Schroder Mid Cap: Silver
Confirmation of a comanager paved the way for change on Schroder Mid Cap at the beginning of the year. A seasoned investor, Jenny Jones has been in charge of this strategy since December 2004, says Lena Tsymbaluk. Jones brings over three decades of experience investing in US small caps and mid-caps and has built a stable team of six sector analysts over years.
In January 2018, Robert Kaynor was appointed comanager alongside Jones as part of their long-term succession planning. Kaynor has over 20 years of investment experience and has been part of the team for five years as director of research responsible for making the team interaction more efficient. He was hired in 2013 as the eventual successor to Jones. and promoting him to co-portfolio manager is another step in this process.
Prior to Schroders, Kaynor managed long-short strategies at Ballast, Ramius, and Barbary Coast hedge funds. Jones remains head of the team and is still actively involved in the strategy, although Jones and Kaynor now have equal responsibility in all purchase and sale decisions in the portfolios.
Both Jones and Kaynor continue to be “gatekeepers” for the team, vetting ideas in the initial stage of the research process. Jones supervises three analysts out of six, while Kaynor supervises two analysts, and Peter Wen’s healthcare coverage is split between the two.
The approach remains unchanged, blending a unique combination of stock types: mispriced growth, steady-Eddies, and turnarounds. Given the fund structural defensiveness – such as a tendency to hold cash, the portfolio typically lags in strongly rising markets, while provides resilience in falling markets.
The fund’s long-term track record remains strong. Since Jones took over in April 2005 through to 30 April 2018, the strategy is ahead of the Russell 2500 Index and peers. Overall, while there is some uncertainty in terms of how much influence Kaynor is going to have on portfolios as comanager, it is unlikely there will be a wholesale change.
We also draw comfort from Jones still being actively involved with the strategy. The fund therefore maintains its Morningstar Analyst Rating of Silver.
Parvest Equity USA Mid Cap: Neutral
Parvest Equity USA Mid Cap is downgraded to a Morningstar Analyst Rating of Neutral from Bronze owing to lower conviction in the team’s process and ability to source new ideas, says Fatima Khizou. The management of this Luxembourg-domiciled fund is outsourced to AMG Managers Fairpointe.
Lead manager Thyra Zerhusen has more than 30 years of investment experience and has been at the helm of this strategy since 1999, consistently applying a bottom-up, contrarian approach. The team's objective is to identify sound businesses with good management, conservative balance sheets, and attractive valuations. While the approach has been out of favour, the fund has performed worse than expected.
The managers can source any name from their investable universe, composed of names with market caps between $2 billion and $29 billion, yet they have been reluctant to invest outside of the same group of approximately 200 names they know very well. Further, while their sell discipline is driven by either value appreciation or a change in thesis, they have held on to names to the fund's detriment, suggesting the team has trouble cutting its losses.
Given the fund’s contrarian approach, it will have an above-average risk profile, as measured by standard deviation, relative to its mid-cap Morningstar Category peers. This increased risk hasn’t rewarded investors in the shorter term.
Over an intermediate time frame, the strategy trails by a wider margin owing to the fund’s more severe drawdowns relative to its index and typical peers, without enough upside to justify the gap.
However, there are positives, including a stable and experienced team. Alongside Zerhusen, Marie Lorden and Mary Pierson became comanagers in March 2009. Brian Washkowiak was added to the bench in February 2016. Prior to founding Fairpointe in 2011, Zerhusen worked with her comanagers in previous roles. Still, the fund faces challenges. In addition to questions surrounding its sell discipline and ability to source new ideas, the fund does not boast a cost advantage.
Investors are likely better served elsewhere as the team’s core holdings have not added enough value in recent years, suggesting its approach may be losing steam.
