For professional investors and advisers only
Schroders
FundFocus
Why is it important to have a fund
like this available to investors?
In this environment of sustained low growth,
capital returns are under pressure and global
yields are low. Since traditional sources of
income do not offer the yields they once did,
investors are increasingly being forced to
search for consistent levels of income. As a
consequence, savers and pensioners who
rely on their investment income to support
their standard of living, are finding it harder to
meet those income needs. Bearing in mind
that exposure to risk assets comes with
greater risk volatility, demand for a reliable,
lower risk and well-diversified income stream
from clients globally has never been stronger.
Since our first global multi-asset income
strategy launch – two and a half years ago
– assets under management have reached
over £4 billion, with flows coming from
Asia, Europe, Latin America and the Middle
East (Schroders at 30 November 2014).
Can you explain the philosophy
behind the fund?
The Schroder Global Multi-Asset Income
Fund has been designed to help investors
seeking income in the current low growth,
low yield environment where traditional
sources of income can no longer fulfil their
requirements. It aims to provide an attractive,
regular and sustainable income without a
correspondingly heightened exposure to risk.
The core of our philosophy is the belief that
investors desire a sustainable source of income
that does not erode their capital. In order
to achieve this sustainability of income, we
believe investors should focus on diversifying
their income sources, invest in higher quality
assets and only invest in highly liquid securities.
Through diversification an investor can reduce
their exposure to the specific risk inherent
within individual asset classes and securities.
Schroder Global Multi-Asset Income Fund
Investors’ continued search for yield has led to considerable
interest in income-generating funds. We spoke to Aymeric
Forest and Iain Cunningham, fund managers of the Schroder
Global Multi-Asset Income Fund to find out why they use a
multi-asset approach for delivering sustainable income.
December 2014
bonds, emerging market debt (local currency
and US dollar) and property and infrastructure
(both accessed via liquid, listed companies).
There are specified allocation ranges for each
asset class to ensure sufficient flexibility and
diversification within our risk allocation and
to help reduce cyclical drawdown risk.
Applying these income investment principles
has enabled us to meet our annual income
target of 5%1 across the past year. Including
this distribution, the strategy produced a
total return of 7% p.a.2 from inception in
April 2012 to end November 2014.
Can you describe the investment process?
The investment process is driven by our
flexible, top-down asset allocation and risk
management, but also incorporates a bottomup, unconstrained approach to investing.
We are responsible for allocating dynamically
between bonds, equities and cash and for
risk management at the fund level. The asset
allocation uses risk-premia based research
which is at the heart of Schroders’ multi-asset
process. This helps us to avoid unrewarded risk.
How has the existing offshore fund
achieved its income target thus far?
2
Finally, our ongoing risk management includes
monitoring region, sector and security
level exposures, together with their yields,
Asset allocation
Asset allocation – Multi-Asset Team
Aymeric Forest
Lead Fund Manager
Iain Cunningham
Fund Manager
Equity security selection
Multi-Asset Team
Fixed income security selection
Fixed Income Team
Security selection
David King
Head of Multi-Asset Risk
and Quantitative Analysis
Peter Weidner
Multi-Asset
Quantitative Analyst
Lucette Yvernault
Fixed Income
Fund Manager
Risk management
The investment universe includes high dividend
equities, investment grade bonds, high yield
1
There are three component asset classes
within fixed income: investment grade, high
yield and emerging market debt (both US
dollar and local currency). The team analyses
global investment themes, yield curves and
country risk to form a top-down view. The
bottom-up view on individual issuers is a
function of an assessment of valuation and
credit fundamentals. The team targets higher
yielding securities favouring less cyclicallyoriented, stable cashflow business profiles.
Schroder Global Multi-Asset Income Investment Team
Can you tell us a bit about the
team behind this fund?
We are supported by a multi-disciplinary ‘Global
Income’ investment team focused on generating
income across asset classes. It is a team of six
divided into three groups, each with a distinct
responsibility: equity, fixed income and multiasset. We are all backed up by our own teams
meaning that investors in this fund are gaining
access to the expert input of more than 100
investment professionals. We are in daily contact
and share information on market movements
and positions and we meet frequently to identify
opportunities and risks, to discuss themes
and to analyse the positioning of the fund.
The objective of our equity selection is to
target a yield that is higher than the MSCI AC
World Index. The team analyses a universe
of approximately 2,400 developed and
emerging market stocks to create a diversified
portfolio by investing in companies that offer
an attractive and sustainable dividend yield.
Sustainability is assessed using measures
including company profitability, earnings stability,
and financial strength. The diversified nature
of the portfolio reduces stock-specific risk.
This is a target only and is not guaranteed.
Source: Bloomberg, 30 November 2014, A Acc share class, net of fees
Risk management overlay – Multi-Asset Team
Sarang Kulkarni
Fixed Income
Fund Manager
Fund Focus Schroder Global Multi-Asset Income Fund
across the fund and managing the risks
from currency, duration, credit and equity.
Investment process – common elements across equities and bonds
How do you limit downside risk during
adverse market conditions?
Stage 1
Asset allocation
Managing risk is key to minimising
drawdowns. We manage the risks from
unrewarded betas (market risks) within
the fund by hedging duration (interest
rate sensitivity) and equity market risk.
Stage 2
Security selection
Stage 3
Risk management
We employ an active approach to risk
management by fully understanding the risks
inherent within the portfolio. By hedging
certain portfolio risks when required, we can
better protect investor capital. For example,
in our offshore fund, in June 2013, we
hedged the majority of the fund's emerging
currency exposure, reducing the portfolio's
duration from 3.6 years to less than 2 years.
This helped to protect the portfolio during
the market turbulence last summer.
Which asset classes do you
favour at the moment?
We pursue a highly diversified multi-asset
approach, which is global, flexible and
underpinned by a focus on quality and valuation.
This should place the strategy in a strong
position to navigate the challenges and take
advantage of the opportunities presented
by an interest rate tightening environment.
This is particularly important given that
such an environment is characterised by
lower returns, higher volatility and diverging
regional asset class performance.
Presently, our preferred asset class is equities,
meaning the fund is likely to be weighted
towards the top of its potential equity
range. However, we are also hedging some
of our exposure as required in periods of
macroeconomic weakness. This is relevant
given our expectation for a higher level of
volatility as we move towards an interest
rate hike in the US. We have recently been
exploiting opportunities within US information
technology and consumer staples sectors as
well as UK healthcare names. We recently
reduced our overall fixed income exposure,
particularly the high yield and emerging market
debt local currency and sovereign exposures.
We maintain a preference for longer-dated
corporate bonds in the UK and US.
–Risk-adjusted yield opportunities underpin
asset allocation
– Unconstrained region and sector allocation.
–Quality bias: focus on stable and growing
cash flows
–A universe of 10,000 securities to
maximise opportunities.
–Monitoring region, sector and security level
exposures across portfolio
–Managing currency, duration, credit and
equity risks.
Schroder ISF† Global Multi-Asset Income
120
118
116
114
112
110
108
106
104
102
100
98
96
Annualised volatility
Global Multi-Asset Income
Apr 2012
3.9%
Oct 2012
Apr 2013
Oct 2013
Apr 2014
Oct 2014
Schroder ISF Global Multi-Asset Income
Schroder ISF Global Multi-Asset Income
1 Month
%
Year to date
%
Since inception* p.a.
%
Yield**
%
0.6
5.0
7.0
5.0
This table shows the performance of the Luxembourg-domiciled version of the strategy.
Source: Bloomberg, 30 November 2014, A Acc share class, net of fees. *Annualised performance since inception
date of 18 April 2012. Volatility is calculated using daily returns since inception. **Yield is the next 12 months
dividend yield using Schroders’ forecasts for the equities and using the current effective yield to maturity for the
fixed income; it is gross of withholding tax. 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 amount originally invested. The fund holds investments denominated in currencies other than sterling,
changes in exchange rates will cause the value of these investments, and the income from them, to rise or fall.
Schroders ISF refers to International Selection Fund.
†
Fund Manager Biographies
Aymeric Forest has investment experience since 1996 and joined Schroders in May 2011 as a fund manager in the Multi-Asset
team and as a member of the Global Asset Allocation Committee, he is also head of Multi-Asset investments, Europe. He is in
charge of complex mandates with a focus on income and tactical asset allocation. He also leads the Volatility Risk Premia research
group. Prior to joining Schroders, Aymeric was Global Head of Investment Solutions at BBVA in Madrid responsible for the multiasset products. He was also Head of Tactical Asset Allocation quantitative strategies and senior fund manager at ABN AMRO. He
is a CFA Charterholder and has a Masters degree in Finance, Nancy 2 University (France), Giessen (Germany) and Lund (Sweden).
Iain Cunningham is responsible for the management of a number of multi-asset mandates that are principally focused on income
and dynamic asset allocation. He specialises in currency and commodity research and is a member of Schroders’ Strategic
Investment Group Multi-Asset (SIGMA). He joined Schroders in 2007 as a graduate trainee. He is a CFA Charterholder and holds a
Masters in Economics and Finance and a Bachelors in Economics from Loughborough University.
Risk considerations: The capital is not guaranteed. The fund intends to make regular fixed distributions to investors and, if its income is insufficient to cover these payments, these payments may reduce the fund's
capital. All equity forward sales are with a single counterparty. In case of default, the relevant equities will be sold in the market and this may affect performance. 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. 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.
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. The Fund may hold indirect short
exposure in anticipation of a decline of prices of these exposures or increase of interest rate. The Fund may be leveraged by trading in a high volume of derivatives to achieve a risk target consistent with its risk profile.
Important information: The views and opinions contained herein are those of Aymeric Forest and Iain Cunningham, Multi-Asset Fund Managers, and may not necessarily represent views expressed or reflected in
other Schroders communications, strategies or funds. Before investing, refer to the latest Key Investor Information Document (KIID) and Supplementary Information Document (SID), available at www.schroders.co.uk/
investor or on request. For further explanation of any financial terms, visit www.schroders.co.uk/glossary. The data contained in this document has been sourced by Schroders and should be independently verified
before further publication or use. 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 contains
additional disclaimers which apply to the third party data. Issued in January 2015 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered in England No. 4191730. Authorised and regulated
by the Financial Conduct Authority. w46403