Type: Unit trust
Aim: Growth by investing in the equities of smaller companies in emerging markets and Asia excluding Japan, or those based elsewhere with significant business in those areas
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 100% in the equities of smaller companies in emerging markets and Asia excluding Japan
Isa link: Yes
Charges: Initial 3.25%, annual 1.25%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7658 3894
The Schroder small cap discovery fund is a unit trust that aims for growth by investing in 70 to 100 equities of smaller companies in emerging markets and Asia excluding Japan. It is managed by Schroders’ head of global and international small cap equities Matthew Dobbs, with Richard Sennit as the alternate manager.
Discussing the economic background for this launch, Hargreaves Lansdown investment analyst Richard Troue says: “As economies mature, a wider range of opportunities open up to investors. Improved infrastructure, regulation, education and financial services foster a culture of innovation, while increasing wealth causes a rise in consumer demand. The number of small, entrepreneurial companies increases in response, adding an extra dimension to the world’s faster growing markets.”
Troue points out that fund manager Matthew Dobbs sees an increasing array of opportunities among smaller companies in higher-growth economies across the world. “Schroders has launched the Schroder small cap discovery fund in response. This is an adventurous fund with the bulk of investment initially expected to be in Asia excluding Japan. This includes more developed countries such as Singapore and Hong Kong; and less developed economies such as Thailand and Indonesia.”
Troue notes that Dobbs will also look to other emerging markets such as Brazil, as well as investing in developed markets companies which derive a significant part of their revenues or growth from these markets.
“A key advantage of looking for undiscovered opportunities among smaller companies is the added diversification it can bring to a portfolio. While
the universe of bigger companies in emerging markets tends to be dominated by financial, energy, telecommunications and utilities companies, the
smaller companies arena contains more opportunities among consumer, industrial, healthcare and technology companies. If successful their growth can be long and prosperous, providing pure exposure to new and exciting technologies and products in niche areas,” he says.
Troue adds that initially, Dobbs expects almost 50 per cent of the fund to be invested in consumer goods companies. “The fund manager believes many companies in this area can capitalise on increasing household spending as disposable incomes grow. Elsewhere,Dobbs plans to have approximately 14 per cent of the portfolio invested in industrial companies and 16 per cent in financial companies. Conversely, he does not believe there is much growth potential among smaller utility or telecommunications companies so there will be no exposure to these sectors at launch.”
Turning to the potential drawbacks of the fund, Troue says: “This is clearly a higher-risk offering aimed at more sophisticated and adventurous investors. It is likely to complement existing holdings in broader Asian/emerging market funds and developed-market smaller company funds, rather than being suitable for those looking for initial exposure to smaller companies or higher-growth markets.”
Troue feels that Matthew Dobbs is building an impressive track record on the Schroder Asian alpha plus fund but he would like to see how Dobbs fares with the added responsibility of this new fund before becoming more positive.
Discussing the likely competitors, Troue says: “In January this year Standard Life Investments launched a global smaller companies fund under the stewardship of Harry Nimmo. It can’t be compared directly to the new Schroders’ fund as it will have a greater focus on developed markets, but it could be considered by those looking to extend their smaller companies exposure beyond our shores.”
For more direct exposure to Asian and emerging market smaller companies, Troue points out that Aberdeen has its Asian smaller companies and emerging markets smaller companies funds. “These funds are managed by the well-respected Asian and emerging markets teams headed by Hugh Young and Devan Kaloo respectively, but are currently only available in the form of an offshore Sicav. Investors also have the option of the Aberdeen Asian companies investment trust.”
Suitability to market: Average
Investment strategy: Good
Adviser remuneration: Average