QEP International Value
The QEP International Value strategy seeks long-term capital appreciation.
Schroder QEP International Value is an index-unconstrained, value-based strategy designed to deliver higher long-run returns than the market. Analyzing a universe of around 12,000 stocks, the team constructs a highly diversified portfolio typically containing over 500 stocks.
Stock selection for this strategy is grounded in the analysis of company fundamentals indicating Value (dividends, cashflow, sales, assets and earnings). Portfolios will exhibit a style bias towards these factors. The team believes that Value outperforms over the long term, but to help minimize exposure to ‘value traps’, stocks which are cheap for good reason, investment decisions are also informed by the team’s analysis of business quality. They determine Quality on measures of Profitability, Stability and Financial Strength, and Governance.
The team believes that intelligent portfolio construction can greatly enhance the ability to generate repeatable long-run returns. They reduce stock specific risk by building a highly diversified portfolio, but with conviction in every single stock. Recognizing the limitations of market cap-weighted indices, they take an index-unconstrained approach which enables them to invest wherever they find the best Value opportunities and to capitalize upon those which may be missed by other global managers, including those at the lower end of the market cap spectrum and across emerging markets.
The QEP team have been managing global equity portfolios since 2000. They use an investment philosophy that is based upon combining fundamental data and well-researched behavioral insights, placing considerable emphasis on portfolio construction and genuine diversification of risk.
There are three components to the QEP team’s investment philosophy:
- All stock selection is focused on two key fundamental drivers of long-run equity returns: stock valuations and business quality (as defined by measures of Profitability, Stability, Financial Strength, and Governance).
- We then use quantitative models to ‘scale up’ our process, which allows us to access the best opportunities across a broad global universe. These models enable us to maximize the opportunity set and re-balance portfolios in a disciplined way as opportunities evolve.
- Finally, experienced investors are responsible for implementing every trade decision, ensuring proper diversification and identifying future risks and return opportunities.
Stage 1. Global Value Rank
We invest from the broadest possible international universe of stocks while screening for sufficient liquidity to trade without undue market impact. We analyze the fundamentals of 12,000 companies every day from both developed and emerging markets and rank them in terms of their value. The value of a company is determined across measures of dividends, cashflow, earnings sales and assets. This rank is re-calculated on a daily basis in order to ensure that the latest information is incorporated e.g. price movements and company fundamentals.
Stage 2. Stock Selection
We select stocks from the cheapest third of our Value Rank. In deciding how much of each stock to own, we believe that focusing on company quality allows us to avoid ‘value traps’, stocks which are cheap for good reasons. We capture quality through an assessment of profitability, stability and financial strength, as well as specialized balance sheet measures for financial companies. In addition, we incorporate market-based factors, such as the output of a decision-tree designed to identify each stock’s probability of value being realized. Other considerations in scaling position sizes include measures of risk and also the liquidity and volatility of the stock (i.e. the likely market impact of trading it).
Stage 3. Portfolio Construction
Constructing a portfolio which efficiently balances risks with rewards is the key responsibility of our portfolio managers. They ensure diversification across regions, sectors, market capitalizations and investment themes. Portfolio construction is driven by bottom-up stock selection decisions made on the basis of our evaluation of a company’s valuation, quality and other factors as described above; this process is not influenced by benchmark weights. We limit stock specific risk by usually investing in over 500 stocks and the maximum position size for any individual stock is 0.75%. The team has built an impressive track record in the implementation of investment decisions and actively work to minimize the costs of trading.
The QEP investment team focuses on investment strategy and forward-looking research aimed at enhancing the team’s products, in order to capture more future opportunities and avoid more risks. The team’s investment process uses proprietary models and is driven by insights developed and researched internally. The team believes that its unique value and quality oriented investment philosophy and disciplined approach to investing can deliver consistent, long-run outperformance in a variety of market environments.
Active stock selection focused on valuations and business quality
Our stock-selection framework starts with two clear fundamental drivers: company valuations and business quality. We believe that these two characteristics are the key drivers of long-run equity returns. However, defining these attributes requires careful consideration, as they will differ across industries. Our research focuses on understanding the economic drivers of different industries and utilizing value and quality measures to target companies with desirable attributes, which we believe will outperform in the future.
Allocating capital efficiently across a broad opportunity set
We believe that allocating capital efficiently is critical to exploiting alpha opportunities and enhancing the consistency of returns. Our research has highlighted that allocating capital based on stock fundamentals, transaction costs, and other risks (including country risks and ESG risks) can lead to outperformance over a market capitalization weighted index in the long run. This on-going research feeds our proprietary stock weighting program, which is integrated into our allocation decisions. In this model we take into account fundamental risk (from our value and quality stock selection models), transaction costs (through our market impact model) and other risks (including our QEP Country risk model and our assessment of Environmental, Social and Governance (ESG) risks). We believe that this approach enhances our allocation of capital across a broad universe, improving the consistency of alpha generation and mitigating stock specific risk, in a repeatable manner.
- Canadian Trust
- Separate Accounts