Historical Stock Chart
2 Years : From May 2011 to May 2013
The Schroder International Multi-Cap Value fund (SIDNX) will go anywhere in the world for a good value.
The fund, rated four stars out of five by Morningstar, has more than 800 stocks in its portfolio, with investments drawn from all sectors of the economy and all corners of the globe, except the U.S. It holds shares in massive companies with market capitalizations of more than $20 billion and tiny ones worth less than $250 million. And the managers who run the fund are out shopping for more investments from a universe of more than 12,000 public companies.
The fund, which has about $20 million in assets under management, "exploits a universe of enormous breadth," said Schroder senior client portfolio manager Stephen Kwa. "When we put the portfolio together, we are not constraining it or making reference to any benchmark or index."
The fund's two main criteria as it looks for potential investments are value and quality, and potential investments are evaluated using screens that examine both. Those factors are the reason the fund has been underweight on its bank holdings for the past several years, but is currently overweight on both insurance companies and asset managers.
Property-casualty companies, life and health insurers and asset managers constitute 9.6% of the portfolio. Banks, meanwhile, make up 7.4%.
"Ever since 2007, our team has been very wary of banks," Kwa said. "We saw the subprime crisis unfolding and initiated new risk management screens... That's kept us out of the lowest quality banks."
Insurer holdings include Swiss company Zurich Insurance Group AG (ZURN.VX); Canada's Manulife Financial Corp. (MFC.T); Australia's AMP Ltd. (AMP.AU); and the U.K.'s Prudential PLC (PRU.LN) and Standard Life PLC (SL.LN).
All of them fall into the cheapest 20% in terms of Schroder's analysis of their valuation, a metric that includes an analysis of book values, dividend yields and cash-flows. And each is within the top 20% in terms of quality, Kwa said.
By and large, insurers "haven't experienced the same issues as banks on their balance sheet," he said. "They tend to score more highly on quality than banks."
While underweight on banks, the ones that look attractive in Schroder's analysis include HSBC Holdings PLC (HSBA.LN) and Royal Bank of Canada (RY.T).
Another important aspect of the fund: holdings aren't weighted according to their market capitalization, meaning the largest companies are under-represented relative to global indexes that might be used as a benchmark for the fund's performance.
Companies classified as mega-cap and large-cap stocks made up less than half the fund at year-end, compared with 91% of the MSCI EAFE Index, according to data supplied by Schroder. The MSCI EAFE Index tracks equity-market performance outside of North America.
So far, the five-year-old fund has generally outperformed that index. Year-to-date, the fund is up 3.3%, better than the 2.1% gain in the index, according to investment site Morningstar.com. The fund's three-year return is 12.9%, 5 percentage points above the index. Over five years, the fund is down 2.8%, but that is better than the 6% decline in the index.
"History has shown us the market leaders have underperformed the smaller companies," Kwa said.
(Erik Holm covers the insurance industry for Dow Jones Newswires. He can be reached at 212-416-2892 or by email at email@example.com.)
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