One of the pleasures in talking to seasoned fund managers is that they started answering your questions 25 years ago and the best ones can think 25 years into the future for their long-term investment positions and strategies.
Schroders is about as seasoned as it gets. The group, renowned as probably the most venerable and blue-blooded of the City’s investment institutions, was effectively founded in 1804 when two brothers, John Henry and John Frederick Schroder, began working together at the same London firm.
John Henry’s great-great-grandson, Bruno Schroder, continues to be a member of the board as an independent director, along with his nephew Philip Mallinckrodt, and the Schroder family owns 47.5 per cent of the group.
Schroders manages money for professional and individual customers in the UK and continental Europe, the Middle East and Africa, America and Asia Pacific.
It is a quoted fund manager listed in London and its closest comparator domestically is probably Standard Life Aberdeen, formed from last year’s merger between the two Scottish investment groups.
Schroders turned in a set of half-year results yesterday that disappointed the City. Pre-tax profits, 8 per cent higher than this time last year at £371.1 million, were better than expected, as were the investment returns, which pushed up the firm’s performance fees. Assets under management ticked up to £449.4 billion, from £447 billion at the end of December. Within this, a £200 million flow of funds in from institutional investors was offset by a similar withdrawal of money by intermediaries, including in Italy, gripped as it is by political turmoil. That, and an interim dividend that was lower than some analysts and investors had hoped for, helped push the shares 4.1 per cent or 133p lower to £30.67.
Schroders is a class act, benchmarking itself more to global rivals such as Blackrock, the world’s biggest money manager, and DWS, the funds group owned by Deutsche Bank — both of which have reported outflows of funds in updates this month — than to its domestic quoted rivals.
Initially slow to adapt to the rise of alternative investment strategies such as private equity and hedge funds, it has since caught up and is going great guns with its increasingly popular multi-asset funds. It has targeted seven areas of growth, including North America and the market for private assets. Every once in a while, it makes targeted acquisitions, such as the deal in May to buy Algonquin, a European hotels investment management business.
It is well diversified gographically, in a position over the long term to benefit from the growing mass affluent, particularly in South America, Africa and Asia, and its North American business is going from strength to strength.
It operates in a volatile and unloved sector, however. Asset managers have suffered a steady sell-off this year amid rising tensions over international trade and with the US Federal Reserve making the bond markets more attractive by planning further interest rises this year.
Schroders’ shares have fallen by 12.5 per cent this year, though they have risen threefold over the past ten years (and for our seasoned fund manager, they have risen over 25 years by 840 per cent). Despite the drop, at 15.5 times last year’s earnings the shares are not cheap, but the yield of 3.5 per cent is respectable.
If you own Schroders shares, there is every reason to hold them over the long term. There are few triggers for much growth in the short run and Standard Life Aberdeen shares are cheaper, if riskier and, at 6.96 per cent, have nearly double the yield.
ADVICE Hold
WHY Will grow steadily over time but has a lower yield than racier rivals
Relx
When Relx rejigs its dual Anglo-Dutch listing in September to make London its main home, its valuation will be about £33.3 billion; a little more than £1 billion shy of the combined worth of WPP, Pearson, Informa and Daily Mail and General Trust, all with businesses that touch on its own.
Relx grew out of Reed Elsevier, formed in 1992 through the merger of the British book and magazine publisher Reed International and Elsevier, a scientific publisher based in the Netherlands. While it has cut the number of publications, Relx, renamed in 2015, publishes 2,500 scientific journals, including The Lancet, almost all in electronic form.
Most of the group’s business is now in data and analytics, much of it for the scientific, legal and financial professions, and it also operates an exhibitions arm, hosting more than 500 events in 30 countries each year.
In a strong set of first-half results, Relx reported growth in all four of its divisions, including 8 per cent at its risk and business analytics arm which, among other things, helps detect and prevent fraud and had revenues of more than £1 billion over the six months to the end of June.
All Relx’s businesses offer good growth opportunities: fraud is not going away and the demand for data and analytics can only increase.
The backdrop is its decision in February to abandon its dual listing in London and Amsterdam, which tends to split trading liquidity for shares and throws up financial reporting and dividend headaches. Instead, it will have a single main quote in London, with junior listings in Amsterdam and New York.
The move will propel Relx even higher up the FTSE 100 and trigger additional buying by index tracker funds if they want to maintain their weighting. A plan to buy back £200 million in shares in the second half, having acquired £500 million in the first six months, should also increase the price, up 35p at £17.13 yesterday.
The problem is that much of this is already built into the shares, which at 20.5 times forecast earnings and a yield of 2.3 per cent are not wildly attractive. They are also likely to be unpredictable until the index switch beds in. Wait until then.
ADVICE Avoid
WHY Look again once the rejig has actually bedded in
