An Introduction to: Schroder ISF* US Small & Mid (SMID) Cap Equity

Transcription

1 An Introduction to: Schroder ISF* US Small & Mid (SMID) Cap Equity November 2006 For Professional Investors Only Representing Schroders: Jenny Jones Executive Vice President and Portfolio Manager John Harrington, CFA Senior Vice President and Product Manager *Schroder International Selection Fund is referred to as Schroder ISF throughout this presentation.

2 Investment Team Jenny Jones Portfolio Manager, Small & SMID Cap Equity 26 (23) years of investment experience Sectors: Insurance, Capital Goods, Special Situations Robert Starbuck Director of Small/SMID Research 29 (15) years of investment experience Sectors: Technology, Energy Steve Kirson, CFA Equity Analyst 22 (20) years of investment experience Sector: Technology Andrea Bici Equity Analyst 17 (10) years of investment experience Sector: Health Care John Helfst Equity Analyst 12 (10) years of investment experience Sectors: Banks, Brokers, Specialty Finance Alex McCormick, CFA Equity Analyst 8 (8) years of investment experience Sectors: Consumer Discretionary, Consumer Non-Cyclical Cezary Nadecki, CFA Equity Analyst 8 (2) years of investment experience Sectors: Telecommunications, Utilities John Harrington, CFA Product Manager 20 years of investment experience Katherine Thorpe, CFA Product Management Executive 5 years of investment experience Numbers in brackets refer to years of experience in Small or SMID Cap Equities As at 30 September

3 Investment Objective and Philosophy Objective To outperform the Russell 2500 by bps, after-fees, over a full market cycle Philosophy Proprietary fundamental research can identify undervalued investment opportunities in the smid cap arena Combination of three distinct company types (mispriced growth, steady eddies and turnarounds) can lower overall volatility and enhance performance Experience in the smid cap area over time, and in different market environments, is critical to adding value 2

4 Investment Process The Universe Reducing The List HOLT screens Company managements Internal team meetings Fine Tuning The List Compelling financial metrics Valuation Stocks with Market capitalization US$1bil US$7 bil 1,200 names Input from competitors Cross fertilization from small cap Sell-side boutiques Liquidity profile 600 names Screened results Turnaround candidates 200 names Portfolio consideration Liquidity profile SISF US Small & Mid Cap Equity Company meetings Conferences Reasonable valuation Superior business models Portfolio manager conviction Stocks 3

5 Investment Process Reducing the List Superior Business Model Compelling industry / company characteristics Competitive advantage Potential for accelerating revenue and/or earnings, margin expansion Compelling Financial Metrics High CFROI Reasonable debt levels Strong ROA Screens Customized, driven by market opportunity Turnaround Catalyst evident Market sentiment Management 4

6 Investment Process Fine tuning the list Valuation P/E P/FCF EV/EBIT Discount to expected earnings growth (PEG) Conviction /Judgment Upside/downside expectation Confidence in management Portfolio Consideration Liquidity Exposure to industry 5

7 Investment Process Three Distinct Company Types Mispriced Growth (50-60% of portfolio) Companies that are exhibiting solid top and bottom line growth. Top line should be growing at 10%+, and bottom line at 15%+ Product or service that is at early stage of life cycle and end market demand is strong Strong, talented management team Balance sheet strength and improving cash flows Steady Eddies (20-40% of portfolio) A predictable, high quality company, with consistent results and low variability in revenue/earnings Bottom line most likely growing at 8-12% Strong free cash flow, strong balance sheet, consistently meets earnings estimates Valuation may be higher than mispriced growth stocks, due to consistency and lower risk Turnarounds (5-20% of portfolio) Out-of-favour in the market Significant accounting or management issue Restructuring 6

8 Portfolio Construction Cash target 5% or less Position size limited to 5% Top ten positions >20% Sector weights within 1000 basis points of benchmark weight 7

9 Sell discipline Three primary reasons that we sell a stock: Reaches 90% of price target Better idea Negative change in fundamentals 8

10 Top Ten Holdings 30 September 2006 Company Description % of Fund VeriSign Inc. Provider of intelligent infrastructure services 3.0 Invitrogen Corp. Develops research tools for the life sciences industry 2.5 Scientific Games Corp. Lottery systems and services 2.4 Constellation Brands Inc. International producer and marketer of alcoholic beverages 2.2 Dresser-Rand Manufacturer of equipment for the oil and gas industries 2.1 Dover Corp. Manufacturers specialized industrial products and manufacturing equipment 2.0 Tektronix Inc. Supplier of monitoring products and solutions to technology companies 2.0 Thermo Electron Corp. Provider of analytical equipment for life science and environmental laboratories 1.9 Watson Wyatt Worldwide Inc. Global human capital consulting firm 1.9 Medicis Pharmaceutical Specialty pharmaceutical company focusing on dermatology products 1.9 Total 21.9 Source: Factset 9

11 Sector Weights 30 September 2006 Portfolio vs Index % Health Care Technology Energy Materials Consumer Staples Producer Durables Autos & Transportation Utilities Consumer Discretionary Financial Services Schroder ISF US SMID Cap Equity Russell 2500 Source: Factset. 10

12 Performance Periods Ending 30 September 2006 (%) All periods greater than one year are annualised Q YTD 1 yr Since Inception* Schroder ISF US Small & Mid Cap Equity Russell Source: Schroders. A Class shares, net of fees in USD. * Fund Inception on 10 December

13 Schroder ISF US Smaller Companies Performance Periods Ending 30 September 2006 (%) All periods greater than one year are annualised Q YTD 1 Year 2 Years 3 Years 5 Years Schroder ISF US Smaller Companies Russell Periods Ending 31 December (%) Calendar year performance Schroder ISF US Smaller Companies Russell Source: Schroders. A Class shares, net of fees in USD. 12

14 US Small Cap Performance relative to US competitors Small Capitalization Accounts 3 Years Ending June 30, 2006 Annualized Return % Annualized Standard Deviation SIMNA Small Cap Core Russell 2000 Source: Callan Associates Inc. 13

15 US Small Cap Performance relative to US competitors 3 Years Ending June 30, 2006 Group: CAI Small Capitalization Style B (32) A (38) A (41) B (83) SIM NA: US Small Cap Co re Russell 2000 Index Down Market Capture Up Market Capture Down Market Capture Up Market Capture 10th Percentile 25th Percentile Median 75th Percentile 90th Percentile Member Count SIMNA:US Small Cap Core Russell 2000 Index B A Statistics relative to Russell 2000 Source: Callan Associates Inc. 14

16 Summary Highly experienced investment professionals Successful Small Cap product Core investment approach based on fundamental analysis of individual stocks 15

17 Appendix 16

18 Comparison with US Smaller Companies 30 September 2006 Small & Mid Small Cap Number of Stocks Benchmark Russell 2500 Russell 2000 Market Cap - Weighted Median US$3.4 billion US$1.5 billion Market Cap Range US$1-7 billion US$500 million - $2.2 billion % in Top 10 Stocks % Tracking Error Product Assets US$214 million US$2.7 billion Capacity US$ billion US$2.4 billion (closed) Source: Schroders, Factset, Russell Mellon 17

19 The Case for SMID Cap Equity 18

20 US Small & Mid Cap Equity US Equity Market Capitalisation Segments as of 30 September % 5% 1% Mid/Large (over $7bil) Number of Companies % Mid (SMID) ($2bil-$7bil) 700 Small (SMID) ($1bil-$2bil) 650 Small ($0.2bil-$1bil) 1,800 76% Micro (below $0.2bil) 6,750 Source: Factset 19

21 US Small & Mid Cap Equity Historical Risk/Return Profile of Indices 31 December September 2006 % Annualised Return % Risk (Standard Deviation) Russell 200 (large) Russell 2500 (smid) Russell 2000 (small) Source: Factset, Russell 20

22 US Small & Mid Cap Equity Company/Stock Attributes by Market Cap Segment Market Cap Range Ownership Cost of Capital Earnings Volatility Liquidity Volatility Analyst Coverage Historical Returns Less than US$2 billion Higher insider ownership High High Low High bps > Large US$2 - $7 billion Significant insider ownership, but growing, institutional shareholder base Moderate Lower Moderate Moderate bps > Large >US$7 billion Minimal insider ownership, mostly institutional shareholder base Low Lowest High Lowest >15 Large Source: Schroders, Factset 21

23 Performance Notes This presentation does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the Company ). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A. In accordance with the current prospectus, other than for the Schroder ISF Global Property Securities fund, the Company will seek UK distributor status for all distribution A and C shares. An investment in the Company entails risks, which are fully described in the prospectus. Past performance is not a guide to future performance and may not be repeated. Investors may not get back the full amount invested, as prices of shares and the income from them may fall as well as rise. Exchange rate changes may cause the value of any overseas investments to rise or fall. Schroders has expressed its own views and opinions in this document and these may change. Schroder ISF US Small & Mid Cap Equity is not within the scope of the European Union Directive 2003/48/EC (Taxation of Savings Income in the Form of Interest Payments), as implemented in Luxembourg Law. This document is issued by Schroder Investment Management (Luxembourg) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. For your security, all telephone calls are recorded. 22