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Our approach to equity investing

Our European equity portfolios fall into seven different investment strategies. Each of the strategies we offer has distinct characteristics allowing investors access to European equities in a number of styles.

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Blend 

Our blend strategies are managed with no pre-determined style bias. We therefore aim to add value regardless of the market backdrop, using a disciplined bottom-up approach which leverages the strength of our research capability.

Business Cycle 

Combines top-down macro views with bottom-up analysis. Rests on our belief that different types of companies perform very differently, depending on where we are in the economic cycle. 

Income investing targets stocks that pay out a regular income, usually through dividends. We want above average income at the portfolio level but a clear valuation case to offer us capital growth as well.

Small-cap investing can be potentially lucrative as small-cap companies can offer high growth potential compared to their mid- and large-cap counterparts. A lack of analyst coverage can also mean small-caps are incorrectly priced, offering investors the opportunity to profit.

Our absolute return strategies aim to deliver positive returns across all market conditions. They are typically benchmark-unconstrained and often employ different investment techniques compared to traditional long-only funds, such as short selling, leverage and derivatives.

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Business Cycle
Our business cycle strategy combines top-down macro views with bottom-up analysis. It rests on our belief that different types of companies perform very differently, depending on where we are in the economic cycle.

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Why invest?

  • Access to consistent outperformance throughout the different phases of the business cycle
  • By combining bottom-up stock selection with top-down macro views, the portfolio benefits from companies that perform well on a fundamental basis and are aligned to the prevailing stage of the business cycle
  •  The lack of a permanent style or size bias enables us to avoid prolonged periods of underperformance.

Our philosophy

We aim to capture the best European opportunities by understanding the companies most likely to outperform at each stage of the ‘business cycle’ namely – expansion, slowdown, recession and recovery. We believe in a diversified approach that achieves consistent outperformance with a risk profile that changes according to the phases in the business cycle.

Investment process

Our investment process separates the stock universe into seven style groups each with specific sensitivities to certain macro drivers. This, along with standard fundamental analysis, allows us to identify mispriced securities.

Growth; Growth defensives; Value defensives; Financials; Consumer cyclicals; Commodity cyclicals; Industrials cyclicals 

Each group will perform differently depending on the stage of the business cycle. We will adjust the fund’s risk levels and positioning so that it has the appropriate weighting to each of these different groups as we move through the business cycle. We avoid any permanent investment style bias by managing the tilts towards these groupings within the portfolio.

Funds

 Schroder European Opportunities Fund     Schroder European Alpha Plus Fund


Income
Income investing targets stocks that pay out a regular income, usually through dividends. We want above average income at the portfolio level but a clear valuation case to offer us capital growth as well.
 

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Why invest?

  • The lack of a permanent style or size bias enables us to avoid prolonged periods of underperformance.
  • Targets a high income with some long term capital growth
  • Invests in a concentrated portfolio of European equities, adopting a business cycle investment approach – one that recognizes that different stocks have the potential to outperform at different points in the economic cycle

Our philosophy

We believe in a diversified approach that aims to achieves consistent outperformance with a risk profile
that changes according to the phases in the business cycle. With a core focus on income-orientated
investments, the investment process groups stocks into different income categories which perform well at
different points in the cycle.

Investment process

The bottom-up element forms a more important part of the overall process for this concentrated
portfolio. There are fewer “factor” based decisions. The bottom-up process is rigorous; it typically begins
with analysis using a proprietary 3 factor, 90-data item database, then drills down quantitatively into
the history of the business from an income perspective, and the likely future trajectory of the growth,
sustainability and level of that income, before finally meeting with the company of sell-side analysts to
conduct qualitative analysis. A key part of the process is the meetings with the management teams of
the companies themselves, mainly through one on one meeting but also through group meetings and
attendance at company capital markets days. When attempting to understand an individual business,
James will also try to meet with competitors, suppliers and other related businesses in order to gain a
deeper understanding of the specific industry. The resources on offer from the sell side are also used
selectively, as well as independent experts and any other sources of information that can help with their
understanding of an investment case.The aim is to gain an insight into the culture of the management
towards dividends and the ability of the company to support a progressive dividend.

Factor

Data example

Goal

Dividend history

– 10 year history
– Growth in shares in issue

To establish whether the company
has a strong dividend track record

Income flexibility

– Operational and financial general
– Working capital intensity
– Capex intensity

To establish the extent to which
the P&L is a constraint on paying
dividends

Balace sheet strength

– Debt ratios
– Q score

To establish whether the balance
sheet can support a progressive
dividend policy

  Schroder European Alpha Income Fund