Growth strategy adds weight to UK-based multi-asset Schroders
• While it may be smaller than other global funds, its Absa partnership makes access easy
Among the world’s megamanagers, Franklin Templeton has made the strongest effort to build a brand among SA’s trustees and financial advisers. BlackRock has registered some of its index funds out of the iShares range, but it only has an office in Cape Town on the South African mainland.
Schroders is smaller than those two, but has a better growth strategy. It accesses the government and parastatal market through a joint venture with black-owned Argon Asset Management. And in the retail market, it has joined up with Absa, which has two feeder funds into the Schroders global core fund as well as the global value fund.
If anybody hasn’t been able to hear the Schroders message, they won’t be able to miss it when it is conveyed by Absa Investments boss Armien Tyer, the human megaphone.
I was given a virtual tour of Schroders by Doug Abbott, who heads business development for the firm in SA. Its asset under management of £418bn would be similar to the entire South African retail and institutional market. But it is no longer the largest asset manager in the UK now that Standard Life and Aberdeen Asset Management have merged.
As a multistyle, multi-asset business, Schroders is similar to Investec, says Abbott. This might be a bit rich as the House of Schroder surely can’t compare with the House of Koseff and Kantor. Schroders still has limited traction on the East Rand, after all.
A successful investment manager does not need global scale, but maybe it has advantages. Many people find comfort in investing in a firm such as Schroders, with 700 portfolio managers and analysts.
Perhaps the best way to benefit is to buy Schroders shares: it claims its staff come to work “to assist clients to meet their future financial requirements”, but shareholder requirements also rank high.
Invest in the JSE-listed Schroder European REIT by all means, but also get your hands on Schroders’ London-listed main shares.
Schroders historically was a UK-focused business. It once owned one of the old City of London merchant banks, which was sold to Citigroup in 2000 to become the clunkily named Schroders Salomon Smith Barney. Schroders admitted it was a good asset manager, but a mediocre banker.
It has a wonderful annuity income stream, with £167bn in equities, of which only 11% is in UK domestic equity funds. It has £84bn in fixed income and £97bn in multi-asset funds.
Schroders is still quite light on alternatives, which make up “only” £15bn of assets. Threequarters of this is real estate, with small positions in emerging market debt, agriculture and commodities and private equity.
To taste a nice antipasto portion of Schroders, go through the Absa funds, which can be accessed for just R200 a month. The funds are sharply differentiated. Global Value invests in the Global Recovery fund, a deep value portfolio, while Global Core does exactly what it says on the tin.
You would be forgiven for considering Global Core to be a closet index fund, with more than 500 shares. It has a tracking error, or deviation from the index, of less than 1.5%.
The Core Fund selects shares using screening factors, and to that extent, it imitates the Investec global equity Four Factor approach.
Global Value would provide a more interesting ride, but do you want to be in a fund that is an enthusiastic investor in Lonmin, Anglo American and South32? It also has chunky holdings in Citigroup and the Royal Bank of Scotland, two of the bad boys of the 2008 global financial crisis.
For a more “quality” portfolio, the Schroders Equity Alpha fund is registered with the Financial Services Board with investment in US dollars.
According to the Association for Savings & Investment SA’s (Asisa’s) June quarter statistics, interest in global equity funds remains muted, with R10.5bn of net inflows over the past 12 months. Inflows into domestic equity funds are more than double this.
International funds, totalling R186bn, account for less than 10% of the unit trust pool. There were net outflows of at least R1bn in four international categories — global flexible, regional flexible, regional general equity and global real estate.
The South African clients of foreign-domiciled funds have a further R383bn, primarily in dollar- and pound-based funds. But even with the political concerns around the government and the ANC, very little money has trickled into these funds recently — just R1.8bn in the second quarter, down from R5.5bn in the first.
None of these Asisa numbers captures the main channel through which funds are externalised: through policies of insurance offered by Old Mutual International, Glacier and Momentum. These products offer a far wider range of investment options than the unit trust-based investment route. Sensibly enough, most investors focus their extra cash on balanced funds, which can be used for tax-deductible retirement savings. They attracted R50bn of net flows over 12 months. Conservative investors have also made their mark, with R70bn into interest-bearing funds, of which R41bn went into money market funds.
South African unit trusts still provide very competitive returns, with a high equity balanced fund providing a 10.2% a year return over five years, or 4.5% ahead of inflation.
There has been a fall in the proportion of assets in interestbearing funds, from 40% to 26%, while multi-asset funds have increased their share from 24% to 50%. Real estate, which has been clearly the best performing asset class, maintained its share at a modest 4%.
Allan Gray and Coronation remain the two largest unit trust companies overall, followed by Stanlib, Investec, Nedgroup and Old Mutual.
A newcomer to top 10 managers has been Boutique Collective Investments.
INTERNATIONAL FUNDS, TOTALLING R186BN, ACCOUNT FOR LESS THAN 10% OF THE UNIT TRUST POOL.