Schroder International Equity Alpha
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
Schroders’ International 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 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
– Experienced dedicated team of 13 investment professionals based
in London
– 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
Key features
– 40–60 of our best international 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
As of March 31, 2016
*Inception November 30, 2003
15%
†
10%
The MSCI EAFE Index is a
free float-adjusted market
capitalization index designed
to measure the equity market
performance of developed
markets, excluding the US,
and consists of 21 developed
market country indices.
Schroder International Equity Alpha (Gross)
Schroder International Equity Alpha (Net)
MSCI EAFE Index†
5%
7.53
3.582.58
2.23
2.42
1.43 2.29
6.49
5.45
3.49 2.49
1.80
0%
-5%
-2.48-2.72
-3.01
-2.48-2.72
-3.01
-6.14
-7.05
-10%
-8.27
QTD
YTD
1 yr
3 yr
5 yr
10 yr
Annual S.I.*
Difference (Gross)
+0.53%
+0.53%
+2.13%
+1.35%
+0.13%
+1.70%
+2.07%
Difference (Net)
+0.29%
+0.29%
+1.22%
+0.35%
-0.86%
+0.70%
+1.04%
2015
2014
2013
2012
2011
Gross
0.70%
-4.01%
22.84%
19.34%
-15.87%
Net
-0.27%
-4.94%
21.66%
18.19%
-16.68%
MSCI EAFE Index
-0.81%
-4.90%
22.78%
17.32%
-12.14%
Difference (Gross)
+1.52%
+0.89%
+0.07%
+2.02%
-3.73%
Difference (Net)
+0.55%
-0.03%
-1.12%
+0.87%
-4.54%
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 International Equity Alpha
Sector allocation (%)
Regional allocation (%)
19.5
Financials
Health Care
11.5
14.7
13.3
14.1
13.2
12.3
12.7
11.4
Industrials
Consumer Discretionary
Consumer Staples
Information Technology
5.2
5.6
5.1
3.5
4.7
Telecommunication Svcs
Energy
1.9
Materials
Utilities
Cash 2.0
North America 1.7
Africa/Middle East 3.9
Emerging Markets
23.8
14.9
5.8
Pacific ex Japan
6.9
38.5
Japan
18.7
6.7
22.5
Schroder International Equity Alpha
0.0
3.9
2.0
Cash 0.0
0
Continental Europe
MSCI EAFE
United Kingdom
5
10
15
20
25
30
Source: Schroders, MSCI as of March 31, 2016.
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 International Equity Alpha
MSCI EAFE
59
925
57.84
51.74
9.00
8.25
17.10
15.04
15.49
14.79
1.88
1.52
Tracking error (annualized since inception)
4.03
-
Beta (annualized since inception)7
1.00
-
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
Price to book (trailing 12 months)
6
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
Sector
Country
% of Total Market Value
Consumer Staples
Switzerland
3.30
1.
Nestle S.A.
2.
SAP SE
Information Technology
Germany
3.08
3.
Taiwan Semiconductor Manufacturing Co., Ltd.
Information Technology
Taiwan
2.90
4.
AIA Group Limited
Financials
Hong Kong
2.50
5.
Roche Holding Ltd Genusssch
Health Care
Switzerland
2.46
6.
GEA Group Aktiengesellschaft
Industrials
Germany
2.38
7.
Check Point Software Technologies Ltd.
Information Technology
Israel
2.29
8.
Fresenius Medical Care AG & Co. KGaA
Health Care
Germany
2.28
9.
Royal Dutch Shell Plc
Energy
United Kingdom
2.17
10.
Vodafone Group Plc
Telecommunication Svcs
United Kingdom
2.16
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.
25.53
Schroder International 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 so far this year.
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. In addition, many companies that had been rewarded in
prior periods for their stability, yield and defensive earnings growth
characteristics also sold off during the latter weeks. .
Performance and Strategy
The International Equity Alpha strategy outperformed the
benchmark in the quarter. Outperformance was driven primarily by
strong stock selection as sector and region allocation detracted
from performance. From a sector perspective, stock selection
was particularly beneficial in the technology, healthcare, consumer
discretionary and energy sectors, while on a regional basis, stock
selection was strongest in Japan and Europe. On the negative side,
our holdings in the financials and industrials sectors weighed the
most on returns, with our overall underweight to the materials sector
also detrimental. By region, our holdings in the UK had a negative
impact on returns amidst rising Brexit fears which weighed on the
currency.
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. The firm continues to operate
well and focus on returning capital to shareholders. We also
benefited from our position in a logistics firm, whose shares rose in
February following the release of a solid set of earnings results.
Some of our financial holdings were the biggest detractors at the
stock level, amid a combination of concerns about bank sector
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
problematic exposure to the energy and commodities sector.
Outlook
Market sentiment remains skittish at present and it seems that
lately sentiment, rather than underlying fundamentals, has been
driving equity market movements. 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
over the next few months.
Increasing cyclical exposure
That said, monetary policy remains accommodative and there are
signs that global fiscal policy may be becoming more expansive. In
addition, there are tentative indications that the industrial inventory
cycle, particularly in the US, is beginning to inflect. In anticipation,
we are gradually increasing exposure to more cyclical areas of the
market, where we believe genuine opportunities exist in sectors that
have been out of favor for much of the past 18 months, such as
industrials, energy and some 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 companies 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 that these will ultimately be rewarded with
positive relative returns. Our efforts remain focused on identifying
company situations where future growth has not been recognized
by the market and in so doing we believe we can benefit from
the established relationship that exists between positive earnings
surprise and the strong prospects for share price outperformance.
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 International 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 US International Alpha Equities 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 US International Alpha Equities Composite seek to achieve returns above the MSCI EAFE (net dividends re-invested) index
or an equivalent benchmark by providing capital growth through investment in international equities.
In May 2007 the name of the composite changed from SIMNA Schroder International Alpha Equities composite to Schroder US International Alpha Equities composite. This change
does not affect the composite history or the investment strategy.
Composite Construction: The composite returns include all of the Firm’s separate accounts and commingled funds which are discretionary, fee paying, tax exempt and managed
as described above. New accounts are included in the composite one full month after inception date to ensure the account has been fully invested. Terminated accounts are excluded
from the composite at the end of the previous month. This Composite has no minimum asset level for inclusion.
The composite’s creation date is 02-15-2005
The composite’s start date is 11-30-2003
Calculation Methodology: Composite returns are presented as gross returns, including cash, reinvestment of dividends, interest and other income earned in the period and are
calculated on a trade date basis after transaction charges (brokerage commissions). Each account’s investment performance rate of return is calculated monthly in accordance with
the ‘time-weighted’ rate of return method (Modified Dietz). Additional information regarding policies for valuing portfolios, calculating and reporting returns is available upon request.
The Currency of the Composite is USD. Withholding Tax treatment may vary from portfolio to portfolio within this composite.
Fee Calculation: Net returns have been calculated based upon the highest fee rate charged to each account in the composite. The fee scale applied to the composite is 0.975%
per annum.
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.
Leverage: None of the accounts in the Composite use leverage.
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 Schroder US International Alpha Equities Composite
(the “composite”) has been examined for the periods January 1, 2005 to December 31, 2014. The verification and performance examination reports are available upon request.
Composite Performance Results
Composite - Schroder US International Alpha Equities Composite
Benchmark - MSCI EAFE (net dividends re-invested)
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: SIMNA
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003*
Gross Composite
Return
-4.01%
22.84%
19.34%
-15.87%
16.21%
50.56%
-47.93%
16.12%
25.65%
18.07%
24.55%
7.69%
Net Composite
Return
-4.94%
21.66%
18.19%
-16.68%
15.08%
49.11%
-48.44%
14.99%
24.43%
16.93%
23.34%
7.60%
Benchmark
Return
-4.90%
22.78%
17.32%
-12.14%
7.75%
31.78%
-43.38%
11.17%
26.34%
13.55%
20.25%
7.81%
3 Year
1
Composite Risk
13.03%
17.68%
20.32%
22.87%
27.04%
24.77%
20.64%
9.92%
9.90%
n/a
n/a
n/a
3 Year
Benchmark
1
Risk
13.21%
16.48%
19.65%
22.75%
26.61%
23.91%
19.51%
9.56%
9.47%
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
12.06%
6.59%
1.09%
6.39%
8.59%
Net Composite
Return
10.98%
5.56%
0.11%
5.36%
7.54%
Benchmark
Return
11.06%
5.33%
-0.47%
4.43%
6.46%
Composite Risk1
13.03%
17.09%
21.30%
18.69%
18.13%
Benchmark
1
Risk
13.21%
16.73%
20.71%
18.16%
17.63%
Number of
Portfolios
(throughout
period)
<5
7 (7)
8 (6)
6 (6)
6 (2)
<5
<5
<5
<5
<5
<5
<5
Account
Dispersion2
n/a
0.28%
0.54%
0.29%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Market Value at
end of Period
375,678,011
1,485,604,790
1,502,438,190
1,200,348,224
1,540,473,264
104,231,740
76,941,180
54,370,544
58,277,085
23,714,245
14,050,000
11,282,000
Average Account
Value at end of
Period
93,919,503
212,229,256
187,804,774
200,058,037
256,745,544
52,115,870
38,470,590
54,370,544
58,277,085
11,857,123
14,050,000
11,282,000
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-INTLEQA
Percentage of
Firm Assets
0.13%
0.58%
0.67%
0.62%
0.76%
0.06%
0.09%
0.03%
0.16%
0.08%
0.05%
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
35,533,229,886.00
29,123,758,149.00
27,861,264,909.00
27,165,162,499.00