Emma Wall: Hello, and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and I'm here today with Morningstar Analyst, Pete Brunt, to talk about a new fund that Morningstar analysts are rating.
Hi, Pete.
Peter Brunt: Hi, Emma.
Wall: So, what is the new fund that analysts are rating?
Brunt: So, we've relatively recently added Schroder Global Recovery to our coverage, actually, two versions, an onshore and an offshore version of that global strategy.
Wall: And what is it about this strategy that Morningstar analysts like?
Brunt: So, the fund is managed by a team that we know well from a UK-focused strategy, the Schroder Recovery Fund. They have been running it since 2006, two managers, Nick Kirrage and Kevin Murphy. They have a very strong track record on that mandate. And actually, within the UK category, they do have an allowance to invest overseas and for some time they have been using that allowance – are allowed to go up to 20% in non-UK equities – and they have been using that allowance. So, they do have some experience in looking further afield.
And they took the decision in 2013 to launch a global fund and that's really using the same process that they have been applying on the UK strategy. They have broadened their resources somewhat, so they have a bit more analytic capability backing them in terms of analysing the companies. And we've really taken the view that because it's so process-driven they don't actually need to have the biggest team in the world to do what they are doing.
Wall: And they are a value-oriented strategy, aren't they?
Brunt: They are. So, they are quite unique in that they are one of the few really genuine, pure, value-driven investment managers that we cover. Their approach is looking at companies that are trading significantly below their cyclically-adjusted earnings. So, it's typically looking at a 10-year period. And what sets them apart or maybe perhaps what we feel makes them better than the rest is that their implementation of that process. Now, they are really able to identify companies that are not going to be value traps. One of the risks in value investing is that you are investing in companies where the price is correct, that the company is not that great. And what we feel they have got an edge is their ability to filter out these false positives and really pick the companies that will have a strong recovery.
Wall: There are some examples of fund managers moving from one region or sector to another that haven't been a success. This has been a success and there's another example of a UK manager moving into the global space that has been a success and that Morningstar analysts have recently rated?
Brunt: That's right. So, we've also added Lindsell Train Global Equity to our coverage. This is, again, a team that we know well. It's the combination of Nick Train, who we know from his UK equity fund; and Michael Lindsell who also runs the Japan equity fund. And they combine forces really here for their global equity fund. Unsurprisingly, there's a bias to both of those regions within that portfolio. And again, our confidence is really underpinned by the strength of the process. They have a very prescriptive way of analysing companies and it really whittles down the investment universe to quite a manageable number. So, they don't have a big team either. They have a small team of analysts backing them up. They also have another third fund manager on the global strategy, too.
And there are similarities between those two portfolios in that they are both quite concentrated. They are both unconstrained. So, they are going to look very different from the benchmark on a geographical and on a sector level. But they are actually sort of diametrically opposed in terms of investment style where the Schroder fund would be really investing in sort of deep value names. With the Lindsell Train Global Equity, it's at the other end of the spectrum.
They are targeting really high-quality companies that typically trade at higher multiples in the market. And they operate a buy and hold strategy. So, look to find companies that are very easily defendable business models, very strong franchises, little need for debt and they look to hold them forever ultimately. So, they are very different in terms of their approach. But in terms of the fact that they both come from the U.K. – well, in Lindsell Train's case from Japan as well – they are similar.
Wall: Pete, thank you very much.
Brunt: You're welcome.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
