The fund has a systematic, quantitative approach centred on finding companies that offer good profitability and return on equity, have stable cash flows and conservative balance sheets. The consistent focus on finding the best quality companies was a strict requirement for Van Mulligen when he picked the strategy approximately two years ago. An active fund manager only stands a chance with Achmea IM if they adopt a factor-centred approach.
“Stockpickers tend to deliver unstable results. I need to have a guarantee that a manager sticks to a certain style,” says Van Mulligen. But, apart from the factor-focus, what are the unique selling points of Schroder ISF QEP Global Quality?
The fund is part of Schroders QEP (Quantitative Equity Product) range, meaning it takes, as is in fact the nature of factor investing, a quantitative approach. “Their starting point is a universe of 5,000 stocks. After a first quantitative scan on profitability, stability and balance sheet strength a third remain,” Van Mulligen explains.
But since the fund ‘only’ has 395 holdings, many more stocks are eliminated on the way. “The fund doesn’t include companies with excessive valuations, and if the valuation is above average, the weighting is adjusted downwards accordingly. This enables the management to avoid the most important pitfall of quality investors: paying too much money for companies,” explains Van Mulligen. Quite exceptionally for a quality fund, the average P/E ratio of the portfolio at the end of August (18.2) was lower than the MSCI AC World average (20.3).
While the volatility of a portfolio focused on quality stocks is expected to be relatively low anyway, the Schroder ISF QEP Global Quality fund goes the extra mile to keep price fluctuations down. “The weighting to a particular stock is also reduced if it is relatively volatile,” says Van Mulligen. Annual volatility of the fund is, at 11.5%, exactly equal to the volatility of the MSCI AC World, however.
A final plus of the fund, says Van Mulligen, is that the weighting to a stock is reduced if the company has a relatively heavy analyst-following, as this is perceived by the team as a warning sign that there is little value left in the stock.