Schroder Managed Balanced: October 2023 Fund Update

In this fund update, Senior Investment Analyst Hal Cook shares our analysis on the manager, process, culture, ESG integration, cost and performance of the Schroder Managed Balanced fund.

• 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 2011
• This fund is on our 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, Remi Olu-Pitan and Nick Pearson serving as fund 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. In practice, Olu-Pitan has historically handled the day-to-day management of the fund, with Kyrklund providing input into asset allocation decisions and challenge to Olu-Pitan around portfolio construction.

More recently, Pearson has joined Kyrklund and Olu-Pitan to help run the fund. He has worked at Schroders since 2015, including implementing trades on behalf of the managers for this fund. As his role has developed he’s taken on more responsibility and now has input into the idea generation and decision making for this fund.

We have met Kyrklund and Olu-Pitan on numerous occasions over the years and believe they are dedicated individuals who are passionate about what they do. We recently met Pearson for the first time and think he is a good fit for the team.

Kyrklund’s seniority at Schroders means that she has less time to focus on fund management than she used to. We view the appointment of Pearson to the team as a positive step in ensuring that the investment team remains suitably resourced to run the fund.

Process

This is a 'fund of funds'. The managers primarily invest in funds run by other talented Schroders fund managers, 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 is the Chair of Schroders' Global Asset Allocation committee. They meet regularly to decide how much to invest in different areas and assets. In forming their views, this committee 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 Committee 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 fixed interest and alternatives. Within the company shares part of the fund, the managers have reduced exposure to global equity funds, largely in favour of increasing specific investments in US and Japanese stock markets. Within the fixed interest part of the fund, the managers have broadly increased exposure across all sub sectors, apart from high yield where they have reduced their holdings slightly. At the end of September 2023, the fund had 60.9% invested in shares, 25.5% invested in fixed interest and 11.9% invested in alternative investments such as commodities.

As things stand, the team have a neutral view on company shares. While they think corporate earnings could support share price growth, they are concerned about how stock markets have been driven by a small number of companies and think that this has potential to reverse.

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

Please also note that the fund currently invests in Hargreaves Lansdown plc.

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, Olu-Pitan and Pearson have plenty of good funds to choose from.

Kyrkund and Olu-Pitan have both remained loyal to the company for well over a decade, and the broader team has remained stable too. Pearson already has eight years with the company 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 resources and tools in recent years. Each investment desk has access to a variety of data sources that have been brought together into a proprietary platform called SustainEx, which allows investment teams to quantify a company’s positive and negative contributions to society. The ESG agenda at Schroders has significant support from senior management, and in 2019, the firm completed its acquisition of impact investment specialist Blue Orchard.

All Schroders funds were required to pass the firm’s inhouse ESG accreditation process by the end of 2020. All new funds must also be ESG accredited, and investment teams must reapply for accreditation on an ongoing basis. The ESG accreditation process is managed by the Sustainability team. They sit on the investment desk and are objective in their approach. There is a set list of criteria that funds must meet to become accredited, and the process is substantial – no fund has ever gained accreditation on the first attempt. Fund managers are also expected to demonstrate improved levels of ESG integration over time.

The Schroders Sustainability team acts as a focal point for ESG, proxy voting, and engagement. When it comes to proxy voting, Schroders has structured policies in place and is transparent on the reasons proposals have been voted against. On the ESG engagement side, the firm’s activities and outcomes are monitored, tracked and reported in their quarterly Sustainable Investment reports and annual Sustainability reports. There are also a range of ESG-related insight and thought leadership articles available on the firm’s website.

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

Cost

This fund has an ongoing charge of 0.61%. But through Hargreaves Lansdown you can secure an ongoing saving of 0.27%. This means you’ll pay an ongoing charge of 0.34%. 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 Kyrklund and Olu-Pitan joined forces in March 2011. There are no guarantees that this will continue though, and there have been periods where performance has varied significantly from the benchmark.

The fund performed broadly in line with its peers in the IA Mixed Investment 40-85% Shares sector over the past year. Shares have driven fund performance over the 12 months to the end of September. The largest contributors within their shares have been investments in Global and US funds. Currency has been a headwind and has detracted from returns, as have their fixed income investments, particularly those in government bonds. Past performance is not a guide to the future.

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2023.

Find out more about Schroder Managed Balanced including charges

Schroder Managed Balanced Key Investor Information