When a successful fund manager leaves a fund, it places the investors in a difficult situation, as there is no guarantee the successor will do such a good job. But for holders of the Schroder UK Growth Fund (SDU), the impending departure of star fund manager Richard Buxton looks as though it will be far from a disaster, and may even be an opportunity for new investors.
- New manager with strong record
- Charges cut
- Discount could tighten
- New manager may not deliver
The investment trust's board has decided to stick with Schroders as manager because, from 2 July, subject to shareholder and regulatory approval, the trust will be managed by Julie Dean, who currently runs the Cazenove UK Opportunities (GB0031092728) and Cazenove UK Equity (IE0032376455) funds.
Schroders bought Cazenove Capital earlier this year.
We tipped Cazenove UK Opportunities Fund last year for reasons including the fact that it is one of the top 10 performing IMA UK All Companies sector funds over one, three and five years ahead of hundreds of peers, and it is also far ahead of the FTSE All-Share over those periods (read our tip).
Analysts at Investec, meanwhile, have compared Ms Dean's funds to Schroder UK Growth over one, three and five years and found that Cazenove funds considerably outperformed the trust over these periods (see below). Cazenove UK Opportunities also outperformed Mr Buxton's open-ended mandate, Schroder UK Alpha Plus (GB0031440133) over one, three and five years.
While the investment trust has performed well, beating the average UK Growth investment trust and the FTSE All-Share over one, three and five years, it is not the top performer in the sector. If performance improves as a result of the new manager or investor enthusiasm for the new manager, however, the discount could tighten.
The investment trust's fees are due to be cut from 0.65 to 0.6 per cent and the trust will also no longer be charged a separate secretarial fee from July, which should help returns. Schroders has also agreed to waive its management fee for a period of six months, commencing on 1 July 2013, as a contribution to portfolio transition costs.
| IC TIP RATING | |
|---|---|
| Tip Style: | SPECULATIVE |
| Risk rating: | HIGH |
| Timescale: | LONG TERM |
Even before these cuts take effect, the current charge of 0.88 per cent is considerably cheaper than the 1.57 per cent total expense ratio on Cazenove UK Opportunities Fund, so this trust could be a cheap way to access Ms Dean's strong performance.
Ms Dean and her investment team invest by following the business cycle, taking a macroeconomic view on which type of shares to hold, and combine this with analysis of individual companies and their earnings potential relative to the cycle.
Read more on Ms Dean's investment process
There is no guarantee that Ms Dean and her investment team will make such strong returns with this trust as with her open-ended fund. Their investment strategy relies on getting investment timing decisions right, so if they call the beginning of an economic recovery early they may move into unsuitable stocks, and while this does not necessarily mean bad performance, they could lag behind their peers. This increases the uncertainty of its short-term performance, so even if Schroder UK Growth's performance improves, it may not be for some time.
The trust's discount to net asset value (NAV) has tightened recently, so it trades at a 7.72 per cent discount, in contrast to more than 10 per cent in March.
But if you have a long-term investment horizon and want to beat the business cycle via Ms Dean's management expertise for comparatively low charges, then Schroder UK Growth is a 'buy'.
SCHRODER UK GROWTH FUND (SDU) | |||
| PRICE | 160.5p | GEARING | 105% |
| AIC SECTOR | UK growth | NAV | 172.46p |
| FUND TYPE | Investment trust | PRICE DISCOUNTTO NAV | 7.72% |
| MARKET CAP | £258.3m | YIELD | 2.34% |
| No OF HOLDINGS | 35* | ONGOING CHARGE | 0.88% |
| SET UP DATE | 10-Mar-94 | MORE DETAILS | www.schroders.co.uk/its |
Source: Morningstar, *Schroders.
| 1-year NAV total return (%) | 3-year NAV total return (%) | 5-year NAV total return (%) | |
|---|---|---|---|
| Cazenove UK Opportunities Fund | 31.2 | 70.9 | 120.4 |
| Cazenove UK Equity Fund | 30.6 | 71.7 | 101 |
| Schroder UK Growth Fund | 25 | 36 | 45 |
Investec/Schroders/Cazenove as at 31 March 2013
Top 10 holdings as at 28 March 2013
| Taylor Wimpey | 5.8 |
| GlaxoSmithKline | 4.6 |
| Tate & Lyle | 4.4 |
| Lloyds Banking Group | 4.1 |
| Drax Group | 4.1 |
| Legal & General | 4.1 |
| Invensys | 4 |
| Rolls-Royce Holdings | 3.8 |
| Royal Dutch Shell | 3.7 |
| Ladbrokes | 3.6 |
Sector breakdown
| Financials | 23.9 |
| Consumer Services | 23 |
| Consumer Goods | 12.6 |
| Industrials | 12 |
| Basic Materials | 8.5 |
| Oil & Gas | 8.1 |
| Healthcare | 7.7 |
| Utilities | 6.1 |
| Technology | 4 |
