Schroder Mid Cap out of favour – Schroder Mid Cap’s chairman says that it is disappointing that the fund’s performance for the year ended 30 September 2018 was more muted than the prior year due in part to mid cap shares not being in favour with investors. The benchmark delivered a total return of 4.2%. While the NAV total return was 3.5% and share price total return 5.0%. Total dividends for the year were 16.0 pence per share, an increase of 22.1%.
Fees cut
The board has negotiated a reduction in the management fee from 0.7% per annum to 0.65% per annum on the first GBP250m and 0.6% on any amounts in excess of that, backdated to November 30th.
Extract from the manager’s report
“Travel food and beverage company SSP was the top contributor. It is a good example of one of the high quality “long term growth opportunity” stocks which make up the majority of the portfolio, benefiting from structural growth in air travel, led by a proven management team. SSP has maintained its strong performance, particularly in the growth market of international airport catering where it continued to win new contracts whilst retaining tight control of costs.
Another long-term growth opportunity stock, and disruptor, is home emergency services group HomeServe. This delivered robust full-year results and a positive AGM statement. Another example is Diploma, a supplier of specialist equipment to life sciences companies, was rewarded for its continued growth, which has been supplemented by well-received acquisitions.
The largest detractor relative to the index was food retailer Ocado, which was not held. While we recognise that it is a disruptor, it is not as profitable or cash flow positive as our other success story Rightmove, which was also promoted to the FTSE 100.
Although the portfolio benefited from exposure to some consumer stocks, this part of the market had any detractors. The common theme for three of the five principal detractors was the unusual weather patterns, which gives us a degree of comfort that it should normalise.
The most significant detractor was online clothing retailer N Brown. Whilst downgrades have been small, the regulatory environment for the credit division has continued to harden.
Product sales have been disappointing, partly weather related and partly self-inflicted. On the positive side, the company has now closed all its stores and has, sensibly in our view, cut its dividend. A return to real wage inflation, together with a budget which should be beneficial to the typical N Brown customer, may now provide a helpful following wind. We trimmed the position, and await a new CEO before taking further action.
The portfolio was also negatively impacted by animal care retailer Pets at Home. We remain positive on its retail side: like-for-like sales growth is in mid single digits, something many other retailers are struggling to deliver. The market is now questioning the highly profitable veterinary services business. The time the typical vet practice achieves breakeven has lengthened but we continue to see upside, with evidence that consumer spending on pets continues to grow. We see it as a long-term growth opportunity“.
Details of the AGM are available here
SCP : Schroder Mid Cap out of favour