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Disclaimer This information is of a general nature only, and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular needs and circumstances.
McPhail HLG Financial Planning Pty Ltd 38 Ellingworth Parade, Box Hill VIC 3128 PO Box 93, Box Hill VIC 3128 Australia t +61 3 9898 9222 f +61 3 9890 6310 email planner@mcphail.com.au www.mcphail.com.au
McPhail HLG Financial Planning Pty Ltd ABN 27 091 207 000 is a Corporate Authorised Representative and Corporate Credit Representative of Securitor Financial Group Ltd ABN 48 009 189 495 AFSL and Australian Credit License 240687 Level 7, 530 Collins Street Melbourne VIC 3000 Australia
Liability limited by a scheme approved under Professional Standards Legislation
The Schroder Fixed Income Fund was established almost 10 years ago and is managed by Simon Doyle. While the fund can invest on a global basis, the emphasis tends to be towards Australian Fixed Interest.
valuations of fixed interest assets and the potential impact of higher interest rates. Cash & cash equivalents currently comprises over 32% of the portfolio assets. Although this can lead to lower income returns in the short term, this strategy effectively lowers impact on the portfolio of higher interest rates. While it is true that official Australian interest rates are likely to be further reduced in the short term, long term rates have in fact been rising in the past months. This is a result of the recent indication by the U.S. central bank that monetary accommodation strategies were likely to be curtailed in the medium term. Thus the perception in global bond markets is that the long term interest rate easing cycle is coming to an end. This has prompted heavy selling of bonds, and has pushed yields up across global markets. As cash and short term fixed interest assets are less impacted by rising rates, the strategy of the manager has succeeded in its prime objective of preserving capital. We believe this active approach to managing the portfolio, and the willingness of the manager to take a view contrary to market consensus helps to deliver capital stability, as well as an acceptable level of income over the medium term. By including this fund in your portfolio, we are able to achieve a higher level of confidence that the defensive part of your portfolio remains true to label. The fund provides an anchor point in your portfolio that allows us to pursue additional strategies with other managers to enhance the level of income provided by this sector. Apart from your allocation to cash, your investment in this fund is designed to be, essentially, boring. For further information regarding this or any other investment, please contact our office.
Investment Philosophy
The managers have a fundamental view that fixed income is generally held for defensive purposes. This includes capital preservation and the ability to diversify equity risk. In regards to capital volatility, the manager does not see this as a risk per se. They prefer to consider risk in absolute terms i.e. losing money. The fund strategy involves constructing a core portfolio and adding value by identifying opportunistic and thematic investment ideas. These can include credit risk management, country selection and duration risk. The fund aims to outperform the UBS Composite Bond Index over the medium term, while ensuring the defensive characteristics are not compromised. Since inception, the fund has produced an annualised return after fees of 6.79% p.a., compared to the UBS Composite Bond index return of 6.45% p.a. over the same time period. Generally the fund will distribute income on a quarterly basis. However, this can vary depending on market conditions in any given period. The following table illustrates the performance of the fund to June 2013 after fees:
Return after 1 3 manager fees month month 1 year 3 years 5 years Since Inception (25/2/04) pa 6.79% 6.45%
Schroder Fixed Income Fund UBSA Composite Bond Index Active return
-0.80% 0.72% 4.32% 7.29% 8.25% -1.07% 0.40% 2.77% 6.83% 7.82%
0.34%
The fund currently holds 653 securities with an average credit rating of A. While over 56% of the portfolio is comprised of Australian bonds, no Government bonds are currently held. Instead the manager has preferred semi-Government bonds such as Queensland Treasury Corp and Treasury Corp of Victoria both state Government funding authorities. These have been preferred, as they provide higher yields with little additional credit risk. The manager has, for some time now, held a significant portion of the fund assets in cash and cash equivalents. This reflects the managers concern in regards to the