Schroder ISF Global Convertible Bond

Transcription

1 Product Description Investment Objective The Schroder product offers diversified exposure to convertible bonds issued by companies around the world. Schroders has teamed up with specialist convertible securities manager, Fisch Asset Management, to manage this product. Fisch offers a dedicated and experienced global convertible securities investment team, complemented by Schroders global economics and asset allocation resource. To provide a return of capital growth primarily through investment in a portfolio of convertible securities and other similar transferable securities, such as convertible preference securities, exchangeable bonds or exchangeable medium term notes, issued by companies across the globe. The portfolio may also, to a limited extent, seek exposure to fixed and floating rate securities, equity securities and equity linked notes Key Features and Benefits Diversification Offers diversification benefits for equity and fixed income investors Particularly low level of correlation with fixed income Further diversification by region, industry sector and by credit quality Attractive return potential Historically, more attractive risk/return profile than both equities and fixed income Downside protection feature is attractive in volatile market environments Value of embedded call option increases when volatility is rising, offering a partial volatility hedge Experience Extremely experienced and well resourced investment managers with rigorous, systematic team based approach Specialist boutique investment team, leveraging Schroders asset allocation and economics expertise Excellent institutional reputation with enviable Convertible mandate win rate Robust long term, performance record and highly developed approach to risk management incorporating cutting edge reporting and analysis systems Page 1

2 Investment Process Overall Top down Analysis Bottom up analysis Portfolio Construction Market cycle analysis: Impact of economic variables on equities, bonds and volatility analysed Output is regional, sector and equity exposure Risk score derived from 15 factor model Each factor (FCF/ROIC.) assigned a different weighting CDS, swap data and external ratings analysed Qualitative analysis of management and strategy Portfolios put through series of algorithms testing combinations of implied volatility, ytm, convexity etc.. to give optimal portfolio Investment Process Top Down Fisch s investment process starts with a top down view of where they are in the market cycle, based on a series of economic inputs including liquidity flows, money supply, yield curves and special situations. In addition to volatility, trends in equity, bond and credit markets are analysed. The perceived impact of all of these inputs is fed into a model template which forms the basis of monthly allocation meetings from which all Fisch s strategies are produced. (see below) Investment Process, March 2008 Macro Analysis Analysis Status Additional Informations Impact on Equities Bonds US Europe Japan Asia US Europe Japan Asia US FAM Cycle Analysis Current Phase: D2 D2 D2 D Liquidity Analysis Liquidity: climbing neutral neutral falling Y.C. Steepness: positive positive positive positive Y.C. Change: steepening steepening steepening steepening Trend Analysis Equity Market 3-6 month: Long Term: Bonds Short term bonds (3-6M): Y Gov. Bonds: Credit Market: Volatility: Special Situations Special Situation ECB policy Macro Alpha Value: Macro Alpha Score (50% = neutral): 53% 47% 50% 53% 83% Weighted Macro Alpha Score: 26% 23% 25% 26% Conclusions: Fundamental: Weakening economic data -- US job market crucial and to be watched -- ECB behind the curve -- high risk aversion Technical: Cyclical uptrend for equity markets in danger -- Sentiment extremly negative -- market indicators neutral Regions: Amerika Asien Europa Japan neutral (increase) overweight neutral (reduce) underweight Sectors and Sensitivities: Sectors Average rating neutral high Equity Exposure: average Next Meeting: 18/04/2008 Scores are assigned according to the impact of each input on equities, bonds and volatility. Credit spreads and special situations (the impact, for example of China s foreign exchange reserves or sovereign wealth funds) are also considered. The Asset Allocation committee is deliberately limited to six people to aid decision making. The outputs of the meeting include an overall fundamental and technical view as well decisions whether to over or underweight regions, sectors, currencies and equity exposure. The output of the process is similar to the Schroders Asset Allocation Committee and, for this reason, Schroders feeds into this process. Page 2

3 Schroder ISF Investment Process - Fundamental Analysis From a credit perspective, each name is assigned a fundamental risk score based on a dynamic15 factor model in use since The 15 ratios (earnings quality, off balance sheets, free cash flows, return on invested capital (ROIC) for example) are all assigned different weightings based on sensitivity analysis back tested using Chapter 11 (bankruptcy) cases over a number of years. CDS/swap spread data (from Bloomberg and other systems) is also analysed to arrive at changes in market ratings and perceptions for each name and, like the risk rating, strong movements are interpreted as signals of improving or deteriorating fundamentals (early warning models). The views of external rating agencies are then incorporated into the analysis, looking at peer comparisons, ratings stability and the expectations of the rating agencies. Finally, qualitative analysis of management and business strategy is undertaken through analyst presentations and 1:1 meetings. Each analyst covers 50 names on a primary basis and a further 70 on a secondary basis. Approximately 40% of Fisch s investment universe is sub-investment grade and the Head of Credit is ex CSFB, with years experience. He works along side another ex Credit Suisse banker, furthering credit research at Fisch. Investment Process Portfolio Construction The portfolios are put through a series of algorithms based on an application borrowed from genetics (like their top down model), testing different combinations of variables such as implied volatility, yield to maturity, convexity, delta and other Greek option ratios to find instruments with characteristics that meet the optimal minimum and maximum for each attribute. Normally the output yields too few bonds and scenario analysis is then carried out to gauge the risk exposure of each portfolio to changes in equity markets, credit, volatility and interest rates. Therefore the assumptions are relaxed to broaden the universe. The portfolio construction process is undertaken using cutting edge proprietary algorithms developed in conjunction with the University of Zurich Characteristic Schroder Strategy Target Performance: UBS Global Focus Stock Numbers Max Stock Position 10% Max Sector/Country Positions No constraints Max Cash Position 10% Risk Management Risk management is a critical part of Fisch s investment process and nearly one third of Fisch s 38 staff are devoted to programming and risk management systems. Using feeds from Reuters and Bloomberg, Fisch can execute real time VaR and implied volatility for all the Schroders portfolios. Fisch also have a 70% stake in BlueSky Softworks, a dedicated software company set up by their Head of IT. The overall process is divided into strategy compliance, aggregated portfolio risk, performance analysis and scenario/sensitivity analysis. Mostly automated, strategy compliance compares actual versus targeted deals with strategy limits on a daily basis. Parameters include position weightings, sensitivities (delta and duration for example), currencies and credit ratings. Assessments are made to check whether portfolio sensitivities are within specified ranges. Any discrepancy to a given asset allocation is investigated. Page 3

4 Aggregated portfolio risk includes monitoring conventional risk measures and sensitivities, process risks, and model risks. Calculations and analysis are run on a portfolio-level (as opposed to at a single security level). Conventional risk measures, calculated daily by Fisch, include VaR, expected shortfall, volatility, delta/equity exposure, vega (volatility exposure), rho (interest rate risk) and total derivatives risk. Sensitivity analysis, stress testing and performance analysis constitute a significant portion of Fisch s risk management activities, and are regularly run using proprietary tools. The central tool is the FAM Risk Engine, which reports risk measures (including the Greeks, duration, yields, credit spreads, and exposures) on a real time basis. More than 300,000 runs are handled by this tool each day. Fisch routinely conduct plausibility tests about the calculated risk measures. They compare their outputs with other systems (Sungard vs Bloomberg vs Monis vs Fisch) and there are frequent exchanges of information with various academic institutions (ETH Zurich, University of Basle, University of St. Gallen). Independently of investment, the risk management team regularly examines and if necessary optimises the risk management processes. Furthermore, possible transaction risks (for instance counterparty risks) are analysed to detect unqualified counterparties. As a part booking and execution, transaction control is an ongoing task. Traded amounts and prices are reconciled upon receipt of trade confirmations. Global Convertibles Team The Fisch Team are the largest and most experienced in Europe. Key team members are listed below. Team Structure Name Responsibility Investment Experience Fisch Experience Beat Thoma Fund Manager/CIO 20 yrs 8 yrs Roland Hotz Fund Manager 30yrs 5yrs Peter Jeggli Credit Analyst 20yrs 3yrs Daniel Pfister Credit Analyst 19rs 3yrs Kurt Fisch Founder and Head of Investment 24 yrs 13yrs Supported a further four portfolio managers and analysts, the team also leverages Schroders economics and asset allocation expertise through the Global Advisory Forum. Page 4

5 Schroder ISF Important Information This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the Company ). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual report (and subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management (Luxembourg) S.A. In accordance with the current prospectus, other than for Schroder ISF Global Property Securities, Schroder ISF Asia Pacific Property Securities, Schroder ISF European Defensive and Schroder ISF Middle East, the Company will seek UK distributor status for all distribution A and C shares and I shares of Schroder ISF Taiwanese Equity. An investment in the Company entails risks, which are fully described in the prospectus. Past performance is not a guide to future performance and may not be repeated. Investors may not get back the full amount invested, as prices of shares and the income from them may fall as well as rise. Third party data is owned by the applicable third party identified above and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments or products or any indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. The terms of the third party's specific disclaimers are set forth in the Important Information section at Exchange rate changes may cause the value of any foreign investments to rise or fall. Schroders has expressed its own views and opinions in this document and these may change. Schroder ISF Asian Convertible Bond and Schroder ISF are within the scope of the European Union Directive 2003/48/EC (Taxation of Savings Income in the Form of Interest Payments), as implemented in Luxembourg Law. This document is issued by Schroder Investment Management (Luxembourg) S.A., R.C.S. Luxembourg: B , 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. For your security, all telephone calls are recorded. Page 5