Schroder Income fund added to Wealth Shortlist

The fund aims to provide income and capital growth over the long term by investing in a diversified portfolio of UK companies. The fund has a distinct value style bias and the contrarian approach employed means it can look quite different to the index at times.

We think the fund could diversify an income focused portfolio or offer value exposure to a more general portfolio.

The fund is co-managed by Kevin Murphy and Andrew Evans.

Murphy joined Schroders in 2000 and has spent his entire investment career at the company. He co-founded the value team at Schroders alongside fellow longstanding colleague Nick Kirrage in 2013. He’s been managing this fund since May 2010, initially alongside Kirrage, and more recently alongside Evans.

Evans began his career in 2001 at Dresdner Kleinwort as a Pan European transport analyst. He also worked at Columbia Threadneedle, focusing on UK equities, before joining Schroders in 2015. He’s been managing this fund with Murphy since November 2022.

Their process begins with valuation screens designed to identify companies that have experienced large share-price falls or falling profits. The managers aim to remove the impact of the economic cycle by looking at measures like share price relative to a company’s average earnings over 10 years. This helps them condense the investable universe to focus on the cheapest stocks. This focus on out-of-favour companies is called value investing.

The managers then perform detailed research on companies that have screened well with the aim of weeding out those that are value traps – companies that are cheap for good reason. This research process involves building financial models, identifying key drivers of the business and assessing its balance sheet strength. The managers will also look to normalise key measures of a company’s success like revenues, margins and returns over time rather than just looking at one point in the cycle.

A company’s income generation profile is considered throughout the process. The managers don’t just consider the current dividend a company pays, but also the potential for that dividend to grow and a company’s ability to grow its capital value in order to support that income growth over time. Stocks with attractive risk/reward ratios are purchased with positions sized according to the managers’ assessment of the risks involved, with the larger positions in those with lower risks. The fund is relatively concentrated which increases risk.

We think Murphy and Evans have the experience and support to deliver good long-term returns to patient investors, although there are no guarantees. We also have a positive view of the collegiate approach, capability and experience of the 12 strong value team the managers form a part of.

At the time of writing, the fund has a historical yield of 5.24%. Income isn’t guaranteed, and yields aren’t a reliable indicator of future income. Please note the fund's charges are taken from capital rather than income. This increases the yield but reduces the potential for capital growth.

We've also published a full fund update to go alongside this notification.