Aim: Income and growth by investing globally in equities and bonds directly or through investment funds and derivatives, alternative asset classes through exchange traded funds and Reits, and cash
Minimum investment: Lump sum euro 1,000, $1,000 or currency equivalent
Investment split: 100% globally in equities, bonds, alternative asset classes and cash
Place of registration: Luxemburg
Charges: Initial up to 5%, annual 1.25%
Commission: Subject to negotiation
Tel: 0800 718 777
Schroders has added a global multi-asset income fund to its Luxemburg-based International Selection Fund range.
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.
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.
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 previously global head of investment solutions at BBVA in Madrid.
Hargreaves Lansdown investment analyst Richard Troue points out that multi-asset funds are becoming more popular. He thinks they are particularly useful as a core holding in a more diversified portfolio. “Investors receive the benefits of exposure to multiple asset classes with a professional fund manager deciding when to vary exposure to each. Such funds can be supplemented with other investments, increasing or decreasing exposure to other asset classes to build the desired portfolio,” he says.
Troue adds that as well as taking a multi-asset approach, the new fund from Schroders will aim to provide a sustainable income of 5 per cent a year, paid in equal quarterly or monthly instalments. “Overall, it will aim for a total return of 7 per cent a year over a full market cycle. With attractive income on deposit hard to come by investors able to take some risk with their capital are increasingly looking alternative sources of income,” he says.
To achieve these objectives, Troue observes that the Schroders team will use an unconstrained approach seeking out high quality equities and fixed-interest securities globally. “The team will not simply choose the highest yielding investments, but will look for those able to pay a sustainable income. As well as targeting high yields the team will focus on companies with stable and growing cash flows and will combine bottom-up stock selection with their wider economic views. The team will monitor exposure to regions, sectors and securities to ensure they achieve appropriate diversification across markets and regions,” says Troue.
Around 36 per cent of the fund is currently allocated to the UK. Troue notes that this is where the team are finding opportunities among healthcare companies. “A further 40 per cent is invested in the US where the team favour consumer staples businesses, while in emerging markets such as China and South Africa the team holds telecommunications companies.
“In terms of fixed-interest exposure the team is finding opportunities among high-yield debt in the US and local currency emerging market debt. The fund is cautiously positioned in terms of exposure to financial companies with the team preferring bonds issued by UK and US insurers rather than banks.”
Turning to the potential drawbacks of the fund, Troue points out that although the fund takes a multi-asset approach, there are some asset classes in which it will not invest. He says: “The fund will offer exposure to global equities, investment grade and high yield bonds, along with emerging market debt, potential investors should be aware the fund does not invest in property and other alternative assets classes.
Troue adds that in order to maintain a stable income distribution of 5 per cent a year, the fund can pay part of its distribution from capital if there is a shortfall in the income it generates from its investments. “This could limit scope for capital growth. Some investors might also prefer a growing income stream rather than a fixed distribution of 5 per cent a year,” he says.
Discussing funds that could provide competition for Schroders in the multi-asset arena, Troue picks a new launch from an established fund manager. “MAM Funds has recently launched the Miton Global Diversified Income Fund under the stewardship of Martin Gray, a manager I hold in high regard.”
Gray has managed the Miton Strategic Portfolio since launch almost 16 year ago and has run the Special Situations Portfolio since launch in 1997. Since 2008 he has also worked on the Miton Arcturus fund with its lead manager James Sullivan. This partnership continues on Global diversified income, which comprises a portfolio of 30 to 40 funds.
Troue points out that Miton Global Diversified income adopts more of an unconstrained, go-anywhere approach by investing globally in equities, fixed interest, property, infrastructure and cash. He says that the fund will invest directly in asset classes and indirectly through other funds, both open-ended and closed-ended. “The focus is on a sustainable income with the prospect of some capital growth and the fund managers are initially targeting a yield of 4 per cent,” he says.
Suitability to market: Good
Investment strategy: Average
Adviser remuneration: Average