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Schroders: We Like Financial and Industrial Stocks - YouTube
Channel: Morningstar Europe
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[Music]
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hello and welcome to the morning start
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series why should I invest with you I'm
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Emma Wallen joining me today is soon
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Africa manager of the Schroder income
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growth fund hi Sue hello so there have
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been a lot of interesting drivers of UK
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equities in 2017 political uncertainty
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the election some rotation within the
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market what have been the biggest
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contributors to the success of your fund
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so far this year the biggest contributor
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has really been at individual stock
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levels so it has been the recovery in
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house builders in particular from quite
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oversold levels post the EU referendum
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at the end of 2016 we held on to what
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were quite big positions and they've
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recovered very nicely and they continue
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to grow there their dividends so that's
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been a big tick in the box another
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bricks it kind of fear recovery play has
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been our financials positions so in
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particular our Life Assurance sector
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weighting so we've got quite a lot of
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individual names we've got a vive legal
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in general and prudential and they've
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all been recovery stocks during 2017 a
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lot of the doubts and concerns of 2017
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are not a swage going in 2018 there's
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still a lot of economic and political
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uncertainty but there also are some
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positive drivers you mentioned house
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builders we've had the budget recently
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which seemed to prop up that sector are
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you feeling positive going into a new
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year more or less sir than you have been
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over the last 12 months well I think
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we've got to recognize that valuations
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are quite a bit higher we've seen
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assertive valuations and that's it
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returns pretty buoyant in 2017 so we're
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entering 2018 on the back of you know
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quite quite good returns really and
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looking forward I think it is going to
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be harder to see double-digit returns
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having said that we've got global growth
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that is positive it's synchronized
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that's good we've seen earnings growth
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this year probably going to see
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moderation so slower growth but still
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growth here into next year as well so
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I'm kind of a little bit more cautious
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going into it to 2018 I think the
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opportunities are definitely in the more
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value end of the market where there are
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quite a lot of risks to looking down
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into the fondue sets top selection
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that's contributed to returns looking at
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the sector level you've got some plays
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there which have been arguably
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controversial over the last couple of
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years could big sector allocation to
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financials energy industrials why are
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you positive on those companies where
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some people aren't at all well let's
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take each year in turn and if we take
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oils as the commodity play and again
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going down to which specific stocks
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we've chosen to invest in it's primarily
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shale and raw dutch/shell made a very
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audacious move at the back end of 2015
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to buy BG which was the exploration
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assets and really the production side
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had been quite disappointing it at BG
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and Shell bought it at just the right
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time for its production to start
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spurting and it also got broadly the
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timing right in terms of the old price
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the old price was still falling through
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2015 and really turned earlier in 2016
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and we decided to up our weight quite
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significantly in that stock we felt that
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the eight and a half percent dividend
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yield which was uncovered by cash flow
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been could be covered in due course by
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cash flow and we stressed oil prices we
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stressed asset sales we stressed the
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balance sheet and actually now it's
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yielding 6% and we think it can can
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yield lower not through cutting the
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dividend but through maintaining that
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dividend that's been a really good
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investment for the fund now looking at
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financials then because that is the
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largest overweight in your fund and it
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is one that has been controversial over
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the loss column it has the way in which
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we built that financials position is
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quite interesting so it's not all banks
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it's a lot of speciality financials its
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speciality property companies its
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speciality other financials as well as
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holding a neutral position in banks and
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an overweight in Life Assurance so it's
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very much it is some critic individual
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stocks and one of the
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positions that's really contributed to
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the fund over the time that we've held
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it which is probably six years now but
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particularly so in the last year has
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been intermediate Capital Group and it's
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probably not a household name for many
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people and it's got to business streams
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it's been very successful in mezzanine
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finance so that intermediate finance
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that the banks haven't been providing as
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they've retrenched to their their core
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activities under regulatory scrutiny and
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it's also built up a fund management
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business so it's raised fixed capital
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money and it's been very successful
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doing that it's growing the dividend
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it's a nice yielder and it's returned
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over 40 percent it's very much about
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stock selection very much so thank you
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very much this is Emma Wolfe for
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Morningstar thank you for watching
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