Schroder Managed Balanced: October 2022 update

• The fund taps into the expertise of several experienced managers
• It provides a high level of diversification in one convenient investment
• The fund has performed better than its peers since its launch in 2007
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Schroder Managed Balanced 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 manages this fund, and a small number of other ones. In practice, Olu-Pitan handles the day-to-day management of the fund, and Kyrklund helps with asset allocation to balance with her other commitments.

We have met both managers on numerous occasions over the years and believe they are dedicated individuals who are passionate about what they do. 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 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 plenty of diversification.

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, the managers 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.

Over the past year, the managers have reduced the amount invested in company shares and added to investments in alternatives. Within the company shares section of the fund, they have reduced their weighting to the UK significantly, from around 16% 12 months ago to 8% at the end of September 2022. Similarly, they have reduced US exposure too, from around 12% to 5%. They have increased holdings in some company shares though, mainly through thematic and global funds.

The managers added to their investments in commodities, which come under their alternatives category, in the fourth quarter of 2021.

They have not made many changes to their bond funds over the last 12 months, although they have increased the holdings in some government bonds at the expense of investment grade company 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.

ESG Integration

Schroders has invested significantly in ESG (environmental, social and governance) resources in recent years. Each investment desk has access to a variety of data sources that have been brought together into a proprietary platform that allows investment teams to analyse a company’s performance on several ESG measures.

All of the funds held in the portfolio integrate ESG analysis, and some are managed with sustainable objectives in mind. The Schroders Sustainability Team runs an ESG accreditation scheme that requires each investment team to evidence both the rigour of their ESG analysis, and the impact this work has on their portfolios.

Because of the fund of funds nature of this strategy, the managers have less input into stock selection as the decision makers are the managers of the underlying funds. However the multi-asset team do challenge the managers of the underlying funds on companies or bonds that they invest in where there are potential ESG issues.

Overall we think that Schroders have a genuine and strong commitment to ESG matters and expect this to continue going forward.

Cost

This fund is available at an annual ongoing fund charge of 0.34%, after a 0.27% discount available through the HL platform. Before the discount the charge is 0.61%. We think the fund is attractively priced compared to its peers in the IA Mixed Investment 40-85% Shares sector. The fund 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 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 lagged its peers in the IA Mixed Investment 40-85% Shares sector over the past year. Many of the underlying funds have lagged their respective benchmarks, which has resulted in this strategy not performing as well as its peer-group. In particular, growth style equity strategies have hurt performance. Some of their commodity funds have performed well though and so has their global value style equity fund. Past performance is not a guide to the future.

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2022.

Find out more about the Schroder Managed Balanced fund, including charges

Schroder Managed Balanced Key investor information