Schroder Strategic Bond
Strategy Fact Sheet – 1Q16
Strategy overview
Team highlights
The Schroder Strategic Bond strategy seeks to generate absolute
returns through the exploitation of opportunities across a range of
alpha sources. These include duration, yield curve, country, currency,
credit beta, credit sector and relative value. The strategy has the
flexibility to invest in investment grade and high yield sovereign and
corporate debt in developed and emerging markets, currencies,
securitized bonds and derivatives. This can allow for significant
diversification and scope to deliver alpha. To seek sustainable long
term outperformance, we diversify by alpha source and time horizon.
– $119 billion of fixed income assets under management globally
– Team manages over $30 billion in assets across various
global portfolios
– Dedicated team of 10 global investment specialists with Rates,
Credit and FX expertise
– Supported by 180+ investment professionals including 50+ portfolio
managers, 30+ credit analysts, 3 economists, and 9 dealers
– In-house economics team
An unconstrained approach is implemented to try to source the best
opportunities in global bond and currency markets with a strong
focus on drawdown sensitivity and on generating high Sharpe and
Sortino ratios. We use a team based approach in constructing
investment strategy, and decisions are supported by extensive
fundamental research, technical analysis and decision support tools.
Key features
– Benefits from a wide opportunity set across a range of
alpha sources
– Ability to implement short duration position
– Utilizes a diversified risk budgeting approach to portfolio construction
– Uses cost effective offsets to control drawdown
– Imposes limits to each alpha source in order to seek consistent
alpha generation (volatility and drawdown)
– Derivative instruments are actively used for risk management
and position taking
Investment objective*
The performance aim of the representative Schroder Strategic
Bond strategy is to deliver Libor +4% per annum over an
interest rate cycle.
*This is an internal portfolio management target and is not a guarantee or indication of
future portfolio returns.
Composite performance
As of March 31, 2016
*Inception October 31, 2004
9%
6%
3%
0%
Strategic Bond Composite (Gross)
Strategic Bond Composite (Net)
3 Month US Libor
0.14
-0.49 -0.74
-0.49-0.74
-3%
-6%
0.39
0.14
4.05
3.81
1.64
0.40
0.30
0.64 0.33
2.78
1.50
3.02
1.77
-0.59
-3.05
-4.01
QTD
YTD
1 yr
3 yr
5 yr
10 yr
Annual S.I.*
Difference (Gross)
-0.64%
-0.64%
-3.44%
+0.11%
+1.31%
+2.31%
+2.28%
Difference (Net)
-0.88%
-0.88%
-4.40%
-0.89%
+0.30%
+1.28%
+1.25%
Gross
Net
3 Month US Libor
Difference (Gross)
Difference (Net)
2015
2014
2013
2012
2011
-2.51%
-3.48%
0.31%
-2.82%
-3.78%
3.31%
2.29%
0.24%
+3.08%
+2.06%
2.21%
1.20%
0.27%
+1.94%
+0.92%
8.51%
7.44%
0.44%
+8.08%
+7.00%
-1.54%
-2.51%
0.34%
-1.88%
-2.85%
Past performance is not a guide to future performance. The value of an investment can go down as well as up and is not guaranteed. Please refer to the disclosures at the end of
the document for important information about the composite, including the definition of the Benchmark. Performance for periods greater than 1 year is annualized. Please see the
disclosures at the end of this document for more details about the composite creation date.
All data and statistics as of March 31, 2016.
Schroder Strategic Bond
Regional breakdown (%)
Sector breakdown (%)
Financial Institutions
Industrial
Treasuries
ABS
Covered Bonds
Supranational
Agencies
Utility
MBS
CMBS
Sovereign
Local Authorities
Derivatives
Cash Equivalents
Cash
26.4
21.2
21.2
6.4
6.2
Canada
3.0
1.9
1.2
0.7
0.2
0.0
2.9
Belgium
2.6
Mexico
2.3
China
2.0
Ireland
1.7
1.6
Germany
Schroder Strategic Bond
-1.0
Netherlands
0.0
3.0
0
20
30
0
10
20
30
40
50
60
Currency
69.1
US Dollar
33.0
42.5
15.9
UK Sterling
22.9
A
5.9
Others
10
Schroder Strategic Bond
1.3
1.0
Spain
AA
14.6
Euro
-12.3
0.8
Japanese Yen
8.4
BB
Hong Kong Dollar
0.2
Other Currencies
0.1
2.5
B
C
0.0
D
0.0
Schroder Strategic Bond
Derivatives
Cash Equivalents
3.0
Not Rated
-30
0
30
60
90
Effective Yield
(%)2
1.84
-20
120
-1.1
Schroder Strategic Bond
0.0
0
20
40
60
80
The currency breakdown excludes active currency positions +/- 0.5
Portfolio statistics
Effective Duration
(Years)1
1.14
3.6
Italy
AAA
-60
8.3
6.1
Global
Credit quality breakdown (%)
BBB
12.8
France
9.6
-10
47.8
USA
United Kingdom
Information
Ratio*3
0.03
Sharpe
Ratio*4
0.11
Option Adjusted
Spread5
123
Strategy Risk
(%)6
3.24
*Information and Sharpe ratios are for 3 year periods. Strategy Risk is the standard deviation of returns over a three year period.
Source: Schroders, as of March 31, 2016.
Credit quality, regional, currency and sector breakdown shown are based on a representative account and should not be viewed as investment recommendations. Portfolio characteristics
may vary among accounts within the strategy. Data may not add to 100% due to rounding. The quality composition classification of securities by rating is shown as a percentage of
market value. Credit quality breakdown reflects the average of the credit ratings assigned by S&P, Moody’s, and/or Fitch. If only two of the three agencies rate the security, the lower
rating is used to determine the rating classification. For example, a bond rated A1/AA- by Moody’s and S&P, respectively, would be included in the single-A quality tier.The quality
tier classification is consistent in treatment for both the portfolio and the benchmark. 1 A duration calculation for bonds with embedded options. Effective duration takes into account that
expected cash flows will fluctuate as interest rates change. 2 The yield of a bond, assuming that you reinvest the coupon (interest payments) once you have received payment. Effective yield is
the total yield an investor receives in relation to the nominal yield or coupon of a bond. Effective yield takes into account the power of compounding on investment returns. 3 A ratio of portfolio
returns above the returns of a benchmark (usually an index) to the volatility of those returns. The information ratio (IR) measures a portfolio manager’s ability to generate excess returns relative to
a benchmark, but also attempts to identify the consistency of the investor. 4 A ratio that measures risk-adjusted performance. Calculated by subtracting the risk-free rate - such as that of the 10year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. 5 A measurement of the spread of a fixed-income security
rate and the risk-free rate of return, which is adjusted to take into account an embedded option. 6 Chance that combination of assets within the portfolio will fail to meet its financial objective.
Top ten holdings
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
United States Treasury Bill
United States Treasury Bill
United States Treasury Bill
United States Treasury Bill
United States Treasury Note/Bond
International Bank for Reconstruction & Development
Barclays Bank
Inter-American Development Bank
Belgium Government International Bond
JPMorgan Chase
Total
Coupon (%)
0.000
0.000
0.000
0.000
3.000
0.327
0.780
0.473
1.125
1.465
Maturity % of Total Market Value
9/22/2016
5.7
6/30/2016
3.4
8/11/2016
3.4
9/15/2016
3.4
11/15/2045
3.1
9/30/2017
2.4
2/12/2018
2.4
11/26/2018
1.9
3/5/2018
1.7
3/22/2019
1.5
28.7
Source: Schroders, as of March 31, 2016.
Securities listed (excluding cash and cash equivalents) are shown for illustrative purposes and are not to be considered a recommendation to buy or sell.
Top ten holdings based on representative account within the strategy. Account holdings may vary within the same strategy.
Schroder Strategic Bond
Quarterly Commentary
Market Review
Risk across most asset classes sold off in the opening half of Q1
2016, before an abrupt reversal of sentiment around the quarter’s
mid-point. Challenges to global economic growth seemed to mount
by the week. The oil price, which declined sharply and fell to a low on
February 11th, rebounded in the latter half of February and through
March. This recovery coincided with the sharp improvement in
market mood. Key economic data points also improved and policy
support from major global central banks continued.
In the US, data released in January and February initially indicated
strengthening economic headwinds. The impact of higher inventory
levels was cited as the key detractor from growth; weaker net
trade also dragged. The Federal Reserve (Fed) remained cautious
throughout the period, leaving rates unchanged at the March Federal
Open Market Committee meeting. The dovish tone contributed to
better investor sentiment. The UK did not deviate from its longer-term
economic trend of moderating growth and its economic numbers
were relatively stable over the quarter. Although as in the US, the
Bank of England (BoE) Inflation Report persisted in its cautious tone
concerning future growth prospects. The UK’s contribution to market
instability was largely political, as the outcome of the vote over
Britain’s membership in the EU grew more finely balanced.
Performance and Strategy
The Strategic Bond strategy posted negative returns over the
quarter, with credit and rates strategies underperforming. Currency
strategies performed well. Market volatility and the Fed’s dovishness
meant that lower Treasury bond yields were lower over the quarter.
The UK followed suit with the added concerns of “Brexit” and gilt
yields declined. Despite making a positive contribution to relative
returns later on in the quarter, credit strategies were the main
detractor from returns.
Country strategies were slightly negative despite the positive
contribution recorded from the US vs. Canada yield spread position.
The long position in Australian government bonds versus the US
and UK marginally detracted, while the long peripheral Europe,
as compared to short core Europe, trade contributed positively.
Elsewhere, the outperformance in March of our US and European
inflation strategies was insufficient to offset the losses generated at
the start of the quarter.
In currency markets, EUR appreciation versus USD negatively
impacted performance, as the portfolio retained a residual short
EUR vs. USD position. The long-term short GBP vs. USD trade
contributed positively during the quarter, and our tactical long
position held in March bolstered returns when GBP rallied versus
USD. Long exposure to NOK vs. EUR contributed positively during
the period and partially offset the underperformance generated at the
end of 2015.
Outlook
Market movements in Q1 demonstrated the difficulty fixed income
investors currently face in constructing robust portfolios. At the
heart of the challenge is the relationship between economic
fundamentals and investor sentiment, which in our view is currently
quite dysfunctional. Historically, easier monetary policy has indicated
a deteriorating economic environment and by extension a trickier
period for risk assets. In Q1, however, global monetary policy either
remained or grew increasingly supportive, while economic data was
broadly stable. Meanwhile, risk assets were buoyed by the increased
accommodation and an improved oil price, which catalyzed an
abrupt change in sentiment.
Although the Fed and the BoE have reiterated that they will be
cautious in raising rates, the comments primarily refer to the scale
and speed of rate increases. Economic data, which indicate to us
business activity expansion, falling unemployment and moderate
growth, should still incline the Fed to raise rates, in our view.
Corporate bond markets offer compelling yields, but with such a
volatile market backdrop, investors need to be selective in their
allocation. The risk asset sell-off in January and early February was
indiscriminate, and therefore, we would advise caution around credit
beta—broad market exposure to corporate bonds. However, in our
view, US credit still offer compelling yields in comparison to euro and
sterling equivalents. More broadly, the team is currently focused on
exploiting tactical opportunities which, in such a volatile environment,
are abundant. These opportunities will continue to focus on our core
alpha sources: duration, inflation, curve, active currency, technical
and credit beta. However, while the relationship between market
sentiment and the fundamental outlook remains fraught, we will
continue to manage portfolios on a more tactical basis; preferring
shorter-term relative value positions to longer-term directional
exposure.
Source: Schroders
Important Information: Schroders is a global asset management company with $466.9 billion under management as of March 31, 2016. Our clients are major financial institutions
including banks and insurance companies, public and private pension funds, endowments and foundations, high net worth individuals, financial intermediaries and retail investors.
Our aim is to apply our specialist asset management skills in serving the needs of our clients worldwide and in delivering value to our shareholders. With one of the largest networks
of offices of any dedicated asset management company and over 450 portfolio managers and analysts covering the world’s investment markets, we offer our clients a comprehensive
range of products and services. Further information about Schroders can be found at www.schroders.com/us. Portfolio data and risk characteristics are based on the composite. Top
ten holdings and number of holdings only are based on a sample account. Details may vary from account to account.The ratings of Standard & Poor’s Corporation (S&P) and Moody’s
Investor Services, Inc. represent these companies’ opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality.
The quality classification is based on the higher credit ratings of either Moody’s or S&P. For example, a bond rated A1/AA- by Moody’s and S&P, respectively, would be included in
the double A quality tier. This document does not constitute an offer to sell or any solicitation of any offer to buy securities or any other instrument described in this document. The
information and opinions contained in this document have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of facts obtained
from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Schroders has expressed
its own views and opinions in this document and these may change. Past performance is not a guide to future performance. The value of investments can go down as well as up
and is not guaranteed. Sectors/securities illustrate examples of types of sectors/securities in which the strategy invested and may not be representative of the strategy’s current or
future investments. Portfolio sectors/securities and allocations are subject to change at any time and should not be viewed as a recommendation to buy/sell. The opinions stated
in this document include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently
know. However, there is no guarantee that any forecasts or opinions will be realized. Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of
Schroders plc and is a SEC registered investment adviser and registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia,
Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan providing asset management products and services to clients in Canada. This document does not purport to provide
investment advice and the information contained in this newsletter is for informational purposes and not to engage in a trading activities. It does not purport to describe the business or
affairs of any issuer and is not being provided for delivery to or review by any prospective purchaser so as to assist the prospective purchaser to make an investment decision in respect
of securities being sold in a distribution. Schroder Investment Management North America Inc. (“SIMNA Inc.”) is an investment advisor registered with the U.S. SEC. It provides asset
management products and services to clients in the U.S. and Canada including Schroder Capital Funds (Delaware), Schroder Series Trust and Schroder Global Series Trust, investment
companies registered with the SEC (the “Schroder Funds”.) Shares of the Schroder Funds are distributed by Schroder Fund Advisors LLC, a member of the FINRA. SIMNA Inc. and
Schroder Fund Advisors LLC are indirect, wholly-owned subsidiaries of Schroders plc, a UK public company with shares listed on the London Stock Exchange. 875 Third Avenue,
New York, NY 10022-6225, (212) 641-3800, www.schroders.com/us.
Schroder Strategic Bond
Risks
All investments involve risks including the risk of possible loss of principal. The market value of the portfolio may decline as a result of a
number of factors, including interest rate risk, credit risk, inflation/deflation risk, mortgage and asset-backed securities risk, Government
securities risk, foreign investment risk, currency risk, derivatives risk, leverage risk and liquidity risk. Frequent trading of the portfolio may
result in relatively high transaction costs and may result in taxable capital gains. The use of derivatives involves risks different from, or
possibly greater than, the risks associated with investing directly in the underlying assets. No investment strategy or risk management
technique can guarantee returns or eliminate risk in any market environment.
Schroder Strategic Bond
As of: December 31, 2014
Definition of Firm: The Firm is defined as all accounts managed by Schroder Investment Management in the UK and US, by wholly owned subsidiaries of Schroders PLC. Prior to
January 1, 2007 SIM London & SIM North America existed as two separate Firms which were compliant & verified as separate entities until December 31, 2006. The consolidation
of these two Firms was made as part of a move towards creating one global Firm. Composite and Firm assets reported prior to January 1, 2007 represent those of the legacy firm
which managed the product. Prior to January 1, 2011 the SPrIM (Schroder Property Investment Management) Firm existed separate to the Schroder Investment Management UK
and US Firm, from January 1, 2011 these Firms have been combined into a single firm. On April 2, 2013, Schroder U.S. Holdings Inc., a subsidiary of Schroders plc, purchased STW
Fixed Income Management LLC (“STW”) and on July 2, 2013, Schroders plc, purchased Cazenove Capital Holdings; assets managed by STW and Cazenove are included in the Firm
from January 1, 2014. Assets Managed against a liability driven mandate are excluded from the GIPS Firm. A complete list and description of the Firm’s composites and performance
results is available upon request.
Composite Definition: The Strategic Bond Composite (the “Composite”) is comprised of all Schroder Investment Management (UK & US), fully discretionary accounts that seek to
provide a total return primarily through investment in bonds and other fixed and floating rate securities (including, but not limited to, asset-backed securities and mortgage-backed
securities) denominated in various currencies issued by governments, government agencies, supra-national and corporate issuers worldwide. As part of Composite primary
objective, accounts also have the flexibility to implement long and short active currency positions either via currency forwards or via the above instruments. The full spectrum of
available securities, including non-investment grade, may be utilized. Derivatives may be used to achieve the investment objective and to reduce risk or manage the fund more
efficiently. Accounts may use leverage and take short positions. The composite changed name from ‘SISF Strategic Bond Composite” on 01/31/2013.
Composite Construction: New accounts are included from the beginning of the first full month of management on a discretionary basis. Terminated accounts are excluded from
the end of the last full month of discretionary management. This Composite has no minimum asset level for inclusion.
The composite currency is US Dollar
Composite Inception Date: 10-31-2004
Composite Creation Date: 02-25-2005
Calculation Methodology: The portfolio returns are time-weighted rates of return that are adjusted for cash flows. Portfolio returns are combined using beginning of period asset
weights to produce the composite return. Periodic returns are geometrically linked to produce annual returns.
Dividends on equities are recognized net of irrecoverable withholding tax. Since January 1999 dividends have been recognized as of the ex-dividend date having previously been
recognized on a cash basis. Performance results are presented before the deduction of management fees and custodian fees but after trading expenses.
Fee Calculation: The fee scale applied to the composite is 1.00% p.a. from inception to 06/30/2010, and 1.15% p.a thereafter.
Dispersion: The dispersion of annual returns is measured by the asset weighted standard deviation of portfolio returns represented within the composite for the full year provided a
minimum of 5 portfolios are available.
Additional Information: The exchange rates used are provided by WM. Each currency is valued at 4 pm on the last business day of the month. Additional information regarding
policies for valuing portfolios, calculating and reporting returns and a description of all composites are available on request.
GIPS Compliance and Verification: Schroder Investment Management (UK & US) claims compliance with the Global Investment Performance Standards GIPS® and has prepared
and presented this report in compliance with the GIPS standards. Schroder Investment Management (UK & US) has been independently verified for the periods January 1, 1996 to
December 31, 2014.
Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) the firm’s policies and
procedures are designed to calculate and present performance in compliance with the GIPS standards. The Strategic Bond Composite (the “Composite”) has been examined for the
periods January 1, 2014 to December 31, 2014. The verification and performance examination reports are available upon request.
Related Performance Data
Composite - Strategic Bond Composite
Benchmark - 3 Month US Libor
Currency: USD
Gross Returns as of: Dec-31-2014
Firm: UK-INT
Year
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004*
Gross Composite
Return
3.31%
2.21%
8.51%
-1.54%
9.61%
11.90%
-1.59%
5.92%
4.46%
6.69%
0.86%
Net Composite
Return
2.29%
1.20%
7.44%
-2.51%
8.53%
10.79%
-2.57%
4.87%
3.43%
5.64%
0.69%
Benchmark
Return
0.24%
0.27%
0.44%
0.34%
0.35%
0.70%
2.97%
5.38%
5.28%
3.60%
0.42%
3 Year
1
Composite Risk
3.15%
3.18%
4.20%
4.38%
5.66%
4.89%
4.49%
2.45%
n/a
n/a
n/a
As at Dec 2014
Annualized 3 Year
Annualized 5 Year
Annualized 7 Year
Annualized 10 Year
Annualized S.I.3
Gross Composite
Return
4.64%
4.34%
4.51%
4.86%
4.87%
Net Composite
Return
3.61%
3.31%
3.47%
3.82%
3.83%
Benchmark
Return
0.31%
0.33%
0.75%
1.94%
1.95%
Composite Risk1
3.15%
3.85%
4.43%
3.94%
3.91%
3 Year
Benchmark
1
Risk
0.03%
0.03%
0.03%
0.09%
0.36%
0.56%
0.34%
0.26%
n/a
n/a
n/a
Benchmark
1
Risk
0.03%
0.03%
0.27%
0.58%
0.58%
Number of
Portfolios
(throughout
period)
<5
<5
<5
<5
<5
<5
<5
<5
<5
<5
<5
Account
Dispersion2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Market Value at
end of Period
2,917,697,471
2,055,521,481
1,173,625,440
1,149,718,454
885,231,755
589,898,556
334,408,564
792,162,202
858,060,217
470,749,732
34,152,810
Average Account
Value at end of
Period
1,458,848,736
2,055,521,481
1,173,625,440
1,149,718,454
885,231,755
589,898,556
334,408,564
792,162,202
858,060,217
470,749,732
34,152,810
1 Annualized standard deviation of gross monthly returns for the composite and monthly returns for the benchmark
2 Asset weighted standard deviation of annual gross returns of accounts that have been in the composite for the entire year
3 Since Inception
4 Since December 31, 2003 Total Firm Assets include non-fee paying accounts. 2003 Total Firm Assets value has been restated due to the inclusion of those non-fee paying accounts
Total Firm Assets from 2007 incorporate the UK & US firm merger as detailed in the Definition of the Firm, from the start of 2011 Schroder Property Investment Management Multi
Manager accounts are included in the Total Firm Assets
N/A - Information is not statistically meaningful due to an insufficient number of portfolios for the entire year
* Return from composite inception date to end of year
Source: Schroders
PFS-STBOND
Percentage of
Firm Assets
1.03%
0.80%
0.52%
0.59%
0.44%
0.37%
0.37%
0.49%
0.69%
0.49%
0.03%
4
Total Firm Assets
282,697,291,678.31
255,707,099,715.41
223,940,416,622.14
194,958,113,724.01
202,946,283,267.48
161,183,088,769.55
89,646,473,691.69
161,124,537,714.28
125,031,929,762.39
95,717,167,333.40
102,980,753,667.39