For professional investors and advisers only Schroder International Selection Fund European Dividend Maximiser Global Dividend Maximiser Maximise your income
Generating income in a low yield environment These are challenging times if you are an investor looking for income. Interest rates remain at historic lows, while any interest you earn is instantly eroded by inflation. So, where can you turn? Schroders range of Maximiser funds offer a compelling solution if you re looking to invest long term and can accept the risks associated with stock market investments. target a distributable yield of 7% p.a. Schroder ISF* European Dividend Maximiser and Schroder ISF Global Dividend Maximiser are not your typical equity income funds both target a distributable yield of 7%** p.a., achieved by combining a carefully selected portfolio of equities with our established Maximiser yield enhancement strategy. The strategy allows investors to tap into the long-term benefits of an equity market cycle, with the added security of a high, regular and stable income stream. Key benefits: 7% 4 Aims to deliver an income of 7% p.a. Two sources of yield, both independent of interest rate policy: dividends from an actively managed equity income portfolio premium from selling covered call options Strategy tested across a full equity market cycle Three potential sources of return (unlike typical equity income funds): fundamental value, dividend yield and premium from selling call options Call option strategy helps to reduce volatility and is actively managed, with a view to both income and capital growth Pays out an income every quarter Managed by an experienced team. Source: Schroders, as at August 2015. 1 *Schroder International Selection Fund is referred to as Schroder ISF throughout this document. **The gross yield is an estimate and not guaranteed.
Schroders Maximiser strategy taking equity income to another level Schroder ISF European Dividend Maximiser and Schroder ISF Global Dividend Maximiser aim to deliver a yield of 7% p.a. This high level of distributable income is made possible by our established, two-step Maximiser strategy. Firstly, we invest in a range of carefully selected companies, which we feel are fundamentally undervalued. These companies also tend to be paying a generous and growing dividend, and it is these dividends that create the first of our two income streams. The second income stream is where our funds really stand out from the crowd. We take the potential, but nevertheless still uncertain, capital growth on the stocks we own, and we regularly exchange some of this for an upfront payment in cash. By doing this every three months, we are able to create a secondary source of yield, which increases the income we can distribute to investors. 7% target yield 1 STEP 1 STEP 2 + Premium from selling covered call options 2 c. 3.5% 1 p.a. Dividends from an actively managed equity income portfolio c. 3.5% 1 p.a. 1 The gross target yield quoted is an estimate and is not guaranteed. 2 Only some upside is sold, in order to preserve the potential for capital growth. 2
The equity portfolio the importance of dividends Dividends contribute around 50% of the long-term total return from equities, which is why we believe that dividends should play a central role in investors portfolios. Crucially, we recognise that outperformance requires more than merely investing in companies that pay the highest dividends. Selecting the best high-yielding stocks requires fundamental analysis of the company s underlying business. Our focus is on businesses that we believe are fundamentally undervalued. We believe that this valuation opportunity, combined with a sustainable and growing dividend yield, offer the best opportunities to achieve long-term outperformance. We aim to identify the most attractive opportunities through a combination of screening techniques and fundamental research. Investment process Solid balance sheets and cash generation ensures sustainable dividends that can grow Income Cheap prices allow yield, and give prospect of capital growth Income growth Capital growth Cheap shares and solid balance sheets are the cornerstone of complete income. 3
Our call option overlay Building on the dividend yield generated by the equity portfolio, we then apply our Maximiser income enhancement strategy, enabling us to bring the distributable income up to the targeted 7% p.a. The key to this enhancement strategy is the sale of three-month covered call options on the individual stocks held within the equity portfolio. The income stream is generated by exchanging some of the potential but nevertheless uncertain capital growth on selected holdings (above a certain level) in return for an upfront cash payment (option premium). We repeat this process on a rolling three-monthly basis. Schroders' Maximiser strategy an illustrative example Exchanging some uncertain potential gain for a regular income Strike price Potential capital growth that is sold for upfront payment We retain the first amount of potential capital growth Option premium: circa 3.5% p.a.* Stock price 100% Initial equity value Dividend income: circa 3.5% p.a.* 7% yield p.a.* *The target yields quoted are estimates and are not guaranteed. The strategy will typically underperform a similar portfolio with no derivative overlay when the underlying stock prices are rising, and outperform when the underlying stock prices are falling, thereby reducing the volatility of returns. The fund intends to make regular yield payments to investors and, if its total return is not sufficient to cover these payments, these payments may reduce the fund s capital. When selling the options, we are looking to sell just enough potential upside to meet the target yield, while still benefiting from the valuation opportunities on offer within the underlying portfolio. In other words, generate the required level of income while leaving as much scope as possible for capital appreciation. We only ever write call options on stocks owned within the portfolio, thereby ensuring that the positions are always covered and that no leverage is employed. In other words, we only sell what we own. Furthermore, transactions are always cash settled within two days, so the fund effectively has no counterparty risk. 4
Our call option overlay What can investors expect? The funds make use of financial derivative instruments. It is expected that the strategy will typically underperform a similar portfolio with no derivative overlay in periods when the underlying stock prices are rising, and outperform when the underlying stock prices are falling, thereby reducing the volatility The fund intends to make regular yield payments to investors and, if its total return is not sufficient to cover these payments, these payments may reduce the fund s capital The level of stock upside that is retained per three month trade will vary from trade to trade, reflecting the team s decisions on the underlying holdings, prevailing market conditions and market volatility in particular The repeated application of the overlay over three-monthly periods will increase the income paid to investors and reduce volatility, but there is the potential the performance or capital value may be eroded. Key information Schroder ISF European Dividend Maximiser Launch date 05 October 2007 Fund currency EUR Benchmark MSCI Europe Net Return Fund size 1.66 billion ISIN code LU0319791538 Total number of holdings 42 Bloomberg code SIEDMAA:LX Entry charge Up to 5% of gross investment amount Ratings Ongoing charges (latest available) 1 1.93% Schroder ISF Global Dividend Maximiser Launch date 13 July 2007 Fund currency USD Benchmark MSCI World TR Net Fund size $4.75 billion ISIN code LU0306806265 Total number of holdings 52 Bloomberg code SGENYAA:LX Entry charge Up to 5% of gross investment amount Ratings Ongoing charges (latest available) 1 1.92% Source: Schroders, as at 31 July 2015, all data is referring to the A Acc share class. Source for ratings: Morningstar ratings refer to the A Acc share class, as at 31 July 2015. Citywire ratings are awarded to the fund manager, as at 30 June 2015. 1 The ongoing charges figure is based on the last year s expenses for the year ending May 2015 and may vary from year to year. 5
Investment team Our fund managers Schroder ISF European Dividend Maximiser and Schroder ISF Global Dividend Maximiser harness the skills of two Schroders investment teams, while applying only one layer of fees. Equity team Ian Kelly, Co-manager Schroder ISF European Dividend Maximiser and Schroder ISF Global Dividend Maximiser Jamie Lowry, Co-manager Schroder ISF Global Dividend Maximiser Stock selection based on fundamental valuation Portfolio and overlay discussion/yield enhancement review Collaborative process Option market insight and active overlay positioning Maximiser team Thomas See, Head of Structured Fund Management Co-manager of Schroder ISF Global Dividend Maximiser and Schroder ISF European Dividend Maximiser Supported by five dedicated structured investment fund managers The team pioneered Schroders Maximiser range, which currently has $10.5bn* in assets under management *As at 30 June 2015 Source: Schroders, as at August 2015. Thomas See, Co-manager, Schroder ISF Global Dividend Maximiser and Schroder ISF European Dividend Maximiser Having been part of the team that conceived, structured and launched Schroders Maximiser range of funds, Thomas has responsibility for the range as Head of Schroders Structured Fund Management team. He has over 20 years of experience in structuring and options. Ian Kelly, Co-manager, Schroder ISF Global Dividend Maximiser and Schroder ISF European Dividend Maximiser Ian is responsible for selecting the stocks for Schroder ISF Global Dividend Maximiser and Schroder ISF European Dividend Maximiser. Having joined Schroders in 2007, Ian has worked closely with Thomas See in the management of Schroders Maximiser products since 2010. Jamie Lowry, Co-manager, Schroder ISF Global Dividend Maximiser Jamie has been with Schroders since 2004, originally joining as an equity analyst on the European Equity team. Jamie holds a degree in Financial and Business Economics from Royal Holloway College, University of London and is a Chartered Financial Analyst (CFA). Source: Schroders, as at August 2015. 6
About Schroders 437.4bn managed across equities, fixed income, multi-asset, alternatives and real estate. An extensive global network of 3,600+ employees. 37 offices in 27 countries across Europe, the Americas, Asia and the Middle East. Over 200 years experience of investment markets. Source: Schroders, as at 30 June 2015. To find out more please visit www.schroders.lu or speak to your local Schroders representative Risk considerations: The capital is not guaranteed. The fund intends to make regular yield payments to investors and, if its total return is not sufficient to cover these payments, these payments may reduce the fund s capital. Investments denominated in a currency other than that of the share-class may not be hedged. The market movements between those currencies will impact the share-class. The fund will not hedge its market risk in a down cycle. The value of the fund will move similarly to the markets. The derivative strategy is applied repeatedly over three-monthly periods. This strategy will increase the income paid to investors and reduce the volatility of returns, but there is the potential the performance or capital value may be eroded. The fund makes use of financial derivative instruments. It is expected that the strategy will typically underperform a similar portfolio with no derivative overlay in periods when the underlying stock prices are rising, and outperform when the underlying stock prices are falling, thereby reducing the volatility of returns. 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 Key Investor Information Document and 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. An investment in the Company entails risks, which are fully described in the prospectus. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get the amount originally invested. Schroders has expressed its own views and opinions in this document and these may change. This document is issued by Schroder Investment Management Ltd., 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. w47525.