News releases

Schroders sees convertible bonds as top performer in 2014 as global fund passes $2bn

Despite the current low growth, low interest rate economic cycle and likely risk of rates increasing in the US in 2014, Schroders believes there will be solid equity market performance and that convertible bonds are set to be one of the best performing fixed income asset classes this year.

31/01/2014

Despite the current low growth, low interest rate economic cycle and likely risk of rates increasing in the US in 2014, Schroders believes there will be solid equity market performance and that convertible bonds are set to be one of the best performing fixed income asset classes this year. Schroder ISF1 Global Convertible Bond also recently celebrated passing $2bn2 of assets under management with strong performance over one year against the benchmark by returning 15.8%3 .

The strong case for global convertible bonds in 2014 is underpinned by the interest rate protection they offer, the strategic growth tilt and participation in the equity market via a long-term option, which is paired with strong credit selection. This provides investors with a balance of equity exposure and safety. Global convertible bond funds also offer diversification and protection benefits from local issues given their ability to invest broadly across regions and sectors. Some of the issues of 2013 though have made significant progress, for example the US debt ceiling and European banking regulation, which will continue to improve investor sentiment and drive market returns. However, there is some risk of volatility with market stress from the equity and credit side.

New issuances, which are crucial for sustaining a diversified convertible market and providing a good alpha source, are also likely to continue to be strong in 2014. The team is currently overweight cyclicals, such as industrials, as well as IT and consumer discretionary and is underweight financials and telecoms.

Dr Martin Kuehle, Investment Director, Convertible Bonds at Schroders, commented:

“Convertible bonds offer a solution to investors who do not have the risk appetite to buy equities or are constrained by regulation. While some investors have seen significant returns in the equity markets others have experienced this from the side lines hoping for a setback to finally get on board. We therefore forecast strong demand for convertibles either on a stand-alone basis or as a stable building block for fixed income portfolios.”

Philippe Lespinard, Co-Head of Fixed Income at Schroders, also commented:

“Surpassing the $2bn milestone is testament to the strength of our recently expanded convertibles team, which has also produced great performance for our clients. Market conditions are looking favourable for convertible bonds due to their low sensitivity to rising interest rates and exposure to high growth companies but with a defensive structure. They therefore offer an attractive investment opportunity for 2014.”

1 Schroder International Selection Fund is referred to as Schroder ISF

2 Schroders as at 3 January 2014

3 Schroders as at 31 December 2013 (A Acc, USD). Performance data is on a NAV to NAV basis, net income reinvested. Benchmark is UBS Convertible Global Focus (returned 13% over the same time period).

 For further information, please contact:

Georgina Robertson, International PR

Tel: +44 (0)20 7658 3365/ georgina.robertson@schroders.com

Kathryn Sutton, International PR

Tel: +44 (0)20 7658 5765/ kathryn.sutton@schroders.com

Notes to Editors

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Schroders plc

Schroders is a global asset management company with £256.7 billion (EUR307.2 billion/$415.8 billion) under management as at 30 September 2013. Our clients are major financial institutions including pension funds, banks and insurance companies, local and public authorities, governments, charities, high net worth individuals and retail investors.

With one of the largest networks of offices of any dedicated asset management company, we operate from 37 offices in 27 countries across Europe, the Americas, Asia and the Middle East. Schroders has developed under stable ownership for over 200 years and long-term thinking governs our approach to investing, building client relationships and growing our business.

Further information about Schroders can be found at www.schroders.com.

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