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Schroder Fixed Income Fund - Professional Class

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About this Fund

Fund Detail

PDS https://informedinvestor.com.au/view/pds/100758-2024-06-11-02:45.pdf
FUND MANAGER Schroders Investment Management Australia
ASX Code
APIR SCH0016AU
ASSET CLASS FIXED INTEREST
INVESTMENT STYLE The Fund invests in government and quasi-government bonds, corporate bonds across the credit spectrum, subordinated securities developing market and cash.
INVESTMENT PROFILE The Fund aims to outperform the Benchmark by 1.0% - 1.5% before fees over the medium term.
CURRENCY MANAGEMENT Unhedged
INCEPTION DATE 01-02-2004
BENCHMARK Bloomberg AusBond Composite 0+Yr Index
FUND SIZE Bloomberg AusBond Composite 0+Yr Index
DISTRIBUTION FREQUENCY Quarterly
NO. OF HOLDINGS 500+
FEES 0.28% p.a.
STRUCTURE

Benefits

Benefits

Benefits of investing in the Schroder Fixed Income Fund

The benefits of investing in the Fund include:

  • Access to a defensive strategy offering diversification benefits against equity markets
  • Active management with a focus on quality to ensure it rewards investors for the risk taken and remains a true defensive strategy to deliver stable absolute returns over time
  • Full application of investment capabilities including asset allocation (across credit, interest rate and geography), stock selection and risk management, with top-down thinking driving portfolio construction, leaving the Fund well placed to achieve its investment objective
  • Experienced and dedicated investment team with clear accountability that is well integrated into the broader Schroders' global fixed income team. This delivers global insight, research and implementation in key regions and asset classes.

Suitability and risk

For investors who seek to invest in a diversified portfolio of defensive assets with low to medium risk which matches the trade-offs that most investors have to make between liquidity, duration, diversification, return volatility and credit risk.

RISK LEVEL
INVESTOR SUITABILITY

Risks

Title
Detail

Key Features

About the Fund

The Schroder Fixed Income Fund is an actively managed, low volatility strategy that invests in a range of domestic and international fixed income assets with the objective of outperforming the Bloomberg AusBond Composite 0+Yr Index, whilst delivering stable absolute returns over time.

The Fund adopts a Core-Plus investment approach whereby a core portfolio comprising of Australian investment grade bonds (including government, semi-government, supranational and corporate bonds) is complemented by investments in a diverse range of global and domestic fixed income securities.

The Fund may also use derivatives as part of the overall investment strategy. Investments within the portfolio are actively managed in an attempt to ensure we are in the right assets at the right time to maximise returns while maintaining a low risk profile.

The targeted result is a defensive strategy which is broadly diversified with low correlation to equity markets.

We believe the fixed income universe is extremely diverse - it can be broadly classified into four key asset classes, namely sovereign, investment grade credit, sub-investment grade credit and cash, each with its underlying sectors.

Specifically, we believe the breadth of this universe and the diversity of possible risk and return outcomes not only means active management is essential, but that getting the overall asset allocation right is the single most important determinant of returns over time. That is not to say that security selection is not important - it is vitally important and a significant part of our process - but if the portfolio's overall asset allocation is wrong, then owning the best securities in the wrong assets will only marginally improve portfolio outcomes.

Furthermore, as most investors require fixed income exposure for income, liability management or to diversify the downside risk in their portfolios from equities, the asset allocation of the portfolio should be set with an eye to delivering a stable, absolute return over time. Consistent with this, we primarily view risk as not meeting this objective, rather than measures of volatility (or tracking error).

Investment style

Our broad fixed income philosophy is underpinned by 3 key ideas:

  • Fixed income is typically held for defensive purposes. These include liquidity, capital preservation, liability management and to diversify equity risk.
  • Investors should utilise the breadth of the fixed income universe to improve risk / return outcomes (as opposed to closely tracking arbitrary benchmarks).
  • Volatility is not risk; we view losing money and not delivering on objectives as our core risk.

These key investment beliefs are encapsulated in our Schroder Fixed Income Fund, a Core-Plus strategy which combines a low active risk Core' and Plus' strategies where opportunities to add value is present. The Portfolio utilises the breadth of the opportunity set and combines asset allocation, country selection, credit risk management, stock selection, and duration/yield curve management in a combination that aims to outperform the benchmark Bloomberg AusBond Composite 0+Yr Index over the medium term whilst ensuring it remains a true defensive strategy.

Mandate

How we invest your money

Investment Process

The investment process has been designed (and refined over time) to reflect the key ideas described above. In essence it can be segmented into 4 key stages. The benefit of breaking the process down in this way is to facilitate clear decision making and ensure accountability at every stage, rather than blur the decision making process, particularly in regards to the boundaries between asset allocation and stock selection decisions which can become quite grey in fixed income.

The investment process has been designed to reflect the key ideas described above.

The 4 key stages are as follows:

Stage 1. Asset allocation

In developing the portfolio's asset allocation, we start from an absolute perspective to construct an initial (or starting point) portfolio, unencumbered by any predetermined benchmark allocations. We combine our medium term expectations of fixed income asset class risk and return with shorter term views on market valuation, cyclical developments and liquidity considerations, matched against the Fund's objectives to develop appropriate asset allocation of the Fund. By utilising the broadest opportunity set and actively managing these exposures in this part of the process it helps ensure we are in the right assets at the right time which in turn helps us to achieve our broader portfolio goals such as delivering consistent returns with limited tolerance for drawdowns and a requirement for liquidity.

Stage 2. Security selection

Security selection is carried out in a manner aiming to exploit those areas with the most potential for adding value. Independent fundamental credit research and active management at the security level are essential elements of our approach which focuses on the avoidance of default and identifying value in individual securities. As debt investors we are investing our clients' money in assets with an asymmetric pay-off structure. As such we undertake our own rigorous analysis and form our own independent views rather than rely on external ratings agencies to make this assessment. We will not invest in securities we haven't researched.

Stage 3. Risk management

A key element of risk management is to ensure risk is being taken in the right places and that an appropriate level of risk is held in the portfolio. We monitor a broad array of risk measures including examining those exposures and factors contributing to risk and the size of their risk contributions, which will influence decisions relating to asset allocation, sector and security selection and their respective position sizing.

Stage 4. Implementation

In the last step of the process our aim is to find the best ways to implement the investment decisions generated.

Asset classes and investment ranges

The Fund may invest in a selection of Australian and global fixed interest securities such as government and quasi-government bonds, corporate bonds across the credit spectrum, subordinated securities, asset backed securities, developing market bonds, derivatives, cash and cash equivalents. The following investment ranges apply:

  • Asset classes / Investment ranges
  • Australian investment grade 20% - 100%
  • Global investment grade* 0% - 50%
  • Australian high yield* 0% - 20%
  • Global high yield** 0% - 20%
  • Cash and cash equivalents 0% - 50%

*Maximum aggregate global exposure will not exceed 50%.

**Maximum aggregate exposure to high yield will not exceed 20%.

Tracking error

Expected 1.5%