Schroder Emerging Market Equity Fund

Scorecard
3 / 5 Stars
Lipper
3 4 1 4 4
Zacks Investment Research
1 (Strong Buy)
Standard & Poor's
4 / 5 Stars
TheStreet.com
E (Sell)

#12 in Diversified Emerging Mkts

U.S. News evaluated 202 Diversified Emerging Mkts Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned -5.28 percent over the past year and -0.81 percent over the past three years.

Trailing Returns Updated 02.28.2014
Year to date -3.6%
1 Year -5.3%
3 Years (Annualized) -0.8%
5 Years (Annualized) 16.7%
10 Years (Annualized) N/A

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Summary

If you’re looking for an ambitious emerging market fund that presents exposure to little-known companies from little-known countries, this is not it.

While Schroder Emerging Market Equity fund does have assets in 15 separate emerging market nations, and a few other developed countries, it closely tracks the MSCI Emerging Markets Index. As a result, the vast majority of its assets are invested in the largest corporations in the largest and most popular emerging markets—the BRIC countries of Brazil, Russia, India and China.

As of March 05, 2014, the fund has assets totaling almost $1.01 billion invested in 142 different holdings. Its portfolio consists exclusively of emerging market stocks. The fund seeks capital appreciation, but the managers consider it a “relative return” fund, meaning that they’re not shooting for the highest return, but rather trying to beat their benchmark index.

In fact, the fund’s portfolio is designed to offer returns that differ no more than 5 percent from its benchmark. Of major countryholdings, only Russia and South Korea are substantially overweight. Lead manager Allan Conway chocks Russia’s appeal up to the fact that its public companies trade for half the average price-to-earnings ratio of the MSCI Emerging Markets Index. “We think their corporate governance issues will fade with time”, says Conway. The fund, like its benchmark, maintains sizeable country weightings in China, India, and Brazil.

To beat the index, however, the fund places small bets on what it deems undervalued companies in smaller economies. “We’ll look at countries outside the benchmark and also look at non-benchmark stocks, but we’ll do it very much in a controlled-risk framework. It’s absolutely vital if you’re going to beat the benchmark,” Conways says.

Management believes that the next decade will follow the past decade’s pattern of huge emerging market gains. “Whereas in the past, the world was led by the G7 world and the emerging countries relied on the developed countries through exports, the world is now different,” Conway says. “And the developed world relies on the emerging countries to drive the global economy. And this is the story from now on.”

From the three years ending on March 31, the fund has bested the average fund in its category by 2 percent. The fund has returned -5.28 percent over the past year and -0.81 percent over the past three years.

Investment Strategy

Schroder’s Emerging Market Equity fund is a top-feeder, holding many of the largest companies in each emerging economy. Although management says this focus is unusual and will fade with time, it is currently overweight in mega- and large-cap firms. Investment decisions are based on equal parts country-specific outlook and the growth prospects of individual companies. And while growth is a major focus of the fund, management’s attraction to the largest companies often intertwines with a bias in favor of cheaper, value stocks. Conway attributed the fund’s leaning toward value holdings to the relative current cheapness of mega-caps.

Management

The fund is run by a team of three portfolio managers and Schoder’s head of emerging market equities, Alan Conway, in London. All four managers’ careers at Schroders predate the fund’s inception. Conway is the newest team member at the fund family, having come to Schroders in 2004.

Fees

Schroder Emerging Market Equity Fund has an expense ratio of 1.48 percent.

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Risk

There is no percentage limit on the amount the fund can invest in a single country. If a country that the fund is highly invested in experiences a political or economic crisis, it could have an exorbitant affect on the fund’s returns.

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