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Views on Schroder UK Mid 250 fund?

Investment | Unit Trusts Helpful? 5

Asked by renarobb, submitted 08 September 2012.

Open Quote Appreciate your views on Schroder UK Mid 250 fund.

Thanks
End Quote

Answered by Justin on 26 September 2012

On the surface, the Schroder UK Mid 250 is a good fund gone bad - it has underperformed the FTSE 250 Index by some margin in 4 of the last 5 years. The last 12 months have offered a ray of hope with the fund finally outperforming the Index, but does this warrant continuing to hold the fund?

There appear to be a few key reasons for the underperformance. Going back several years there was widespread concern that the fund had become too large for mid cap investing - the challenge for manager Andy Brough being he'd have to invest in more companies and/or increase the size of bet on each company - neither necessarily desirable.

The size issue appears to have been compounded by Brough making too many poor sector and stock bets over the last few years. As of the end of August Brough had over half his fund invested in the consumer services and industrial sectors, with Sports Direct his largest holding at just under 6% of the fund. His industrials weighting is broadly on par with the Index, but his consumer services exposure is quite a lot higher - meaning he either expects the economy to pick up or he's very confident in his stock picks.

Either way, remaining in the fund means having confidence in Brough. While once almost a foregone conclusion, poor performance has shaken the faith of many investors. I think there's a fair chance performance versus the Index will bounce back medium term (although I don't expect this to be consistent given market/economic volatility), but on balance I think there's a stronger argument for simply switching into a tracker. Or, at the very least, consider using a different active manager with a stronger, more consistent track record. The Franklin UK Mid Cap Growth (an ex Rensburg fund) run by Paul Spencer springs to mind, as does the Royal London UK Mid Cap Growth fund run by Derek Mitchell.


Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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