For professional investors only
Schroders
Portfolio Solutions Monthly
June 2014
Markets Dashboard
Yield changes (bps): May 14 to Jun 14
10 year
20 year
Risk asset market changes:
May 14 to Jun 14
50 year
FI Gilt yield

+11

+4

+2
MSCI All World

+1.8%
IL Gilt yield

+9

+4

+5
FTSE 100

-1.5%
RPI swap

+5

+2

+1
5yr Euro CDS

-4 bps
FI Gilt / Swap spread

-2

-2

-1
1 year 90% FTSE 100 put

-
Source: Schroders, 30 June 2014.
Source: Schroders, Bloomberg, Merrill Lynch, Credit Suisse,
30 June 2014. Change in put is the outright change in
premium.
Funding level dashboard
1 year reference funding level progression
1 month attribution of funding level change
130%
116%
120%
114%
110%
113%
100%
90%
Jun 13
111%
Sep 13
Dec 13
Mar 14
Jun 14
May Nominal Real
funding rates:
rates:
level:
+0.5% +0.6%
112%
Growth
Jun
assets: funding
+1.6%
level:
115%
Source: Schroders, Bloomberg, 30 June 2014. Please refer to the supporting notes for further details.
June commentary
— The market brought forward the start of the rate hiking cycle by around one quarter following Governor
Mark Carney’s Mansion House speech in which he suggested that rates may rise sooner than expected.
— Following the speech, the release of the June MPC minutes revealed another 9-0 vote to maintain the
0.5% base rate, offsetting the recent ‘hawkish’ tone from MPC members.
— The Financial Stability Report revealed two new measures of macroprudential policy in an attempt to
combat risks generated from future increases in household debt levels. Lenders are now required to stress
test borrower affordability and implement a loan-to-income cap on new loans of at least 4.5x incomes.
— US real GDP was revised down significantly below market expectations to -2.9% in Q1. Despite this,
global equity markets continued to stretch for new highs with volatility remaining low.
Contact us
The Schroders Portfolio Solutions team partners with investors to provide risk management strategies across all
major financial markets.
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 June 2014
For professional investors only
Market data: LDI markets
One
year
range
•L H•
Month
One
Three
One
end
Month Months Year
30 Jun 31 May 31 Mar 30 Jun
2014
2014
2014
2013
Month end curve
Nominal rates - Gilt markets
5 Year
2.05%
1.85%
1.91%
1.42%
10 Year
2.87%
2.76%
2.92%
2.70%
20 Year
3.52%
3.48%
3.62%
3.60%
30 Year
3.62%
3.59%
3.72%
3.89%
50 Year
3.44%
3.42%
3.57%
3.75%
1 Month change (RHS, Bps):
5.0%
20
2.5%
0
0
10
20
30
40
50
0.0%
-20
Real rates - Index-linked gilt markets
5 Year
-0.91%
-1.08%
-0.99%
-1.22%
10 Year
-0.29%
-0.38%
-0.24%
-0.37%
20 Year
-0.06%
-0.10%
0.01%
0.01%
30 Year
-0.04%
-0.08%
-0.01%
0.06%
50 Year
-0.10%
-0.15%
-0.07%
0.00%
5 Year
3.10%
3.05%
3.11%
2.95%
10 Year
3.28%
3.23%
3.29%
3.25%
20 Year
3.58%
3.56%
3.61%
3.65%
30 Year
3.64%
3.63%
3.67%
3.76%
50 Year
3.65%
3.64%
3.67%
3.78%
5 Year
-0.15%
-0.15%
-0.16%
-0.15%
10 Year
0.01%
0.03%
0.03%
0.06%
20 Year
0.19%
0.20%
0.22%
0.21%
30 Year
0.25%
0.25%
0.31%
0.34%
50 Year
0.15%
0.16%
0.25%
0.26%
10 Year Bund
1.25%
1.36%
1.57%
1.73%
10 Yr Gilt / Bund Spread
1.41%
1.20%
1.15%
0.70%
10 Year US Treasury
2.53%
2.48%
2.72%
2.49%
10 Yr Gilt / US Spread
0.14%
0.09%
0.02%
-0.04%
5 year IG CDS - Euro
62
66
76
120
5 year IG CDS - US
59
62
69
88
2.0%
20
0.0%
0
-2.0%
-20
0
10
20
30
40
50
Inflation rates - RPI swap market
5.0%
20
2.5%
0
0.0%
-20
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
5.0%
2.5%
Gilt curve
3 yrs fwd
0.0%
0
Currency rates
Money markets
1 yr fwd
5 yrs fwd
10
20
30
40
50
30 Jun 31 May 31 Mar
2014
2014
2014
30 Jun
2013
Bank of England base
0.50%
0.50%
0.50%
0.50%
GBP / USD
1.71
1.68
1.67
SONIA
0.45%
0.42%
0.42%
0.41%
GBP / EUR
1.25
1.23
1.21
1.17
3m Libor
0.55%
0.53%
0.52%
0.51%
GBP / JPY
173.2
170.5
171.9
150.8
3y20y
5y20y
3y30y
5y30y
Interest rate swaptions as at month end:
1y20y
ATM* Forward
Par swap rate
3.36%
3.55%
3.64%
3.51%
3.56%
ATM* Implied volatility
58.0
63.1
64.9
59.5
59.5
Source: Schroders, Bloomberg, 30 June 2014. *At the money. All data as at month end allowing for UK trading days.
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1.52
Portfolio Solutions Monthly June 2014
For professional investors only
Market data: Risk management strategies
One
year
range
•L H•
Month
One
Three
One
end
Month Months Year
30 Jun 31 May 31 Mar 30 Jun
2014
2014
2014
2013
Equity indices
MSCI All World
204
201
196
171
FTSE 100
6,744
6,845
6,598
6,215
S&P 500
1,960
1,924
1,872
1,606
Euro Stoxx 50
3,228
3,245
3,162
2,603
Nikkei 225
15,162
14,632
14,828
13,677
13.6%
16.5%
4.3%
4.6%
MSCI All World Total Return (re-based to 100)
140
120
100
80
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
Equity option market indicators (FTSE 100, 1 year)
ATM* Implied volatility
13.0%
12.8%
Skew (110 - 90)
4.3%
4.2%
ATM implied 1 year volatility
20.0%
15.0%
Skew (110 vol - 90 vol)
5.0%
4.0%
10.0%
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
3.0%
Jun 13
Sep 13
Dec 13
Mar 14
Jun 14
Equity risk management strategy indicators (FTSE 100 total return, spot prices)
Zero cost put spread collar
call strike
(70% / 90%)
109.3%
90% Put
Zero cost collar call strike
(90% Put)
1 yr
1.9%
108.0%
3 yr
5.1%
117.7%
125.0%
95% Put
Zero cost collar call strike
(95% Put)
Zero cost put spread collar
call strike
(70% / 95%)
1 yr
3.0%
104.9%
105.8%
3 yr
6.5%
113.8%
119.4%
NB - one year range indicators for equity risk management strategies are based on month end values for the past 11 months.
Source: Schroders, Bloomberg, Merrill Lynch, Credit Suisse, 30 June 2014. *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 OverThe-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.
3
Portfolio Solutions Monthly June 2014
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 July 2014 by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA.
Registration No. 1893220 England. Authorised and regulated by the Financial Conduct Authority. INS03179
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