Schroder ISF Asian Dividend Maximiser

Maximising income in a low yield world

A unique proposition that takes equity income investing one step further. The fund invests primarily in income-focused Asian equities and adds a covered call option overlay strategy to enhance the portfolio’s overall yield. This is expected to reduce volatility over the longer term, relative to a pure equity fund.

Two sources of income

The fund applies a two-pronged strategy in order to generate an enhanced yield, independent of the­­ interest rate environment. Building on the dividend yield from the equity portfolio, an active call option overlay strategy is applied to bring the distributable income to 7%3,4,5.

Step 1

Dividends from an actively managed Asian equity portfolio
c.3.5% p.a.1

Step 2

Premiums from the sale of
covered call options2
c.3.5% p.a.1

 

Payout as at last record date, paid monthly3

Source: Schroders.

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Why dividend investing in Asia?

Investing for dividends allows investors to participate in the strong Asian economic growth story, but at a lower volatility. Dividends have historically been the largest component of long-term equity returns in Asia.

Source: Factset, MSCI AC Asia Pacific ex Japan, Schroders, cumulative returns from 31 Dec 1987 to 31 Dec 2018. Past performance is not indicative of future returns.

Be certain of additional income

The key to the supplementary yield is the sale of covered call options on stocks held within the equity portfolio. While capital growth may be capped, the overlay strategy is actively managed with a view to strike the optimal balance between income and capital growth.

This is Schroders’ unique Maximiser strategy. Over an equity market cycle, we expect the following:

Best execution: Competitive auctions, ensuring strike price is at its highest possible level

We do not have to overwrite every stock: Around 20-40% of the NAV may typically be left without applying an option overlay

Weighted average strike price is around 110%6 over an equity market cycle

Source: Schroders.

What to expect from the fund in different market conditions?

The fund’s expected performance in comparison to a similar fund with no option overlay strategy:

Strongly Rising Stocks Gently Rising Stocks Flat or Declining Stocks
Likely to underperform Potential to outperform Potential to outperform

Source: Schroders. For illustrative purposes only and does not constitute a recommendation to buy / sell.

Expertise of two established teams

The fund exploits the skill set of two investment teams, with only one layer of fees.

With 38 in-house equity analysts based in Asia7, a strong regional presence gives our investment teams an information advantage.

1 The target yields quoted are estimates and are not guaranteed.
2 Only some upside is sold in order to preserve the potential for capital growth over the option term.
3 Payout rate shown is calculated over the last 12 months, as at the last record date of 24 Jul 2019. For more information on the composition of distribution payments, please refer to www.schroders.com.sg/distributioninformation.
4 Distributions of the Schroder ISF Asian Dividend Maximiser (the “Fund”) 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.
5 Applicable to all share classes.
6 This is the weighted average based on three-month single stock options if all stocks are overwritten and assuming the dividend yield is around 3.5%. Percentages are indicative, based on an equity market cycle, and may change.
7 As at Jul 2019, includes a joint-venture team of Indian equity specialists at Axis Asset Management in Mumbai. The team is fully integrated and provides support and coverage for Indian stocks within our research universe.

Contact Schroders

138 Market Street
#23-01
CapitaGreen
Singapore 048946

Tel: +65 6800 7000

Fax: +65 6536 6626

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