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Schroder UK Smaller Companies Fund research update

Heather Ferguson | Tue 19 August 2014

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

Rosemary Banyard and Andy Brough are some of the longest serving managers in the UK Smaller Companies space, having co-managed the Schroder UK Smaller Companies Fund for the best part of the last 20 years.

The managers believe there are a number of reasons for investors to be cautious. Worldwide, instability in the Middle East and Ukraine are causes for concern. Closer to home, the upcoming referendum on Scottish independence and the UK general election in 2015 create further uncertainty.

However, UK equities performed well in 2013, driven higher as investors hunted for returns in excess of those available on cash and bonds. There was also a flurry of companies listing their shares on the market (IPOs). The managers participated in a number of IPOs over the past 12 months, including CentralNic Group, who own and supply internet domain names; and Arrow Global Group, who purchase consumer debt from a range of financial and non-financial businesses.

Rosemary Banyard and Andy Brough remain focused on companies generating attractive capital returns, with good long term prospects and opportunities to improve profitability. They view recent market weakness as a healthy correction, believing companies need to generate increased earnings to justify current valuations. There have been widespread earnings downgrades as profits are hit by the strengthening pound, however, they feel companies are generally in good financial health.

The fund has returned 156.7% over the past 5 years, outperforming the FTSE Small Cap ex Investment Trusts at 120.6% and its peer group, the IMA UK Smaller Companies sector, at 129.7%*. Although please remember past performance is not a guide to future returns and investing in smaller companies is higher risk as they can be more volatile than their larger counterparts.

Annual percentage growth
Aug 09 -
Aug 10
Aug 10 -
Aug 11
Aug 11 -
Aug 12
Aug 12 -
Aug 13
Aug 13 -
Aug 14
Schroder UK Smaller Companies 23.5% 34.6% -3.2% 41.5% 12.8%
IMA UK Smaller Companies 24.7% 29.3% -4.8% 32.4% 13.1%
FTSE Small Cap (ex IT) TR 15.6% 19.9% -6.0% 49.2% 13.4%

Past performance is not a guide to future returns. Source: Lipper IM* to 01/08/2014

The largest contributor to performance over the past year was adhesives manufacturer, Scapa Group. Management have been successful in increasing profit margins, especially within the healthcare division of the business. As such, the company's share price performed strongly, rising 53.7%* in the past 12 months, although this performance will not necessarily continue. They also doubled their dividend over the same period.

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Our view on this fund

The UK Smaller Companies sector is very competitive and home to many excellent managers. Although Rosemary Banyard and Andy Brough have a long, solid track record, there are other managers who have produced more consistent returns over the long term. The fund therefore does not appear in our Wealth 150 list of our favourite funds across the major sectors, but we will continue to monitor progress and inform investors if our views change.

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.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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