Schroder ISF EURO Corp Bd C Acc EUR |
by Giovanni Cafaro
Schroder ISF Euro Corporate Bond boasts a differentiated thematic approach to credit analysis and a long-tenured lead manager. While pillar scores are maintained at Above Average for People and Process, changes in the competitive landscape within the EUR corporate bond Morningstar Category have resulted in the downgrade of the Morningstar Medalist Rating to Neutral from Bronze for its clean (C) share class. Depending on fees, other share classes are rated from Silver to Neutral. Experienced credit investor Patrick Vogel took over the strategy in 2012 , the year in which he joined from Legal & General Investment Managers. Vogel heads Schroders’ European credit team. There was some turnover in the broader team in 2018 when two high-yield-focused portfolio managers departed, but we have seen continued expansion of the European credit analyst team with a good mix of graduate talent and more-experienced hires. Having held the role of global head of credit since April 2021, Vogel has seen his role shift back to head of credit for Continental Europe in January 2023 and remains very much involved in the control of the fund’s top-down strategy. A theme-driven approach drives the fundamental credit research, enabling analysts to interrogate their assumptions and views from a number of different angles. Themes are formulated, discussed, and challenged at the weekly credit portfolio management meetings and exploited through analysts' credit selection. This means the investment process has significant involvement from the credit analysts who contribute to investment decisions under a centralised framework. Credit and theme selection have been the main drivers of outperformance since Vogel took over in 2012, and the results have been impressive. Over his tenure, the fund’s clean share class has outpaced its ICE BofAML Euro Corporate Index benchmark and the EUR Corporate bond category in absolute and risk-adjusted terms. Superior performance has however at times come hand-in-hand with higher volatility. For instance, in 2022 this strategy saw larger losses than peers owing to its higher credit beta stance, coupled with overweight exposure to real estate, which detracted from returns. For the year to date (to the end of June 2023) the fund recovered some ground thanks to good security selection across various sectors, combined with an overweight allocation to services. The fund was soft-closed after the strategy reached EUR 10 billion in size. This, in our view, is a positive as it shows commitment to maintaining the quality of the bottom-up approach. However, this approach also notably leads to a portfolio that is less liquid than smaller peers. A moderate fall in assets from those levels, combined with the team’s disciplined capacity management, mitigates concerns regarding capacity at the current stage. |
Morningstar Pillars | |
People | Above Average |
Parent | Above Average |
Process | Above Average |
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