Schroder Global Emerging Markets
Smaller Companies
Strategy Fact Sheet – 1Q16
Strategy overview
Key features
–
– The product targets alpha generation primarily from bottom up
fundamental stock selection.
–
The product provides diversified exposure to the smaller
companies of emerging markets. Smaller companies within the
emerging markets universe are typically under-researched, underowned and often characterised by strong growth potential.
The product is largely index unconstrained. The primary
investment universe is the MSCI Emerging Markets Small Cap
index but the team also aims to find good investments in medium
sized emerging companies and opportunistically in frontier market
stocks and stocks listed in developed markets.
– Idea generation is driven by a combination of factor screens and
our global network of analysts and portfolio managers. Stocks
on the focus list are assessed and selected after a thorough
assessment of their fundamentals and business model.
– The product follows a proactive approach to risk management.
There is no systematic style bias although low quality stocks will
tend to be avoided. The portfolio will typically invest in around 60120 stocks.
Team highlights
–
The product is co-managed by two experienced investment
teams with a track record of delivering consistent
outperformance within their respective areas of expertise; the
Emerging Markets Equity (EME) team and the Global Small Cap
& Specialist Asia team. The combined resource is 45 investment
professionals.
–
‘On the ground’ fundamental research is carried out by analysts
based around the world in eight locations.
–
The product benefits from our global infrastructure including
central economics team and global platforms for dealing,
settlement, risk, research and performance.
Composite performance
As of March 31, 2016
*Inception February 28, 2014
30%
20%
Schroder Global Emerging Markets Smaller Companies (Gross)
Schroder Global Emerging Markets Smaller Companies (Net)
MSCI Emerging Market Small Cap Net TR
10%
1.80
1.42
0%
0.97
1.80
1.42
0.97
0.92
-0.58
-4.27
-10%
-20%
-3.06
-5.69
-9.20
QTD
YTD
1 year
Annual S.I.*
Difference (Gross)
+0.82%
+0.82%
+4.93%
+3.98%
Difference (Net)
+0.45%
+0.45%
+3.51%
+2.49%
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.
Schroder Global Emerging Markets Smaller Companies
Sector allocation (%)
Regional allocation (%)
25.4
Consumer Discretionary
17.7
Industrials
Cash 2.3
24.8
15.5
Latin America
12.5
Health Care
12.0
Information Technology
EMEA
16.9
9.7
Financials
Asia
9.1
8.6
13.3
17.7
7.6
7.5
Consumer Staples
2.9
Materials
10.7
1.4
0.9
1.3
Utilities
3.0
0.0
Energy 1.3
2.3
Cash 0.0
Telecommunication Svcs
0
Schroder Global Emerging
Markets Smaller Companies
75.3
MSCI Emerging Markets
Small Cap Index
10
20
30
40
Portfolio & risk statistics
Top ten holdings
Schroder
MSCI Emerging
Global Emerging
Markets Small
Markets Smaller
Cap Index
Companies
Number of holdings
69
1,852
1. Aerospace Industri
2. Aramex Company
3. Medy-Tox Inc.
Wgt avg mkt cap (in US$ mm)
P/E Ratio (12 month trailing)
P/E Ratio (12 month forward)
1,729
19.25
15.49
945
13.56
13.02
4. Arvind Ltd.
3.08
1.47
15.99
10.82
Taiwan
2.57
United Arab Emirates
2.39
Korea
2.33
India
2.19
Korea
2.18
6. Best Pacific International
China
2.09
Taiwan
2.07
China
2.04
7. Gourmet Master
9. Haitian International Holdings
10. Ctci Corp
ROE % (12 month trailing)
% of Total
Market
Value
5. S-1 Corporation
8. China Lodging Group Ltd. ADR
P/B Ratio
Country
Total
China
2.03
Taiwan
2.03
21.93
Source: Schroders, MSCI, Factset and PRISM as of March 31, 2016. Representative portfolio. Sectors/Regions/Securities listed are shown for illustrative purposes and are not to be
considered a recommendation to buy or sell. The composition of portfolios within the same strategy may vary.
Schroder Global Emerging Markets Smaller Companies
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.
Following a challenging start to the quarter, emerging markets
rebounded, with several markets supported by revised expectations
of monetary tightening in the US and a weaker US dollar.
Meanwhile, several country-specific developments, most notably in
Brazil, served to boost investors’ risk appetite. The MSCI Emerging
Markets Small Cap index recorded a small gain, outperforming
the MSCI World but underperforming the MSCI Emerging Markets
index.
There was a notable divergence in regional performance, with
Emerging European and Latin American markets in general
outperforming Asia. Mexico comfortably outperformed, as growth
data continued to indicate strong momentum in the domestic
economy. Brazil delivered a more significant gain with local equities
rallying sharply, primarily on the back of increased expectations for
political change, which helped the Brazilian Real to appreciate. In
Russia, the rebound in Brent crude was beneficial for local equities
and supported a 9.8% rally in the Ruble. In South Africa, fourth
quarter data indicated a widening in the country’s current account
deficit. Colombia was the strongest index market, with local equities
rising sharply on the back of oil price improvement; oil accounts for
a significant proportion of government revenues.
India registered a negative return and was the weakest index market
with a number of disappointing macroeconomic data weighing
on sentiment. Chinese equities also fell, with another decrease
in FX reserves in January and soft economic growth weighing on
performance. This prompted the central bank to cut the reserve
requirement ratio (RRR) for banks by 0.5%. The market recovered
somewhat from mid-February as stronger credit growth signaled
policy support. Meanwhile the authorities opened the domestic
bond market to foreign investors. This was perceived as a positive
step towards the further opening up of China’s capital markets.
Korea performed broadly in line with the benchmark. The longer-
term growth outlook remained challenging but signs that the
cyclical downturn may have passed proved supportive. Taiwan
posted a positive return and outperformed. However, underlying
macro data continued to be weak, prompting the central bank to
relax prudential rules on mortgages and cut interest rates by 12.5
basis points to 1.5%. Thailand outperformed, as the government
announced stimulus measures entailing increasing its spending
budget by 0.4% of GDP through grants to farmers. Malaysia was
boosted by a rebound in energy prices. Indonesia outperformed as
inflation eased, enabling the central bank to cut interest rates.
Performance and Strategy
The Global Emerging Markets Smaller Companies strategy
outperformed the benchmark in the first quarter of 2016.
Country allocation was broadly neutral with stock selection
underpinning gains, primarily in China. This included positions in
China Lodging Group, injection moulding machine manufacturer
Haitian International and ASM Pacific Technology, which supplies
assembly equipment and materials to the semiconductor sector.
An overweight to fabric manufacturer Best Pacific International also
worked well. Selection in Poland further enhanced gains, notably
the position in Uniwheels; the alloy wheel manufacturer rallied as the
company managed to fill its new capacity ahead of schedule. The
position in shoe manufacturer CCC and a zero weight to PKP Cargo
also added value. In Brazil the positions in dental benefits provider
Odontoprev and utility company AES Tiete were both rewarded. In
contrast, selection in Russia detracted. This included the position in
rail freight operator Globaltrans, where a delay in expectations for a
recovery in gondola demand, given depressed industrial production,
weighed on performance.
Outlook
We believe that the strategic case for an investment in emerging
market smaller companies remains compelling, in large part due to
their rich opportunity set and their generally under researched nature
versus larger capitalization companies. In the short term, however,
soft global growth challenges the outlook and, until we see some
signs of an improvement in earnings, emerging markets in general
may well tread water. Valuations for emerging markets smaller
companies overall appear reasonably attractive, and we continue
to find attractive investment opportunities in well managed smaller
companies given the breadth of the universe.
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 are based on the composite.
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 Global Emerging Markets Smaller Companies
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. Investments in small capitalization
companies generally carry greater risk than is customarily associated with larger capitalization companies, which may include, for example,
less public information, more limited financial resources and product lines, greater volatility, higher risk of failure than larger companies and
less liquidity.
Schroder Global Emerging Markets Smaller Companies
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 Global Emerging Markets Smaller Companies Composite seek to achieve returns above the MSCI EM Small Cap (NDR) index (or a
similar benchmark) by providing capital growth primarily through investment in equity securities of emerging markets companies, who are among the smallest 30% of global emerging
market companies by market capitalization. Accounts aim to outperform the MSCI EM Small Cap (NDR) by 3% over rolling three year periods.
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
The composite’s creation date is 02-28-2014
The composite’s start date is 02-18-2014
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.
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.
Fee Schedule: The fee scale applied to the composite is 1.5% p.a.
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 - Global Smaller Companies Composite
Benchmark - S&P Developed SmallCap (GDR)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: UK-INT
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006*
Gross Composite
Return
4.91%
34.74%
14.62%
-8.40%
21.44%
45.47%
-41.79%
11.11%
12.68%
Net Composite
Return
3.36%
32.75%
12.92%
-9.75%
19.65%
43.32%
-42.65%
9.47%
11.43%
Benchmark
Return
2.21%
32.58%
18.05%
-8.57%
24.42%
39.43%
-43.74%
6.05%
9.93%
3 Year
1
Composite Risk
11.07%
15.35%
18.19%
21.07%
25.79%
23.68%
n/a
n/a
n/a
3 Year
Benchmark
1
Risk
11.95%
15.86%
19.19%
23.13%
27.88%
25.46%
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
17.45%
12.50%
6.23%
n/a
7.68%
Net Composite
Return
15.71%
10.84%
4.66%
n/a
6.09%
Benchmark
Return
16.96%
12.72%
5.22%
n/a
6.00%
Composite Risk1
11.07%
15.32%
19.81%
n/a
18.24%
Benchmark
1
Risk
11.95%
16.31%
21.24%
n/a
19.54%
Number of
Portfolios
(throughout
period)
<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
Market Value at
end of Period
412,408,268
491,619,247
348,436,015
231,785,999
278,943,525
140,728,401
106,494,104
155,844,413
53,144,000
Average Account
Value at end of
Period
206,204,134
245,809,624
174,218,007
115,893,000
139,471,762
70,364,201
53,247,052
77,922,207
53,144,000
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-GEMSC
Percentage of
Firm Assets
0.15%
0.19%
0.16%
0.12%
0.14%
0.09%
0.12%
0.10%
0.04%
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