September 2014
For professional investors and advisors only. Not suitable for retail clients.
Schroder Life
Risk Managed
Global Equity Fund
1
Improving the DC journey
Members in a defined contribution (DC) pension scheme are on a journey. Well
managed, it’s a journey which should take them towards a pot of money sufficient
to meet their income or other needs in retirement. But encouraging them to stay on
track depends, we believe, on building a default investment approach that reflects
their changing need for risk and return as they get older.
Good member outcomes require carefully designed solutions
– Traditional de-risking phase
– Growth still required for drawdown
Value of DC Savings
– Focus on downside protection
– Transition phase
– Drawdown?
Preretirement?
– Equity-like
– All weather performance
Stable
Growth
– Cash?
– Annuity?
Growth
Retirement
Source: Schroders for illustration only.
Age
2
Schroder Life Risk Managed Global Equity Fund
Managing the shift away from risk
As the previous chart illustrates, we see members moving through three main phases
on their savings journey. Here we are only concerned with the ‘stable growth’ stage,
when they reach their 40s, and their need for risk and return moves into rough
balance. Growth remains important as it can have more impact on what should be a
more substantial retirement pot. But they can generally afford to take fewer risks than
a younger member as they have less time to make up losses through further saving or
market growth (see dark blue line on the chart below).
We believe that the Schroder Life Risk Managed Global Equity Fund* can provide the
right balance between risk and return in this stable growth phase. It offers savers the
long term growth potential of passive global equities, with the added benefit that it can
limit the extreme short term losses with which equities are often associated. And all
this can be achieved at a cost that is comparable to an index fund.
Effect on savings of a 25% equity loss at different ages
Pension pot size £
800000
700000
600000
500000
400000
300000
200000
100000
0
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
Loss at age 35
Loss at age 55
Age
Source: Schroders, for illustration only. Starting age 25 years, retiring at 65. Starting salary is £25,000. Salary growth is 3% p.a. Contributions
are 10% p.a. and assume a five-year lifestyling strategy starting at age 60, gradually switching from equities to bonds and cash.
*Schroder Life Risk Managed Global Equity Fund is also referred to as Risk Managed Global Equity Fund throughout this document
3
Schroder Life Risk Managed
Global Equity Fund
Even short-term losses can be devastating for the morale of DC members. Apart
from the direct impact on their retirement portfolio, it may prompt them to reduce
their investment risks – and hence potential returns – or in some cases stop saving
altogether. All or any of these outcomes could drastically limit their prospects for a
comfortable retirement. We believe the Schroder Life Risk Managed Global Equity
Fund can provide a cost-effective way for members to gain access to the sort of
stable growth they need to inspire them to stay the course and continue to build their
pension savings.
During periods of low volatility the returns from equities tend to be positive, with only
relatively benign levels of loss. It is during periods of high volatility that the returns
from equities can include extreme losses (see chart below). The Risk Managed Global
Equity Fund reduces exposure to equity markets during periods of high volatility,
thereby aiming to deliver a smoother growth path.
Equity returns vary depending on levels of volatility
Range of Returns %
50
40
30
20
10
0
-10
-20
-30
-40
Normal Volatility
Source: Schroders, Bloomberg, December 1928 – 2013.
High Volatility
Schroder Life Risk Managed Global Equity Fund
Key features
–– ongoing charge of 0.23%, significantly less than the government’s 0.75%
charge cap
–– targets 70% to 90% of global equity growth
–– aims to limit losses to 15% over any one-year period
–– provides exposure to global equity markets through a combination of index
funds, ETFs (exchange traded funds) and futures designed to track global
equity indices
–– incorporates a systematic downside risk management process implemented
through the use of a futures overlay.
Targeting a better set of outcomes
Frequency
Target spread of returns
in the Risk Managed Global
Equity Fund
Avoid very large
losses through use
of systematic
risk management
Typical spread of returns in
an equity portfolio
15%
Source: Schroders, for illustration only.
Return
4
5
Why Schroders?
Schroders is a global asset management company with £271.5 billion under
management and an international network spanning 37 offices in 27 countries.
We have significant experience of managing DC assets and of helping scheme
managers, trustees and sponsors to operate pension schemes efficiently. We
manage assets for DC pension schemes in the UK and also have relationships with
institutional investment platforms. UK pension funds form a significant proportion
of our global client base, with more than £37 billion in assets managed on behalf
of both defined benefit and defined contribution pension schemes in both the
corporate and public sector. We have launched over £6.5 billion of risk-managed
growth strategies.
Source: Schroders, at 30 June 2014.
Schroder Life Risk Managed Global Equity Fund
6
Contact us
Contact our dedicated DC team today to discuss the ways in which we may be able to add significant
value for your DC scheme and its members.
Stephen Bowles
Tim Horne
Head of Defined Contribution
Tel: +44 (0) 20 7658 4916
Email: stephen.bowles@schroders.com
DC Investment Solutions Manager
Tel: +44 (0) 20 7658 4877
Email: tim.horne@schroders.com
Hilary Vince
David Heathcock
DC Strategy Manager
Tel: +44 (0) 20 7658 5727
Email: hilary.vince@schroders.com
DC Product and Distribution Manager
Tel: +44 (0) 20 7658 2806
Email: david.heathcock@schroders.com
Schroder Pension Management Limited
31 Gresham Street, London EC2V 7QA, United Kingdom
Tel: +44 (0) 20 7658 6000 Email: ukpensions@schroders.com
www.schroders.com/definedcontribution
trusted
heritage
advanced
thinking
Important information. This brochure 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 Pension Management
Limited 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 values of investments, and the
income from them, can go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value
of overseas investments to rise or fall. The maximum loss target is an investment objective only and does not constitute a guarantee. The maximum loss
target applies to rolling 12 month periods. It is possible that due to prolonged adverse market environments the Fund may lose 15% or more in two or more
consecutive years even if the maximum loss target is not breached. The Fund targets specific outcomes and as a result its performance may differ significantly
from that of equity markets. The Fund is not benchmarked and investors need to understand that during certain market environments (e.g. volatile upward
trending markets) the Fund may underperform equity markets. To effectively run the strategy Schroders may rely on information generated internally or sourced
externally, used separately or in combination. There is a risk of errors arising directly or indirectly from erroneous data. Schroders will not be liable for errors arising
directly or indirectly from erroneous data. Internal and/or external providers may be used to deliver index tracking equity returns. There is a risk of differential
performance between the index and portfolio or pooled vehicle. Schroders will not be liable for differential performance between the index and the portfolio
and pooled vehicle. Please refer to the Investment Risk Information document for information on all the risks that may be associated with this Fund. Where
funds hold investments denominated in currencies other than sterling investors should note that exchange rates may cause the value of these investments,
and the income from them, to rise or fall. Potential investors in emerging markets should be aware that this can involve a higher degree of risk. Less
developed markets are generally less well regulated than the UK, investments may be less liquid and there may be less reliable arrangements for trading and
settlement of the underlying holdings. The funds can use derivatives for investment purposes. These instruments can be more volatile than investment in
equities or bonds. The target returns are an estimate and are not guaranteed. Issued in September 2014 by Schroder Pension Management Limited, 31
Gresham Street, London EC2V 7QA. Authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial
Conduct Authority. For your security, communications may be taped or monitored. INS02932. w45451