For professional investors and advisers only
Schroder ISF* Global Dividend Maximiser
Fund Update
Covering May 2016
Overview
 Global equity markets delivered positive returns in May. The fund marginally lagged its benchmark over the month.
The market and the drivers of fund performance
 Belgian insurer Ageas was the top individual contributor to fund returns, following the release of first quarter results that
showed resilient operating performance in both the Life and Non-Life businesses.
 Elsewhere, Apollo Education supported fund performance after the private equity consortium that had made a takeover bid
for the company lifted its offer to $10 per share from $9.50 per share. Shareholders then approved the transaction, which still
needs to pass several regulatory hurdles.
 The technology sector performed better in May after a somewhat weak April. Kulicke & Soffa Industries gained after the
publication of quarterly results. Kulicke & Soffa’s business model is set up to cope with the volatility inherent in the
semiconductor industry. Our long-term view is that the company should continue to generate meaningful cash flow. Our
holding in Cisco Systems made a positive contribution to fund returns after a solid set of fiscal third quarter results, with
operating margins exceeding the company’s guidance range.
 Deutsche Telekom was another contributor, again on the back of results. These showed good growth in the T-Mobile US
business as well as the positive impact from the sale of the stake in the EE joint venture in the UK.
 The main individual detractor was US office supplies group Staples after its proposed merger with Office Depot was halted by
US regulators. While the removal of a competitor would have been beneficial, our investment in Staples was made prior to the
merger being announced and was not predicated on any deal taking place. We remain of the view that Staples offers
significant potential for capital and dividend growth on the basis of its attractive valuation, robust balance sheet and strong
cash generation.
 Shares of handbags and accessories maker Michael Kors fell in the month amid market concerns ahead of full-year results,
particularly the possibility of reduced wholesale volumes in North America. In fact, the results (published on 1 June) were
stronger than expected, highlighting the danger of focusing on short-term factors. We continue to see the stock as attractively
valued.
 Another detractor was Centrica after the announcement of a rights issue, proceeds from which were used to make two small
acquisitions as well as to pay down net debt.
 The options contributed negatively in May in mark to market terms, detracting -0.07%. The effect was slightly positive in net
cash terms though, with all five trades expiring with a strongly positive contribution of +0.20% in aggregate. Only 19 of the 159
positions taken finished above their strike prices, even as markets continued to recover from the lows, over each of these
option terms. Names that performed well over these option terms, and finished above their strike prices included Ageas,
Microsoft, Deutsche Telekom and Intel. Also, with Ageas and Pfizer, we took much less premium allowing us to receive
higher strikes and capture a larger percentage of the rise in these names.
The market outlook and portfolio strategy
 We initiated a new position in Finnish power company Fortum. The group’s share price been under pressure amid weaker
power prices and exposure to Russia. Much of the group’s electricity generation is fixed cost, so any recovery in power prices
would feed through to profitability. Most importantly, the balance sheet is strong, helped by the disposal of its distribution
business in 2014-15. Fortum targets a 50-80% dividend payout ratio.
 We have been selling out of the position in Philip Morris International. The shares have performed well and are now trading
around what we believe to be fair value. Furthermore, the current valuation does not reflect the potential tail-risk from a further
rise in the use of e-cigarettes, which are lower margin than traditional cigarettes. We also note that price discipline has been a
feature of the industry lately but may not continue to be the case.
 We carried out four new option trades in May, taking the overwritten ratio to around 55% (calculated as the total notional
value of open trades as a percentage of the NAV on the latest trade date). We continued to overwrite reduced notionals for
Tesco, Centrica and Pearson, seeing these names as particularly cheap and posing a possible spike risk; especially Apollo
Education, which we are not overwriting at all. We are now also overwriting reduced notionals on HSBC, Staples, Alstom,
BNP and CNOOC.
*Schroder International Selection Fund. Important Information: This document does not constitute an offer to anyone, or a solicitation by anyone, to
subscribe for shares of Schroder International Selection Fund (the “Company”). Nothing in this document should be construed as advice and is therefore not a
recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the basis of its latest Key Investor Information Document
and prospectus, together with the latest audited annual report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained,
free of charge, from Schroder Investment Management (Luxembourg) S.A. An investment in the Company entails risks, which are fully described in the
prospectus. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and
investors may not get the amount originally invested. Schroders has expressed its own views and opinions in this document and these may change. This
document is issued by Schroder Investment Management Ltd., 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the Financial Conduct
Authority. For your security, all telephone calls are recorded. Risk considerations: The capital is not guaranteed. The fund intends to make regular yield
payments to investors and, if its total return is not sufficient to cover these payments, these payments may reduce the fund's capital. 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 will
not hedge its market risk in a down cycle. The value of the fund will move similarly to the markets. The derivative strategy is applied repeatedly over threemonthly periods. This strategy will increase the income paid to investors and reduce the volatility of returns, but there is the potential the performance or capital
value may be eroded. The fund makes use of financial derivative instruments. It is expected that the strategy will typically underperform a similar portfolio with
no derivative overlay in periods when the underlying stock prices are rising, and outperform when the underlying stock prices are falling.
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