Schroder Microcap Fund
The Schroder Microcap Fund provides exposure to a range of quality micro cap stocks listed in Australia/New Zealand. Leveraging off the same investment process, team size and experience of the Schroder Australian Equity Team, the strategy invests in a broad range of micro cap companies specifically seeking out undervalued companies with the potential to offer superior and visible growth.
Potential investments of the strategy will include listed companies outside the top 250 companies by market capitalisation (“microcap”), but above AUD10million in market capitalisation at the time of investment, and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation. Securities which are intended to be listed within the next six months on the above exchanges are also included in the investment universe.
Micro cap companies can provide potentially superior investment returns over the long term providing an excellent complement to mainstream, larger-company investments. Stock selection is at the core of the investment process, based on intensive in-house company analysis undertaken by Schroders’ highly experienced Australian Investment team.
To outperform the S&P/ASX Small Ordinaries Accumulation Index by 3-4% over the medium to long term by investing in a broad range of micro cap companies from Australia and New Zealand.
|Focus on quality stocks||Companies with a sustainable competitive advantage are typically rewarded with superior returns in the long term.|
|Potential for higher growth||Micro cap companies often have higher prospects for growth relative to larger companies, either due to the fact that they are in the early stages of development or because they provide new services or technologies.|
|Resourced to fully cover the universe||
|Active management||Micro cap companies are generally under-researched, making it possible to obtain an information advantage through in-depth, fundamentally driven research.|
*As at 30 June 2015
- Market risk: The most significant risk to note, market risk includes the risk of volatility and negative returns arising from investment markets.
- Equities risk: includes the risk that changes in share prices will negatively impact on the value of investments.
- Company risk: includes the risk of adverse changes to a company or its business environment. Many microcap companies have less diversity in either operating business lines or geography of operation and as such can be subject to an increased level of financial performance volatility. Combined with the potentially lower liquidty, this can result in more volatile share prices than larger capitalisation stocks.
- Fund risk: includes the risk of changes to the investment team, fees and costs and the termination of a fund.
For a comprehensive list of risks please refer to the PDS.
|Fund inception date||28 February 2006|
|Valuation||Every business day|
Professional class - $500,000
|Buys/sell spread^||1.00% on application; 1.00% on redemption|
|Management costs (ICR)||
Professional class - 1.10% p.a.
|Performance fee||20.5% of net outperformance above benchmark|
|Distributions||Usually last business day of June|
^Subject to change. Refer to the Buy/Sell spreads page in the Fund Centre
HOW THE FUND IS MANAGED
The investment process is a combination of qualitative industry and company competitive position analysis and quantitative financial forecasts and valuations as follows:
Step 1: Stock filtering and coverage
We maintain direct coverage on all stocks within the S&P/ASX Small Ordinaries Index, as well as a significant number of microcap stocks within our universe that are not included in this index. Potential investments of the strategy will include listed companies outside the top 250 companies by market capitalisation (“microcap”), but above AUD10million in market capitalisation at the time of investment, and companies listed on the New Zealand Stock Exchange with an equivalent market capitalisation. Securities which are intended to be listed within the next six months on the above exchanges are also included in the investment universe.
Step 2: Financial modelling
Companies are subject to detailed financial analysis using a standardised proprietary company financial model. The model consists of a detailed profit & loss statement, cash flow statement, balance sheet and forecast assumptions. Analysts also have the flexibility to add additional information they believe pertinent to any company. External meetings form an important part of the company assessment.
Step 3: Industry and business quality assessment
An assessment of current and future key industry drivers, the level of industry returns and company specific reasons for relative success within an industry is quantified into financial forecasts, of sustainable margins and returns.
Step 4: Detailed company valuation
Companies within the investment universe are subject to a standardised ‘sum of the parts’ valuation methodology where financial statements are forecast forward three years to reach a mid-cycle or sustainable level of earnings, margins and returns. This determination of the mid-cycle or sustainable level is a function of the industry and business quality assessment.
Step 5: Business and financial risk assessment
We assess the sensitivity of a company’s cash flow to key macro factors such as interest rates together with the impact of financial leverage and capture this information in our database. We believe that these factors are a key risk consideration when constructing a portfolio as opposed to only looking at returns based volatility measures (i.e. tracking error).
Step 6: Portfolio construction
Portfolio construction aims to maximise expected returns, whilst maintaining diversification and skewing the portfolio to high quality companies. Analysts take an active role in the consideration of portfolio inclusions, exclusions and relative weights with final positions the responsibility of the Portfolio Construction Committee.