January 2015
For professional investors and advisors only. Not suitable for retail clients.
Schroder
Global Multi-Asset Income Fund
Picture the
perfect retirement
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When designing the new Schroder Global
Multi-Asset Income Fund, the needs of the newly
empowered generation approaching retirement
have been at the forefront of our minds.
Generating a consistent income with a moderate
risk profile is no-longer possible with a single
simple investment. Before the 2008 crisis
investors could receive a 5% yield by investing
in government bonds with a 10 year maturity. As
yields have dropped, investors seeking the level of
income they were used to had little choice but to
invest in riskier assets, pushing many investors out
of their comfort zone in terms of risk exposure.
Now there is a solution for those seeking a regular
income at lower risk, in-line with a typical cautious
managed fund, where many investors will be
more comfortable.
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“Savers need to balance both risk and return
very carefully when making their decisions
rather than just focusing on either risk or
potential return – they are always linked.”
Robin Stoakley – Head of UK Intermediary,
Schroders
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Rising to
the income challenge
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.
As such, it could provide a complete income solution for a broad range of investors.
Age
40
30
£
50
70
60
£
Regular income
Education planning
Pension supplement
Active retirement
Health care
In its March 2014 Budget, the UK Government announced that from April 2015, anyone aged 55 or
above would be able to take their defined contribution pension pot however they want, subject to
their marginal rate of income tax in that year.
This change means that anyone with an accumulated pension pot has much greater flexibility and
control over making financial plans for their retirement.
The new Schroder Global Multi-Asset Income Fund has been designed with the needs of the newly
empowered generation approaching retirement in mind. With accumulation and distribution share classes,
it could offer an attractive solution for both the pre- and post- retirement phases as illustrated below:
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1
Late stage of
pre-retirement
2
Early stage
of retirement
–Capture income with less volatility than single asset class
–Accumulation share class
–Move into stable monthly income payments
–Distribution share class
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Targeting a
clear outcome
The fund has three objectives:
1
To provide a regular and sustainable income of 4-6% per annum, which can be paid monthly or accumulated within the fund
2
To generate a total combined return of 7% per annum
3
To deliver these returns with volatility in-line with a risk rating of 4 on a scale from 1-7.
These target figures will be reviewed on an ongoing basis to ensure that market conditions continue
to make them achievable. Please note that they are not guaranteed.
A proven
strategy
The strategy is modelled on our successful offshore fund which launched in April 2012. It has been
developed by our highly experienced Multi-Asset team, who currently manage over £4 billion5 in
global multi-asset income strategies.
Schroder ISF4 Global Multi-Asset Income performance
120
115
110
105
100
95
90
Apr 2012
Oct 2012
Apr 2013
Oct 2013
Schroder ISF Global Multi-Asset Income
Schroder ISF Global
Multi-Asset Income A Acc
Apr 2014
US 10 Year
Oct 2014
70/303
Year to
date %
Since inception1
p.a. %
Yield2 %
Annualised
volatility %
5.0
7.0
5.0
3.9
Source: Datastream, Bloomberg, 30 November 2014, A Acc share class, net of fees. 1Annualised performance since inception date of 18 April
2012. Volatility is calculated using daily returns since inception. 2Yield 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. 370/30 reference is 70% JP Morgan
GABI & 30% MSCI AC World. Past performance is not a guide to future performance and may not be repeated. 4Schroder International Selection
Fund is referred to as Schroder ISF throughout this brochure. 5Source: Schroders as at December 2014.
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Strategy
overview
We believe it is necessary to focus on investing in high quality, liquid securities which can generate a
sustainable income stream. In the case of equities, we look for securities that can grow their income
streams in order to minimise the risk of capital loss.
The fund employs a multi-asset approach that addresses the key drivers of sustainable income:
quality, diversification and liquidity. It typically holds over 350 directly invested securities, principally in
bonds and equities.
Global approach
Sourcing opportunities across asset classes, regions and sectors
Flexible
Able to move dynamically within asset classes with a view to ensuring we are adequately
compensated for risk
Not constrained by a benchmark
Free to find yield opportunities wherever they exist and avoid some hidden benchmark risks
£
Risk control
Risk controlled by pursuing a diversified approach and monitoring risk at both a portfolio
and security level. Liquidity risk is taken into account to maintain the flexible nature of
the portfolio.
3 step investment process
1
2
Asset allocation
20 asset classes
Equity security
selection
3
Source: Schroders
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Universe of over 10,000 securities
Fixed income
security selection
Risk management overlay
40 countries
Focus on identifying high but
sustainable yields from quality
income sources
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Investing across
equities, fixed income and alternatives
Equities
0-40%
Bonds
60+%
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 manage 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.
£
Cash
0-20%
The fixed income allocation is managed by
Schroders’ Global Fixed Income Team with over
100 managers and analysts. They undertake
fundamental screening, targeting high quality
securities with a high yield to maturity. The
investment process is both top-down, in that
it takes account of the wider macroeconomic
climate, and bottom-up, in the way it assesses
individual securities. As with the equity analysis,
the aim is to uncover those securities with a
sustainable yield rather than simply a high headline
figure. Valuation is a vital part of the investment
selection – at all times, the fund managers are
deciding whether the price of an investment
adequately compensates for the
risk taken.
Alternative asset classes
0-10%
The allocation to alternative investments can
include property, infrastructure and municipal
bond securities. The fund aims to invest in
high-yielding securities from a universe of
liquid, listed alternative asset classes that
add to the portfolio on a yield-to-risk basis.
Furthermore, by investing in these alternative
asset classes the fund’s overall level of risk
diversification is improved.
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The fund managers’
six principles for income investing
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1
Focus on higher quality assets with sustainable income
2
Pursue a diversified approach
3
Take advantage of opportunities globally
4
Be flexible and not benchmark driven
5
Analyse risk and manage it carefully
6
Be careful when investing in passive income products
One of the biggest risks in investing is the risk of permanent capital loss. Investing in higher
yielding securities without paying attention to the security issuer’s future ability to pay
dividends or meet coupon and principal payments, risks permanent capital loss. We believe it
is imperative to focus on high quality securities that are able to sustain and grow their income.
Investing in single asset classes for income can leave investors exposed to the specific risks
inherent within those assets classes. Whether it is market risk in equities, liquidity risk in
high yield debt or the political risk inherent in emerging market debt, these risks can lead to
meaningful underperformance by particular asset classes. Investing across a spectrum of
asset classes can help to diversify these risks with the potential to produce superior risk-adjusted returns.
Investors who are geographically restricted, focusing too narrowly on their home market for
example, have a reduced opportunity set compared to those investors who invest globally.
Assets in certain regions can be expensive at points in time, while assets in other regions can
simultaneously be cheap. By investing globally, investors can take advantage of opportunities
in different regions whenever they present themselves.
The value of asset classes is not consistent and can differ depending on the economic cycle.
Therefore, a flexible approach that is not benchmark driven should be taken when managing
exposure to different income sources. This allows investors to take advantage of relative
value opportunities in different asset classes, styles and market cap sizes over time.
It is important to understand the amount of risk being taken at both a security and portfolio
level and to examine how a portfolio will perform in different market environments. We believe
an active approach to risk management is necessary in protecting a portfolio during turbulent
markets. As such it is necessary to understand the sources and portfolio implications of
different types of risk.
Investing in generic income products like ETFs can result in unnecessary exposure to
avoidable risks. Income-focused equity ETFs can be highly concentrated in a small number
of sectors, such as utilities, leaving investors exposed to regulatory risk. We believe investors
should pursue more bespoke strategies.
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Multi-discipline
expertise
The fund is co-managed by Aymeric Forest and Iain Cunningham. They are fund managers within our
Multi-Asset team and manage the asset allocation and risk management within our Global Income
Investment team, divided into equity, fixed income and multi-asset groups. The fund managers
provide the asset allocation framework for the fund – allocating dynamically across bonds, equities,
liquid listed alternatives and cash. The securities are then selected by the asset class experts on a
bottom-up basis. Finally, the fund managers actively manage risk, looking at both the security level
and the portfolio level with a view to ensuring that they avoid unrewarded risk. This means the fund
is coherently managed as a single entity rather than simply ‘packaging’ together disparate strategies.
The team shares information on market movements and positions daily, and meets on a regular basis
to identify opportunities and risks, discuss themes and analyse the positioning of the portfolio. They
benefit from full access to Schroders’ deep research capabilities, drawing on the experience of over
200 investment professionals.
Aymeric Forest – Lead Fund Manager
Aymeric Forest is lead fund manager and Head of Multi Asset Investments
– Europe and has 18 years of investment experience. He joined
Schroders in 2011 as a fund manager within Multi Asset. He is the lead
manager of the Luxembourg registered Schroder ISF Global Multi-Asset
Income, a member of Schroders’ Global Asset Allocation Committee and
Volatility Risk Premia group leader.
Iain Cunningham – Co-Fund Manager
Iain Cunningham is co-fund manager and is responsible for the
management of a number of multi-asset mandates that are principally
focused on income and dynamic asset allocation. He joined Schroders
in 2007 as a graduate trainee and specialises in currency and commodity
research and is a member of Schroders’ Strategic Investment Group
Multi-Asset (SIGMA).
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What are
the risks?
–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.
–Part of the fund is invested in bonds. The government or company issuer of a bond might not
be able to repay either the interest or the original loan amount and therefore default on the debt.
This would affect the credit rating of the bond and, in turn, the value of the fund. 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 rates rise and vice versa.
–The fund may invest in higher-yielding, or non-investment grade, bonds. The risk of the issuer
defaulting on the capital repayment is higher than with investment grade bonds.
–The fund may invest in emerging markets equities. Potential investors in emerging markets should
be aware that this can involve a higher degree of risk.
–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.
–The fund can use derivatives for investment purposes. These instruments can be more volatile than
investment in equities or bonds.
–The income and capital growth targets are an estimate and not guaranteed.
–If the fund’s income is not enough to cover the regular income payments, they may be sourced from
investors’ capital. The value of the capital can therefore be eroded and investors may not get back
the amount invested.
–As a result of all fees being charged to capital, the distributable income of the fund may be higher but
there is the potential that performance or capital value may be eroded.
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Schroders is an independent, dedicated
asset manager with a strong heritage and
culture based on over 200 years’ experience
of investment markets. Listed in the UK, we
benefit from a strong balance sheet and a stable
ownership structure, which allows us to focus
entirely on delivering results for our clients.
With £276.2 billion funds under management and
an international network spanning 37 offices in
27 countries, Schroders has the perspective and
expertise to identify major investment potential
wherever it is located.
To find out more go to www.schroders.com
or speak to your local representative.
www.schroders.com
Source: Schroders, as at 30 September 2014.
Important information. 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. Details of the terms and risk warnings are contained in the Prospectus and Key Investor Information
documents. Issued in January 2015 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 4191730 England. Authorised and regulated by
the Financial Conduct Authority. w46393