Schroder UK Alpha Plus
Schroder UK Alpha Plus is a great way to gain exposure to UK equities, but it isn't suited for all audiences.
The formal research process includes five main factors which cover everything from accounting and valuation numbers to the more qualitative assessment of management and company strength. This is then supported by a macroeconomic overview to assess how a company is likely to perform in given market environments. From this, the analysts ascribe a 1-4 grading for each stock covered. This helps Buxton in a number of ways; firstly he is able to quantify the performance of his analysts, but more importantly he is able to gauge the level of conviction they have behind their picks. It is then Buxton’s responsibility to short-list these best ideas into a high conviction portfolio of between 20 and 40 names (although historically it has averaged towards the higher end of this spread).
This process typically results in a portfolio that spans the value-growth spectrum and has a clear large-cap tilt. However, relative to his peers in the UK Large-Cap Blend category, Buxton has dipped down the cap ladder a bit more than the norm. That, along with the fund's compact portfolio, can amplify risk here. Indeed, the fund's standard deviation over the past one, three, and five years is notably higher than its typical Morningstar peer's. In keeping with that higher-risk profile, the fund has lost 37.5% so far in 2008 – 5% more than its average category peer's--with nearly all of the underperformance coming during September and October. Overweight positions in financial services and industrial materials really hurt with miners in particular dragging down performance. Undeterred, the manager has now invested an 8% cash balance back into the market in the belief that much of the systemic risk and deleveraging is now out of the way.
While such conviction makes for a bumpy ride here, Buxton has shown an ability to make those risks pay in the long term. Since inception, he has delivered an annualised return of almost 6% per year, outstripping the Morningstar UK Large-Cap Blend category average by over 3.5% per year. That's an extremely wide margin and comes despite the fund's recent short-term woes.
Clearly, this fund is not suitable for investors with a strong aversion to risk. However, given the skill Buxton has shown through time and the well resourced, experienced team backing him at Schroders, we believe others will find this is a strong choice.
