Schroders: 5 growth stocks being under-appreciated by the market

This video was filmed Thursday, 18 September 2025

When investors look across today’s markets, it’s easy to get caught up in mega-themes. Artificial intelligence, data centres, and the so-called “Magnificent Seven” dominate headlines and capital flows.

But for Frank Thormann, Portfolio Manager of the Schroder Global Equity Alpha Fund (ASX: ALPH), long-term performance doesn’t come from chasing fads. Instead, it’s about finding companies with the capacity to deliver positive surprises, something Schroders calls the “growth gap”, idiosyncratic opportunities where earnings power is underappreciated. 

"We run a concentrated strategy consisting of roughly 40 to 60 stocks, and the idea is really for each of them to be independent of each other rather than trying to be a hero in one year betting on AI stack stocks being right and then the next year everything falling apart and giving all the performance back."

What is the growth gap?

The growth gap is Schroders' term for "unanticipated forward-looking earnings surprises". Markets, Thormann argues, are short-sighted.

"They look at what's happening today or next quarter, but very little analysis goes into how a company will look different in three, four, five years and beyond."

This is where idiosyncratic thinking matters. Instead of extrapolating the past, Schroders hunts for positive inflection points, moments where business fundamentals shift in ways consensus hasn't yet recognised. 

Core vs opportunistic positions

To harness this, the fund blends two buckets of ideas. Roughly 70-80% of holdings are long-term core positions. Companies with durable competitive advantages and multi-year outperformance potential. The remainder are opportunistic investments, shorter-term positions designed to capture nearer catalysts.

“The distinction is the time axis,” Thormann said. “Core is multi-year. Opportunistic might be one to two years, with a greater requirement for immediate positive results.”

This structure ensures the portfolio isn’t beholden to macro swings or factor bets. As Thormann put it: “For me, it’s all about the individual companies.”

Stock picking over factor bets

With a global investible universe of companies above US$5-10 billion in market cap, Thormann can be selective. But the construction philosophy is clear: avoid style drift, keep the portfolio neutral to macro factors, and let stock selection do the work.

“For me, it’s all about the individual companies,” he said. “If I can find 40 to 60 stocks... across different sectors and regions... the relative performance should be driven by the stocks rather than the factors."

This discipline has allowed Schroders to resist the gravitational pull of crowded themes. Even with glamour stocks dominating flows, Thormann only backs them if the future still promises positive surprise. 

“Netflix is one we own. It’s certainly not undiscovered,” he noted. “But we believe its pricing power hasn't been recognised by consensus and is going to drive really strong positive prices going forward."

Case studies: from energy drinks to electricals

Thormann highlighted several names illustrating the growth gap in action.

• Monster Beverage (NASDAQ: MNST): The leader in energy drinks continues to proliferate across geographies and use-cases. “It’s a trend that still has a really bright future,” he said.
  
• Tapestry (Coach) (NYSE: TPR): A consumer brand benefitting from design momentum and creative marketing. Schroders sees this as more opportunistic, requiring careful timing of the exit once brand perception peaks.
  
• Legrand (XPAR: LR): An electricals company leveraged to the build-out of data centres in the US, an inflection point not fully recognised by consensus.
  
• SharkNinja (NYSE: SN): A maker of appliances and cleaning products that has turned “boring segments” into fast-growth stories through design and innovation. Alternative data, such as Google searches and influencer engagement, back up this conviction.

What unites these names is not sector, style, or geography... but their independence. 

“If Tapestry fails, it doesn’t change the odds of Monster being right or wrong. Each of them has independent drivers.”

Netflix and the pricing power play

Netflix (NASDAQ: NFLX) remains one of the fund’s largest overweights. While widely followed, Schroders believes the market underestimates its pricing power. Thormann's research shows that the average Netflix subscriber watches two to three times as many hours as on competing platforms. Historically, Netflix has been cautious in using this engagement to flex pricing power, preferring to instead prioritise subscriber growth. 

“Going forward, that formula is going to change somewhat, where they're going to be a bit more aggressive in using that pricing power. Importantly, we feel that pricing power hasn't been recognised by consensus, and is going to drive really strong positive surprises."

This can serve as a reminder that even well-known names can offer fresh upside when analysed through a forward-looking lens. 

Independent ideas shine as passive momentum fades

After years where passive flows seemed unstoppable, Thormann believes the market environment is once again tilting toward active managers.

“This process hasn’t changed since I became lead manager in 2018, and it has delivered very strong results,” he said. “It’s my belief that earnings surprises are going to continue to be rewarded.”

In other words, investors don’t need to bet the house on the next big theme. A portfolio of differentiated, independently-driven ideas may be the surest way to generate lasting alpha.

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