Schroders' steady hand on the tiller

Schroder Investment Management took out first place in a closely contested Fixed Interest – Diversified and Global category for this year’s Money Management/Lonsec Funds Manager of the Year awards.

The Schroder Fixed Income fund is a relatively conservatively run ‘fund of funds’, and outperformed its peers in terms of risk-adjusted returns in the 2011 calendar year, according to Lonsec.

Schroder head of fixed income and multi-asset, Simon Doyle, said fund is designed to be the core defensive holding within a diversified portfolio.

“Fixed income is there to preserve capital, provide liquidity and really diversify away equity risk,” said Doyle.

“When equity markets and risk assets are declining in price, you want the fixed income part of your portfolio to be delivering positive returns,” he added.

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The fund is structured around a ‘core-plus’ framework, with half of the assets invested low-risk, local, UBS-composite benchmark core portfolio, Doyle said.

“Then we look to allocate the rest of the portfolio to those parts of the fixed income universe that make the most sense – to add value or lower risk,” he said.

Up to 50 per cent of the portfolio can be in cash, or it can be invested in local and global credit, he said.

One big factor that differentiates the Schroder fixed income from its peers is the fact that it is managed locally, he said.

“It was designed in Australia for Australian investors. All of the decisions that we take in that portfolio are taken here in Sydney.

“For some of the other global funds there’s more centralisation in the decision-making,” Doyle said.

As for his outlook for the fixed income sector, Doyle said credit spreads are looking “reasonable” and managers should see more stability in terms of their overall returns – as long as they keep their duration relatively low and avoid exposure to government bonds.

Last year’s winner, PIMCO, came in second this year with its PIMCO/EQT Global Bond Fund.

The fund is run by Bill Gross, founder, managing director and co-chief investment officer of PIMCO.

Gross is supported in Australia by PIMCO Australia head of portfolio management Rob Mead, along with 45 credit analysts and 45 regional specialists worldwide.

The real yields available in Australia in terms of fixed income are continuing to be outliers in the developed world, said Mead.

“We’ve continued to see good opportunities for either Australian bonds – or global bonds hedged to Australian dollars – as both very attractive real yield generators,” said Mead.

However, with the global economy in a ‘risk-off’ phase, there could be an “implicit cap on how high the yields on these very high-quality instruments could rise”, he added.

BlackRock rounded out the finalists in the category, with the manager’s Australian head of fixed income Steve Miller pointing to the strength of his funds’ “cohesive and centralised investment process”, which involves frequent conference calls with BlackRock’s fund managers around the world.

Miller said the global economic outlook is still very uncertain.

“I don’t think we can escape the likelihood that Europe will have a recession in 2012, and 2013 will be challenging as well,” Miller said.