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Schroders size up UK market

Schroders has introduced the Schroder UK Large Cap fund, a unit trust that invests in a portfolio of between 25 and 45 stocks listed on the FTSE 100 index.

Schroders says that many IFAs and clients are making asset allocation decisions for themselves but there are not many funds invest exclusively in UK large caps. According to Schroders, most UK large-cap funds are tracker funds, so the new fund will give investors more choice.

The fund is managed by Jeremy Smith, who has 12 years&#39 investment experience with Schroders. He started off as a UK research analyst then moved to the small cap team in 1996. In 2000 he started managing institutional portfolios and took over the management of the Schroder ISF UK equity fund from Humphrey van der Klugt.

Research is the key to Smith&#39s investment approach and this also underpins the thinking of the whole group. The company believes stockmarkets contain mis-priced stocks because short-term sentiment may bear no relation to what a company is really worth. In the long term, markets may be slow to react to structural change and investors end up overpaying for above-average growth.

To exploit these issues, Smith will focus on stock selection as each stock will behave differently even if they are in the same sector. Far example, BP and Shell are in the same sector, but Smith is overweight in Shell relative to the benchmark and underweight in BP. He thinks Shell has better returns on capital and cash flow and it is currently less expensive than BP.

The outlook for UK blue-chips is uncertain as they are benefiting from low interest rates and inflation, but small and mid-caps have been the better performers. However, some investors with small and mid-cap funds may appreciate this fund as a way of balancing their portfolio. If these investors gain large-cap exposure through a core UK fund, their portfolio may be unbalanced with too much exsposure on the small and mid-cap side.


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