Schroder Alpha plus aiming for top decile position in UK all companies sector
Richard Buxton can hold as few as 20 stocks in the Schroder UK Alpha Plus unit trust, which launches on 24 June seeking absolute returns.
The focused fund can invest in between 20-40 stocks and Buxton will initially create a portfolio of 30 stocks when the portfolio goes live at the end of June.
The fund will carry a 1.5% discount for the two-week offer period after launch, during which the typical 5.25% initial charge will be reduced to 3.7%. It will carry 3% commission and pay 0.5% trail. The fund can be bought as income or accumulation units and is available as an Isa or Pep transfer. Minimum investment is £1,000 for lump sum investments and £50 per month for regular savings.
The fund will seek to produce an absolute return that will put it top decile in the UK All Companies sector on a rolling three-year basis, Buxton told Investment Week. To achieve this, the turnover of the fund is likely to be around 300% per annum.
Buxton will use a combination of bottom-up stock picking and top-down sector positioning in his investment process. He will predominantly employ a top-down sector positioning strategy, and in the absence of strong sectoral themes he will rely heavily on his best stockpicking ideas. The fund is designed specifically to cope with equity market conditions similar to those experienced in the 1960s as Buxton believes markets are set to trend sideways during the next decade.
Buxton said: 'The past 20 years has witnessed unprecedented returns and investors have been used to doubling their money. However, real returns are going to be more modest and muted going forward, with market conditions like to be much more volatile and trendless.'
Buxton said the exceptional returns of the 1980s and 1990s are dangerous to use as a basis for predicting future market conditions. He said markets are now returning to the norm rather than the norm being what investors have become used to.
As such the focus of the fund is on added value, concentrating on active management and absolute returns, which he said are key to helping generate the returns investors have become used to over the last few years.
The only constraints on Buxton are that no stock can account for more than 20% of the fund's tracking error against the FTSE All-Share. The index is not a benchmark, Buxton said, and is only used for internal comparative purposes. Individual sectors cannot constitute more than 30% of the fund.
In such market conditions Buxton will adopt short-term plays, what he calls strong policy mode, and longer term calls, with an emphasis on large and mid-cap stocks.
Buxton said a strong policy idea won't come up every month, it may arise every six months or so and may last two months or longer before the situation changes and he sells the stock.
Because of the fund's large and mid-cap focus, Buxton said liquidity should not be a great constraint as it has been for those funds that concentrate on the small-cap end of the market.
Schroders will not seek to limit the size of the fund, but Buxton said if liquidity did become an issue further down the line it would be something the group look at again.
The longer-term themes in the fund are those which will impact the portfolio over three to four years, like real assets, property, house building, construction, infrastructure and resources.
Buxton joined Schroders a year ago from Baring Asset Management as UK equity manager, where he ran the AAA-rated Baring UK Growth Trust. During his time on the fund, it achieved above-average returns over a five-year period.
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