The fund, which will be run by rising stars Kevin Murphy and Nick Kirrage, was launched in response to client demand. Murphy (pictured) says its process will mirror the managers' UK-focused Schroder Recovery fund, which invests in cheap stocks with the potential to turn around performance.
"In principle it is not going to be different," Murphy said. "The philosophy, approach and holding period for stocks are all going to be exactly the same." Where the fund differs is its global remit, allowing the managers scope to find undervalued stocks in all parts of the world.
The sector that Murphy sees the most value in at the moment is financials, particularly the battered banks which he says have made improvements since the financial crisis but are still sitting on cheap multiples.
The pair own six banks around the world, which currently make up 11 per cent of the Global portfolio.
"We think they’re the best six in the world," he said. "The most unloved sector in the world today is banks. We have bank shares in Portugal, Italy and Korea, which we think are outstanding value."
The pair also own UK banking giants Barclays and RBS in both the Global fund and Schroder Recovery.
Murphy says that domestic and consumer-focused companies in the UK are also cheap, a theme he adds is reflected in Europe and other parts of the world.
The Global fund will also be a concentrated portfolio of 30 to 60 stocks.
"We currently have 31 and we’re still adding names," Murphy said.
Murphy says he and Kirrage benefit from Schroders' vast global presence and London-based location. Rather than spending their time touring the globe visiting companies, he says they are able to draw from the resources within Schroders and adds that many of the companies they are looking at have been through London, which gives them a chance to speak to management face to face.
"We have no current intention to fly around the world meeting management teams," he said. "We feel our time is better spent in London behind our desks looking at companies."
The managers’ strategy has certainly held up since they took over the UK-focused Schroder Recovery fund in July 2006.
Of the nine named recovery funds in the IMA universe, Kirrage and Murphy’s is the best performing over five years.
It has gained 170.44 per cent over this time, compared with 35.5 per cent from the average fund in the IMA UK All Companies sector and just 31.54 per cent from the FTSE All Share.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund has continued to deliver over the last 12 months, while the likes of Tom Dobell and Mark Slater have lagged the FTSE All Share, with returns of less than 14 per cent. Schroder Recovery has made 42.92 per cent over this time, making it the second-best performing recovery fund over that period, behind R&M UK Equity Long Term Recovery.
Murphy says this outperformance is due to the team’s strict value-based strategy, while many fund managers look for qualities such as attractive barriers to entry or profit margins.
"These are companies that have characteristics that have already forced up valuation levels," he said. "We look at price first, which is a totally different approach to returns versus our peers."
"We start by looking at cheap stocks. You can have good news or you can have cheap prices, but you can’t have both."
"The companies we’re looking at are likely going through tough times. But if the dark clouds pass and the sun starts to shine again, we think they will do well. We’re looking for companies with concerns and worries that are temporary, not permanent."
Murphy adds that the pair take a bottom-up approach when it comes to selecting individual holdings for the funds.
"We’re prepared to buy any company in any sector at the right price," he said. "We’ll buy anything if it’s cheap enough."
However, the manager says he has yet to see attractive enough valuations of late in one of the most battered and bruised sectors – mining.
"In the resources space, the valuations just aren’t cheap enough," he said.
There is no exposure to mining in the Global fund, but Murphy says it holds one cement business which is classified as belonging to the sector.
When investing in recovery stocks, there is of course the risk that a company fails to turn itself around. Murphy says he avoids this trap by steering clear of businesses with deep levels of debt, unless they are priced for financial distress.
"We’re pretty patient guys," he said. "We’ve never sold a business just because the share price hasn’t gone up. Being patient is one of the crucial things to being a recovery investor."
The minimum investment in Schroder Global Recovery is $1,000, or the local currency equivalent. It has an annual management fee of 1.5 per cent.
Schroder Recovery requires a minimum investment of £1,000 and has ongoing charges of 1.52 per cent.
Kirrage and Murphy are not the first UK-centric managers who have taken over a global mandate in recent years. Tomorrow, FE Trustnet will look at how the likes of Harry Nimmo and Alastair Mundy have fared since venturing into this sector.
