Schroder ISF Glbl Rcvy A Acc GBP Hdg

Analyst Report
Morningstar's Take
|24/07/2019

by Peter Brunt, CFA
*  This rating and report were issued for a different share class of this fund. The performance and fee structure of this class may vary from that referenced.


For those seeking a pure value approach and who have a higher tolerance to volatility, there is much to like about this strategy. It has been managed by Nick Kirrage, Kevin Murphy, and Andrew Lyddon since launch in October 2013. Kirrage and Murphy have worked together for over 15 years, including comanaging Schroder Recovery (a UK equities strategy) since 2006, and co-head Schroders' global value team. Having started at Schroders in 2005, Lyddon was a founding member of the global value team in 2013. The three are therefore well-versed in the value approach with which they have had much success in UK equities. While Kirrage and Murphy had invested in overseas names for many years on their UK mandates prior to the launch of this strategy, it stands as their first venture into the global equities space.Their process, which seeks to identify companies that are trading at significant discounts to their perceived fair values, starts with a number of valuation screens. These reduce the universe to a manageable number of stocks, upon which the managers undertake more-detailed research to eliminate any false positives. They are supported here by six other team members, three of whom have a good level of experience. While the team saw a couple of departures in 2016 and 2018, we consider it sufficiently resourced and generally stable.The managers are not constrained by the MSCI World benchmark when constructing the relatively focused portfolio. With investments driven by the best value opportunities, deviations at the sector, country, and market-cap levels can be sizable. This, combined with the managers' long-term outlook, results in a performance profile that can look erratic on a calendar-year basis and is generally more volatile than the benchmark and peers. Value investing has faced strong headwinds during their tenure so far, so it is no surprise that the strategy has underperformed the benchmark (to the end of June 2019). It was ahead of the MSCI ACWI Value, however, which better reflects the value style and exposure to emerging markets.The managers have a sizable workload, but we believe that this is mitigated by the process-driven nature of the approach and the support of a sufficiently resourced team. Overall, we continue to believe there is enough evidence that the investment approach has merit within a global context. The strategy therefore retains a Morningstar Analyst Rating of Bronze.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleSupporting Player. The higher levels of volatility and unconstrained, contrarian nature of this portfolio make it more suitable as a good accompaniment for investors seeking exposure to global equities.
Morningstar Pillars
PeoplePositive
The managers' good experience and support of a young but high-calibre team result in a positive view on people.
ParentPositive
Family-backed ownership with particular strength in equities.
ProcessPositive
The consistent, disciplined implementation of a well-structured process leads to a positive view on process.
PerformanceNeutral
The strategy is yet to deliver outperformance of the broad benchmark, leading to a neutral view on performance.
PriceNegative
We consider the pricing expensive relative to peers.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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In order to provide consistency across the report data provided by different Asset Managers, the calculated data points presented are generated using Morningstar’s proprietary calculation methodology which is set out in more detail at(https://www.morningstar.com/research/signature)