Schroders remains committed to its long-term investment strategy as its Long-Term Asset Fund (LTAF) hits its two-year mark. The firm is focusing on three key areas: sustainability, emerging markets, and the growing impact of AI on investment decisions. But with the global economy leading to some investor doubt, is Schroders’ strategy the right choice?
Investment evolution
According to Ryan Taylor, the firm’s UK institutional client director, master trusts used to rely on pre-existing Schroders funds for default investments, much like traditional defined contribution (DC) schemes. But as these trusts have grown, they’ve started looking for more tailored investment solutions.
Taylor says: “We evolved into managing solutions for master trusts, building bespoke funds to support them.”
He points out that as these trusts have become more sophisticated, they’re now asking for customised strategies rather than ‘off-the-shelf’ options.
He adds: “As they get bigger, their needs have changed, and we’ve adapted to meet those over the years.” This shift is likely to continue, especially as growth and regulatory changes push the boundaries for what’s considered a sustainable minimum fund size.
Taylor says: “If the government wants only a certain number of funds above a set size, discussions arise about the ideal scale.”
Taylor believes that bigger funds bring more diversification and better risk management, saying: “A large fund opens up more opportunities.”
The government has suggested 25 to 50 master trusts, but Taylor wonders whether this is too many. Industry discussions are pointing to £10 billion in assets under management (AUM) as a realistic starting point for sustainability.
While some consolidation is expected, Taylor doesn’t think it will be as drastic as some predict. He believes that most of the top 15–20 master trusts should still meet the regulatory requirements.
“We’re not expecting major rationalisation, but some exits or mergers may happen,” Taylor says, noting that changes in the master trust market are just part of its natural evolution, not an abrupt shake-up.
Performance & sustainability
Schroders says that despite shorter-term volatility in markets, in it sticking to the longer-term view, believing that a time horizon that look decades ahead is likely to lead to better outcomes.
According to Taylor, this approach requires patience, and some people argue might be too optimistic. Some say that sticking to a long-term plan without adapting to short-term changes could be risky, especially with rising interest rates and growing global tensions.
Schroders says this longer-term view feeds into its approach to sustainability and ESG investing. However, some critics believe many firms treat ESG as more of a marketing tool than something truly integrated into their financial strategies.
Taylor made it clear that this isn’t just about following a trend. He explains, “Sustainability isn’t a buzzword for us; it’s embedded into our investment philosophy. We believe that businesses prioritising ESG will outperform in the long run.”
Taylor also acknowledges there’s still some debate about whether ESG investments actually lead to better returns. With increasing regulatory scrutiny around ESG claims, he notes that firms like Schroders might face tougher questions about the real impact of their sustainability efforts.
Market volatility
Schroders’ decision to ignore short-term noise could be a bit of a double-edged sword, given the unpredictable nature of global markets. Taylor remains confident in the firm’s ability to weather any economic storm. He says: “The market will always have ups and downs, but disciplined, research-backed investment strategies help us see beyond short-term noise.”
Markets don’t always follow predictable patterns. The 2008 financial crisis and the Covid-19 crash showed that traditional investment strategies can struggle in difficult times.
Taylor recognises that Schroders’ long-term approach isn’t for everyone, especially those who are risk-averse or nearing retirement. For these investors, being flexible and adaptable in the short term can be just as important as thinking about the future.
A big part of Schroders’ strategy is investing in emerging markets. Taylor highlights areas like Southeast Asia and parts of Africa, where rapid growth and digital changes offer exciting opportunities. But he also points out that these markets come with risks, such as political instability, currency fluctuations, and weaker regulations.
Schroders is betting on these regions, but it all depends on whether these local economies can stay stable and keep growing.
AI
Schroders is leaning into artificial intelligence and data analytics to help shape their asset management approach like many investment firms.
Taylor says new tools like AI and data analytics are changing the industry. He notes: “AI and data analytics are changing the game. We can now process vast amounts of information at unprecedented speeds, giving us deeper insights into market trends.”
But some critics worry about relying too much on algorithms. They point out that markets are still influenced by human behaviour and global events, which AI doesn’t always predict well.
There’s also concern about creating vulnerabilities in the system as more firms rely on AI-driven models. If too many companies use the same algorithms, it could lead to market instability.
For investors worried about economic instability, Taylor’s advice is simple: “Stay patient, stay diversified, and think long-term. Trying to time the market doesn’t work.”
