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Fund Profile

Disclaimer

This is a non-independent marketing communication commissioned by Schroder Investment Management. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
Mid-caps have bounced back on the potential for rate cuts…
Overview

Schroder UK Mid Cap (SCP) is managed by Jean Roche and Andy Brough, who look to own a portfolio of medium-sized companies from the FTSE 250 Index, which offer unique exposures to growing markets. They believe their focus on the mid-cap area of the market offers access to companies able to capitalise on the long-term growth that comes with firms specialising in niche markets, whilst also limiting the higher volatility during periods of market stress.

Performance over the very long term has been excellent, with the trust almost tripling the returns of its benchmark since inception, as well as having outperformed in almost every calendar year of the past decade. More recently, the trust has faced headwinds as the mid-cap space has been acutely affected by the higher interest rate environment. Performance in the past 12 months remains in line with the benchmark though.

The Discount on the shares has remained wide for much of the past 18 months, reflecting negative sentiment towards investment trusts and the UK more generally, although the managers point to easing headwinds as reasons for this to narrow going forward.

The trust generates an attractive Dividend. The most recent annual dividend grew c. 8% on the previous financial year to hit a level that is over ten times the trust’s first dividend. As such, the trust currently has a historic yield of 3.7%. This has contributed to SCP being awarded the Kepler Income & Growth Rating for 2024.

Kepler View

SCP offers investors access to the unique, long-term growth opportunities of the dynamic UK mid-cap space, which has become even more exclusive following corporate activity in the sector. The managers have repeatedly demonstrated their ability to outperform their FTSE 250 (ex ITs) benchmark too, with the trust delivering significant cumulative outperformance since inception and in the majority of calendar years.

These capital returns have been complemented by an impressive Dividend track record, the payout having compounded at 13% per annum since inception in 2003, or more than a tenfold increase in absolute terms. The dividends, whilst having grown impressively, are still covered by revenue and also supported by reserves. We believe this adds further attraction to the investment case for SCP and it should appeal to both growth and income investors as part of a diversified portfolio.

The past 12 months to 04/03/2024 has seen a rare challenging period for the managers in relative terms as a result of the impact of interest rates on their area of the market. However, this belies the strong bounce in absolute performance in late 2023, which carried some positive momentum into 2024. We argue this could be the early signs of a turnaround, indicating investors may believe rates have peaked. If so, we believe the mid-cap space is arguably well placed to lead a recovery (see Performance).

The wide Discount the trust trades at could therefore be seen as an attractive opportunity. Not only could this add to investors’ returns should it narrow as mid-caps recover, but SCP could be the beneficiary of some corporate activity. JMF, a former mid-cap peer, has recently merged into a small-cap vehicle, and we believe SCP could benefit from this, as investors who wish to maintain their mid-cap exposure seek alternatives. This increased demand could further contribute to the narrowing of SCP’s discount.

Bull

  • Considerable long-term outperformance, repeated over a number of discrete time periods
  • Trading at a wide discount despite a recent turnaround in sentiment
  • Strong track record of dividend growth

Bear

  • Focus on mid-caps could limit opportunity set
  • Gearing can amplify losses as well as supporting upside potential
  • Trust has typically experienced larger drawdowns than peers with a larger-cap bias
Continue to Portfolio
2024 Kepler Income & Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for income & growth... Find out more

Fund History

11 Apr 2024 Fund Analysis
Mid-caps have bounced back on the potential for rate cuts…
15 Mar 2024 Schroder UK Mid Cap Fund plc: UK equities – what’s the catalyst?
Mid caps particularly well poised for a UK renaissance...
17 Jan 2024 Top of the Pops
We reveal the winners of our investment trust ratings for 2024…
14 Dec 2023 Results analysis: Schroder UK Mid Cap
Stock selection has driven SCP’s strong performance, but low valuations could offer much more…
30 Aug 2023 UK OK, HUN?
Sentiment towards the UK is at rock bottom, which means only one thing…
06 Apr 2023 Fallen Kingdom?
Since the UK was described as a ‘Jurassic Park’ stock market, it has outperformed. Is this a new age for the stock market..?
22 Mar 2023 Fund Analysis
SCP targets unique exposures from the dynamic mid-cap index, which is arguably still cheap…
11 Jan 2023 Solving the Rubik’s Cube
We reveal the winners of our investment trust ratings for 2023…
06 Jan 2023 Investment trusts: a rare opportunity in UK small and mid-sized companies
Opportunity knocks for UK small and mid-sized companies – find out why...
12 Oct 2022 The Buck stops where?
The US dollar has surged in 2022, but many are questioning whether this can be sustained...
05 Oct 2022 European equities: Oui ou non?
Our analysts go head to head on the prospects for investors looking to the continent for prospective investments...
27 Jul 2022 Has the comeback begun?
Our analysts debate whether the market has fully priced in the current inflation and looming recession…
20 Jul 2022 Fund Analysis
An appealing double-digit discount for those willing to ride out near term uncertainty...
05 Jan 2022 Kepler’s top-rated trusts for 2022
We unveil the winners of our ratings for 2022 in the Growth, Income & Growth and Alternative Income categories…
28 Apr 2021 The next value opportunity?
Two of our analysts debate whether Europe's improving vaccination programme will be the next opportunity for investors in their pursuit of returns...
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
28 Nov 2019 Fund Analysis
UK mid-cap specialist with an extensive track record, trading on a wide discount...
26 Jul 2017 Fund Analysis
25 Jul 2017 Carpe discount
Our analysis shows that there is a right time, and a wrong time, to seize a trust which is languishing on a discount...
View all

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