Schroder European Recovery . The fund , a Europe ex-UK value strategy , is managed by Andrew Lyddon and Andrew Evans . They form part of Schroders ’ stable and successful value team and it is no surprise that the fund correlates positively with value-style outperformance .
Bottom fishing The process begins with a quantitative filter of the cheapest 20 % of the market . The managers aim to find companies trading on a substantial discount to intrinsic value and where earnings growth will exceed market expectations . Their universe of stocks is littered with companies experiencing very real issues , so determining which of these are shorter term in nature , rather than representative of structural decline , is an essential part of avoiding value traps .
The fund has a sizeable exposure to financials , where valuations remain compelling and rising interest rates should lead to margin expansion . Other traditional value sectors such as energy and commodities also feature . However , the weaker markets of 2022 have allowed the team to add higher quality businesses at low valuations . The next decade will look different from the post-financial crisis era , and equity allocations should reflect this . Schroder European Recovery is differentiated from the qualitygrowth-dominated European trade , so provides welcome diversification to clients ’ portfolios .
David Cadwallader is an investment manager at RBC Brewin Dolphin
Issue 93 - March 2023 / 73 /