Schroder Global Recovery: focused on value

In the last few weeks there has been a significant change in investor expectations, with the markets pricing in fewer interest rate cuts on both sides of the Atlantic over the course of next year. The main catalysts have been the re-election of President Trump and the Labour government’s first Budget, with both sets of policies being seen as inflationary.  

If the central banks react by keeping interest rates higher for longer, it would normally suit a more value-oriented approach such as that used by Schroder Global Recovery, which is a member of Fidelity’s Select 50 list of handpicked funds. In this sort of environment, current earnings tend to be worth more than the discounted present value of future earnings, thereby giving value stocks the upper hand over growth.  

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Objective and approach

Schroder Global Recovery aims to provide capital growth in excess of its MSCI World benchmark over a three to five year period. It does this by investing in UK and overseas stocks that are considered to be undervalued relative to their long-term earnings potential. 

The managers are ‘dyed in the wool’ value investors and will often buy companies with depressed share prices. They have been using this strategy since before the 2008 Global Financial Crisis and do not deviate even when it is out of favour with the markets.  

What are the managers’ latest views?  

In their third quarter update, they said that they base their investment decisions on long-term historical data and robust processes to determine instances where the upside potential exceeds the downside risk. 

“Assuming a stock is sufficiently cheap, we then spend a lot of time studying accounts to give us a clear picture of how a company performs across the business cycle. To what extent is a profit recovery within the company’s own control or dependent on external conditions, and what are the major risks associated with it?”¹ 

They also made the point that more than a century’s data shows that value investing outperforms on average and over time.   

“History suggests that the resulting outperformance of the portfolio from today’s level – it is currently trading on a PE of 12.6x earnings and a price to book ratio of one − should be significant on a 10-year view, but performance is always lumpy, and it is not possible to predict when sentiment will wax or wane for our investments.”² 

The underlying portfolio  

It is a concentrated portfolio with just 58 different holdings at the end of October, although it is well-diversified in the sense that no single stock will unduly dominate the returns. The largest positions are all in the 2% to 3% range and include the likes of Bristol-Myers Squibb, BT, Swatch Group, Standard Chartered and Molson Coors Beverage.  

Schroder Global Recovery top 10 holdings 

1. Bristol-Myers Squibb 
2. BT 
3. Swatch 
4. Standard Chartered 
5. Molson Coors Beverage 
6. Dentsu Group 
7. Verizon Communications 
8. Pfizer 
9. Continental 
10. Kraft Heinz 

Source: Schroder Global Recovery Fund factsheet, 31 October 2024 

Schroder Global Recovery looks very different to a typical growth fund as it is materially underweight the US with an allocation of just 34.2% compared to the 77.3% weighting in the MSCI World benchmark. Its other major exposures, which are all much bigger than the index, are: Europe ex-UK/Middle East 21.1%, UK 16%, Japan 14.6% and the Emerging Markets 11.9%.³  

Performance  

In the five years to the end of October the Z accumulation share class returned 50.3%, which was similar to the MSCI World Value index and its global peer group, but well behind the MSCI World benchmark’s gain of 77.6%. This was probably because of the lack of exposure to the AI-related stocks that have dominated market returns for much of the period. Please remember past performance is not a reliable indicator of future returns.⁴ 

If you are thinking of investing, it is important to be aware that the annual returns have been extremely volatile as value and growth have moved into and out of favour. For example, in the year to the end of October 2021, after the development of the first Covid vaccine, the fund returned 53.6%, although in the preceding 12 months when rates were slashed during lockdown it lost 22.6%.⁵  

How do the costs stack up?  

The ongoing charges ratio is 0.94%, which is about what you would expect from an actively managed global equity mandate.⁶  

Who is it suitable for?  

Schroder Global Recovery tends to come into its own over periods of ten years or more, so investors need to have a long-time horizon. One option could be to use it as a diversifier alongside a growth fund such as Rathbone Global Opportunities, which is another member of the Select 50.  

More on Schroder Global Recovery Fund 

Past performance is not a reliable indicator of future returns 

Source: Schroder Global Recovery Fund factsheet from 31.10.19 to 31.10.24. Basis: bid to bid with income reinvested in GBP. Excludes initial charge. 

Source: 

^1,2    Schroders, Q3 2024 

^3,4,5,6    Schroder Global Recovery Fund factsheet, 31 October 2024