Schroder Managed Balanced: April 2020 fund update

Dominic Rowles | Thu 30 April 2020

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• The fund benefits from the experience of a number of managers
• It provides a high level of diversification in one convenient investment
• It's performed much better than its peers over the long run

How it fits in a portfolio

This fund mainly invests in funds run by other managers at Schroders and provides exposure to a broad range of assets including global shares and bonds. We think this fund could form the core of a broader portfolio aiming to deliver long term growth, or add some stability to a portfolio mostly invested in shares.

Manager

This fund is managed with a team-based approach, with Johanna Kyrklund and Remi Olu-Pitan serving as lead managers.

Kyrklund is Chief Investment Officer and leads Schroders' Multi-Asset Investments division. She joined the company in 2007 and has specialised in asset allocation strategies throughout her career.

Olu-Pitan started her career in 2006 when she joined Schroders. She's quickly risen up the ranks and now serves as a fund manager on this and two other funds.

We have met both managers on numerous occasions over the years and believe they are dedicated individuals who are passionate about what they do. While the two managers run a number of funds between them, they use a similar approach on each one so we think the workload is manageable. They also benefit from the support of an investment team we believe is one of the best resourced in the industry.

Process

This is a 'fund of funds'. The managers primarily invest in funds run by other talented Schroders fund managers, such as Matthew Dobbs and Martin Skanberg, although they can also invest outside of the Schroders range where necessary. Collectively those managers invest in hundreds of different companies and bonds. This means the portfolio offers investors a high level of diversification.

Johanna Kyrklund heads Schroders' highly experienced Asset Allocation team. They meet regularly to decide how much to invest in different areas and assets. In forming their views, the Asset Allocation team leverage analysis and insight from a number of specialist in-house teams.

They tend to favour shares when the economic environment is positive. But in times of stress, they shift to more diversified assets, such as bonds and cash, aiming to minimise losses.

Once the Asset Allocation team has recommended where and how much to invest, Kyrklund and Olu-Pitan seek to identify several different funds that reflect those views. Every fund must be expected to enhance returns or reduce risk to justify its place in the portfolio.

The managers currently believe stock markets have not fully adjusted to account for the knock to corporate earnings that will be caused by the coronavirus. This, combined with the potential for global economies to enter a recession, means they are cautious on companies whose earnings are sensitive to the health of the economy. Instead, they favour funds focused on higher quality businesses.

They see bonds as a good hedge in an environment of uncertain economic growth and believe there is some good value in higher quality investment grade corporate bonds.

Please note that the managers' freedom to invest in high yield bonds and derivatives adds risk.

Culture

Schroders is a multinational asset management company that employs hundreds of investment professionals across the globe. The managers of this fund can tap into that experience and local knowledge to help them make investment decisions. Schroders is home to many high calibre fund managers so Kyrklund and Olu-Pitan have plenty of good funds to choose from.

The lead managers have both remained loyal to the company for well over a decade, and the broader team has remained stable too. They're all incentivised in a way we think aligns their interests with those of long term investors.

Schroders is taking ESG increasingly seriously and a number of funds run by the company consider the environmental, social and governance risks associated with the businesses they invest in. Although ESG isn't yet fully integrated in all of the funds held in the portfolio, we're encouraged that Schroders has committed to integrate ESG into all of its funds by the end of 2020.

Cost

This fund is available at an annual ongoing fund charge of 0.33%, after a 0.27% discount available through the HL platform. We think the fund is attractively priced compared to its peers in the IA Mixed Investment 40-85% Shares sector. The discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The managers aim to deliver performance that doesn’t stray too far from the broader IA Mixed Investment 40-85% Shares sector. Overall, the fund's done a good job of steadily outperforming the sector since launch in 2007. There are no guarantees that this will continue though, and there have been periods where performance has varied significantly from the benchmark.

The fund raced ahead of its peers in 2009 as markets recovered from the financial crisis, but had a tougher period in 2015 when the portfolio's UK and European-focused funds dragged on performance.

The fund has marginally underperformed its peers so far in 2020*, although this is a very short time period over which to measure performance. A focus on UK company shares, which underperformed their overseas rivals, dragged on returns. The fund's bias towards Sterling-focused investments also held back returns as Sterling lost value against most major global currencies.

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2020.

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Key investor information