QEP Global Value
QEP Global Value targets gross returns of +3% above global indices such as the MSCI All Country Index over the full economic cycle.
Schroder QEP Global Value is an index-unconstrained, value-based strategy designed to deliver higher long-run returns than the market. Analyzing a universe of over 15,000 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, assets and earnings). We believe 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. We determine Quality on measures of profitability, stability, financial strength and governance.
We believe that intelligent portfolio construction can greatly enhance the ability to generate repeatable long-run returns. We 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, we take an index-unconstrained approach which enables us to invest wherever we 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.
The investment process of the QEP Global Value strategy can be summarized in three stages:
Source: Schroders. 1 Internal guidelines only and are subject to change.
- Invest in a truly diversified portfolio of value opportunities
Purchasing companies on the basis of valuations has been a successful investment strategy that has historically generated some of the best returns for equity investors, particularly over longer holding periods. We believe that a value-based approach should be a mandatory component of any long-term strategic equity allocation. We rank stocks on a daily basis across multiple valuation criteria to build a diversified portfolio of over 500 stocks. This level of diversification not only means that investors are exposed to a broader range of potential return-boosting opportunities but are also protected from the risk that the failure of a single investment could cause material damage to the overall portfolio.
- Weight stocks based on fundamentals, not company size
We believe that the decision on how much an investor should own of any given stock is just as important as selecting the stocks in the first place. Within the context of a value-based investment process in particular, we believe that investors should break the link with capitalization within the stock weighting and selection process and replace it with a weighting scheme that favors the underlying company fundamentals and liquidity. Attractively priced stocks with good quality attributes (e.g. higher profitability or balance sheet strength) are allocated higher weights (up to 1.0%) while stocks with a higher degree of uncertainty (e.g. lower profitability or less liquidity) are allocated much smaller weights (typically 0.05%) to reflect their higher risk/return characteristics. We have also found that the inclusion of small and mid-cap stocks have significantly boosted investment returns over time.
- Look beyond the index to maximize the opportunity
A globally unconstrained approach provides the crucial final step in our attempt to seek higher long-term returns. We track a global universe of over 15,000 stocks to maximize the investment opportunity – in a world of low returns, missing good opportunities can be just as damaging as investing in bad ones. By taking an unconstrained approach, Global Value has held a long-standing allocation to Emerging Markets – just one example of how looking beyond benchmarks can boost returns. Additionally, this approach means that an allocation to a given sector or country is not forced just because they are heavily weighted within the index.
- Separate Accounts
- Commingled Vehicle