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Inspired thinking

Schroders has been steadily rebuilding its European proposition over the last year or so.

It went through a number of departures, including Adriaan de Mol van Otterloo in 2005, having already lost Mark Pignatelli.

It has addressed this by bringing in Denis Clough to head the European desk – a surprise to many as he has long been associated with the Japanese market. However, fund manage- ment skills should be easily transferable from market to market although, of course, managers do need to get up to speed with the companies.

Additional reinforcements have been added, namely Gary Clark from Gartmore and Leon Howard-Spink from Jupiter.

The latter was an inspired piece of poaching. Howard-Spink’s performance numbers were quite superb but strangely unrecognised in the marketplace. He had a baptism of fire when Richard Pease left Jupiter, yet he rose to the challenge brilliantly. He certainly has not wasted any time at Schroders in delivering an excellent first year – the fund is up almost 27 per cent and is ranked fifth in the sector.

The basic philosophy is to deliver high alpha with low volatility. Alpha is expected to be generated from Howard-Spink’s stock picking skills. He particularly looks for companies with good- quality business models, strong financials, sustain-able margins, strong management with a catalyst for change and a valuation which doesn’t take this all into account. In terms of generating low volatility, he will aim through the fund’s portfolio construction to diversify the fund through investment themes and market cap.

While the fund is performing well in a rising market, he expects the lower beta to protect the fund compared with its peer group in a falling market.

This year, at the end of the first quarter, he took some of the mid- and small-cap bias out of the fund and some of the cyclical risk. This wasn’t a dramatic shift but it did help protect the fund from some of the big fallout we saw in May.

In order to stay true to the fund’s philosophy, the core of the portfolio consists of high-quality, lower volatile businesses. On the periphery, he will also invest in more deep-value companies, restructuring stories and structural growth companies.

While he is traditionally a mid-to-small cap manager, he won’t hesitate to move up the market-cap scale if he sees better valuations there.

He looks to make good absolute returns and is sometimes willing to pay for the security of sustain-able earnings when things get tough.

European profitability is at an all-time high and Howard-Spink questions how sustainable it can be. In particular, he wants to see businesses that can give him extra protection by not relying solely on top-line growth. Despite the rise in the European markets, he still sees plenty of opportunities with new IPOs coming quite regularly.

Despite the fund’s name, which perhaps suggests this is higher risk, I consider it a well thought out fund with a manager who really looks carefully at the risk he is taking. This is in fact far more of a core holding than many investors might first believe.

I suggest you look at the fund sooner rather than later as Howard-Spink has suggested that €3bn is what he is comfortable running across all mandates. Don’t wait too long to get a piece of the action.

Mark Dampier is head of research at Hargreaves Lansdown


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