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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
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Overview

Managers Jean Roche and Andy Brough aim to build a portfolio of approximately 50 companies which offer unique exposures within the FTSE 250 Index. For Schroder UK Mid Cap (LON:SCP), they are looking for quality companies whose business models are difficult to replicate, meaning they are able to deliver structural growth and provide good long-term returns for investors. They focus on just the FTSE 250 as they believe it is a very dynamic market that is regularly refreshed and has a diverse range of quality companies operating in high-growth niches. The managers remain conscious of valuations though, which offers investors a slightly more value-orientated trust compared to the two direct mid-cap peers (see Portfolio).

Long-term Performance has been strong, with the trust outperforming the sector average and benchmark over three-, five-, and ten-year periods on a NAV basis. Despite a more challenging period in 2022, SCP has bounced back and is now ahead of all comparators over one year to 14/03/2023. The managers have pointed to a number of factors that suggest that this recovery could continue through 2023. The current level of Gearing on the trust, at around 8%, is towards the top end of its recent history, reflecting some confidence in the investment opportunity.

Whilst capital growth is the primary objective, the trust pays an attractive Dividend which is supported by revenues. After a setback in 2020 as a result of the pandemic, the dividend has now returned to growth with the trust managing to pay out more in 2022 than it had in 2019, a record high 19p, in fact.

Analyst's View

SCP is one of a number of trusts specialising in the dynamic UK mid-cap space. However, we believe the fact the managers only hold companies in the FTSE 250 sets the trust apart. Other peers continue to hold stocks on their promotion to the larger FTSE 100 index which means SCP offers more pure exposure to the exciting mid-cap opportunities within the UK (see Portfolio). As such, we believe SCP offers a diverse range of exposures, particularly lower down the mid-cap market which may provide greater upside potential.

The managers have demonstrated that much of their long-term outperformance has been driven by stock selection which lends support to the belief that the success of SCP is a result of the manager skill rather than simple market beta and offers greater return potential than the index (see Performance). Furthermore, the managers argue they have a greater focus on valuations which has contributed to their outperformance of their peers across 2022 as the market rotation impacted growth stocks. If the impact of inflation and interest rates persist in 2023, we believe SCP could be considered in a better place against more growth-exposed peers.

The managers have argued that mid-caps’ valuations are cheap when compared to their history of the past 20 years, and whilst we note they have recovered well in the short term, this could still be seen as an attractive entry point for long-term investors.

Bull

  • Strong outperformance of benchmark and sector over multiple time periods
  • Trust offers pure access to a diverse and dynamic index
  • Valuations remain arguably very cheap versus historic levels

Bear

  • Smaller companies are more exposed to economic headwinds
  • Gearing has been increased over the past five years which brings risks as well as performance potential
  • Managers sell a company on promotion to FTSE 100 which can limit upside potential
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

26 Apr 2024 Bringing it home
Why investors are missing a trick by ignoring their home market…
26 Apr 2024 Here comes the sun
Why the clouds are starting to clear for UK equities…
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...
16 Dec 2022 Investment Trusts: opportunities in all market conditions
How are current market conditions impacting the Schroders investment trust range?
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...
12 Feb 2021 Schroder UK Mid Cap: Worth a closer look?
In the first of our articles focused on Kepler Rated trusts, we examine this trust which has seen its discount widen for reasons which, in our view, don't make much sense...
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...
01 Aug 2017 Fund Analysis
A UK equity trust focused on FTSE 250-listed companies run by one of the most experienced mid-cap managers in the country...
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