Schroders QEP investment solutions A strategic approach to investing

Transcription

1 November 2015 For professional investors only. Not suitable for retail clients. Schroders QEP investment solutions A strategic approach to investing

2 1 The QEP Investment Team has been managing global equities for over 15 years and has a proven performance track record across a comprehensive range of strategies. We aim to offer clients market-leading performance, based on strong stock selection, forward-looking research and intelligent portfolio construction. Justin Abercrombie Head of Schroders QEP Investment Team This brochure provides an introduction to our investment philosophy, process and product range.

3 Schroders QEP investment solutions A strategic approach to investing 2 An introduction The QEP Investment Team has been a key component of Schroders specialist equity capabilities since its launch in Led by Justin Abercrombie, our 32-strong team is based in London, Sydney, New York and Hong Kong. We currently manage 26.4 billion for clients all over the world. The team has generated a strong track record across its range of global and emerging equity strategies. Fundamental insights on an industrial scale We take a strategic approach to investing in global equities, marrying fundamental analysis with the scalability and rigour of quantitative investment tools. Our philosophy Our philosophy is underpinned by three key principles: 1. A focus on stock valuations and business quality We focus on two key drivers of long-term equity returns: stock valuation and business quality (as defined by measures of company profitability, stability and financial strength). 2. Portfolio construction on an industrial scale We use quantitative tools to scale up our investment process and search for the most attractive opportunities across a global universe of more than 15,000 stocks across more than 40 countries. This allows us to gain exposure to a genuinely broad range of opportunities, including those potentially untapped by other managers. In addition the exceptional diversification of our portfolios, typically invested in more than 500 stocks, helps reduce stock-specific risk. 3. Experienced fund managers in the driving seat While computers lend breadth and scale to our process, an experienced fund manager is ultimately responsible for constructing each of our portfolios. We make every trade decision and are constantly seeking ways to enhance our process and capture future opportunities. Source: Schroders, as at 30 September 2015.

4 3 A fundamental basis Why invest in Value and Quality? Defining Value and Quality We believe that Value and Quality are the two key drivers of long-term equity returns. Our investment process focuses on identifying stocks with these attributes across our broad global universe of over 15,000 stocks. We analyse stocks using a variety of different measures. When it comes to assessing Value, we use a range of indicators to evaluate how attractively priced a stock is. These include measures of dividends, cash flow, earnings, sales and assets. In terms of Quality, we look specifically at a business s profitability, its stability and its financial strength. Identifying Value* 1. Dividends (current, forecast and growth) 2. Cash flow (gross and net) 3. Earnings (current and forecast) 4. Sales and assets Identifying Quality* 1. Profitability (return on equity, capital employed, assets) 2. Stability (of earnings, sales, dividends,cash flow) 3. Financial strength (liquidity, leverage, debt service) * Sample of metrics used to measure value and quality. Delivering returns across the market cycle There is a wealth of evidence to support the long-term case for investing in both Value and Quality as individual strategies. However, while both have outperformed the broader equity market over the long term, they tend to deliver their returns at different points in the market cycle. For example, Quality stocks tend to perform well in environments when Value stocks can struggle such as periods of heightened risk aversion or market uncertainty. However, as market conditions improve and investors embrace riskier opportunities, Value strategies are typically rewarded as higher Quality stocks lag.

5 Schroders QEP investment solutions A strategic approach to investing 4 The chart below demonstrates the diversifying relationship between Value and Quality based on US equity data stretching back to 1955, although a similar relationship can be seen in the global markets. The blue line shows the returns of Quality stocks minus the returns of Value stocks over time. It shows that Quality has outperformed when risk aversion has been high, such as during the Global Financial Crisis of , but has underperformed in periods where Value has outperformed such as in the recovery of We exploit this relationship between Value and Quality across our range of global and emerging market equity strategies in order to offer clients a range of risk and performance options, depending on their return target and risk appetite. Value outperforms Quality outperforms Credit crunch risk aversion is high Recessions Quality less Value (annual return spread) Global recovery, conditions normalised Source: Schroders, as at 30 June Uses QEP proprietary indicators which are composites of several Quality and Value measures, Diagram shows the performance of the Quality indicator minus the Value indicator, over 12-month rolling periods, in USD terms.

6 5 Portfolio construction matters Aiming for higher returns Active share explained Active share is a measure of the proportion of a portfolio s holdings that are different to the benchmark; an indexed portfolio identical to the benchmark would have a 0% active share, and a portfolio with no overlap at all with the benchmark would have an active share of 100%. Stock selection is only the starting point There are many ways to build an active portfolio and generate higher returns than a market index. For many managers, picking the best stocks is the most important aspect of this process. For us, knowing what to buy is only the beginning how to combine stocks and construct a portfolio is equally important. We believe that this understanding of portfolio construction and how to balance opportunities and risks effectively is one of our most significant competitive advantages. Our portfolio construction priorities We take a number of strategic steps within our investment process which, together, can help us to outperform the broader market through time. 1. Look beyond the index to access a broad opportunity set As global investors we want to be able to access the very best opportunities, wherever they may be. As such, we look far beyond the confines of traditional market indices (typically dominated by the largest stocks, predominantly in the developed world) to a truly global universe of over 15,000 stocks, including emerging markets. Moreover, with the exception of our Core strategy, we do not refer to index weightings in given sectors or regions when building our portfolios: we only invest where we find the best opportunities from either a value or a quality perspective. 2. Diversification and conviction the best of both worlds We build exceptionally well-diversified portfolios, typically invested in over 500 stocks. This level of diversification significantly reduces stock-specific risk the risk that the failure of a single investment could jeopardise the overall performance of the portfolio but it also exposes investors to a greater number and a richer array of return opportunities. Crucially, a high level of diversification does not mean compromising on conviction and active returns. It is possible to have the best of both worlds. Our portfolios look very different to the index with active shares typically in excess of 70% across our unconstrained range. (See Active share explained). 3. Weight stocks according to conviction, not size We believe that the decision on how much to own of a given stock is as important as selecting the stock in the first place. In particular, we believe in breaking the link between stock weightings and size (market capitalisation). Just because a stock is large does not necessarily mean it should form a bigger component of your portfolio. Instead, we focus on investing according to how much conviction we have in that stock (how attractive it is from a valuation and a quality perspective) and liquidity.

7 Schroders QEP investment solutions A strategic approach to investing 6 An innovative range Offering options to our clients We have developed a comprehensive range of solutions for institutional clients. All QEP strategies are based on our central body of research but exploit these insights in different ways in order to offer a range of different style, risk and return options for our investors. Strategy Description Relative return target* Tracking error ** Active share*** Number of stocks Strategy inception Global Core Global Blend Global Emerging Markets Global Quality Global Value Global Value Plus Designed to deliver repeatable outperformance with low index-relative risk at a competitive fee. Combines Value and Quality in an index-unconstrained global strategy. Designed to deliver higher returns across a broad range of market environments. Combines Value and Quality in an index-unconstrained emerging markets strategy. Designed to deliver higher returns across a broad range of market environments. Global index-unconstrained strategy, focused on Quality stocks. Aims to offer a more stable alternative to traditional growth approaches. Global index-unconstrained strategy, focused on Value stocks. Designed to harvest the long-term premium available to investors in Value stocks. Global index-unconstrained strategy, investing up to 150% long Value stocks and up to 50% short Lower Quality stocks. The long side aims to maximise exposure to the long-term Value premium, while shorting Lower Quality acts as both a style diversifier and return driver. +1% <1.5% >40% 500+ January % 3 4% >70% 400+ September % 3 5% >70% 300+ March % 3 4% >70% 400+ October % 4 5% >70% 500+ October % 5 7% >100% 700+ July 2008 Source: Schroders * Outperformance objectives gross of fees per annum over a complete market cycle; Global Core vs the MSCI World, Global Emerging Markets vs the MSCI Emerging Markets, remaining strategies vs the MSCI AC World or comparable index. ** Tracking error is not targeted (except for Global Core); these figures are expected ex post values over the long term. *** See Active share explained on the previous page.

8 7 Our team Established and experienced The QEP investment team has been a key component of Schroders specialist equity capabilities since its launch in Led by Justin Abercrombie, our 32-strong team is based in London, Sydney, New York and Hong Kong. We currently manage 26.4 billion for clients all over the world. The team is organised across three key functions: research, portfolio implementation and product management. Portfolio implementation oversees the day-to-day management of client portfolios. Research is responsible for analysing new investment strategies and enhancing our existing processes. Product management oversees client retention and business development. Additionally, the QEP investment team draws on Schroders significant global resources in areas such as trading, IT, risk and compliance. Source: Schroders, as at 30 September 2015.

9 Schroders QEP investment solutions A strategic approach to investing 8 QEP Global Core QEP Global Core is an actively managed strategy which aims to deliver consistent outperformance of the MSCI World, with limited index-relative risk. Why invest? Designed to offer investors the benefits of index-based investing from a risk and cost perspective, with the advantage of relative outperformance Benefits from strategic diversification between Value and Quality drivers, offering the potential for outperformance across a broad range of environments Exploits a wide opportunity set, tapping into all sectors and regions, and investing across the market cap spectrum; some flexibility to deviate from the index in a riskcontrolled way. Source: Schroders, as at 30 June Key features Relative return target* Tracking error** +1% p.a. <1.5% p.a. Active share*** 40%+ Number of stocks 500+ Stock weights Index +/- 0.5% Sector/region weights Index +/- 2.5% Beta Fund structures available Minimum for segregated account Neutral UK Unit Trust, Life, Lux SICAV Source: Schroders. Guidelines only and subject to change. * Outperformance objective is gross of fees per annum over a complete market cycle vs the MSCI World. ** This figure is an expected ex post value over the long term. *** See Active share explained on page million

10 9 QEP Global Blend QEP Global Blend follows an index-unconstrained strategy, investing in stocks on the basis of valuations and business quality. It aims to deliver above-market returns over the long run. Why invest? Benefits from strategic diversification between Value and Quality drivers, offering the potential for outperformance across a broad range of environments Exploits a wide opportunity set, tapping into all sectors and regions, including the emerging markets, and investing across the market cap spectrum Innovative approach to portfolio construction combining high conviction with broad diversification. Key features Relative return target* Tracking error** +3% p.a. 3 4% p.a. Active share*** >70% Number of stocks 400+ Fund structures available Minimum for segregated account Life, Lux SICAV 75 million Source: Schroders, as at 30 June Guidelines only and subject to change. * Outperformance objective is gross of fees per annum over a complete market cycle vs the MSCI AC World or comparable index. ** Tracking error is not targeted; this figure is an expected ex post value over the long term. *** See Active share explained on page 5.

11 Schroders QEP investment solutions A strategic approach to investing 10 QEP Global Emerging Markets QEP Global Emerging Markets follows an index-unconstrained strategy, investing in stocks one the basis of valuations and business quality. It aims to deliver above-market returns over the long run. Why invest? Benefits from strategic diversification between Value and Quality drivers, offering the potential for outperformance across a broad range of environments All cap exposure; exploits a wide opportunity set, tapping into all sectors and regions Innovative approach to portfolio construction combining high conviction with broad diversification. Key features Relative return target* Tracking error** +3% p.a. 3 5% p.a. Active share*** 70%+ Number of stocks 300+ Fund structures available Minimum for segregated account UK Unit Trust, Life, Lux SICAV 150 million Source: Schroders, as at 30 June Guidelines only and subject to change. * Outperformance objective is gross of fees per annum over a complete market cycle vs the MSCI Emerging Markets. ** Tracking error is not targeted; this figure is an expected ex post value over the long term. *** See Active share explained on page 5.

12 11 QEP Global Quality QEP Global Quality follows an index-unconstrained strategy which tends to perform particularly well at times of market uncertainty or heightened risk aversion. It aims to deliver above-market returns over the long run. Why invest? Aims to offer investors a more stable alternative to traditional growth approaches, by investing in higher quality companies Exploits a wide opportunity set, tapping into all sectors and regions, including the emerging markets Innovative approach to portfolio construction combining high conviction with broad diversification. Key features Relative return target* Tracking error** +3% p.a. 3 4% p.a. Active share*** 70%+ Number of stocks 400+ Fund structures available Minimum for segregated account Lux SICAV 75 million Source: Schroders, as at 30 June Guidelines only and subject to change. * Outperformance objective is gross of fees per annum over a complete market cycle vs the MSCI AC World or comparable index. ** Tracking error is not targeted; this figure is an expected ex post value over the long term. *** See Active share explained on page 5.

13 Schroders QEP investment solutions A strategic approach to investing 12 QEP Global Value QEP Global Value follows an index-unconstrained strategy designed to exploit the long-term premium available to investors in Value stocks. It aims to deliver above-market returns over the long run. Why invest? Designed to seek out attractively valued companies in order to harvest the long-term value premium Exploits a wide opportunity set, tapping into all sectors and regions, including the emerging markets, and investing across the market cap spectrum Innovative approach to portfolio construction combining high conviction with broad diversification. Key features Relative return target* Tracking error** +3% p.a. 4 5% p.a. Active share*** 70%+ Number of stocks 500+ Fund structures available Minimum for segregated account UK Unit Trust, Life, Lux SICAV 75 million Source: Schroders, as at 30 June Guidelines only and subject to change. * Outperformance objective is gross of fees per annum over a complete market cycle vs the MSCI AC World or comparable index. ** Tracking error is not targeted; this figure is an expected ex post value over the long term. *** See Active share explained on page 5..

14 13 QEP Global Value Plus QEP Global Value Plus follows an index-unconstrained strategy, aiming to deliver above-market returns over the long term. It has the flexibility to invest up to 150% long in Value stocks and up to 50% short in Lower Quality stocks, making your capital work harder. Why invest? Aims to generate outperformance across a broad range of market environments by exploiting the long-term premium available to investors in Value stocks, and also by shorting Lower Quality stocks, which acts as a return driver and a style diversifier Exploits a wide opportunity set, tapping into all sectors and regions, including the emerging markets, and investing across the market cap spectrum Innovative approach to portfolio construction combining high conviction with broad diversification. Key features Relative return target* Tracking error** +5% p.a. 5 7% p.a. Number of stocks Long 500+, Short 200+ Long exposure Up to 150% Short exposure Up to -50% Net exposure % Fund structures available Minimum for segregated account Source: Schroders, as at 30 June Guidelines only and subject to change. * Outperformance objective is per annum over a complete market cycle vs the MSCI AC World or comparable index. ** Tracking error is not targeted; this figure is an expected ex post value over the long term Lux SICAV 150 million

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16 T R U S T E D H E R I T A G E A D V A N C E D T H I N K I N G At Schroders, asset management is our business and our goals are completely aligned with those of our clients - the creation of long-term value. We manage billion ( billion/us$446.5 billion) on behalf of institutional and retail investors, financial institutions and high net worth clients from around the world, invested in a broad range of asset classes across equities, fixed income, multi-asset and alternatives. We employ over 3700 talented people worldwide operating from 37 offices in 27 different countries across Europe, the Americas, Asia and the Middle East, close to the markets in which we invest and close to our clients. Schroders has developed under stable ownership for over 200 years and long-term thinking governs our approach to investing, building client relationships and growing our business. Source: Schroders as at 30 September To find out more about our business and our range of funds and services, please visit: For professional investors only. Not suitable for retail clients. Risk factors. The capital is not guaranteed. Investments denominated in a currency other than that of the share-class may not be hedged. The market movements between those currencies will impact the share-class. Portfolios in this strategy will not hedge their market risk in a down cycle. The value of the portfolio will move similarly to the markets. Investments in small companies can be difficult to sell quickly which may affect the value of the portfolio and, in extreme market conditions, its ability to meet redemption requests upon demand. Emerging equity markets may be more volatile than equity markets of well established economies. Investments into foreign currencies entail exchange risks. The portfolio may be leveraged, which may increase its volatility. The portfolio enters into financial derivative transactions. If the counterparty were to default, the unrealised profit on the transaction and the market exposure may be lost. Potential investors in emerging markets should be aware that this can involve a higher degree of risk. Less developed markets are generally less well regulated than the UK, investments may be less liquid and there may be less reliable arrangements for trading and settlement of the underlying holdings. Changes in China s political, legal, economic or tax policies could cause losses or higher costs for the fund. Investments in smaller companies can be less liquid than investments in larger companies and price swings may therefore be greater than in larger company funds. A security issuer may not be able to meet its obligations to make timely payments of interest and principal. This will affect the credit rating of those securities. The Fund s operations may depend on third parties in countries where operational oversight standards are less developed. The Fund s operations may depend on third parties in countries where operational oversight standards are less developed. Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get the amount originally invested. Schroders has expressed its own views and opinions in this document and these may change. This document is issued by Schroder Investment Management Ltd., 31, Gresham Street, EC2V 7QA. Registration No England. Authorised and regulated by the Financial Conduct Authority. For your security, all telephone calls are recorded. INS04420 w48075