The Schroders British Opportunities Trust plans to raise up to £ 250m (€ 279m) this month to take advantage of cheap valuations from British companies, both state and private. Their share prices have been weighed down by ongoing uncertainty surrounding Brexit and, more recently, the coronavirus crisis.
“There’s an amazing amount of value in the UK market,” said Rory Bateman, head of equities at Schroders and co-manager of the trust, in an interview. He pointed out that some of the companies being considered for investment are trading more than 60 percent below their fair value. Citigroup strategists also wrote a note on Sunday in favor of cheaper British stocks versus their more expensive US counterparts.
But cheap prices alone are not enough to lure investors into British stocks, which remain some of the world’s most neglected stocks. The FTSE 100, which has underperformed benchmark indices since the Brexit referendum, has fallen 15 percent this year, compared to a 6.3 percent decline in the Stoxx Europe 600 index. The FTSE 250 index, which includes mid-cap companies, has plummeted 10 percent.
The trust has a “big list” of medium-sized companies in its sights, ranging from healthcare and technology to industrial and financial companies, Bateman said. The potential target companies have “fallen a little on their knees because of the pandemic,” but continue to grow, despite other risks such as leaving the EU, he added. “We can get into these companies at very attractive valuations.”
Not child’s play
Listing a new fund in London is not for the faint of heart right now. At least 14 such deals, including Schroder British and recent IPOs of several green investment trusts, were announced this year, but only three raised enough capital to be listed, according to data compiled by Bloomberg.
Among those that failed to achieve their goal is Sanford DeLand Asset Management’s Buffettology Smaller Companies Investment Trust, which wanted to invest in 30 to 50 smaller publicly traded companies in London. Tellworth British Recovery & Growth Trust, calling itself the “Best of British” fund, also withdrew from its initial public offering after failing to meet its minimum size.
Nevertheless, Schroder British is confident that it will succeed where others have found it difficult, thanks in part to its strategy of a 50:50 division between shares in state and private companies. This is “something that no investment trust or any other instrument does,” said Tim Creed, co-manager of the fund and head of UK and European private equity at Schroders.