Schroders seeks vote on Smid-Cap US 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.”