Schroder UK Mid Cap (SCP) is a FTSE 250 ex-IT focused trust. Managed by Andrew Brough and Jean Roche, the trust focuses tightly on mid caps, exiting companies when they are promoted to the large-cap FTSE 100 index.
Andrew and Jean construct a portfolio from what they deem the best opportunities in a universe of c.190 companies (the FTSE 250, minus other investment trusts). The focus of the managers is very much on bottom-up stock analysis, seeking to identify two positive categories and one negative category of stocks: 1) long-term growth opportunities, 2) cyclical opportunities and 3) stocks to avoid.
Long-term growth opportunities will comprise the majority of the portfolio, usually around 60%. These are typically high-quality companies with strong competitive positions in industries subject to structural growth trends. Cyclical opportunities are likely to be more vulnerable to fluctuations in the economic cycle; the managers are seeking companies in sectors where they believe improved capital discipline and allocation across the sector can drive increased pricing power and improved profitability for companies within it, or companies that have internal catalysts to improve these issues. The managers are relatively style-agnostic, with a focus on the operational performance and prospects of the underlying companies, and how this will translate to pricing power.
Recent returns have remained strong, outperforming the sector and benchmark index, but the trust remains at a discount of c.-14.3% (as of 19/11/19), with ongoing political uncertainty seemingly a factor in depressing sentiment towards this area. The managers note that the UK as a whole remains a significant underweight in global fund manager surveys, but that they believe there are a significant number of attractive opportunities available at present.
The current dividend yield of c.2.9% is well covered, with revenue reserves in excess of the previous financial year’s dividend.