Schroder’s Kyrklund: two key risks stock markets face over the coming year

Heather Ferguson | Wed 16 November 2016

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Johanna Kyrklund, manager of the Schroder Managed Balanced Fund, believes global growth will remain muted and perceives two key risks:

1. Politics: with the referendum on electoral reform in Italy scheduled for December, and elections in France, the Netherlands and Germany on the horizon, political jostling will not end with the US Presidential election.
2. Company valuations: investor demand for ‘safe-haven’ and income-producing investments has driven valuations to unsustainable levels.

In response to these risks, the manager aims to keep the portfolio diversified. In this way, the fund is not overly affected by any one scenario. She has also focused on areas she believes are undervalued by other investors.

As central bank intervention diminishes (which has driven demand for safe-haven investments) she believes investors will begin to shun expensive quality companies in favour of their undervalued counterparts. The fund’s core global equity exposure is gained via the Schroder Global Active Value Fund as a result, where the manager aims to identify businesses that, while perceived as low-quality by other investors, she believes, have good prospects.

Higher-risk emerging markets are an area of value, according to the manager. Unlike central banks of developed markets, she expects those in emerging market economies to continue providing supportive monetary policy, which should be positive for equity and bond prices. She also believes growth in China has stabilised, posing less of a risk to the region than many other investors feared. Exposure to this area is gained via the Schroder Emerging Multi-Asset Income Fund.

Despite a focus on value, the manager aims to avoid areas that are cheap for good reason. For example, while European equities are undervalued relative to history, Johanna Kyrklund believes European banks are the key driver behind this. She therefore has less invested in this area than her peers as she does not see a reversal in their fortunes in the near term.

The fund also has the flexibility to use derivatives which will add risk if used.

Performance

Since Johanna Kyrklund began managing the fund in February 2011, it has returned 50.1% compared to 42.9%* for the average fund in the sector. Its relatively high exposure to equities has aided recent returns as they have performed strongly compared with bonds and cash. The fund also benefitted from exposure to emerging markets, where weaker sterling helped boost already good returns for UK investors. Past performance is not a guide to future returns.

Source: Lipper IM *to 01/11/16

Past performance is not a guide to future returns.

Our View

We hold Johanna Kyrklund and her well-resourced team in high regard and believe investors are well served leaving the day-to-day decisions of asset allocation and fund selection to them. We believe this fund is a good choice for a core holding and it remains on the Wealth 150+ list of our favourite funds with a low ongoing fund charge. Please note a charge of up to 0.45% p.a. also applies to hold investments in the Vantage Service.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.