Schroders PLC · LSE:SDR
Schroders — Non-Deal Roadshow (June 2010)
34 slides from Schroders's roadshow presentation, Jun 18, 2010
Slide 1: Schroder Road Show Quantitative Equity Products
Schroder Road Show Quantitative Equity Products 16 – 18 June 2010
Slide 2: QEP Global Equity Investment Team
QEP Global Equity Investment Team – Set up by Justin Abercrombie in 1996 – Entrepreneurial team based in London & Sydney – Assets of $13.8bn, over 100 new clients in last 3 years – Innovative philosophy and range of global unconstrained strategies Source: Schroders, as at 31st May 2010. 1
Slide 3: QEP Global Equities: Global Unconstrained Strategies
QEP Global Equities Global Unconstrained Strategies Index Unconstrained Global – High conviction “bottom-up” region and sector allocation Global Value (2004 & 2007) Quality – Non market cap stock weights Including Shorting – 150% long Value, 50% short Low Quality Global Value Extension (2008) – Shor
Slide 4: QEP Investment Philosophy
QEP Investment Philosophy The best of man and machine 1. Start with the fundamentals Valuations & Quality - similar to traditional investors but on an industrial scale, +500 stocks 2. The ‘quant’ advantage - Portfolio construction that maximises the opportunity across a global universe of 15,000 sto
Slide 5: Valuation & Quality
Valuation & Quality Genuine diversification Quality/Value: A Diversified Approach Quality/Value: Low Long Run Correlation 20% 0.5 Correlation (North 0.4 American Universe) 10% 0.3 0% 0.2 0.1 -10% 0.0 -20% -0.1 -30% -0.2 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 1955 - 1988 1989 - 2007
Slide 6: Innovate don't extrapolate
Innovate don’t extrapolate The danger of over fitting the past MSCI Barra’s Momentum Factor Cumulative Performance* Source: Schroders, MSCI Barra (Reference: Consumer Sentiment and the Momentum Factor Nov 2009). *Momentum Cumulative Factor Returns, Index=1 in 12/96 5
Slide 7: Schroder ISF QEP Global Quality
Schroder ISF QEP Global Quality A systematic approach to ‘growth’ investing 12 month and Since Inception Total Return - USD – Strong outperformance of Performance* to 31 May 2010 1 year Since Inception Since Inception MSCI World Index since (%) Total (%) p.a. (%) inception (Oct 07) Institutional Sha
Slide 8: What is Quality?
Schroder ISF QEP Global Quality What is Quality? Distinction between Value and Quality 1. Profitability – Returns, Cash Returns & Margins. Cyclically adjusted, industry relative and rate of change QUALITY QUALITY 2. Stability – Stability of Cash Flow, Earnings, Sales and VALUE Quality Dividend Growt
Slide 9: Forward Looking Research
Forward Looking Research Financials Case Study: Understand the present and learn from the past Financials Quality, researched & introduced in Q4 2007 – Topical research agenda such as Cumulative Returns – Banks Quality Rank (%) troubled banks in 2007… 1.4 1.3 – …led to new factors in funding 1.2 and
Slide 10: Quality: Strong performance when risk aversion is rising
Schroder ISF QEP Global Quality Strong performance when risk aversion is rising Monthly win rate higher in times of market stress 100% – Win rates typically 2/3rd in distressed markets 81% 75% 68% 70% 66% – Hit rates in non-distressed 60% 54% 54% 55% 54% markets closer to 50% 48% 50% 25% 0% OECD OEC
Slide 11: What strategies performed in the 2009 rally?
What strategies performed in the 2009 rally? Value and Beta drivers - not simply a ‘dash for trash’ 8% Value / High Beta (and low Quality) 6% 4% Low Beta / Expensive 2% (and High Quality) 0% High Quality -2% (if Value or high Beta) -4% -6% Value & High High Beta & Value & Low High Quality Value & Hi
Slide 12: Why do Quality stocks produce higher returns?
Schroder ISF QEP Global Quality Why do Quality stocks produce higher returns? Events that occur during the following year after formation – Quality stocks experience Proportion of Stocks (%) favourable corporate events such 100% as paying and raising dividends… 84% High Quality Growth Strategy Unive
Slide 13: Quality: A systematic form of growth investing
Schroder ISF QEP Global Quality A systematic form of growth investing 1. Quality is a distinct approach with Tracking error 3.9% Not targeted a robust fundamental framework Active Share 74.2% Low overlap with index 2. Alternative to Value investing, performs well when risk aversion is Number of stoc
Slide 14: Schroder ISF QEP Global Active Value
Schroder ISF QEP Global Active Value Diversified and high conviction 12 month and Since Inception Total Return - USD – Since inception Performance* to 31 May 2010 1 year Since Inception Since Inception outperformance of MSCI (%) Total (%) p.a. (%) Index Institutional Share Class (I Acc) +18.2 +29.4
Slide 15: Active Value: Key Features
Schroder ISF QEP Global Active Value Key Features – Huge investment opportunity set. We assess Global Value 15,000 opportunities daily Return Target 3-4%* p.a. – “Bottom-up” value investing creates a very Tracking Error Typically 5%+ distinct portfolio Number of stocks 500+ – High return potential b
Slide 16: Active Value: Steps to higher long run returns
Schroder ISF QEP Global Active Value What steps that we take to achieve higher long run returns? Three steps to higher return Cumulative return 1. Diversified Value 2500 Value outperforms in the long term MSCI World 1. Diversified Value 2000 2. Non-Cap Weighting 2. Non-cap Weighting 3. Globally Unco
Slide 17: Active Value: Investment process summary
Schroder ISF QEP Global Active Value Investment process summary Stage 1 Value Rank – Universe of 15,000 stocks maximises the opportunity Investment universe top 1/3rd – Stocks sold when fall out of top 1/3rd Stage 2 Stock Selection – Better quality companies have higher stock weights – Sell / avoid
Slide 18: Active Value: Stock Selection
Schroder ISF QEP Global Active Value Stock Selection Top 1/3rd Of Value Not low Low Profitability – Higher stock weights in quality companies e.g. Robert Wiseman Dairies High Price Not High Low Stability Persistence – Spread risk in medium quality companies e.g. Greggs High Price Low Stability Persi
Slide 19: Active Value: Portfolio Construction
Schroder ISF QEP Global Active Value Portfolio Construction The composition of Value today is very different to history % Weight 20% 11.7% 9.3% 4.6% 12.3% 10.3% 9.8% 5.3% 11.0% 8.8% 15% 7.8% 7.4% 1.7% 10% 5% 0% Staples Ins & Teleco Energy Banks Indust Utilities Health Tech Material Cons Real Asset M
Slide 20: Active Value: A strategic approach to investment
Schroder ISF QEP Global Active Value A strategic approach to investment – Huge investment opportunity set. We Gross dividend yield 4.1% Value assess +15,000 opportunities daily Number of stocks 678 Diversified – “Bottom-up” value investing creates a very distinct portfolio Tracking error 3.9% Not ta
Slide 21: IF QEP Global Value Extension
Schroder IF QEP Global Value Extension Target Return: +5% above global indices over a full investment cycle 12 month and Since Inception Total Return - USD – Strong outperformance of Returns* to 31 May 2010 1 year Since Inception Since Inception MSCI World Index since (%) Total (%) p.a. (%) inceptio
Slide 22: Low Quality is a profitable short strategy
Schroder IF QEP Global Value Extension Low Quality is a profitable short strategy QEP Global Quality Rank Returns – Profitable long run return strategy over time 5.0% and in particular… QEP Global Quality Rank – …shorting low quality performs especially 2.5% well when when value strategies can be le
Slide 23: Maximise the opportunity - Global Value Extension
Maximise the opportunity - Global Value Extension Long Value / Short Low Quality Value and Low Quality (North America, 1954-2009) – Up to 150% long value Long Cheap Lose / Short Low Quality Win Long Cheap Win / Short Low Quality Win 1955 1961 1962 1963 1970 – Up to -50% short low 1957 1960 1969 1971
Slide 24: The Advantages of Shorting - Global Value Extension
The Advantages of Shorting - Global Value Extension Utilities were low quality, highly leveraged definitional defensives Utilities 15% – Shorting captures excess pessimism & optimism in Long 10% market Net – Utilities exposure has risen 5% from -9.9% to +5.3% 0% -5% Short -10% Active weight 10% unde
Slide 25: Shorting Rules
Schroder IF QEP Global Value Extension Shorting Rules Example Shorts 1. Must be available & inexpensive to short 2. Strategic rather than tactical shorting 3. Avoid small companies 4. Limit short to less than 50bps 5. Diversify across 200+ shorts Source: Schroders 24
Slide 26: Performance and long / short attribution
Schroder IF QEP Global Value Extension Performance and long / short attribution Relative Return versus MSCI World NDR Cumulative Return - USD Long Lose / Short Win Long Win / Short Win Short 130 2% 125 Oct-08 Nov-08 Sep-08 1% 120 Oct-09Mar-09 May-09 Jul-09 Nov-09 Feb-09 115 Feb-10 Aug- Long Aug-08 0
Slide 27: QEP Global Absolute: Key Features
QEP Global Absolute Key Features 1. Combining all the QEP insights in single absolute Global Absolute returns strategy Return Target +8-10% p.a. 2. Management fee; base plus performance fee Long / short +100% / -100% Net +/-30% 3. Launch of UCITS III vehicle in summer 2010 Volatility <50% of equitie
Slide 28: Appendices
Appendices 2s Schroders
Slide 29: Global Core: Repeatable Performance
Global Core: Repeatable Performance Outperformed in all major market environments Core Global Excess Return (%) - USD Win rates for QEP Global Core strategy 2000* +2.0 100% 2001 +1.1 2002 +1.1 2003 +0.6 76% 75% 2004 +0.9 66% 67% 65% 67% 66% 2005 +0.5 59% 2006 +0.6 2007 -0.9 50% 2008 +2.1 2009 +2.4 2
Slide 30: QEP Global Equity Relative Performance Summary
QEP Global Equity Relative Performance Summary – USD Relative % Global Core Global Value Global Quality Global Blend Global Value (50% Value / Quality) Extension 2000 2.0* - - - - 2001 1.1 - - - - 2002 1.1 - - - - 2003 0.6 - - - - 2004 0.9 1.9* - - - 2005 0.5 3.7 - - - 2006 0.6 7.0 - - - 2007 -0.9 -
Slide 31: Market breadth and Global manager performance
Market breadth and Global manager performance Low breadth is headwind 80% Stocks outperforming Higher active opportunity index (%) 60% 40% Lower active opportunity 20% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Annual Excess Market b
Slide 32: Forward Looking Research: Topical Research
Forward Looking Research Topical Research: Understand the present and learn from the past Source: Schroders. 31
Slide 33: Investment Team
Investment Team Experienced and well resourced Fund Management Team – 1996 Investment team established Justin Abercrombie Head of QEP, Global Equities Mark Brandreth David Philpotts Co-Head of Research Co-Head of Research Set up team in 1996 Based in London – 2000 Global Core Based in Sydney Lead Fu
Slide 34: Important information
Important information Decision Tree slide: Estimated using recursive partitioning. This is a data intensive iterative process that partitions stocks into outperforming and underperforming buckets by splitting the data by each factor taken in turn. The "best" split that emerges from the process is th