Investing in the Late Cycle

The US is officially in its longest economic expansion, and we are venturing deeper into the late stages of the market cycle where investing conditions are challenging.

Schroders has the expertise to help investors exploit opportunities in difficult markets, while managing volatility to protect portfolios from significant drawdowns.

Late in the game, time to adjust your strategy?

Over the past decade, investors have enjoyed rewarding times with markets performing well despite low growth and inflation. The late cycle environment is expected to provide more subdued returns with greater market volatility than in recent years.

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A late cycle environment does not suggest that investors should fully retreat to a defensive position. An income-generating investment has the potential to help investors grow and protect wealth, even when markets are difficult or uncertain.

Beware the expectation mismatch

The difference in the income that people would like to receive and what they actually receive today is stark. Investors in Singapore regularly rate a reliable stream of income as a critical investment requirement2, relying on income payouts to meet ongoing liabilities, fund retirement expenses and deliver a consistent element to their investment returns.

Unrealistic expectations could derail such plans.

9.2%

Average minimum income expectations for typical investor in Singapore

0.6%

Headline inflation in Singapore

4.2%

Stock market dividend yield in Singapore

Source: Average Investor Expectations, Schroders Global Investor Study 2018. Headline inflation represented by the CPI-All Items Inflation on a year-on-year basis as at Mar 2019. Stock market dividend yield represented by MSCI, Refinitiv as at Mar 2019.

Over the next decade, we expect risk-free interest rates to be higher than the exceptionally low levels of today, but will likely remain low by pre-crisis standards. In our view, the new level will be similar to the average between 1900 and 1981, some 1-3% below pre-crisis levels.

Source: Dimson, Marsh & Staunton, Credit Suisse Global Investment Returns Yearbook 2018. Average returns % real interest rate (short term interest rate minus inflation). The equilibrium rate will vary from market to market.

With change comes opportunity

As a rule, to achieve greater income, investors need to take greater risk. With rising volatility and market displacements, the scope for alpha generation is significant. Relative value opportunities still exist, but investors may find it difficult to position their portfolios optimally in this environment.

Schroders takes a rigorous, disciplined approach to income investing, which helps us meet investor needs without placing capital at unnecessary risk. Our approach prioritises ‘quality’ income that is attractive and sustainable, and this is achieved through careful security selection from well-diversified sources.

A pioneer in income investing

Schroders has one of the broadest ranges of income solutions. With over 30 years of investing in income-producing assets, this history has given us valuable experience of income investing through a diverse range of investment environments and challenges. Find out more about our Income Strategic Capability.

Featured funds

Utilising our diverse product range across multiple asset classes is the key to helping you as an investor reach your income targets, while diversifying risk to capital.

1National Bureau of Economic Research, data between the periods of 1954 to 2009.
2Schroders, Global Investor Study 2018.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

For more information on the composition of distribution payments, please refer to www.schroders.com.sg/distributioninformation

Distributions of the Schroder Asian Income will be declared monthly. The distributions are not guaranteed and might be changed at the Manager’s discretion in accordance with the Trust Deed. Ordinarily, they will be reviewed annually. In the event of the Fund’s income and realised gains being less than the intended distribution, distributions will be made from capital, subject to trustee approval. Investors should be aware that the distributions may exceed the income and realised gains of the Fund at times and lead to a reduction of the amount originally invested, depending on the date of initial investment.

Distributions of the Schroder ISF Global Credit Income and Schroder ISF Asian Dividend Maximiser will be declared on a monthly basis. The distributions are not guaranteed and will be reviewed annually. In the event of income and realised gains being less than the intended distribution, distributions will be made from capital. Investors should be aware that the distributions may exceed the income and realised gains of each fund at times and lead to a reduction of the amount originally invested, depending on the date of initial investment.

The net asset value of the Schroder ISF Asian Dividend Maximiser is likely to have high volatility due to its investment policies or portfolio management techniques.  

Schroder International Selection Fund is referred to as Schroder ISF.

This is prepared by Schroders for information and general circulation only and the opinions expressed are subject to change without notice. It does not constitute an offer or solicitation to deal in units of any Schroders fund (the “Fund”) and does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this. Investors may wish to seek advice from a financial adviser before purchasing units of any Fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider whether the Fund in question is suitable for him. Past performance of the Fund or the manager, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the Fund or the manager. The value of units in the Fund, and the income accruing to the units, if any, from the Fund, may fall as well as rise. Investors should read the prospectus, available from Schroder Investment Management (Singapore) Ltd or its distributors, before deciding to subscribe for or purchase units in any Fund. Funds may carry a sales charge of up to 5%.

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