Schroder Small Cap Discovery - doing something different
Kate Marshall | Wed 11 April 2018
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- A focus on small companies provides something different to other Asian and emerging markets funds
- The fund has had a tougher year, but we're positive about its long-term potential
- Matthew Dobbs remains excited about the opportunities in this area
Our View
Most funds investing in Asian and emerging markets focus on large, well-established businesses.
The Schroder Small Cap Discovery Fund offers something different. It aims to invest in some of the world's most innovative smaller companies. These small firms are at an earlier stage of their development, which means the opportunity for growth is huge. A greater risk of failure should not be overlooked, however, and exposure to emerging markets also increases risk, so a long-term investment horizon is essential.
The fund has recently been through a more subdued period of performance, but we believe it continues to offer excellent long-term potential. We recently met Matthew Dobbs and he remains as passionate as ever about uncovering some of the region's most exciting companies, which are often overlooked by other investors until they start growing into larger firms.
We believe this fund could make an interesting addition to a more adventurous portfolio. It currently features on the Wealth 150+ list of our favourite funds.
How has the fund performed?
The fund struggled to keep pace with the broad Asian and emerging stock markets over the past year. The FTSE Emerging Index, for example, grew 8.8%*, compared with 0.4% for the fund, although this should not be used as a guide to future performance.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Mar 2013 -
Mar 2014 |
Mar 2014 -
Mar 2015 |
Mar 2015 -
Mar 2016 |
Mar 2016 -
Mar 2017 |
Mar 2017 -
Mar 2018 | |
| Schroder Small Cap Discovery | 0.8% | 20.2% | -7.8% | 31.7% | 0.4% |
| FTSE Emerging | -10.8% | 16.3% | -8.9% | 35.6% | 8.8% |
Past performance is not a guide to the future. Source: Lipper IM* to 31/03/2018
Larger firms outperformed the shares of smaller companies over the year, and this dragged on the fund's returns. A number of China's largest internet companies performed exceptionally well, but given their size they aren't natural contenders for the portfolio.
A number of stock specific issues also affected performance. The fund has greater exposure to the Philippines than its benchmark, and the shares of several companies based in the country fell in value. This includes Pilipinas Shell, part of oil company Royal Dutch Shell, and CEMEX Holdings, which manufactures and markets cement products.
The fund has delivered impressive returns over the longer term and grown 75.5% since its launch in March 2012. Matthew Dobbs has a wealth of experience investing in these markets and we are confident in his ability to drive long-term returns, though there are no guarantees.
Looking ahead
There are a number of trends developing in Asia that Matthew Dobbs aims to benefit from. For example, a rising middle class and increase in household spending could have a big impact on lots of companies, as it's expected to boost domestic consumption. This could benefit smaller businesses that produce goods and services for local consumers, ahead of larger companies focused on global trade. The fund is therefore focused towards consumer-related sectors.
The manager currently finds some of the most attractive investment opportunities in countries such as India and Taiwan. In India, a number of new government policies could spur business growth and Matthew Dobbs has focused on companies that could benefit from the new Goods & Services Tax. It aims to improve the country's inefficient tax system, reduce company logistics costs, and streamline some of the more complicated distribution chains.
Current investments in India include Apollo Hospitals Enterprise, which provides healthcare services. City Union Bank was added to the fund last year and could benefit as the government aims to increase the number of people that have access to financial products and services.
Please read the Key Features/ Key Investor Information in addition to the information above.