Our investment process is team-based and driven by proprietary bottom-up fundamental stock selection. The following chart summarises the three key steps of the process:
Source: Schroders. For illustrative purposes only.
Step 1: Idea Generation
Schroders’ GSSs are the primary source of idea generation, focussing on the highest ranked stocks of our local analysts as well as ideas generated from their own analysis and insights. Rather than looking at local market strength, the GSS team evaluates company strength relative to global sector dynamics. The investment team also uses a proprietary quant screen aligned to the team’s investment approach to highlight potential investment opportunities.
Step 2: Stock selection
The GSS team focus on identifying companies where the forward earnings growth is not yet identified by the market; we term this the “growth gap”. The GSSs build detailed earnings and cashflow models and conduct meetings with company management to develop their investment thesis and devise an earnings roadmap for each stock. The GSSs produce a fundamental risk score for all of the companies researched. This framework scores companies for operational, financial and geopolitical risk, as well as incorporating ESG factors into analysis.
Step 3: Portfolio construction and risk control
Using the ideas generated by the GSSs, portfolio construction is undertaken by our Portfolio Managers. Our risk-adjusted return expectations and conviction level then determines the position size of each stock. Stocks with a higher relative upside, lower fundamental risk profile and higher liquidity will receive higher active weights in the portfolio. When constructing portfolios, country weights are the residual of our bottom-up stock selection process combined with the appropriate client risk control overlay.
