ii ACE 40 investments:
Schroder Global Sustainable Value Equity

Why we recommend it

The fund is managed by three managers, namely Simon Adler, Liam Nunn and Roberta Barr. They form part of the highly regarded Schroder Value team which has been led by Kevin Murphy and Nick Kirrage since July 2006. The team is made up of 11 analysts/managers in total who all have stock research responsibilities and operate on a generalist basis in a collegiate manner. 

From an environmental, social and governance (ESG) perspective, the fund invests in companies that the team identify as having a positive impact on society and being an industry leader or best in class vs peers. To be an ESG leader a company must pass the team’s triple lens assessment. This is a structured combination of insights from proprietary tools SustainEx and CONTEXT, and external resources Sustainalytics and MSCI, together with the team’s own analysis. The result is a portfolio that aims to have a positive social impact by doing more good than harm to society and the environment.

The team’s contrarian investment philosophy is founded on the belief that markets are inefficient, which creates pricing anomalies that can be exploited by having a detailed understanding of companies and their prospects. The process starts with several valuation screens designed to help identify potential recovery stocks, defined as companies that have experienced large share price underperformance or falling profits. This reduces the universe to a manageable number of stocks, on which the managers can perform detailed desk-based research. This research involves a thorough understanding of normalised cash profits and rigorous balance-sheet analysis, which is conducted by multiple team members and soundly debated. 

The sell discipline is driven by either a company reaching its price target or a material change to the investment thesis.  The portfolio exhibits strong value characteristics and a significant discount to the MSCI World on a price-to-earnings (P/E) and price-to-book (P/B) basis. However, the managers pay no attention to the benchmark when constructing the portfolio. Investments are driven solely by where they find the best value opportunities. As a result, the portfolio can exhibit significant sector, country, and market-cap deviations relative to the benchmark and peers. 

We expect the fund to outperform over a market cycle, however returns are likely to be lumpy and the fund’s value style bias may lead to underperformance during periods of market weakness.

Opinion
The contrarian nature of the approach requires investors who are patient and can endure the volatility that accompanies this strategy.   

While this fund was only converted to a sustainable fund in August 2021 and therefore does not have a long track record, we believe the fund has sufficient overlap with funds managed by the team to give us confidence about the fund’s likely return profile and the managers' ability to add value in the long term. 

Sustainability criteria

Morningstar Sustainable Attribute: This fund is considered a sustainable investment product based on its prospectus or other regulatory filings. As a General ESG Investment, the fund uses ESG criteria as a central part of the security-selection and portfolio-construction process. These strategies endeavour to promote sustainability and minimize negative impact, without focusing on a specific theme or area of action.