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Schroder Small Cap Discovery - doing something different

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.
  • A focus on small companies provides something different to other Asian and emerging markets funds
  • The fund has had a tougher year, but we're positive about its long-term potential
  • Matthew Dobbs remains excited about the opportunities in this area

Our View

Most funds investing in Asian and emerging markets focus on large, well-established businesses.

The Schroder Small Cap Discovery Fund offers something different. It aims to invest in some of the world's most innovative smaller companies. These small firms are at an earlier stage of their development, which means the opportunity for growth is huge. A greater risk of failure should not be overlooked, however, and exposure to emerging markets also increases risk, so a long-term investment horizon is essential.

The fund has recently been through a more subdued period of performance, but we believe it continues to offer excellent long-term potential. We recently met Matthew Dobbs and he remains as passionate as ever about uncovering some of the region's most exciting companies, which are often overlooked by other investors until they start growing into larger firms.

We believe this fund could make an interesting addition to a more adventurous portfolio. It currently features on the Wealth 150+ list of our favourite funds.

How has the fund performed?

The fund struggled to keep pace with the broad Asian and emerging stock markets over the past year. The FTSE Emerging Index, for example, grew 8.8%*, compared with 0.4% for the fund, although this should not be used as a guide to future performance.

Annual percentage growth
Mar 2013 -
Mar 2014
Mar 2014 -
Mar 2015
Mar 2015 -
Mar 2016
Mar 2016 -
Mar 2017
Mar 2017 -
Mar 2018
Schroder Small Cap Discovery 0.8% 20.2% -7.8% 31.7% 0.4%
FTSE Emerging -10.8% 16.3% -8.9% 35.6% 8.8%

Past performance is not a guide to the future. Source: Lipper IM* to 31/03/2018

Larger firms outperformed the shares of smaller companies over the year, and this dragged on the fund's returns. A number of China's largest internet companies performed exceptionally well, but given their size they aren't natural contenders for the portfolio.

A number of stock specific issues also affected performance. The fund has greater exposure to the Philippines than its benchmark, and the shares of several companies based in the country fell in value. This includes Pilipinas Shell, part of oil company Royal Dutch Shell, and CEMEX Holdings, which manufactures and markets cement products.

The fund has delivered impressive returns over the longer term and grown 75.5% since its launch in March 2012. Matthew Dobbs has a wealth of experience investing in these markets and we are confident in his ability to drive long-term returns, though there are no guarantees.

Looking ahead

There are a number of trends developing in Asia that Matthew Dobbs aims to benefit from. For example, a rising middle class and increase in household spending could have a big impact on lots of companies, as it's expected to boost domestic consumption. This could benefit smaller businesses that produce goods and services for local consumers, ahead of larger companies focused on global trade. The fund is therefore focused towards consumer-related sectors.

The manager currently finds some of the most attractive investment opportunities in countries such as India and Taiwan. In India, a number of new government policies could spur business growth and Matthew Dobbs has focused on companies that could benefit from the new Goods & Services Tax. It aims to improve the country's inefficient tax system, reduce company logistics costs, and streamline some of the more complicated distribution chains.

Current investments in India include Apollo Hospitals Enterprise, which provides healthcare services. City Union Bank was added to the fund last year and could benefit as the government aims to increase the number of people that have access to financial products and services.

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including how to invest

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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