Schroder UK Equity
Schroder UK Equity gets the best out of Schroders’ strong research team.
This focus on risk sits at the heart of the manager’s process, which places a heavy emphasis on a stock’s risk-reward profile and how it will fit with the existing portfolio. In order to determine this, Brazier is heavily reliant on Schroder’s well-resourced analyst team with whom he has a close working relationship. As such he will consider all the highest conviction ideas passed to him, which gives the analysts a sense of portfolio ownership when he buys their recommendations. The trust Brazier places in his analyst team also allows him to dedicate more time to meeting management; in an average week he is likely to meet with over ten companies. Alongside the analysts’ research Brazier will also perform his own analysis on likely holdings. He considers a number of fundamental drivers of performance from cash flow, balance sheets and valuation to management and the potential for organic growth.
This approach leads to a portfolio which is relatively benchmark unaware, but Brazier supplements his bottom-up approach to stock picking with top-down influences. For example, his outlook for the consumer has been bleak for some time given his views on interest and inflation rates. As a result he holds only a small number of consumer cyclicals which he feels have the strongest balance sheets, the best franchises and the most experienced managements who have lived through previous recessionary environments. From April 2006 when Brazier took charge until the start of September 2008 this downbeat view had proved a positive for the fund and it returned 7.3% more than its Morningstar UK Large-Cap Blend category peers. However, the dramatic sell off towards the end of the year, driven by severely negative sentiment and deleveraging of an unprecedented scale, has hurt the fund. Between September 1 and the end of the year the fund lost 28.8%, a painful 7.6% percentage points more than the category average. This means it has now underperformed its Morningstar category peers by 57 basis points during Brazier’s tenure.
Although the recent underperformance is painful, we do not think it diminishes this fund’s attractiveness. The process is a well-executed one which takes advantage of Schroders’ deep and experienced UK Equity team. Brazier is also well aware of the risks inherent in his portfolio, but manages to find a balance that still allows him to take meaningful bets in his quest to add consistent future value for investors.
