Schroder Recovery Fund 3,848 Value Global Recovery
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#SICM18 @Schroders_UK Schroder Value Investing – Focus on Value Schroders Investment Conference 2018, Manchester Kevin Murphy, Co-Head Global Value Team 22 May 2018 Marketing material for professional investors or advisers only. This material is not suitable for retail clients Don’t call it a comeback Despite recent volatility, market is within touching distance of peaks FTSE 100 2000–2018 8,000 7,000 6,000 5,000 4,000 3,000 2,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: Schroders, Thomson Reuters Datastream, 1 January 2000 to 9 May 2018. 1 2 Source: Everywherewelook,wesee signs of riskybehaviour % of IPOs with negative earningsnegative with % ofIPOs market at see this don’t You 100 20 40 60 80 0 Topdown 1980 1981 Charts, Jay Jay Ritter, Charts, R. December updated 27 (data March 20172018 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 troughs 1996 1997 1998 ). 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Most money is lost when conditions and outlook are good How easily the market forgets… Covenant-lite volume by rating $bn 400 350 300 250 200 150 100 50 0 2007 2011 2012 2013 2014 2015 2016 2017 BB or higher BB/B B B/CCC or lower and NR Source: Jeffries. 3 Don’t believe the hype Why you should focus on cheap prices 10 year annualised return by starting cyclically adjusted P/E (CAPE) 12% 10% 8% 6% 4% 2% 0% ? -2% -4% 0–7 7–14 14–21 21–28 28–35 35+ Past performance is not a guide to future performance and may not be repeated. Source: Global Financial Data and Thomson DataStream, as at 31 December 2017. Based on UK Equity market – since 1927. 4 In elevated markets, value investing is not easy The absolute opportunity is concentrated in a handful of sectors Number of All-Share stocks cheap on cyclically adjusted profits Consumer Discretionary Industrials Materials Energy Financials Information Technology Real Estate Telecommunication Services Utilities Consumer Staples Health Care 0 20 40 60 80 100 120 Source: Schroders, Bloomberg data at 9 May 2018. Sectors shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell. 5 Performance comes with a catch Value investing doesn’t work all the time Rolling 10 year relative performance % 70 50 30 10 -10 -30 -50 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 MSCI Global Value vs. Growth MSCI UK Value vs. Growth MSCI Europe Value vs. Growth Past performance is not a guide to future performance and may not be repeated. Source. Schroders, Morgan Stanley, Thomson Reuters DataStream, MSCI, data from 31 March 1987 to 31 December 2017. 6 Nothing worthwhile is easy Value’s rebound following underperformance has been significant Cumulative outperformance of deep value 300% 250% 200% 150% 100% 50% 0% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 No. of months Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Current cycle Source: Bernstein Quantitative Services, U.S. Top 1,000 Universe, March 1971 to January 2018. 7 Schroder Global Value Team A complete product suite to leverage the value opportunity UK Europe Global AUM (£m) Total Schroder ISF* European Schroder ISF Recovery Schroder Recovery Fund 3,848 Value Global Recovery Schroder ISF European Schroder ISF Strategy Income Schroder Income Fund 3,115 Equity Yield Global Equity Yield 13,347 Schroder Responsible Responsible 89 Value Fund Schroder Income Schroder ISF European Schroder ISF Global Solution Maximisers Maximiser Dividend Maximiser Dividend Maximiser 5,326 Source: Schroders. AUM as at 31 December 2017. *Includes AUM for UK Institutional segregated portfolios (£970m). *Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation 8 Schroder Global Value Team A well-resourced franchise Roberta Barr Andy Evans Analyst European Value Global and Europe European Yield Investment experience: 1 yr Investment experience: 16 yrs History: Mathematics degree History: Economics degree, CFA Previously a Pan European equity analyst Andrew Lyddon Nick Kirrage European Value Co-head Global Value team European Yield UK Income and UK Recovery Global Recovery Global Global Income and Global Recovery Investment experience: 12 yrs Investment experience: 16 yrs History: Chemistry degree, Intellectual Property History: Aeronautical Engineering degree, CFA. degree, CFA Value Previously a Pan European equity analyst Previously a Pan European equity analyst Team Simon Adler Juan Torres Global Income Analyst Responsible Value Co-manager Institutional Value Investment experience: 9 yrs Investment experience: 9 yrs History: MA Politics, CFA History: MBA, Finance and Foreign Affairs degree. Previously a Pan European equity analyst Previously an Emerging Markets equity analyst Kevin Murphy Co-head Global Value team UK Income and UK Recovery Global Recovery Investment experience: 17 yrs History: Economics degree, CFA Source: Schroders, 31 March 2018. Previously a Pan European equity analyst 9 Two recovery strategies. One familiar pattern of returns Only 30% commonality by weight between the funds Cumulative return relative to benchmark Re-based to 100 150 140 130 120 110 100 90 80 Oct 06 Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16 Oct 17 UK Recovery strategy Schroder ISF Global Recovery Past performance is not a guide to future performance and may not be repeated. Source: Schroders, net of fees. UK Recovery strategy A Acc in GBP relative to FTSE All-Share Index, from 31 October 2006 to 31 March 2018. Schroder ISF Global Recovery A Acc in USD relative to MSCI World Index, from 31 October 2013 to 31 March 2018. The performance is calculated for the portfolio. Individual performance may differ as a result of initial fees, the investment date, the date of reinvestment and dividend withholding tax. 10 We provide something genuinely different The screened sector has a clear bias towards quality Deep-Value Core-Value Core Core-Growth Schroder Responsible Value UK Eqy Aberdeen Responsible UK Equity Castlefield B.E.S.T. Sust Inc Instl Giant EdenTree Amity UK F&C Responsible UK Equity F&C Responsible UK Income Janus Henderson UK Responsible Inc Large Jupiter Responsible Inc Kames Ethical Equity L&G Ethical Trust Liontrust Sust Fut UK Mid Liontrust UK Ethical Premier Ethical Royal London Sustainable Leaders Royal London UK FTSE4Good Tracker Source: Morningstar Direct, data as at 31 January 2018 (latest common date) report run 8 May 2018. For illustrative purposes only and not a recommendation to buy or sell shares. 11 Schroder Responsible Value UK Equity Fund A benchmark unconstrained product Fund sector exposure Portfolio Index sector exposure Top 20 holdings weight % Pearson 6.0 BP 5.9 Anglo American 5.3 HSBC 5.2 Royal Bank of Scotland 4.9 Royal Dutch Shell 4.8 Aviva 4.7 GlaxoSmithKline 4.7 Centrica 4.5 Barclays 4.4 Basic materials, 7.8% Tesco 4.4 Basic materials, 7.7% Consumer goods, 0.0% Consumer goods, 14.8% Standard Chartered 4.3 Consumer services, 20.7% Consumer services, 11.3% Wm Morrison Supermarkets 4.0 Financials, 31.9% Financials, 27.1% AstraZeneca 3.9 Healthcare¹, 10.6% Healthcare, 8.6% Lloyds Banking Group 3.5 Industrials, 0.0% Industrials, 10.8% Marks and Spencer Group 2.7 Oil and gas¹, 12.7% Oil and gas, 12.8% Technology¹, 2.2% BHP Billiton 2.5 Technology, 0.9% Telecoms¹, 4.4% Orange Belgium 2.2 Telecoms, 3.3% Utilities, 6.4% Vodafone Group 2.2 Utilities, 2.7% Cash, 3.3% Eni 2.1 Source: Schroders, FactSet, as at 31 March 2018. Index is FTSE All-Share Index. 1Includes overseas holdings (total overseas holdings 7.3%). Based on unaudited data. The sectors and securities shown above are for illustrative purposes only and should not be viewed as a recommendation to buy or sell. 12 The Value Perspective An extensive online resource for value investors @Thevalueteam thevalueperspective.com 13 Schroder Income Fund Schroder Recovery Fund Schroder Income Fund Performance as at 30 April 2018 Performance versus index in GBP % 1 year 3 years p.a. 5 years p.a. 10 years p.a. 10 years Schroder Income Fund Z Acc 15.3 8.6 10.7 10.5 170.2 FTSE All-Share Index (TR) 8.2 7.0 7.8 6.7 90.9 Relative return +7.1 +1.6 +2.9 +3.8 +79.3 Rank1 1/85 8/80 9/78 4/55 4/55 Quartile1 1 1 1 1 1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Schroder Income Fund Z Acc 16.7 1.1 -23.3 35.9 8.2 -8.1 26.2 33.5 4.9 -6.6 25.3 9.3 FTSE All-Share Index (TR) 16.8 5.3 -29.9 30.1 14.5 -3.5 12.3 20.8 1.2 1.0 16.8 13.1 Relative return -0.1 -4.2 +6.6 +5.8 -6.3 -4.6 +13.9 +12.7 +3.7 -7.6 +8.5 -3.8 Past performance is not a guide to future performance and may not be repeated. Source: Morningstar, bid to bid, net income reinvested, net of fees, as at 30 April 2018, based on Z Acc Units, GBP (A Acc prior to 1 June 2011). 1Rank and quartile based on Schroder Income Z Acc units within the IA UK Equity Income Sector.