Schroders seeks vote on ‘Smid-Cap’ US fund

At the end of April investors will be asked to vote to convert the fund, managed by Grant Cowley, into the new portfolio, which will follow the same investment process Jones uses on her £226m Schroder US Small Cap fund.

John Harrington, US small-cap product and client portfolio manager at Schroders, says if the conversion goes ahead the fund will be similar to the group’s existing ISF US Small & Mid-Cap Equity Luxembourg Sicav fund.

Launched in December last year, the “Smid-Cap” fund, as Harrington calls it, differs from Jones’s small-cap portfolio in two ways. First is its market cap range: while the Small Cap fund invests in companies between $500m and $2.2bn in size, the Smid-Cap fund holds those between $1bn and $7bn.

Harrington adds: “As result of the larger companies we are investing in, the second difference with the Smid-Cap fund is that it is more concentrated. At present Jones’s Small Cap fund holds 142 stocks while the Smid-Cap fund holds 62. The maximum she will hold in any one company in Smid-Cap is 3%, versus 2.1% in Small-Cap.”

Despite these differences, the Smid-Cap fund follows the same proprietary bottom-up, fundamentals-driven process Jones uses on the US Small Cap fund.

Harrington says 50-60% of the portfolio will always be held in mispriced growth companies, 20-30% will be in perceived turnaround situations, while the remainder will be invested in “steady Eddie” stocks. Indeed, Harrington expects that there will be an overlap of some 30% between the two funds.

If the proposal is voted through, Schroders will no longer have a mainstream American fund in its range. However, this does not concern Harrington: “There has not been much retail attraction in the fund as it stands. We think the Smid-Cap fund will be of more appeal to retail investors.”