Schroder Recovery Fund Interim Report and Accounts January 2021
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Schroder Recovery Fund Interim Report and Accounts January 2021 Contents 1 Fund Information{ } 3 1 Fund Performance{ } 3 1 Review of Investment Activities{ } 4 1 Risk Profile{ } 5 Statement of the Manager’s Responsibilities 6 1 Portfolio Statement{ } 7 Financial Statements (unaudited) 8 Notes to the Accounts (unaudited) 9 1 General Information{ } 10 1 Collectively these comprise the Manager's report. Schroder Recovery Fund Interim Report and Accounts 2 15 January 2021 Fund Information Investment objective and policy The Schroder Recovery Fund (the ‘Fund’) aims to provide capital growth by investing in equity and equity related securities of UK companies that have suffered a severe setback in either share price or profitability. The Fund is actively managed and invests at least 80% of its assets in equity and equity related securities of UK companies. These are companies that are incorporated, headquartered or have their principal business activities in the UK. The Fund applies a disciplined value investment approach, seeking to invest in a select portfolio of companies that the Investment Manager believes are significantly undervalued relative to their long-term earnings potential. The Fund may also invest directly or indirectly in other securities (including in other asset classes), countries, regions, industries or currencies, collective investment schemes (including Schroder funds), warrants and money market instruments, and hold cash. The Fund may use derivatives with the aim of achieving investment gains, reducing risk or managing the Fund more efficiently (for more information please refer to section 6 of Appendix I of the Prospectus). Fund characteristics The Fund does not have a target benchmark. The Fund’s performance should be compared against the FTSE All Share (Gross Total Return) index and the Investment Association UK All Companies sector average return. The comparator benchmarks have been selected because the Investment Manager and the Manager believe that each of these benchmarks is a suitable comparison for performance purposes given the Fund’s investment objective and policy. Significant Event With effect from 1 December 2020, the Manager wishes to pass on some of the benefits of potential savings generated by significant growth in assets under management, by discounting the Annual Management Charge payable by investors in retail classes in the funds. The applicable discount is determined by the size of each fund and is capped at 0.05%. For more information on the discount please refer to the Prospectus. Total purchases and sales For the period For the year to 15.1.21 to 15.7.20 £000's £000's Total purchases 170,169 180,477 Total sales 267,184 268,298 Fund Performance{1} Number of Net asset Net asset units in issue value per unit value per unit 15.1.21 15.1.21 15.7.20 A Accumulation units 141,905 20,537.60p 16,109.73p A Income units 16,432 11,077.84p 8,690.67p L Accumulation units 383,053,257 68.54p 53.54p L Income units 228,016,735 57.25p 44.73p S Income units 5,276,166 51.64p 40.28p Z Accumulation units 355,044,518 108.31p 84.64p Z Income units 77,635,036 86.52p 67.62p Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Schroder Recovery Fund Interim Report and Accounts 3 15 January 2021 Review of Investment Activities From 15 July 2020 to 15 January 2021, the price of Z Accumulation units on Co-Fund Manager: 1 a dealing price basis rose 27.28%. In comparison, the FTSE All Share Index Kevin Murphy generated a total return of 10.96%2. The marked investment style rotation in latter part of the year was reflected in the share price performance of the stocks held, with the fund significantly outperforming both the broader market and the value indices. Bookmaker William Hill and Royal Mail were the leading contributors. Retailer Marks & Spencer, bank NatWest and power generator Drax also performed strongly. While there was some good news for our best performing stocks, the share price moves were far more dramatic than any news might suggest; in some cases they were up by more than 100% over the period. The lesson that we draw from this is when you have bought a business on Specialist Value UK equities fund manager with twenty years a cheap valuation, a little good news can go a long way. investment experience We took advantage of cheap valuations to initiate a number of new positions. These Previously a sector analyst for Pan European Construction included Airtel Africa, an operator of affordable and innovative mobile services in Africa, and Building Materials energy services group Hunting, property operator Land Securities and engineering group Senior. Investment career commenced at Schroders in 2000 It is reassuring to see the Fund perform exactly as they are designed to do and as promised Chartered Financial Analyst to our clients. The lesson to take from the last six months for true value-oriented portfolio Degree in Economics, Manchester University managers such as ourselves is the importance of sticking steadfastly to a value strategy. Our clients were exposed to the full benefit of the market rotation because, no matter what is happening in markets, we will always pursue a value strategy. On cyclically-adjusted Co-Fund Manager: valuation measures the UK is still among the cheapest developed markets in the world. Despite strong returns, valuations remain attractive. Today, the portfolio is comprised Nick Kirrage of companies that have both significant room to re-rate and also a high probability of considerable profit recoveries. Co-manager of UK Income, UK Recovery, Global Recovery and Global Income strategies Founding member of the Global Value Team in 2013 Investment career commenced in 2001 within Schroders’ Pan European research team Previously analyst responsible for a number of sectors including Transport, Metals & Mining and Aerospace and Defence sectors CFA Charterholder Degree in Aeronautical Engineering, Bristol University 1 FTSE International Limited (“FTSE”) © FTSE. “FTSE®” is a trade mark of London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. 2 Source: Thomson Reuters Datastream. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Schroder Recovery Fund Interim Report and Accounts 4 15 January 2021 Risk Profile Risk and reward indicator Lower risk Higher risk Potentially lower reward Potentially higher reward < > 1 2 3 4 5 6 7 The risk category was calculated using historical performance data and may not be a reliable indicator of the Fund’s future risk profile. The Fund’s risk category is not guaranteed to remain fixed and may change over time. A Fund in the lowest category does not mean a risk-free investment. For specific risks, including the risk and reward profile, please refer to the Key Investor Information Document available on the following website www.schroders.com. Schroder Recovery Fund Interim Report and Accounts 5 15 January 2021 Statement of the Manager’s Responsibilities The Financial Conduct Authority’s Collective Investment Schemes sourcebook requires the Manager to prepare accounts for each annual and half yearly accounting period, in accordance with United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the financial position of the Fund and of its net revenue and the net capital gains on the property of the Fund for the period. In preparing the accounts the Manager is required to: ¯ select suitable accounting policies and then apply them consistently; ¯ comply with the disclosure requirements of the Statement of Recommended Practice for UK Authorised Funds issued by the Investment Management Association (now the Investment Association) in May 2014; ¯ follow generally accepted accounting principles and applicable accounting standards; ¯ prepare the accounts on the basis that the Fund will continue in operation unless it is inappropriate to do so; ¯ keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; ¯ make judgements and estimates that are prudent and reasonable. The Manager is responsible for the management of the Fund in accordance with its Trust Deed, the Prospectus and the Collective Investment Schemes sourcebook, and for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law or regulations. The Manager's report and accounts for the period ended 15 January 2021 were signed on 10 March 2021 on behalf of the Manager by: P. Chislett P. Truscott Directors Schroder Recovery Fund Interim Report and Accounts 6 15 January 2021 Portfolio Statement Holding at Market Value % of net Holding at Market Value % of net 15.1.21 £000's assets 15.1.21 £000’s