The new fund aims to provide a sustainable income of 5 per cent a year by investing across a range of asset classes, regions and sectors in line with changing market conditions. It is anticipated that the fund will produce total returns, comprising income and growth of 7 per cent a year over a full market cycle.
The firm expects it to product more stable returns than could be achieved through a single asset class. It will invest in quality stocks and bonds with positive cash flows and strong balance sheets, rather than chasing the highest yields, as this can be a signal that a company is in distress. Exposure to alternative asset classes will be indirect, through exchange traded funds, Reits and derivatives
The fund is run by senior fund manager Aymeric Forest, who joined Schroders last May. He has 15 years’ investment experience and was previously global head of investment solutions at BBVA in Madrid.
Forest is currently seeing good equity opportunities in UK and Japanese firms in the healthcare sector. He also likes US consumer staples in the US and Asia, telecoms in China and South Africa, along with local currency emerging markets and some US municipal and high-yield bonds.
Schroders sees the fund as filling a gap in the market for investors needing an income, as it says their choices have been mainly limited to either bond or high dividend equity funds. It feels these asset specific funds impose artificial barriers on the search for income, while its new fund has less constraints and greater diversification.
However, if the income produced by the fund is insufficient to meet the regular income payments to investors, the capital can used to make up the shortfall. Some advisers may be wary of this potential risk.