SCHRODER GLOBAL RECOVERY FUND: The team scours the world for cheap stocks… full of value
The team behind the Schroder Global Recovery fund follows a simple-sounding investment philosophy: they buy stocks when they’re cheap and (hopefully) sell them for a profit when they hit “fair value.”
However, in practice it is not that simple. It’s an investment approach that requires a lot of forensic financial analysis and digging through corporate accounts — and 90 percent of the companies the team scrutinizes fail the test.
It doesn’t always work either, as purchased stocks can sometimes remain stubbornly cheap.
But the fund’s performance numbers indicate that buying cheap stocks can yield good investment returns, especially when stock markets are driven more by value than growth companies – as has been the case since interest rates started rising in late 2021.
Over the past three years, the £550 million fund has delivered a total return of 87 per cent. This compares to an average for its global peer group of 49 percent. The fund has achieved a respectable positive return of 8 percent in the past year.
Simon Adler is one of three individuals at the helm of the fund, along with eight other members of Schroder’s global value team. He says the investment process is relentlessly emotionless.
“We scour global stock markets and analyze the cheapest 20 percent of stocks,” he says. “There’s no excitement or major drama involved, just hard grafting to identify the best stocks.”
He adds, “If they reach a price that we think represents fair value, we will invariably sell and move to another stock. It all happens without emotion.’
Currently, the fund is invested in 55 stocks, with more than 30 percent of assets held in companies listed in the United States. Adler says the fund’s concentration on looking for value works best when markets are turbulent.
“Investment profit comes from times of danger, while danger comes from times of plenty,” he says. “In 2019 and 2020, everyone said investing in technology was risk-free. But the opposite was true and our focus on good-value stocks proved right, as evidenced by our strong three-year returns. Now the market trauma caused by the banking crisis has given us new opportunities to buy some quality companies at exciting prices.”
Flooring specialist Mohawk Industries is a good example of the kind of company Schroder Global Recovery buys.
Mohawk is the largest flooring manufacturer in the United States, and the fund bought its shares last summer after they fell from just under $230 (May 2021) to nearly $110.
Although shares are now trading below $100, Adler is confident the shares will come in time. “Mohawk has a strong balance sheet,” he says. While consumers may be less inclined to buy new floor tiles in the coming year when times get tough, the company will survive and continue to gain market share. When the good times roll again, it will thrive and the share price should reflect this.”
The fund’s portfolio includes positions in Standard Chartered, UniCredit (Italy) and HSBC banks. Adler believes the current banking crisis will be more “selective” than in 2008 and that the three banks the fund owns are all “on their feet.” Major British interests include BT and Rolls-Royce.
Schroder Global Recovery has an annual expense of 0.94 percent and pays an annual dividend of 2.6 percent. The exchange identification number is BYRJXM0.