Lipper’s Jake Moeller presents highlights of a presentation by James Sym, manager of the Schroder European Alpha Fund, June 3, 2014.
REUTERS/Denis Balibouse
No sooner was the review of Schroder European Alpha Plus doing the rounds when it was announced that Mr. Howard-Spink was relinquishing control of the fund and handing the reins over to James Sym. If Mr. Howard-Spink had made his decision at his presentation in March, he certainly didn’t show it. Perhaps his stated intention to initiate a bucket of small-cap stocks was a clue to his thinking and interests, but his decision to concentrate solely on his Schroder ISF European Special Situations Fund means at least his expertise remains with the group.
A fund manager departure can be a traumatic event for a fund house. This is particularly the case where team infrastructure doesn’t provide clear succession. Unique to this situation, there is not only a new fund manager but a materially different style directly imported from a different fund house. Mr. Sym was drawn from the Cazenove talent pool and has been running what was the former Cazenove Schroder European Alpha Income Fund since May 2012; it is the methodology of this fund that will in the main be adopted for European Alpha going forward.
Mr. Sym is an advocate of business-cycle investing and analyses the sensitivity of company earnings within this to allocate stocks into a particular style bucket. He believes Europe is now in the mid-expansionary phase (citing the improvement of PMI data throughout the region) but with a relatively depressed earnings environment. He recognises that the “crisis discount” in Europe has evaporated and the fast money has gone but that even since the 2012 rally, current valuations are quite normal rather than stretched.
His P/E analysis suggests we are in an environment that justifies 7%-9% equity returns. Furthermore, with nearly 50% of stocks in Europe having a higher dividend yield than their corporate bond yield, asset class price relativity is still very supportive. Thus, he believes there are ample stock-picking opportunities in this market; he identifies financial, industrial cyclical, and certain growth stocks as his current preferred buckets and overweighted sectors.
Table 1. Performance of Schroder European Alpha Plus and Alpha Income
Source: Lipper for Investment Management
Mr. Sym aims to outperform at all points of the cycle and, unlike Mr. Howard-Spink, does not have a consistent quality bias. By his own admission, poor performance could arise because he has positioned the portfolio wrongly for a particular point in the cycle, not because his style is out of favour. The Alpha Plus portfolio has quickly and almost totally been transitioned into Mr. Sym’s incarnation (he still holds a legacy position in BNP), but the portfolio now has totally different style biases to Howard-Spinks. Expect the Alpha Plus portfolio to have around 70% commonality to its Income counterpart (high yielders that Mr. Sym has bar-belled into his income portfolio such as Orange do not appear, for instance).
There are many inferences you can make from this change, and they are positive. It reflects well on Schroder’s Cazenove acquisition, since this is a clear example of where they’ve successfully been able to integrate intellectual capital. It reflects well on James Sym. Schroders is fiercely protective of its brand goodwill and wouldn’t have appointed him without its own rigorous due diligence. Finally, Mr Sym himself, although only having a fledgling track record, is off to a promising start appearing at ease in his new higher profile role.
