The £316.2m trust is currently trading on a 9.75 per cent discount to NAV and is the IT UK All Companies sector’s second worst performer over one year after making a loss of 10.71 per cent. As a point of comparison, its average peer fell just 1.32 per cent over this time while the FTSE All Share gained 7.60 per cent.
The below graph shows how its discount has moved around over recent years. Just to point out to our readers, you can view these graphs yourself on the new FE Trustnet factsheets under the performance tab.
Schroder UK Growth’s discount/premium performance
Source: FE Analytics
In July 2013, star manager Richard Buxton stepped down from the portfolio to leave Schroders and join Old Mutual Global Investors. He was replaced by Julie Dean, who joined Schroders when it acquired Cazenove Capital, but she too departed the asset management house and the trust.
Philip Matthews (pictured), who joined Schroders from Jupiter in 2013 to replace Buxton on his UK Alpha Plus fund, stepped up to run Schroder UK Growth on 30 October 2014. Matthews had built up a strong track record during his time at Jupiter and, while not on the radars of many retail investors, was judged to be a promising hire by the firm.The trust was dealt a further blow when Rathbones, its second-largest shareholder, recently cut its stake. Head of multi asset David Coombs says the decision is down to a lack of conviction in Matthews’ strategy and his smaller retail following than Buxton and Dean.
However, other investment trust analysts argue that a discount of close to 10 per cent represents an attractive opportunity to gain exposure to Matthews and his track record, although past performance is no guide to future returns. He has a style closer to Buxton than Dean, which may be a plus point for investors who preferred this manager’s approach.
Our data shows that his Jupiter Growth & Income fund outperformed Schroder UK Alpha Plus over the one, three and five-year periods before Matthews stepped down from the portfolio at the end of April 2013. It must be noted that Buxton has the stronger long-term track record.
Performance of funds over 5yrs to 30 Apr 2013
Source: FE Analytics
Ewan Lovett-Turner, ?associate director at Numis Securities, said: “The trust has had a time of turmoil with various manager changes but the [appointment of Matthews] may possibly take it back to more of the growth approach taken by Buxton, although slightly less punchy than he would have been.”
“This means a large cap portfolio, which has a slightly contrarian approach and looks for long-term earnings, quality companies and decent valuations. Phillip has a decent track record and if he can deliver some consistent performance then there is the potential re-rating.”
According to the fund’s latest update, Matthews has “materially and swiftly” changed about 55 per cent of the portfolio since taking over from Dean. He added 33 new holdings and sold out of 30 entirely, while seven existing positions were reduced and nine increased.
When Dean left the trust its largest holding was GlaxoSmithKline, followed by BP, HSBC, Royal Dutch Shell and Rolls Royce. Following Matthews’ changes, the top holdings are now Royal Dutch Shell, GlaxoSmithKline, HSBC, BP and Barclays.
The changes are more apparent when viewed on a sector level. Previously, the portfolio had 22.6 per cent in consumer services, 21.4 per cent in industrials and 16.4 per cent in financials; now there is 21.2 per cent in financials, 14.1 per cent in oil & gas and 13.4 per cent in consumer services.
Essentially, Matthews is seeking to mirror the strategy he has implemented on the open-ended Schroder UK Alpha Plus fund. This fund has underperformed the sector and FTSE All Share since he took over with a 7.15 per cent but the manager had to deal with strong outflows after Buxton’s departure - the size of the portfolio shrank from £3.6bn to its current £1.4bn.
Performance of fund vs sector and index over manager tenure
Source: FE Analytics
Lovett-Turner says that getting the same portfolio as Schroder UK Alpha Plus at a 10 per cent discount, plus the fact that the trust has a 0.47 per cent ongoing charge compared to the open-ended fund’s 0.91 per cent, make it worth a look.
Monica Tepes, investment companies analyst at Analyst Cantor Fitzgerald, thinks that at close to 10 per cent the trust’s discount has fallen to such levels that it should be on investors’ radars, despite the recent changes in its management changes and portfolio overhaul.
“It’s fair to say that given where the discount is at this moment in time, the trust’s at one of the worst levels it’s traded at since 2006,” Tepes said, although she points out that a further widening of the discount is possible. When Buxton’s departure was announced, the discount went down to 11 per cent.
The analyst added: “I think that because it is at such an extreme relative to history, putting aside whatever you think about the manager and what he’s trying to do … I would say the absolute level of discount is a good entry point pretty much regardless.”
Kieran Drake, analyst at Winterflood Securities, says the fact the trust’s board as a discount control policy also means investors can expect it to come in from its current levels at some point.
He said: “The question is ‘will that discount tighten?’ The discount management policy of the board is to seek to keep the average discount of the company’s share price to its ex-income NAV at no more than 5 per cent over the long term.”
“So obviously there’s a bit of room for them to let the discount widen over the short term but you would hope that at some point the board would step in to bring that discount in a bit if it doesn’t tighten of its own account.”
A recent statement by the board noted that the trust’s discount is at a higher than average level, adding that it will keep the discount under close review and buy shares “when appropriate” to manage it.
Schroder UK Growth has ongoing charges of 0.47 per cent, has no gearing at the moment and yields 3.75 per cent.
