Demand for a reliable and well-diversified income stream is strong. The post-financial crisis environment has made this objective increasingly difficult to achieve; historically-low interest rates means savers can no longer rely on cash deposit to generate a significant income. The demand for income has also increased the popularity of government and corporate bonds, forcing yields down (and prices up).
The Schroder Global Multi-Asset Income Fund, which will launch on 19 December 2014, aims to offer a solution. The fund will aim to pay a regular and sustainable income of 5% and achieve a total return (income and capital growth) of 7% each year; however, please note there are no guarantees it will be successful in achieving these objectives as unlike cash, which is guaranteed, the fund will fall as well as rise in value so investors could make a loss.
Where will the fund invest?
The fund will take a flexible and unconstrained approach by investing globally across a variety of sectors, countries and asset classes, including shares, bonds and cash.
At the fund's helm is Aymeric Forest, head of Schroders' Multi-Asset Investments team for Europe alongside, co-manager Iain Cunningham. The team provides the framework for the fund, deciding the allocation to bonds, shares and cash, taking into account the overall risk of the portfolio.
Aymeric Forest and the Multi-Asset team are supported by a specialist equity investment team and the Global Fixed Income team at Schroders. For the equity portion of the portfolio, the stock selection is designed to seek financially strong companies, which have stable and growing cash flows, and are attractively valued, according to their analysis. They avoid those overexposed to fluctuations in the economic climate and those with significant debt. A maximum of 40% of the fund will be invested in shares at any time.
The Fixed Income team seek opportunities across the bond spectrum, investing in a combination of higher-quality investment grade corporate bonds, higher-risk high yield bonds, government bonds, and emerging markets debt. Businesses with stable cash flows, visible earnings, and robust balance sheets are favoured. A minimum of 60% of the fund will be invested in fixed income assets.
Elsewhere, a maximum of 20% can be held in cash, while a further 10% can be invested in alternative assets. This includes listed property and infrastructure companies. The fund can also use derivatives and invest in emerging markets which increases risk.
How will the fund be positioned at launch?
Presently, equities are the team's preferred asset class meaning the fund is likely to be weighted towards the top of their potential range. Favoured areas currently include the US technology and consumer sectors as well as UK healthcare. The fixed income portion of the fund will likely have the greatest exposure to high yield bonds to help maintain the fund's yield requirement. Within the investment grade bond allocation, the focus will be on US and UK bonds, with a current preference for financial bonds.
Our view on this fund
Aymeric Forest joined Schroders' Multi-Asset team in 2011; he has since been responsible for a number of multi-asset mandates. He also gathered a number of years' experience managing multi-asset products prior to joining Schroders.
The Schroder Global Multi-Asset Income Fund will be based on an existing, offshore version of the fund, which Aymeric Forest and Iain Cunningham have managed since its launch in April 2012. Over this period, the fund has delivered a total return of 21.2% against 20.0%* for the IMA Mixed Investment 20-60% Shares sector. However please bear in mind this is a different fund so the performance will be different and past performance is not a guide to future returns. We view this as a relatively short period and we would prefer to see Aymeric Forest build a longer track record before taking a view on his abilities as a fund manager.
|Annual percentage growth|
| Dec 12 -
| Dec 13 -
|Schroder ISF Global Multi-Asset Income||4.9%||10.0%|
|IMA Mixed Investment 20-60% Shares||8.9%||5.7%|
Past performance is not a guide to future returns. Full year performance figures before this are unavailable. Source: Lipper IM* to 01/12/2014
The challenge of finding a sustainable income is increasing and the proposition of receiving a stable income is attractive. That said, it should be remembered the capital and income will fluctuate in value. Furthermore, although the fund aims to pay out a target distribution of 5% each year, there may be times when the income generated by the fund's investments cannot cover the distribution. In these circumstances, the fund could pay out the balance of the distribution from capital, meaning the fund’s capital will be eroded. At present, this fund will not be added to the Wealth 150 list of our favourite funds across the major sectors.