Hargreaves Lansdown's Select Fund takes a stake in Schroders

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Hargreaves Lansdown (HL)'s Select Fund, which ploughs investors' cash into a concentrated portfolio of "high quality" UK businesses, has added fund manager Schroders to its list.

The massive firm, which has around £438bn of assets under administration, is one of the "interesting investment opportunities" which HL believes have been thrown up due to higher levels of stock market volatility.

It believes the business is growing rapidly, and profits – which are reliant on the fees Schroders charges, which are in turn based on assets under management which are sensitive to the level of stock markets – should be reliable since "history tells us that stock markets tend to rise in the long term".

Earlier this month, Standard Life Aberdeen upped its stake in UK fund manager Jupiter to hold more than five per cent.

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"We believe a key factor behind the group’s success is its culture. The Schroder family own 48 per cent of the company’s ordinary shares and over 87 per cent of the voting rights," said HL fund manager Steve Clayton.

"The business is very conservatively financed, with no long-term debt and plenty of surplus capital. This gives it lots of firepower to invest in both good times and bad."

Clayton said he built a stake in Schroders gradually as the price kept rising higher, "so we decided to stand back once we’d established a decent sized position". HL's fund now owns around £5m worth of shares in Schroders, which has a current market value of £9.2bn, and Schroders accounts for around two per cent of the HL Select UK Growth shares fund.

"Since 2007, profit before tax, earnings per share and net assets have compounded at around seven per cent per annum," Clayton said.

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"The group has paid a healthy dividend throughout this period, maintaining the pay-out through the financial crisis, and growing it strongly since then."

A "quirk" peculiar to the Schroders stock is that is has two share classes – one with voting rights and one without, though both receive exactly the same dividend payments.

Clayton explained that it invested in the non-voting rights class, since these trade at a more than 20 per cent discount to their voting class peers so offer a significantly higher yield.

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Full story: Hargreaves Lansdown's Select Fund takes a stake in Schroders: City A.M.

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