Number of employees: 374
AUM as of March 31, 2021: $145.2 billion
The global economy shrank by 3.5% last year due to COVID-19, according to the International Monetary Fund, with all nations posting negative growth. The downturn was greatest outside the United States, particularly in developing countries.
Nonetheless, the Schroders International Alpha ADR Strategy rose 23.5% in 2020, topping its index by 12.8% and putting it in the 6th percentile versus its peers, Envestnet analysts say. (American Depository Receipts are a form of equity securities that let U.S. investors gain exposure to non-U.S. stocks without having to tackle the intricacies of foreign stock markets.)
James Gautrey and Simon Webber, who are based in the United Kingdom and serve as subadvisors for the Hartford Schroders International Stock Fund, have co-led the Schroder International Alpha ADR Strategy for 14 years, Envestnet says.
The ADR portfolio did well during the first quarter’s down market and in the second and third quarter up markets, the analysts note. It lagged the index slightly in the fourth quarter, but still ranked in the top half of its peer group — quite an achievement given the sharp rotation to value stocks, they point out.
The large-cap core ADR strategy focuses on holdings with “mispriced growth” or “a growth gap,” which involves investments that the portfolio team views as having better growth opportunities than the market perceives or values.
Recent key holdings for the ADR strategy include France’s Schneider Electric, technology firms like Taiwan Semiconductor Manufacturing and ASML Holding of the Netherlands, communications-services provider Tencent Holding of China and consumer products and video game maker Sony Group of Japan.
Last summer, a “big move” for the strategy was investing in European banks and energy stocks, Gautrey says. For banks, the team saw “an exceptional opportunity” with a large earnings growth gap and thought it could even double its investment in bank stocks over the next 12 months or so. “Broadly this [tactic] has played out quite well, actually,” he explains.
For energy, “We had a view that oil trading around $20-$30 a barrel just wasn’t going to be sustainable,” Gautrey says. The team thought prices would bounce back to $60–$70, which they did.
The team also integrates environmental, social and governance concerns into its decision-making, and a good number of companies it owned in 2020 ranking high from an ESG perspective outperformed last year, Envestnet analysts stated.
“We evaluate material [ESG] factors for every industry and every company” that the team puts into its models and valuations, according to Webber. “Many of our interactions of the last two years with a company like Royal Dutch Shell have been around their strategy for reallocating capital from the oil and gas business to other assets,” he explains. This entails investments in electric-vehicle charging stations and the hydrogen industry.
The strategy’s five-year average annualized return (2016-2020) is 11.3%, and the seven-year average (2014-2020) is 7.4%, according to Envestnet. Its emerging-markets exposure has averaged 12% over the past five years.
“We believe Schroders’ edge is their broad research platform. This includes over 100 local equity analysts, 11 dedicated global sector specialists, a 20-person ESG team and a 25-person data insights unit,” Envestnet analysts explained. In addition, the team relies on a proprietary risk management framework to assess forward-looking portfolio risk, which gives it “a consistent position-sizing framework with a company’s risk-reward tradeoff in mind.”