Jonathan Miller: Welcome to the Morningstar manager Check-up, for three of our fund updates.
Schroder Recovery has seen Nick Kirrage and Kevin Murphy demonstrate a strong working relationship and a sound investment philosophy since taking on management of the fund in 2006. Their process, looks to identify companies that are trading at significant discounts to their perceived fair values and starts with a number of valuation screens. This reduces the universe to a manageable number of stocks, where more detailed research is undertaken to eliminate any false positives.
With investments driven by the best value opportunities, deviations at the sector and market-cap level can be sizable. For example, banks and mining stocks are currently some of the key overweight positions. This means it can be a rocky ride, but the resolute adherence to the strategy has seen strong long-term rewards. Our conviction remains high in the managers' ability to continue to add value so the fund holds a Morningstar Analyst Rating of Silver.
A trio of managers are at the helm of the Templeton Asian Smaller Companies fund. Chetan Segal, Vikas Chiranewal and Erman Kalkandelen are experienced in this space and proven small cap investors. They invest in stocks that appear cheap relative to their five year projected earnings growth. After screening the vast universe of 14,500 Asian small cap stocks, the large analyst bank carries out in-depth fundamental research, with corporate governance and financial leverage closely monitored.
A list of stocks is then classed as either buys, holds or sells, with the managers building the portfolio from these recommendations. We have conviction in the portfolio managers and their execution of the investment process. But impressive performance has seen assets swell so we’re monitoring capacity and the fund maintains its Morningstar Analyst Rating of Bronze.
Rathbone Income has been managed by Carl Stick since January 2000, applying the same investment approach throughout his tenure. The focus has always been on structured bottom-up fundamental research within a macroeconomic framework. Stick aims to identify quality companies with healthy dividend yields that can grow their dividends by at least the rate of inflation each year.
In order to achieve this, he focuses on four factors: valuation, dynamics, fundamental analysis, and price action. The portfolio has exhibited long-standing under-weightings to energy and materials, and over-weightings to consumer cyclicals and healthcare relative to the benchmark. Strong stock selection and the valuation discipline means long-term returns on a risk-adjusted basis are sound and the fund retains a Morningstar Analyst Rating of Bronze.
