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Company: Schroders Web Address: www.schroders.com Address: 31 Gresham Street, London, EC2V 7QA
Best Central & Eastern Europe Equities Fund (10 Years): Schroder ISF Emerging Europe
As part of our series on the work of Asset Management Specialists Schroders we invited the fund’s co-portfolio manager, Rollo Roscow, to provide us with an insight into Schroder ISF Emerging Europe.
Schroder ISF Emerging Europe is an equity fund that aims to provide capital growth by primarily investing in companies from Central and Eastern Europe. The fund predominantly adopts a bottom-up approach focused on stock selection and opportunistically invests in particularly fast growing and under-researched frontier emerging European markets such as Georgia and Romania. Rollo describes the fund’s proactive approach to risk management and how it helps to deliver consistent outperformance for clients.
“Our fundamental bottom-up stock research is the primary driver of returns for the fund. We look to derive 80% of our added value from stock selection driven by in-depth fundamental research and 20% of our added value from country allocation guided by our proven proprietary quantitative model with judgemental overlay. The stock selection process is driven by fundamental research conducted by our in-house analysts who are in direct contact with the companies and markets which they are analysing.
“Within Schroder ISF Emerging Europe the risks vary by country, and as such we pay close attention to current political and social factors. We are currently monitoring closely elevated political risk in Turkey for example. Here we try and mitigate risks by investing in companies best placed to weather or indeed benefit from any such instability.
“The case for investing in Central and Eastern Europe remains strong given the diverse nature of the universe including countries which benefit from close trade ties with developed Europe helped by low labour costs and fast growing domestic economies. Banking, consumer and internet industries are also often underpenetrated offering attractive investment opportunities.”
“Overall we adopt a proactive approach to risk management, indeed we believe it is one of our key competitive advantages. We target strong consistent alpha generation through the market cycle but with a close eye on risk.
The Bridge of Peace over the Kura River in Tbilisi during twilight
“Our philosophy when it comes to risk is when you are in a hole, stop digging. That is, minimise the impact where you are not performing but maximise it where you are. In practical terms, this means we alpha adjust tracking errors by flexing the risk we take in each country portfolio up or down versus the local market, depending on how well or poorly we are performing on a trending basis. We also adhere to a 15% relative stop loss rule. This proactive approach to risk delivers a portfolio return profile skewed to the positive over time.” In his final comments Rollo talks us through the fund’s investment process and how the outlook for emerging European countries remains positive.
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