk1
11.47%
14.41%
n/a
n/a
20.05%
Primary
Secondary
Benchmark Risk1 Benchmark Risk1
10.64%
10.37%
14.57%
14.30%
n/a
n/a
n/a
n/a
18.97%
18.44%
Number of
Portfolios
(throughout
period)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
1 (1)
Account
Dispersion2
n/a
n/a
n/a
n/a
n/a
n/a
Market Value at
end of Period
679,045,326
533,959,703
270,798,343
234,612,782
146,767,783
22,094,574
Fee Schedule
Net of fees composite returns are prepared by deducting a model fee based on the highest retail management fee of 1.75%. 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 benchma
2 Asset weighted standard deviation of annual gross returns of accounts that have been in the composite for the entire ye
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 accou
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 M
Manager accounts are included in the Total Firm Asset
N/A - Information is not statistically meaningful due to an insufficient number of portfolios for the entire ye
Source: Schroders
PFS-QEPGAVET
Average Account
Value at end of
Period
679,045,326
533,959,703
270,798,343
234,612,782
146,767,783
22,094,574
Percentage of
Firm Assets
0.24%
0.21%
0.12%
0.12%
0.07%
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