The one thing Schroders' best global equity ideas all have in common

Knowing when to buy a stock is only half the battle. Knowing why the market is wrong is where the real edge lies.

Since launching the Global Equity Alpha Fund in 2018, the team at Schroders have navigated a period defined by extreme shifts, from pandemic disruption to inflation shocks and the rise of AI. Yet through it all, the strategy has remained anchored to a simple idea: stock selection, not macro forecasting, is the most reliable driver of returns.

Rather than rotating between styles or making big thematic calls, portfolio managers focus on identifying companies where future earnings are being mispriced. It’s a philosophy built on repeatability, not prediction, underpinning everything from portfolio construction to risk management. Investors can access this strategy either via the fund or through its ASX-listed ETF, the Schroder Global Equity Alpha Fund - Active ETF (ASX: ALPH).

To understand how the strategy works in practice, we reached out to Ben Arnold, Investment Director in Global Equities at Schroders.

“We think finding stocks where fundamentals aren't being recognised by the market is a far more repeatable skill than making binary bets on a style, theme or big macro call.”

That belief feeds directly into what he calls the “growth gap”, the difference between market expectations and reality. In this Q&A, Arnold explains how the team targets that gap, balances core and opportunistic ideas, and where they are finding opportunities today. 

Stock selection over macro calls

Today’s approach has been in place since 2018, and markets have been shaped by a series of macro shocks, but Arnold says the approach has deliberately avoided trying to predict them.

“We navigate different market environments by ensuring stock selection is the biggest driver of investment performance."

That focus on repeatability is deliberate. Rather than trying to time cycles or chase themes, the team sticks to finding mispriced earnings and letting the thesis play out.

Defining the “growth gap”

At the core of the process is the idea of the “growth gap”, where the market is underestimating a company’s future earnings trajectory.

“Our best ideas all have one thing in common - that the market is under-appreciating each company's future earnings growth.”

Arnold explains that this mispricing can occur across different timeframes. In the short term, opportunities often emerge from turnarounds, management changes or new product cycles over 12 to 18 months. Over longer periods of three to five years, the opportunity lies in companies where the market has applied an overly conservative growth rate.

The most compelling investments are those where both short- and long-term potential are being underestimated, creating multiple avenues for upside.

How the portfolio is built

The portfolio typically holds 40 to 60 stocks, representing the team’s highest conviction ideas across the Global Equity Alpha Fund and its ETF equivalent.

“The balance between our ‘core’ and ‘opportunistic’ holdings will always be driven by the bottom-up opportunity set.”

Core holdings are generally high-quality compounders with strong market share, durable competitive advantages and sustained investment in innovation. Opportunistic positions tend to be more tactical, often driven by inflection points such as operational turnarounds or shifts in industry dynamics.

This isn’t driven by macro calls or style rotation. It simply reflects where the team is finding the most compelling opportunities.

Risk management: data and debate

With a concentrated portfolio, managing risk is critical. Arnold describes a two-pronged approach built on analysis and challenge.

On the data side, the team works closely with an independent equity risk group.

“We have an independent equity risk team that acts as risk consultants, cutting the portfolio in several ways to help the portfolio manager look at risk from different angles, such as factor risk, scenario, and sensitivity analysis.”

But just as important is the human element. Every week, portfolio managers come together to pressure test positions and portfolio construction.

“Every Thursday, we debate portfolio construction as a team of portfolio managers. Humans have blind spots, and so do fund managers!”

Those discussions are designed to surface risks that may not be obvious in the data alone.

“By getting around a table and talking to a group of other experienced portfolio managers on the team managing similar strategies, we can reduce the chance of unseen risks.”

Ultimately, the goal isn’t to avoid risk, but to ensure it is taken deliberately “with eyes wide open.”

Where opportunities are emerging

The portfolio’s positioning is a by-product of stock selection rather than top-down allocation, resulting in meaningful deviations from the benchmark across regions and sectors.

Currently, the team has increased exposure to companies tied to AI-related infrastructure, including chipmakers and networking providers.

“These companies manufacture the chips and networking equipment used in data centres – key beneficiaries of all this recently announced AI-related spend by the big hyperscalers, including Meta (NASDAQ: META), Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT).”

Beyond these well-known names, Arnold highlights AIA Group (HKG: 1299) as a standout opportunity. The investment case centres on structural underinsurance across Asia and the market’s underestimation of the company’s long-term earnings potential.

“We believe the market continues to underestimate the company’s profitability potential, driven by structurally long-term growth of insurance in Asia.”

At the same time, the team has been disciplined in taking profits. Recent sales include Netflix (NASDAQ: NFLX) and Eli Lilly (NYSE: LLY), where strong share price performance has, in Arnold’s view, fully reflected their growth outlook.

“In both cases, we were happy to crystallise these profits and recycle into other companies that we think the market is under-appreciating.”

Access via fund or ETF

The strategy is available to investors both as a traditional managed fund and via its ASX-listed ETF, offering flexibility in how it is accessed.

“Active ETFs, such as ALPH, are easily accessible via the ASX and trade just like shares.”

The ETF structure allows investors to buy and sell units throughout the day with no minimum investment beyond a single unit, while still accessing the same underlying high-conviction global equity strategy.

Ultimately, the goal isn’t to avoid risk, but to take it deliberately, with eyes wide open to the blind spots that come with it.

ETF

Schroder Global Equity Alpha Fund – Active ETF (ALPH)

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