Schroder Absolute UK Dynamic Fund research update

Richard Troue | Wed 15 April 2015

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The Schroder Absolute UK Dynamic Fund was closed to investors in November 2013. This was to protect existing investors as Paul Marriage and his team believed the fund had reached an optimum size. If it grew any further they felt their investment process would be compromised.

Following a poor period of performance in 2014 the fund shrunk to a smaller size again and recently reopened. However, from 23 April 2015 dealing in the fund will take place weekly (on Thursdays), as opposed to daily. An instruction to buy or sell the fund can be placed at any time, but must be received by Hargreaves Lansdown before 08:00 am on the Wednesday morning to be dealt at that Thursday's valuation point. Instructions received after this point may still on occasion be processed in time; however, this is not guaranteed.

The reason for the change is that the team believes liquidity (the ease of buying or selling certain stocks) has reduced in recent years, particularly among small and medium-sized companies. The more controlled flow of purchases and sales that weekly dealing provides should allow the team to manage the buying and selling of the fund's underlying investments more effectively.

The change of dealing frequency will have no effect on the investment process used by Paul Marriage and his team. The fund will retain a bias towards higher risk small and medium-sized companies with the managers investing in those they believe have strong growth prospects and taking 'short' positions, which make money when share prices fall, in companies they believe will struggle. However if the manager makes the wrong calls, the fund will fall in value.

Following a strong period of performance since the financial crisis, the past year has seen a reversal of fortunes for the fund. This is partly down to poor performance from smaller companies in general, but Paul Marriage attributes most of the disappointment to a number of stock-specific issues.

These included Xaar, the manufacturer of digital print heads, which suffered share price falls following downgrades to its earnings forecasts; Kromek, a supplier of radiation detection equipment, which suffered a profit warning; and WANDisco, the software company, which saw fewer contract wins than expected. Paul Marriage suggests these issues are temporary and he is happy to maintain his investments in the belief they will bounce back.

Looking ahead, the team is positive on the outlook for the portfolio. They suggest many of their favoured investments have good prospects for earnings growth, while they expect the upcoming general election to cause some stock market volatility which could create opportunities to take short positions in some companies. Presently, the team continues to concentrate short positions on larger and medium-sized companies which they believe are overvalued.

Our view on this fund

Paul Marriage and his team have done a good job on this fund. Over the past five years it has grown by 45.1% compared with 16% for the average fund in the IA Targeted Absolute Return Sector*. Please remember past performance is no guide to future returns.

Past performance is not a guide to future returns. Source: Lipper IM *to 01/04/15

We hold the team in high regard overall, but would like to see how they come back from the disappointing performance of the past year before considering the fund for the Wealth 150 list of our favourite funds across the major sectors.

The fund also levies a performance fee, details of which can be found in the fund's Key Investor Information Document.

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.