Portfolio Solutions Monthly July 2015
For professional investors only
Schroders
Portfolio Solutions Monthly
July 2015
Markets dashboard
Yield changes (bps): Jun 15 to Jul 15
10 year
20 year
50 year
Risk asset market changes:
Jun 15 to Jul 15
FI Gilt yield

-15

-16

-18
MSCI All World

+1.7%
IL Gilt yield

-5

-12

-15
FTSE 100

+2.7%
RPI swap

-8

-5

-3
5yr Euro CDS

-13 bps
FI Gilt / Swap spread

-1

+1

-2
1 year 90% FTSE 100 put

-0.4%
Source: Schroders, Bloomberg, Merrill Lynch, Credit Suisse, 31 July 2015. Change in equity put is the outright change in premium.
Funding level dashboard
1 year reference funding level progression
1 month attribution of funding level change
Source: Schroders, Bloomberg, 31 July 2015. Please refer to the supporting notes for further details.
Infrastructure UK (iUK)
HM Treasury has made £40bn of funding available for
certain projects via the Infrastructure UK (iUK)
guarantee. It has provided guarantees to approximately
£1.7bn of commitments, and has roughly 40 further
projects in the pipeline. These include the Mersey
Gateway Bridge (£257m), the Northern Line Extension
(£750m), and the largest project, the Hinkley Point C
nuclear reactor (£17bn) coming later this year. Bonds
have so far been issued around gilts + 35-39bps,
tightening to their current level of gilts + 32-35bps (1012bps wider than Network Rail bonds), with liquidity
more robust at issuance than in the secondary market.
These bonds may suit pension funds that seek higher
yield and are comfortable with the potential illiquidity.
Schroders is happy to work with clients to incorporate
these bonds in our LDI portfolios where appropriate,
and happy to discuss specific client situations.
Contact us
Please contact us at PortfolioSolutions@schroders.com if you would like further information on how
Schroders can help manage your Scheme’s exposure to risk.
Portfolio Solutions Monthly July 2015
For professional investors only
Market data: LDI markets
One year
range
•L H•
Month
end
31 Jul
2015
One
Month
30 Jun
2015
Three
Months
30 Apr
2015
One Year
31 Jul 2014
Month end curve (LHS):
Nominal rates - Gilt markets
5 Year
1.45%
1.52%
1.34%
2.04%
10 Year
2.04%
2.19%
1.97%
2.82%
20 Year
2.63%
2.80%
2.58%
3.39%
30 Year
2.68%
2.86%
2.69%
3.48%
50 Year
2.45%
2.63%
2.53%
3.33%
1 Month change (RHS, Bps):
5.0%
60
2.5%
0
0
10
20
30
40
50
0.0%
-60
Real rates - Index-linked gilt markets
2.0%
30
0.0%
0
5 Year
-1.16%
-1.22%
-1.25%
-0.94%
10 Year
-0.85%
-0.80%
-0.91%
-0.32%
20 Year
-0.84%
-0.72%
-0.83%
-0.11%
30 Year
-0.84%
-0.69%
-0.83%
-0.10%
50 Year
-0.99%
-0.84%
-0.90%
-0.14%
5 Year
2.89%
3.01%
2.89%
3.11%
10 Year
3.14%
3.22%
3.11%
3.25%
20 Year
3.45%
3.50%
3.46%
3.53%
30 Year
3.49%
3.52%
3.52%
3.57%
50 Year
3.50%
3.53%
3.55%
3.57%
5 Year
-0.23%
-0.21%
-0.20%
-0.18%
10 Year
-0.02%
-0.01%
0.02%
0.02%
20 Year
0.36%
0.35%
0.35%
0.19%
30 Year
0.45%
0.46%
0.42%
0.27%
50 Year
0.37%
0.39%
0.32%
0.18%
10 Year Bund
0.64%
0.76%
0.37%
1.16%
10 Yr Gilt / Bund Spread
1.23%
1.25%
1.46%
1.43%
10 Year US Treasury
2.18%
2.35%
2.03%
2.56%
10 Yr Gilt / US Spread
-0.29%
-0.32%
-0.19%
0.04%
1.0%
5 year IG CDS - Euro
62
75
61
65
0.0%
5 year IG CDS - US
70
70
63
64
-2.0%
-30
0
10
20
30
40
50
Inflation rates - RPI swap market
5.0%
40
2.5%
0
0.0%
-40
0
10
20
30
40
50
Nominal gilt curve vs swap curve
Global bond markets
0.5%
10
0.0%
0
-0.5%
-10
0
10
20
30
40
50
Forward gilt curves
3.0%
2.0%
Gilt curve
3 yrs fwd
0
Currency rates
Money markets
10
1 yr fwd
5 yrs fwd
20
30
40
50
31 Jul
2015
30 Jun
2015
30 Apr
2015
31 Jul
2014
1.69
Bank of England base
0.50%
0.50%
0.50%
0.50%
GBP / USD
1.56
1.57
1.53
SONIA
0.47%
0.46%
0.45%
0.45%
GBP / EUR
1.42
1.41
1.37
1.26
3m Libor
0.58%
0.58%
0.57%
0.56%
GBP / JPY
193.6
192.0
183.5
173.7
Interest rate swaptions as at month end:
1y20y
3y20y
5y20y
3y30y
5y30y
ATM* Forward
Par swap rate
2.31%
2.39%
2.39%
2.29%
2.29%
ATM* Implied volatility
81.6
83.4
73.5
77.3
69.8
Source: Schroders, Bloomberg, 31 July 2015. *At the money. All data as at month end allowing for UK trading days.
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Portfolio Solutions Monthly July 2015
For professional investors only
Market data: Risk management strategies
Month
end
31 Jul
2015
One
Month
30 Jun
2015
Three
Months
30 Apr
2015
MSCI World
1,766
1,736
1,778
1,714
FTSE 100
6,696
6,521
6,961
6,730
One year
range
•L H•
One Year
31 Jul 2014
Equity indices
S&P 500
2,104
2,063
2,086
1,931
Euro Stoxx 50
3,601
3,424
3,616
3,116
Nikkei 225
20,585
20,236
19,520
15,621
15.6%
15.9%
13.6%
4.8%
4.7%
4.5%
MSCI All World Total Return (re-based to 100)
120
100
80
Jul 14
Oct 14
Jan 15
Apr 15
Jul 15
Equity option market indicators (FTSE 100, 1 year)
ATM* Implied volatility
Skew (90 - 110)
13.7%
4.6%
ATM implied 1 year volatility
Skew (90 vol - 110 vol)
20.0%
6.0%
5.0%
15.0%
4.0%
10.0%
Jul 14
Oct 14
Jan 15
Apr 15
Jul 15
3.0%
Jul 14
Oct 14
Jan 15
Apr 15
Jul 15
Equity risk management strategy indicators (FTSE 100 total return, spot prices)
Zero cost put spread collar
call strike
(70% / 90%)
108.9%
90% Put
Zero cost collar call strike
(90% Put)
1 yr
2.9%
106.9%
3 yr
5.6%
113.6%
123.6%
95% Put
Zero cost collar call strike
(95% Put)
Zero cost put spread collar
call strike
(70% / 95%)
1 yr
4.0%
104.4%
105.9%
3 yr
8.8%
110.2%
117.9%
NB - one year range indicators for equity risk management strategies are based on month end values.
Source: Schroders, Bloomberg, Merrill Lynch, Credit Suisse, 31 July 2015. *At the money. All data as at month end allowing for UK
trading days.
About us
The Schroders Portfolio Solutions Team partners with investors to provide risk management strategies across
all major financial markets.
The team structures and executes physical and derivative based strategies to manage the exposure to global
equity and fixed income markets. These solutions draw on the full opportunity set of exchange traded and
Over-The-Counter derivatives.
To help manage interest and inflation rate risk, Schroders Portfolio Solutions offers a comprehensive and fully
flexible solution utilising segregated solutions (encompassing physical bonds, swaps, swaption and synthetic
gilt based strategies), as well as the Schroder Matching Plus pooled fund solution. We also provide funding
level and market based trigger monitoring and execution for both pooled and segregated solutions.
Clients can access these solutions under directed or discretionary mandates.
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Portfolio Solutions Monthly July 2015
For professional investors only
Notes
The funding level dashboard shows the funding level progression and attribution of funding level change of a
Reference Pension Scheme. This Reference Pension Scheme has a liability duration of around 20 years and
assumes the liability is linked 50% to real interest rates and 50% to nominal rates. The assets are assumed to
have a beta of 0.75 to global equity markets. This enables the reader to observe the scale of component
changes. No allowance for the impact of the progression of time on liabilities is included in the funding level
dashboard. Funding level progression is presented on a rolling 12 month basis, indexed to an initial funding
level of 100%.
Important Information
For professional investors only.
The views and opinions contained herein are those of the Portfolio Solutions Team at Schroders, and do not
necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This newsletter is intended to be for information purposes only and it is not intended as promotional material in
any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial
instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax
advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment
Management Limited (SIM) does not warrant its completeness or accuracy. Reliance should not be placed on
the views and information in the document when taking individual investment and/or strategic decisions.
Past performance is not a guide to future performance and may not be repeated. The value of investments
and the income from them may go down as well as up and investors may not get back the amounts originally
invested. The forecasts stated in the newsletter are the result of statistical modelling, based on a number of
assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market
factors that may affect actual future performance. The forecasts are provided to you for information purposes
as at today's date. Our assumptions may change materially with changes in underlying assumptions that may
occur, among other things, as economic and market conditions change. We assume no obligation to provide
you with updates or changes to this data as assumptions, economic and market conditions, models or other
matters change.
For your security, communications may be taped or monitored.
Issued in August 2015 by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA.
Registration No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.
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