For Accredited or Institutional Investors only Schroder Singapore Fixed Income Monthly Strategy Update Covering March 2018 Investment Objective The investment objective of the strategy is to provide investors with diversified exposure to the Singapore fixed income market through investment in Singapore dollar denominated bonds. The strategy will invest in a diversified portfolio of Singapore do llar denominated fixed income securities, including debt securities issued by the Singapore Government, Singapore statutory boards and corporates with issuer credit ratings of at least Baa by Moody s, BBB by Standard and Poor s or BBB by Fitch (including sub-categories or gradations therein). The strategy may also invest in non-rated debt securities issued by Singapore-incorporated entities and Singapore statutory boards, provided that such securities are researched thoroughly by our internal credit analyst team. Strategy Performance Performance in SGD (%) 1-mth 3-mth 1-yr 3-yr (p.a.) 5-yr (p.a.) Since Inception (p.a.)* Schroders Singapore Fixed Income (Gross) Schroders Singapore Fixed Income (Net) 0.40-0.89 1.29 2.69 2.33 3.52 0.38-0.98 0.94 2.35 1.98 3.13 Markit iboxx ALBI Singapore Index** 0.46-1.20 1.00 2.46 1.67 2.90 *The strategy inception date is 4 October 2005. ** The benchmark was changed from the UOB Singapore Government Securities Index All to the Markit iboxx ALBI Singapore Index effective 1 March 2017. The full track record of the previous benchmark has been kept and chain-linked to the new one. Source: Schroders, Schroder Singapore Fixed Income, I class shares. Gross performance is gross of total expense while net performance is based on NAV-to-NAV, net of management fees, dividends reinvested. Data is as at 31 March 2018. Past performance is not indicative of future performance. The Schroder Singapore Fixed Income strategy has delivered outperformance against the benchmark over the medium- to long-term, and has generated a strong return of 3.52% (gross) p.a. since its inception in October 2005. The MercerInsight MPA universe peer comparison chart overleaf validates the excellent long-term track record of the strategy against the industry peers. The strategy has delivered good excess returns over the 5-year period to December 2017*. Notably, this performance was not achieved by taking excessive risk but with a risk level comparable to the benchmark and at a low tracking error in comparison to peers. This has resulted in an excellent risk-return trade-off and a second-quartile information ratio of 1.1. *MercerInsight MPA updates peer comparison only on a quarterly basis. Schroder Singapore Fixed Income 1
Source: MercerInsight MPA, 31 December 2017. Market Overview US Treasury yields broke the upward trend in March and declined across the curve. Investors flocked to safe haven assets over fears of a possible US-China trade war and a slew of economic data misses in Europe. The US Treasury 10-year yield fell from 2.86% to 2.74%, while the US Treasury 30-year yield dropped to 2.97%. Trade friction between the US and China intensified in March. Following the imposition of stiff US tariffs on steel and aluminium, China unveiled a list of 106 American imports that would be subject to duties. In response, the US announced a temporary tariff exemption for the European Union and other nations, singling China out as the main target of its trade tariff policies. On the Singapore front, the March Purchasing Managers Index (PMI) rose across most sectors to print at 53.0. It was driven in particular by faster growth in factory output, higher new orders and new exports. February industrial production rose 8.9%. However, February non-oil domestic export numbers unexpectedly fell 5.9% due to a decline in shipments. Against this backdrop, Singapore bonds reversed course to produce positive returns in March. Singaporean dollar (SGD)-denominated government bonds returned 0.6% (iboxx ALBI Singapore Government Total Return Index) while their SGD-denominated credit counterparts underperformed and ended the month at 0.1% (iboxx Singapore Non-Government Total Return Index). Elsewhere, the Singapore dollar appreciated 1.0% against the US dollar Performance Review The Schroder Singapore Fixed Income strategy returned 0.40% (gross of total expense) in March and underperformed the benchmark which returned 0.46%. The Fund was negatively impacted by the overall underweight duration bias, particularly from the underweight SGD duration as Singapore bonds returned positive in March. In addition, on the back of tightening swap spreads and a depreciation of USD against SGD, the short in SGD swaps and the off-benchmark allocation to USD-denominated bonds detracted from performance. Conversely, positive sector allocation between government bonds and credits contributed positively over the month and offset some of the negative performance. The Fund also benefitted from overall yield curve positioning, in particular the underweight in the 2-year duration bucket of the Singapore government yield curve where yields rose. For Accredited or Institutional Investors only Schroder Singapore Fixed Income 2
Outlook and Strategy The first quarter of this year saw mounting geopolitical tension and rising market volatility. The trade dispute between the US and China is expected to continue into the second quarter and negotiations are likely to drag on over a protracted period of time, potentially damaging investor sentiment. However, our base case remains that a full-blown trade war is unlikely as both US and China have expressed willingness to negotiate. We expect that global growth should remain intact and provide a supportive backdrop for emerging market assets. In Singapore, the market expects the Monetary Authority of Singapore to tighten monetary policy at the bi-annual meeting in April by raising the SGD Nominal Effective Exchange Rate (NEER) slope. The US-China trade tension is not expected to directly impact Singapore and should be manageable given that Asia remains as a growth favourite for businesses and investors. However, a fullblown trade war could have an indirect impact on Singapore s growth. Although there has been a rise in capital expenditure (capex) intentions, the actual capex investment has not flowed through. A full-blown trade war would likely put a halt to any capex investment and as a result, affect the Singapore economy. New corporate bond issuance has been steady, particularly from the real estate sector. We continue to underweight duration bu t we would be looking to add to holdings should any further widening of spreads produce more attractive valuations. Portfolio Characteristics Portfolio Benchmark Effective Yield 2.75% 2.38% Effective Duration 5.18 years 5.97 years Average Maturity 6.45 years 7.20 years Average Credit Rating AA+ AAA Why Schroder Singapore Fixed Income Well-resourced and dedicated Asian/Singapore fixed income team with an average investment experience of about 17 years (as at 28 February 2017). Pioneer investor in the Asian/Singapore fixed income markets. We have been invested in Asia for more than 15 years since the Asian Crisis in 1998. Our investment process is robust, having stood the test of time. Benefit of strong integration with Schroders global resources, with seamless access to proprietary inputs from professionals worldwide offering significant depth and resource. Proven, repeatable track record and long term commitment to the Singapore fixed income market, having managed Singapore fixed income strategies since 1984 for local institutions. Strong focus on risk management: fiduciary duty mentality - we are prudent in our approach to investment and focus on generating strong risk-adjusted returns. For Accredited or Institutional Investors only Schroder Singapore Fixed Income 3
Investment Team The Singapore Fixed Income strategy is managed via a team approach under the oversight of Roy Diao, Head of Asian Fixed Income. The fund is managed by Ang Chow Yang (lead portfolio manager) and Julia Ho. They conduct top-down Singapore macro analysis and determine duration and yield curve positioning as well as credit allocation decisions for strategy. The portfolio managers are also responsible for credit selection decisions utilizing the input and recommendations of the credit research team. The biographies of Julia Ho and Ang Chow Yang are appended below. Julia Ho, Head of Asian Macro - Portfolio Manager Based in Singapore, Julia is an Asian Fixed Income Portfolio Manager responsible for country allocation, rates and currency strategy as well as portfolio construction for our Pan-Asian fixed income portfolios. Julia joined Schroders in February 2012 as Asian Fixed Income Manager- Global Multi Sector based in London, before being transferred to Singapore in July 2012 to her current role. She previously worked at Western Asset Management as Portfolio Manager focusing on Pan-Asian Local Currency and single currency Asian bond portfolios and unit trusts. Prior to that she was a Portfolio Manager/Director with Rothschild Asset Management from 1995 to 2003, managing both Global / Pan Asian bonds and single currency Asian institutional portfolios and retail funds. She started her fund management career with UOB in 1988 managing Global / Asian bond markets. She was with Nomura Securities as Bond Sales Executive from 1987 to 1988. Julia holds a Bachelor of Business Administration, National University of Singapore. Ang Chow Yang, Portfolio Manager Based in Singapore, Chow Yang is an Asian Fixed Income Portfolio Manager responsible for country allocation, rates and currency strategy as well as portfolio construction for our Pan-Asian fixed income portfolios. He is the lead portfolio manager for the strategy. Chow Yang joined Schroders in 2001 as an equity fund manager s assistant and was appointed to the Schroders Asian fixed income team in August 2004. His investment career commenced in 1999 as a treasury product control analyst with JP Morgan. Chow Yang is a CFA Charterholder and holds a Degree in Business from Nanyang Technological University. For Accredited or Institutional Investors only Schroder Singapore Fixed Income 4
Schroder Investment Management (Singapore) Ltd 138 Market Street, #23-01 CapitaGreen, Singapore 048946 Co. Reg. No. 199201080H Telephone: +65 6800 7000 Fax: +65 6535 3486 Disclaimer The information and opinions contained in this document have been obtained from sources Schroders considers to be reliable however these have not been checked or verified by Schroders. The information contained herein is provided as a guide only and any persons who may receive this document must make his own investigations and must satisfy himself as to the accuracy and completeness of information, and suitability of investments for his investment purposes, needs or requirements. Schroders, their directors and employees may have positions in and may effect transactions in securities mentioned in this document. Neither Schroders nor any of its officers or employees have any authority to give any representations or warranty whatsoever and no responsibility is accepted by any of them in relation to the information in this document and accordingly Schroders shall not be liable for any loss or damages or expense of any kind whatsoever or howsoever arising from the person's use of the information contained in this document. This document and its contents are not intended to constitute an offer for sale, prospectus, invitation to subscribe for or purchase or otherwise acquire any of the instruments referred to herein. This bulletin is published for information only and does not have any regard to the specific investment objective, financial situation and the particular needs of any specific person who may receive this document. Investors may wish to seek advice from a financial advisor before purchasing units of the Fund. In the event that the investor chooses not to seek advice from a financial advisor, he should consider whether the Fund in question is suitable for him. Past performance of the Fund or its manager and any forecast are not necessarily indicative of the future or likely performance of the fund or the manager. The value of units and the income from the fund may fall as well as rise. Schroder Singapore Fixed Income 5