February 2016
All data expressed as at 29 January 2016
www.schroders.ch
Schroder GAIA
Paulson Merger Arbitrage
A Accumulation Share Class
Fund Launch Date
25 June 2014
Total Fund Size (Million)
USD 949,9
Share Price End of Month (USD)
85,17
Fund Manager
John Paulson (Paulson)
Investment Objective and Policy
The Fund aims to provide capital growth.
The Fund will seek long or short global exposure to equity, equity related and debt securities of companies
currently or potentially involved in mergers and other corporate events, including but not limited to exchange offers,
bankruptcy reorganisations or liquidations. The full spectrum of available transferrable securities may be used,
including but not limited to non-investment grade debt, convertible bonds, Exchange Traded Funds, securitised
assets (such as asset-backed and mortgage-backed securities which will not exceed 10% of the Net Asset Value
of the Fund), less liquid, low or unrated securities, or defaulted debt instruments. Investments in distressed
securities will not exceed 20% of the Net Asset Value of the Fund. Investments will be made directly or indirectly
through financial derivative instruments. The Fund may employ financial derivative instruments for investment or
hedging purposes. These include OTC and/or exchange traded options, warrants, futures, credit default swaps,
total return swaps and/or a combination of the above. Where the Fund uses total return swaps, the underlying
consists of instruments in which the Fund may invest according to its Investment Objective and Policy. The Fund
may have exposure to commodities for investment and hedging purposes through eligible financial instruments and
derivatives. The Fund may also have synthetic short positions but will normally be net long when long and short
positions are combined. At times where it is considered appropriate for defensive purposes, prudent levels of cash
or cash equivalent liquidity will be maintained, which may be substantial or even represent (exceptionally) 100% of
the Fund's assets. The Fund will not invest more than 10% into open ended Investment Funds. The Fund may be
capacity constrained and therefore the Fund or some of its Share Classes may be closed to new subscriptions or
switches in, as described in section 2.3 of the prospectus.
These terms are subject in their entirety to the Fund's offering documents. Please refer to the Fund's offering
documents for a complete description.
Performance Analysis
Performance (%)
1 month
3 months
YTD
1 year
5 years
Since Launch
Average p.a.
since launch
-3,3
-2,1
-3,3
-8,4
---
-14,9
-9,6
Fund
Past performance is no indication of future fund
performance. This depends on the trends in
markets, investment returns and exchange rates
(if relevant), and how successful the asset
manager is in implementing the investment
policy. The performance shown does not take
account of any commissions and costs charged
when subscribing and redeeming units. Prices
of shares and the income from them may fall as
well as rise and investors may not get back the
amount originally invested.
All fund performance data are on a NAV to NAV
basis, net income reinvested. Data is not available
for the time periods with no % growth stated. In case
a share class is created after the fund's launch date,
a simulated past performance is used, based upon
the performance of an existing share class within the
fund, taking into account the difference in the
ongoing charges and the portfolio transaction costs,
and including the impact of any performance fees if
applicable.
Source: Schroders
Prospective investors should consult with their
independent financial advisor with respect to their
specific investment objectives, financial situation or
particular needs to determine the suitability of
investment.
http://Schroder-GAIA-Paulson-Merger-Arbitrage-A-Acc-FMR-CHEN
Performance (%)
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2014
2015
2016
--1,1
-3,3
--3,6
---
--0,4
---
--1,4
---
--2,4
---
-0,0
-1,7
---
-1,5
1,9
---
-0,8
-3,3
---
-0,6
-6,5
---
-6,0
-4,4
---
1,4
-0,4
---
-0,6
1,6
---
Fund
Fund
Fund
Annual Performance (%)
2015
2014
2013
2012
2011
Fund
-4,3
---
---
---
---
Performance Since Launch (%)
2,0
0,0
-2,0
-4,0
-6,0
-8,0
-10,0
-12,0
-14,0
-16,0
Jun 2014
Aug 2014
Nov 2014
Feb 2015
May 2015
Aug 2015
Nov 2015
Schroder GAIA
Paulson Merger Arbitrage
Fund Manager
Comment
Markets were extremely volatile in January, with the S&P 500 index falling -9.9% intra month and closing down
-5.0% at month end. The fund held ground well through the general market selloff, but declined towards the end of
the month, as the S&P 500 staged a brief recovery rally. Speciality pharma saw a sharp decline with Hillary Clinton
again making price controls on drugs a focus of her election campaign. Equity market hedges buoyed the portfolio
during the selloff, as did our hedges in the energy and healthcare sectors. Our hedges aim to minimise the impact
of market exposure so that portfolio returns are isolated to idiosyncratic, event-specific situations. Over recent
months we have steadily increased our hedges, reducing the portfolio's market exposure, given declining S&P
earnings growth. In general, heightened market volatility has caused merger spreads to widen, creating
opportunities for us to add to some existing deals and providing a more attractive entry point for some other deals,
where low spreads may have been a deterrent. In the midst of the broader market selloff, healthcare and specialty
pharma names detracted. Shire Pharmaceuticals was the biggest single detractor in the portfolio in January as
they finally announced a $32 billion deal to acquire Baxalta, following a hostile approach for the company. Market
concerns of potential tax liabilities stemming from Baxalta's prior spin-off from Baxter and questions on deal
synergies, led the stock down -18% during the month. Allergan was weaker causing the spread on its deal with
Pfizer (projected to close in August) to trade at wider levels. We view this deal as strategically compelling and think
that the combination will generate significant value for our Allergan shares. The combined entity will have almost
no leverage post deal, at only 0.7X net debt to EBITDA and will be able to access $40 billion of offshore cash
which they can apply to accretive acquisitions or return to shareholders. We believe the downward pressure on the
healthcare sector is an overreaction and will self-correct. In the third quarter, average EPS growth of our
healthcare portfolio was 26% versus a decline of 2.6% for the S&P, yet at the end of December 2015 these
companies traded at an average of only 10.5x 2016 P/E versus 15.8x for the S&P. We believe these concerns will
subside and as these companies report their fast growing year end results, that the valuations will rise. We see
significant upside in our specialty pharma holdings going forward.
The fund's adjusted net equity exposure remained at 4% month on month, significantly below the typical range of
20-40%, reflecting stock specific hedges, alpha shorts and a desire to run a more hedged portfolio during a period
of heightened market volatility. Long exposure to announced deals was 26% at month-end and merger/event
arbitrage net exposure increased slightly ending the month at 12%. At the end of January the portfolio had no
exposure to offers. The top 10 positions on the long side represented approximately 61% of the overall portfolio, in
line with historical levels and are diversified across a variety of sectors including healthcare, communications and
consumer discretionary. The portfolio continues to invest primarily in listed large-cap equities with the greatest
geographic exposure to the United States, followed by Europe. M&A volumes slowed in January from the record
pace of 2015. Notwithstanding a very volatile market environment, global M&A volumes totalled $183 billion
including the $32 billion Baxalta/Shire, Progressive Waste Solutions/ Waste Connections at $4.2 billion and in the
tech sector Atmel Corp/Microchip Technology at $3.6 billion.
Portfolio Structure
Exposure Analysis (%)
These figures are on a delta-adjusted basis.
Gross Equities Long
Cash adjustment is to account for the cash portion
of deals (sourced directly from Paulson & Co.).
Source: Schroders
Gross Corporate Bonds Long
Number of Positions
87,9
Long
47
0,8
Short
36
Gross Equities Short
-79,0
Fund Gross Exposure
167,7
Strategy Exposure
Fund Net Exposure
Announced Deals
Fund Gross Exposure (delta-adjusted)
Short
Net
25,8
-10,9
14,9
167,7
Offers
Holdings Analysis
Long
9,7
Fund Net Exposure (delta-adjusted)
9,7
Cash Adjustment
5,8
Fund Net Exposure (delta & cash
adjusted)
3,9
0,0
0,0
0,0
Event / Merger
Arbitrage
62,9
-50,6
12,2
Market Hedges
0,0
-17,4
-17,4
Top 10 Long Holdings
Sector
Country
1.
Health Care
United States
% NAV
9,5
2.
Health Care
Israel
8,8
3.
Health Care
United States
7,7
Stock names have been suppressed. Investments in
single sector market index instruments will be
classified in the relevant sector, where relevant.
4.
Health Care
Ireland
5,8
5.
Health Care
United States
5,3
Source: Schroders
6.
Telecommunication services
United States
5,1
7.
Consumer Discretionary
United States
5,1
8.
Consumer Discretionary
United States
5,0
9.
Financials
United States
5,0
10.
Health Care
United States
3,3
Top 10 Short Holdings
Sector
Country
1.
Market Index
United States
% NAV
-44,7
2.
Health Care
United States
-6,9
3.
Energy
United States
-3,4
4.
Health Care
United States
-2,3
5.
Consumer Discretionary
United States
-2,1
6.
Consumer Discretionary
United States
-2,1
7.
Information Technology
United States
-1,8
8.
Market Index
Australia
-1,3
9.
Financials
United States
-1,3
10.
Health Care
United Kingdom
-1,2
Schroder GAIA
Paulson Merger Arbitrage
Asset Allocation (%)
Country
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Health Care
Long
Northern America
Market Index
Short
Consumer Discretionary
Net position
Country/Sector/Market
Capitalisation: Analysis based on
market exposure as a percentage
of Total Fund Size excluding
currency forward contracts.
Financials
Europe & Middle East
Energy
Telecommunication services
Asia Pacific
Information Technology
Materials
Currency: Analysis based on
market exposure as a percentage
of Total Fund Size including
currency forward contracts.
Consumer Staples
Other
Industrials
Source: Schroders
-80
-60
-40
-20
0
20
40
60
80
-60
Market Capitalisation
-40
-20
0
20
40
60
Currency
US Dollar
Mega (>20 Billion)
Australian Dollar
Large (>=5<20 Billion)
Swiss Franc
Medium (>=1<5 Billion)
Brazilian Real
Canadian Dollar
Small (>=250 Million<1 Billion)
Euro
Market & Sector Index
UK Sterling
-80
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
o
x
Sector
Performance
Contribution
Analysis expressed is month to date contribution on
a gross of fees basis using a total return
methodology. The impact of any currency movement
at a position level is reflected within each position's
return. Stock names have been suppressed.
-60
-40
-20
0
20
40
60
80
-20
0
20
40
60
80
100
120
Summary
(%)
Long Equity
-7,8
Short Equity
4,7
Corporate Bonds
0,0
Index Options
0,0
Currency
0,1
Other
0,0
Source: Schroders
Top 5
Contributors
Sector
1.
Undisclosed
Other
(%)
2,1
2.
Undisclosed
Health Care
0,5
3.
Undisclosed
Health Care
0,5
4.
Undisclosed
Information Technology
0,4
5.
Undisclosed
Health Care
0,2
Bottom 5
Contributors
Sector
(%)
1.
Undisclosed
Health Care
-1,2
2.
Undisclosed
Health Care
-0,9
3.
Undisclosed
Health Care
-0,9
4.
Undisclosed
Health Care
-0,9
5.
Undisclosed
Health Care
-0,6
Schroder GAIA
Paulson Merger Arbitrage
ASC 820 (FAS 157)
Summary
Level 1
0,0
Source: Schroders
Level 2
100,0
Level 3
0,0
Liquidity Breakdown
Historic data based on 20% participation rate in
average traded volumes over last 20 days assuming
100% redemption. This data is a representation only
and should not be viewed as an indication of
ongoing/future liquidity. Percentages for liquidity
assessment are subject to change.
Source: Schroders
Risk Considerations
Information
Schroder Investment Management (Luxembourg) S.A.
5, rue Höhenhof
1736 Senningerberg
Luxembourg
Tel.: (352) 341 342 212
Fax: (352) 341 342 342
For your security, communications may be taped or
monitored.
% NAV
Summary
% NAV
1.
Cash
2.
1 to 3 days
99,0
0,0
3.
4 to 5 days
0,5
4.
6 to 10 days
0,4
5.
>10 days
0,0
The capital is not guaranteed. The fund is suitable for investors with a longer term investment horizon and who are
more concerned with long term returns than short-term losses. The investor has a risk tolerance high enough to
absorb potential losses associated with the uncertain outcome of merger and acquisition transactions and
corporate events. The fund will take significant positions in companies involved in merger and acquisition
transactions and other corporate events, the outcome of which are uncertain and may in certain instances
adversely impact the performance of the fund. Investments in companies that are involved in mergers or other
corporate events can be difficult to sell quickly, which may affect the value of the fund and, in extreme market
conditions, its ability to meet redemption requests upon demand. Non-investment grade securities will generally
pay higher yields than more highly rated securities but will be subject to greater market, credit and default risk. A
security issuer may not be able to meet its obligations to make timely payments of interest and principal. This will
affect the credit rating of those securities. Investment in bonds and other debt instruments including related
derivatives is subject to interest rate risk. The value of the fund may go down if interest rate rise and vice versa.
Investments in money market instruments and deposits with financial institutions may be subject to price fluctuation
or default by the issuer. Some of the amounts deposited may not be returned to the fund. Investments
denominated in a currency other than that of the share-class may not be hedged. The market movements between
those currencies will impact the share-class. The fund may hold large positions in a particular investment and if
market declines or the issuer defaults, then the fund will be adversely affected. The fund enters into financial
derivative transactions. If the counterparty were to default, the unrealised profit on the transaction and the market
exposure may be lost. The fund may be leveraged through the use of financial derivatives to achieve a risk target
consistent with its risk profile. Long and short exposure gained through equity and bond total return swaps may
increase the exposure to equity and credit related risks. The use of financial derivative instruments for investment
purposes may increase the share price volatility, which may result in higher losses for the investor.
SEDOL
Bloomberg
Reuters
ISIN
CEDEL
Securities number
Wertpapierkennnummer
Fund Domicile
Fund Base Currency
Dealing Frequency
Accumulation
BLY1R93
SGPAUSD:LX
LU1062022659.LUF
LU1062022659
106202265
24358688
A118Q0
Luxembourg
USD
Weekly on Wednesdays and Month End (3 days notice)
Entry Charge
3,00 % of gross investment amount
Ongoing Charges (latest
available)
2,43 %
Performance Fee
20% of the outperformance over BBA Libor 3 Month subject
to a High Water Mark
Distribution Fee
Settlement Timing
0,00 %
T+3 days
Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third
party data is provided without any warranties of any kind. The data provider and issuer of the document shall have no liability in connection with the third party data. The
Prospectus and/or www.schroders.com contain additional disclaimers which apply to the third party data.
This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder GAIA (the "Company"). Nothing in this document
should be construed as advice and is therefore not a recommendation to buy or sell shares. The offering of shares in certain jurisdictions may be restricted and accordingly
persons are required, by the Company, to inform themselves of and observe any such restrictions. Subscriptions for shares of the Company can only be made on the basis
of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if published). The prospectus and the key investor
information document(s) for Switzerland, the articles of association, the annual and semi-annual reports can be obtained, free of charge, at the offices of the Swiss
representative, Schroder Investment Management (Switzerland) AG, Central 2, P.O. Box, CH-8021 Zurich (authorised and regulated by FINMA) and the Swiss paying agent,
Schroder & Co. Bank AG, Central 2, P.O. Box, CH-8021 Zurich. An investment in the Company entails risks, which are fully described in the prospectus. The Company has
its registered office in Luxembourg and is regulated by the Commission de Surveillance du Secteur Financier. Schroders has expressed its own views and opinions in this
document and these may change.
This document is issued by Schroder Investment Management (Luxembourg) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799.