Schroder Cash Plus Fund
The Schroder Cash Plus Fund is an actively managed debt strategy which aims to deliver consistent returns above cash over the short to medium term. It adopts a ‘Core-Plus’ approach, in which the ‘Core’ portfolio comprising high quality, liquid short term securities is complemented by ‘Plus’ investments in a range of bonds and credit assets diversified by geography, rating, subordination and liquidity. The investment framework seeks to identify the right assets to own and when to rotate allocations to achieve the desired return outcome over the investment timeframe. Overlaying the asset allocation and security selection with strategies which add diversity, improve efficiency and mitigate risk, the targeted result is a diversified portfolio of income generating instruments aiming to outperform cash and term deposits with due consideration to minimising downside risk.
To deliver an investment return of 2%p.a. above the RBA Cash Rate before fees over short to medium term.
|Actively managed absolute return debt strategy offering liquidity and diversification benefits||
|Proven investment approach||
|Resourced to fully cover the universe||
- Market risk: includes the risk of volatility and negative returns arising from investment markets.
- Interest rate/duration risk: The performance of fixed interest and debt securities will be sensitive to movements in domestic and international interest rates (e.g. increases in interest rates result in the capital value of fixed interest investments falling).
- Credit risk: Credit risk arises when an issuing entity defaults, which results in a loss of capital to the Fund.
- Company risk: includes the risk of adverse changes to a company or its business environment.
For a comprehensive list of risks please refer to the PDS.
|Fund Inception date||15 July 2008|
|Valuation||Every business day|
Professional class - $500,000
|Buy/sell spread^||0.12% on application; 0.12% on redemption|
|Management costs (ICR)||Professional class - 0.38% p.a.
Wholesale class not available
^Subject to change. Refer to the Buy/Sell spreads page in the Fund Centre
How the Fund is Managed
We believe the fixed income universe is extremely diverse – it can be broadly classified into four key asset classes, namely sovereign, investment grade credit, sub-investment grade credit and cash, each with its own underlying sectors. Specifically, we believe the breadth of this universe and the diversity of possible risk and return outcomes not only means active management is essential, but that getting the overall asset allocation right is the single most important determinant of returns over time. That is not to say that security selection is not important – it is vitally important and a significant part of our process - but if the portfolio’s overall asset allocation is wrong, then owning the best securities in the wrong assets will only marginally improve portfolio outcomes.
Furthermore, as most investors require fixed income exposure for income, liability management or to diversify the downside risk in their portfolios from equities, the asset allocation of the portfolio should be set with an eye to delivering a stable, absolute return over time. Consistent with this, we primarily view risk as not meeting this objective, rather than measures of volatility.
The investment process has been designed (and refined over time) to reflect the key ideas described above. In essence it can be segmented into 5 key stages:
The benefit of breaking the process down in this way is to facilitate clear decision making and ensure accountability at every stage, rather than blur the decision making process, particularly with regards to the boundaries between asset allocation and stock selection decisions which can become quite grey in fixed income.
Stage 1 - Asset Allocation
While asset allocation in fixed income is not typically well defined by the market, we break our asset allocation decisions into two distinct areas based on their overall impact on total portfolio return and risk. The first includes decisions with respect to sovereign bonds, credit, cash, geography, duration, yield curve and subordination. The second extends to credit sector selection (e.g. financials vs. non financials) and non-credit sector selection (e.g. government bonds, semi-government bonds, supranational debt and government guaranteed securities).
In developing the portfolio’s asset allocation, we start from an absolute perspective to construct an initial (or starting point) portfolio, unencumbered by any predetermined benchmark allocations. We combine 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 Strategy’s objectives to develop appropriate asset allocation of the Strategy. By utilising the broadest opportunity set and actively managing these exposures in this part of the process, it helps to ensure we are in the right assets at the right time, which in turn helps us to achieve our broader portfolio goals such as delivering consistent returns with limited tolerance for drawdowns and a requirement for liquidity.
Stage 2 - Security Selection
Independent security level research and active management at the security level are essential elements of our approach. This is because as debt investors we are investing our client’s money in assets with an asymmetric pay-off structure. In other words, we either get our coupons and capital back at term - or we get less; there is no upside in a “hold to maturity” environment so we need to avoid investing in securities where the risk of default is material if it is not reflected in the price. Furthermore, we are not prepared to rely on external ratings agencies to make this assessment, and we will not invest in securities we haven’t researched.
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. For this reason our security selection process differs for “credit” and “non-credit” securities.
Stage 3 – Alpha Strategies
In order to improve diversity of return sources and the efficiency (i.e. the return for risk taken) of the portfolio, we also seek to implement strategies that are broadly uncorrelated with the main asset allocation tilts of the portfolio. We employ non-directional strategies that do not depend on changes in the level of interest rates or credit spreads, such as relative value strategies between different yield curves, and also strategies that may have a directional element but which are asymmetric in their payoff profile. Flexibility of instrument use and geographic reach is important in accessing such opportunities, therefore our global colleagues are an important resource for idea generation.
Stage 4 - Risk Management
At the end of the asset allocation process we are able to identify broadly the portfolio structure(s) that will best meet the investment objectives. A key element of this process is to ensure that from a top-down perspective risk is being taken in the right places. To do this, we monitor a broad array of risk measures including examining those exposures and factors contributing to risk and the size of their risk contributions. This then feeds back into the portfolio construction process and will influence decisions relating to asset allocation position sizing.
With the broad portfolio structure set, risk management in the sector and security selection process focuses on achieving diversification by sector, industry, issuer, rating and seniority. Risk is referenced both in size of exposures, and via duration and credit spread duration. These estimates of the portfolio’s sensitivity to changes in risk premium ensure the appropriate level and contribution to risk are being held in the portfolio.
Stage 5 - Implementation
The final stage of the investment process is implementation where our aim is to find the best ways to implement the investment decisions generated through this process.