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Schroder UK Alpha Plus Fund research update

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.

It has been over a year since Philip Matthews assumed responsibility for the Schroder UK Alpha Plus Fund. We recently met him to understand the changes he has made since taking over the portfolio in October 2013.

Starting with an aim of reducing the volatility of the portfolio, Philip Matthews has gradually increased the number of stocks held from 30-40 to 58 (he aims to hold 50-70 stocks).

He has also reduced the fund's exposure to economically-sensitive sectors, such as banks, as well as to some more domestically-focused, medium-sized companies. Positions in Home Retail, Next, and a number of house builders have all been sold. Following a strong rally for many of these stocks, the new manager felt they had become overvalued.

Proceeds were subsequently reinvested into more defensive areas of the market, such as healthcare and tobacco companies. Pharmaceutical firm AstraZeneca was added to the portfolio, while existing positions including GlaxoSmithKline were topped up. The manager has also found a number of opportunities in out-of-favour areas such as the oil & gas sector, and he has added significantly to the fund's holdings in BP and Royal Dutch Shell.

Over the past year, however, the gains made from positioning the fund more defensively has been offset by some stock specific issues. Online gaming company, Ladbrokes, hurt performance last year after a tax on gaming machines was announced and this subsequently hit profits. Philip Matthews views this as a one-off issue and he believes the business should benefit as it starts to improve its online offering.

Balfour Beatty, the infrastructure and construction business, has also struggled after issuing a number of profit warnings. While Philip Matthews anticipates the company will endure further restructuring costs, he views it as a positive that most of the divisions within the company appear to be performing in line with expectations. A new CEO has also been appointed who has experience in turning things around in underperforming businesses and recovering shareholder value.

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Our view on this fund

This fund is now a very different proposition compared with how it was run under its predecessor. Philip Matthews has positioned the fund with the aim of reducing the fund’s overall volatility and, as such, he adopts a more diversified approach. He hopes this will provide a greater level of consistency in performance across different market conditions, though there are no guarantees this will be achieved.

Philip Matthews previously managed a fund at Jupiter with a similar philosophy and process which is now applied to the Schroder UK Alpha Plus Fund. The fund outperformed its benchmark over the course of his tenure and over the longer term the manager has built a solid track record, although there are no guarantees this will continue. That said, his record is still relatively short compared with some of our favoured managers in this sector and we would like to see how he fares at Schroders before considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors.

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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