Schroder Strategic Bond Fund

Gareth Isaac, co-manager of the Schroder Strategic Bond Fund, sets out the objectives of the fund; the three main reasons to invest, who the fund is suitable for, how the team manages risk and where they are seeing investment opportunities.


Gareth Isaac

Gareth Isaac

Schroder Strategic fund investment objectives:

  • To generate attractive returns from fixed income assets over the medium term.
  • To generate attractive returns over LIBOR (London Interbank Offered Rate).

Reasons to invest in the portfolio

It is a completely unconstrained portfolio. I wanted to be able to invest where I could generate attractive risk-adjusted returns and not invest in any areas that did not hold particularly good value.

The portfolio is flexible. We can invest across the fixed income spectrum. That means throughout the investment cycle, whatever is happening in the bond market, we can generate attractive returns.

We have a 100 strong fixed income team based globally. Being able to tap into to that experience and knowledge-base is beneficial to me. It means that when the UK, for example, isn't offering a great deal of attractive returns I can look elsewhere within those different fixed income asset classes to generate the required returns for investors.

We are not tied to a traditional bond benchmark, so we can invest across the fixed income spectrum. We don't have to invest in anything we don’t like and we can manage interest rate risk. So, when you do start to see bond yields rise and volatility within fixed income markets we can limit the downside for investors.

Who is the fund suitable for?

  • For those investors with the desire for a fixed income allocation within their portfolio, but aren't entirely sure where to invest.
  • The fixed income universe is complex with a lot of strategies out there. This fund takes the hassle out of that.

How do you manage risk?

Credit risk: The portfolio does contain a lot of corporate bonds and high yield bonds from time-to-time. As a team we make sure we pick the best risk-adjusted names for the portfolio, and that is how the credit risk on the portfolio is managed effectively.

Interest rate risk: We can adjust the interest rate risk so that when you start to see a volatile environment for bonds, and yields start to rise, we can protect the investor from losing money. More traditional bond investors would struggle to do that.

Liquidity risk: We manage liquidity risk by not having large exposure to any one particular sector or one particular issue. Also, we keep some cash in short-dated money market instruments or government bonds.

Investment opportunities

One of the main opportunities has risen through the divergence in monetary policy between central banks.

In the UK and the US central banks are beginning to look to raise interest rates, while the central banks of Europe and Japan are beginning or continuing on their QE path. That means there are myriad of opportunities for active investors.

We'll be looking to put on relative value trades between countries, and curve trades between relative yield curves.

We'll also be looking to specific bond markets we think offer attractive returns. The long end of the US corporate bond market looks very attractive to us as it has underperformed significantly over the last 6-9 months.

The are also opportunities within the sterling high yield market.