Schroder European Recovery Z Acc

Over the last five years the fund’s returns have compounded at c. 15.2% a year compared to the average fund in the peer group of 9.6%, and the benchmark, 11.1%. As we discuss below, performance can come at different times compared to the market and the peer group of other European funds due to its deep value style. Although only a short time period, it is interesting that in 2025 year to date, when European equities have performed well at an index level, the fund’s contrarian style has resulted in strong outperformance. This is likely due to its greater weight in banks, which is a sector that international investors reallocating capital from the US have been drawn to. Equally, some of the largest companies in the region such as Novo Nordisk, have performed badly, and as a result many of the fund’s competitors have underperformed. Over this short period, the fund has risen c. 22%, the comparison benchmark by 16% and the peer group average by c. 14%. In contrast, over ten years the fund has lagged the peer group and benchmark, compounding at 7.3% a year compared to the benchmark and peer group’s returns of 9.3% and 8.5%, which is a reminder that a deep value strategy can lag in certain backdrops.

The chart below highlights how Schroder European Recovery’s performance can vary significantly from the average. It shows discrete calendar year performance against the IA Europe ex UK peer group of similar funds, as well as a European ETF. As it illustrates, the fund’s performance can be very different to the peer group and can often move in the opposite direction. This comes with the fund’s very distinctive deep value style, which could also be described as ‘contrarian’. Buying stocks that others are selling, or ignoring, can clearly result in times when the fund will underperform. But equally, when the wider market begins to recognise that a stock is recovering, Schroder European Recovery Fund might already be there to benefit from the resulting momentum.

Source: Morningstar
Past performance is not a reliable indicator of future returns

Schroder European Recovery’s deep value approach leads to a very different mix of stocks and sectors to the index and peer group. More growth-orientated managers, which is the contrasting style that is more common in the peer group, tend to gravitate towards the index’s largest sectors of technology, healthcare and industrials (for which one can often read ‘industrial technology’), Schroder European Recovery’s portfolio is more biased to energy, basic materials, real estate and consumer stocks. While the fund is underweight financial services as a whole, its largest positions include several European banks, which are likely to be a factor in its strong recent performance, as this is a sector that has led the recent rally in European equities. One of the key factors that has helped shift investor sentiment to a more positive frame of mind is Germany’s planned infrastructure spending plans, and this is likely to benefit many of its holdings, from materials to engineering and to real estate. Further, with consumer confidence rising slowly, some of its cyclical positions in luxury goods, which growth managers have sold down in the last year, could see a recovery and confidence builds. Again, a more robust German economy showing signs of growth will likely be a very positive factor. Overall, the portfolio provides a contrast to other funds and the index, with less exposure to expensive defence stocks, technology and healthcare and greater exposure to cheaper sectors, often with lower exposure to international trade and thus to the evolving US trade tariff policy, that could perform very well as Europe’s outlook continues to improve.

• A deep value contrarian strategy is likely to perform very differently to the index
• The strategy invests across the market cap range and exposure to small and mid-sized companies can be more volatile and risky
• In benign market conditions that favour growth stocks, the strategy can lag the index