Manager Research

Our UK team recently reviewed the Schroders Global Recovery fund and has concluded on a Tier 2 rating.  This fund was initiated at Tier 2 in 2016, which was followed up with an upgrade to Tier 1 in 2017. 

We remain positive on the fund from a qualitative perspective. Shareholders are supportive of the "Recovery" business within Schroders, despite the trying investment environment for value investors over the last decade. The fund is managed by an experienced team of portfolio managers, who have been working together within the same team at Schroders for a long period of time. The team have a demonstrable track record in running the UK Recovery fund, which is managed to the same process and philosophy as Global Recovery. They have demonstrated a commitment to their investment process and philosophy during periods of significant underperformance, as seen during the 2015 period (followed by strong outperformance in 2016) and also during the recent COVID crisis. Their process is simple and repeatable. The fund continues to be managed in line with what we would expect given their process, which is to benefit from a recovery in economically sensitive and out of favour stocks whose prospects are underappreciated by the market.

The reason for the downgrade is to better align the rating on the fund with the evidence demonstrated in their track record. The Global fund only has a 7-year performance history (the UK version has been running since 1960), which is too short to really evaluate skill in a deep value global equity strategy. We originally gained comfort around the team’s stock selection skills in the past by evaluating their performance in the UK Recovery fund. However, the UK market is essentially a "value^[1]" market, which makes it easier for a value manager to outperform there. It is therefore not a good proxy for measuring stock selection skill against a global benchmark, like the tech heavy MSCI World, that Global Recovery aims to beat.

We are comfortable to give the team the benefit of the doubt with regards to global stock selection skill, given the strong qualitative support and their experience on the UK Recovery fund. However, this is more consistent with our Tier 2 rating classification. In hindsight, we gave too much benefit to the team’s UK track record and upgraded the fund prematurely. We see the new rating as a better reflection of the evidence presented to us, rather than a change to any qualitative aspects of the offering.