Schroder Institutional Series

Schroder Fixed Income Fund Standard Class

Investment Objective

To obtain exposure to a diversified range of domestic and international fixed income securities with the principal aim of outperforming the UBS Composite Bond Index over the medium term.

Investment philosophy and process

Our fixed income investment philosophy is based on our belief that most investors make inefficient use of the opportunity set available to them. For example, such investors may focus too much on arbitrary benchmarks that are not aligned with their objectives or they may have too narrow a focus (i.e. duration or credit).

It is our belief that this creates an inefficiency that can be captured by broadening the opportunity set to capture diversified sources of risk and return.

Schroders looks to provide investors with the opportunity to invest in a portfolio of defensive assets which we believe matches the trade-offs that most investors have to make between liquidity, duration (sensitivity to interest rate movements), diversification, absolute risk and credit risk.

The Fund’s investment process involves several key steps:

Asset allocation
Identifying what assets to own and when to own them is the most important step in the investment process as it will have the greatest impact on the overall return and risk characteristics of the Fund. This step involves combining our medium term expectations of fixed income asset class risk and return with shorter term views on market valuation, cyclical developments and liquidity considerations, matched against the Fund’s objectives to develop the appropriate asset allocation of the Fund.

This step in the process ensures we utilise the broadest opportunity set but actively manage these exposures to ensure we are in the right assets at the right time.

Security selection
Security selection is the next step. Security selection within each of the underlying asset classes is carried out in a manner aiming to exploit those areas with the most potential for adding value. The core Australian fixed income exposure is managed on a low risk active basis as we believe the opportunity to add significant value in this asset class is limited. The remaining asset classes are managed by the relevant market specialists within the Schroders group.

Portfolio construction
Portfolio construction and risk management is the final important step in the process. The portfolio structure at any point in time is a result of a disciplined analytical evaluation combined with our experience and judgement. The risk of the total portfolio is monitored on a continuous basis to ensure that the risks are appropriate in light of the expected returns and the Fund objective.

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