Schroder Emerging Markets Fund Semi-Annual Report & Financial Statements June 2017
(a sub-fund of Schroder International Choice Portfolio) Constituted under a Trust Deed in the Republic of Singapore on 25 May 1998 Manager Schroder Investment Management (Singapore) Ltd 138 Market Street #23-01 CapitaGreen Singapore 048946 Company Registration No. 199201080H Trustee HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #13-02 HSBC Building Singapore 049320 Company Registration No. 194900022R Auditors PricewaterhouseCoopers LLP 8 Cross Street #17-00 PWC Building Singapore 048424 Solicitors to the Manager Clifford Chance Pte Ltd Marina Bay Financial Centre 25th Floor, Tower 3 12 Marina Boulevard Singapore 018982 Solicitors to the Trustee Shook Lin & Bok LLP 1 Robinson Road #18-00 AIA Tower Singapore 048542 Further Information Schroders is a Foreign Account Tax Compliance Act ( FATCA ) compliant organisation. Please find the FATCA classification of this Fund and its Global Intermediary Identification Number ( GIIN ) below. FATCA entity classification: Nonreporting IGA FFI / Sponsored Investment Entity GIIN: WM9S4Z.00007.SF.702 1
(a sub-fund of Schroder International Choice Portfolio) Constituted under a Trust Deed in the Republic of Singapore on 25 May 1998 Commentary Global equities generated a robust return over the six-month period, supported by a synchronised pickup in growth. In the US, economic data was mixed but the US Federal Reserve (Fed) continued to normalise monetary policy by raising interest rates. However, uncertainty over the ability of the Trump administration to deliver its pro-growth agenda led the timing and magnitude of expected US fiscal stimulus to be negatively adjusted. In Europe, macroeconomic data strengthened and there were signs that stimulus support could be removed. Emerging Market equities benefitted from the positive global backdrop and the MSCI Emerging Markets index rallied sharply and outperformed MSCI World. The Fund outperformed the index on an underlying basis over the six-month period. Stock selection underpinned excess returns while country allocation was negative. At a stock level, selection in Russia and China added the most to relative performance. In Russia, the off-index positions in Mail.Ru and X5 Retail Group underpinned excess returns. X5 gained as the company continued to grow earnings at a fast pace and increased market share. Mail.Ru also posted strong earnings results and increased its guidance for 2017, sending the stock higher. In China, the key contributor was the overweight to private education provider New Oriental Education & Technology, which continued to benefit from strong momentum in enrolments. The overweights to Alibaba and Tencent also added significant contribution as internet stocks posted strong earnings results. In Taiwan, the overweight to Hon Hai Precision Industry added significant value. The stock rallied sharply on improving margins and expectations for a positive Apple iphone cycle. In India, the off-index holding in HDFC Bank and an overweight to Maruti Suzuki supported gains. HDFC Bank s first quarter earnings exceeded expectations and the bank increased its market share as public sector banks struggled. Meanwhile, Maruti benefited from a rebound in consumption following demonetisation. Stock selection in Korea was also supportive, in particular the overweights to video game developer NCSoft and Hana Financial Group. NCSoft rose amid increasing recognition of the company s mobile strategy while Hana Financial also rallied as earnings surprised to the upside. 2
(a sub-fund of Schroder International Choice Portfolio) Constituted under a Trust Deed in the Republic of Singapore on 25 May 1998 From a country perspective, the overweight to Russia was the key headwind. The market underperformed given oil price weakness as the prospect for sanctions removal dimmed. The overweight to Brazil had a smaller negative effect. The market underperformed following corruption allegations against President Temer. By contrast, the overweight to Korea and an underweight to South Africa were positive. Outlook EM has generated a strong return year-to-date, supported by accelerating global trade, attractive valuations and a 5% decline in the US Dollar. EM earnings have been revised upwards and aggregate return-on-equity has risen materially. While fundamentals remain firm, there is potential for a period of market consolidation: the tailwind of US Dollar depreciation could ease given ongoing Fed policy normalisation; the inability of the Trump administration to implement its progrowth agenda risks protectionist trade policy with potential negative ramifications for EM. While the move to address regulatory arbitrage and risks in the financial system is a long term positive, it risks weighing on the outlook for domestic and global growth in the short term. We expect growth to slow through H2, albeit from a high level of economic momentum and China has the fiscal and monetary policy levers to support growth if needed. Over the longer term, we believe the outlook for EM remains positive as we expect a further increase in global growth in 2018. Inflation globally is expected to remain relatively subdued, limiting the pace and extent of monetary policy normalisation. We expect EM market returns to continue to improve, supporting earnings, while valuations remain attractive. June 2017 3
Statement of Total Return For the financial period ended 30 June 2017 (Unaudited) Expenses 30 Jun 2017 30 Jun 2016 $ $ Trustee fees 20,919 17,099 Valuation fees 9,220 7,304 Audit fees 8,624 7,833 Transaction costs 177 17 Others 27,320 20,819 66,260 53,072 Net expense (66,260) (53,072) Net gains or losses on value of investments and financial derivatives Net gains/(losses) on investments 11,685,496 (1,419,321) Net losses on spot foreign exchange contracts (9,226) (3,545) Net foreign exchange gains 15,365 5,589 11,691,635 (1,417,277) Total return/(deficit) for the period 11,625,375 (1,470,349) 4
Statement of Financial Position As at 30 June 2017 (Unaudited) 30 Jun 2017 31 Dec 2016 $ $ ASSETS Portfolio of investments 97,656,484 82,968,163 Bank balances 823,371 1,010,699 Receivables 551,794 280,176 Total assets 99,031,649 84,259,038 LIABILITIES Payables 236,587 243,349 Total liabilities 236,587 243,349 EQUITY Net assets attributable to unitholders 98,795,062 84,015,689 5
Statement of Movements of Unitholders Funds For the financial period ended 30 June 2017 (Unaudited) 30 Jun 2017 31 Dec 2016 $ $ Net assets attributable to unitholders at the beginning of the financial period/year 84,015,689 77,551,264 Operations Change in net assets attributable to unitholders resulting from operations 11,625,375 8,482,872 Unitholders contributions/ (withdrawals) Creation of units 11,595,862 9,967,831 Cancellation of units (8,441,864) (11,986,278) Change in net assets attributable to unitholders resulting from net creation and cancellation of units 3,153,998 (2,018,447) Total increase in net assets attributable to unitholders 14,779,373 6,464,425 Net assets attributable to unitholders at the end of the financial period/year 98,795,062 84,015,689 6
Statement of Portfolio As at 30 June 2017 (Unaudited) Primary Percentage of total net assets attributable to Holdings Fair value unitholders at at at 30 Jun 2017 30 Jun 2017 30 Jun 2017 By geography $ % Quoted Collective investment scheme LUXEMBOURG (country of domicile) Schroder International Selection Fund Emerging Markets A Accumulation Share Class 4,982,436 97,656,484 98.85 Portfolio of investments 97,656,484 98.85 Other net assets 1,138,578 1.15 Net assets attributable to unitholders 98,795,062 100.00 7
Statement of Portfolio As at 30 June 2017 (Unaudited) Primary (continued) Percentage Percentage of total net of total net assets assets attributable attributable to to unitholders unitholders at at 30 Jun 2017 31 Dec 2016 By geography (summary) % % Quoted Luxembourg 98.85 98.75 Portfolio of investments 98.85 98.75 Other net assets 1.15 1.25 Net assets attributable to unitholders 100.00 100.00 As the Fund invests wholly into an underlying collective investment scheme, it is not meaningful to show any secondary segmentation analysis. 8
Units in Issue For the financial period ended 30 June 2017 (Unaudited) 30 Jun 2017 31 Dec 2016 Units Units At the beginning of the financial period/year 57,047,749 58,464,043 Created 7,231,765 7,433,716 Cancelled (5,265,549) (8,850,010) At the end of the financial period/year 59,013,965 57,047,749 $ $ Net assets attributable to unitholders 98,795,062 84,015,689 Net assets attributable to unitholders per unit 1.67 1.47 9
Financial Ratios For the financial period ended 30 June 2017 (Unaudited) 30 Jun 2017 30 Jun 2016 Expense ratio 1 (excluding underlying fund s unaudited expense ratio) 0.13% 0.14% Expense ratio 2 (including underlying fund s unaudited expense ratio) 1.98% 2.05% Turnover ratio 3 0.74% - 1 The expense ratio has been computed based on the guidelines laid down by the Investment Management Association of Singapore ( IMAS ). The calculation of the expense ratio was based on total operating expenses divided by the average net asset value for the year. The total operating expenses do not include brokerage and other transaction costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The respective values used in the calculation of the expense ratio are disclosed below. The average net asset value is based on the daily balances. Expense ratio calculations 30 Jun 2017 30 Jun 2016 $ $ Total operating expenses 112,536 106,883 Average net asset value 87,438,443 78,173,311 2 The expense ratio is the sum of the Fund s expense ratio and the underlying fund s unaudited expense ratio. The unaudited expense ratio of the underlying fund, a Luxembourg domiciled fund, is obtained from Schroder Investment Management (Luxembourg) SA. There is no requirement for the expense ratio of this Luxembourg domiciled fund to be published or audited. 10
Financial Ratios For the financial period ended 30 June 2017 (Unaudited) 3 The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower value of purchases or sales of the underlying investments divided by the average daily net asset value. Turnover ratio calculations 30 Jun 2017 30 Jun 2016 $ $ Lower of purchases or sales 685,751 (sales) - (sales) Average net asset value 92,947,431 73,458,006 11
Report to Unitholders 30 June 2017 The following is a report on the Schroder Emerging Markets Fund (the Fund ): 1. The only security holding of the Fund as at 30 June 2017: Percentage of total net assets attributable to Fair value unitholders $ % Schroder International Selection Fund - Emerging Markets A Accumulation Share Class 97,656,484 98.85 The only security holding of the Fund as at 30 June 2016: Percentage of total net assets attributable to Fair value unitholders $ % Schroder International Selection Fund - Emerging Markets A Accumulation Share Class 75,456,026 99.10 The Fund was not invested in other unit trusts, mutual funds or collective investment schemes as at 30 June 2017 other than as stated in the Statement of Portfolio. 2. The Fund did not have any exposure to financial derivatives as at 30 June 2017. 3. The Fund did not have any borrowings as at 30 June 2017. 12
Report to Unitholders 30 June 2017 4. The amount of subscriptions and redemptions during the period 1 January 2017 to 30 June 2017 were as follows: Subscriptions 11,595,862 Redemptions 8,441,864 5. Expense Ratio (including underlying fund) 1 July 2016 to 30 June 2017 1.98% 1 July 2015 to 30 June 2016 2.05% 6. Turnover of Portfolio 1 January 2017 to 30 June 2017 0.74% 1 January 2016 to 30 June 2016-7. Soft dollar commissions/arrangements: The Fund invests substantially into the underlying fund. In the management of the underlying fund, the manager may accept soft dollar commissions from, or enter into soft dollar arrangements with, stockbrokers who execute trades on behalf of the underlying fund and the soft dollars received are restricted to the following kinds of services: (i) research, analysis or price information; (ii) performance measurement; (iii) portfolio valuations; and (iv) administration services. In the management of the Fund, the Manager currently does not receive or enter into any soft dollar commissions or arrangements. $ 13
Report to Unitholders 30 June 2017 8. Related Party Transactions The Manager of the Fund is Schroder Investment Management (Singapore) Ltd. The Registrar for the Fund is Schroder Investment Management (Luxembourg) SA, a related party of the Manager. The Trustee is HSBC Institutional Trust Services (Singapore) Limited, a subsidiary of the HSBC Group. The management fees payable by the Fund to the Manager is currently waived by the Manager. The registration fees payable by the Fund to the Registrar has been waived by the Registrar. The trustee fees and valuation fees charged by the HSBC Group are shown in the Statement of Total Return. As at reporting date, the Fund maintained with the HSBC Group, the following bank balances: 30 Jun 2017 31 Dec 2016 $ $ Current accounts 823,371 1,010,699 In addition to the above, the respective management fees are chargeable by: i) Schroder Investment Management (Luxembourg) SA as Management Company of the following underlying fund: Per annum Underlying fund of NAV Schroder International Selection Fund - Emerging Markets A Acc 1.500% 9. Performance of Fund for periods ended 30 June 2017 3 mths 6 mths 1 yr 3 yrs* 5 yrs* 10 yrs* Since Launch* # Fund 5.2% 13.6% 28.7% 4.8% 5.5% 0.3% 3.3% Benchmark** 4.7% 12.9% 26.6% 4.5% 5.7% 0.8% 5.4% * Returns of more than 1 year are annualised # Since launch figures from 6 April 2000 ** Benchmark: MSCI Emerging Markets Net TR Source: Schroders, S$, bid to bid, net income reinvested. 14
Report to Unitholders 30 June 2017 10. The Fund invests more than 30% of its assets in Schroder International Selection Fund - Emerging Markets A Accumulation Share Class. The following are the key information on the underlying fund: i. Top 10 holdings as at 30 June 2017: Percentage Market of total net value assets US$ % Samsung Electronics Co Ltd 251,998,607 7.15 Tencent Hldg Ltd 222,745,622 6.32 Taiwan Semiconductor Manufacturing Co Ltd 194,902,419 5.53 Ailbaba Group Hldg Ltd 168,468,999 4.78 Hon Hai Precision Ind Co Ltd 124,765,744 3.54 China Construction Bank Corp 112,430,148 3.19 Sberbank of Russia PJSC 93,045,639 2.64 China Mobile Ltd 83,529,608 2.37 China Petroleum & Chemical Corp 72,251,349 2.05 Lukoil PJSC 62,735,317 1.78 15
Report to Unitholders 30 June 2017 Top 10 holdings as at 30 June 2016: Percentage Market of total net value assets US$ % Samsung Electronics Co Ltd 149,082,853 5.74 Taiwan Semiconductor Manufacturing Co Ltd 141,810,519 5.46 Tencent Hldg Ltd 141,031,340 5.43 China Construction Bank Corp 102,332,133 3.94 China Mobile Ltd 94,020,893 3.62 Ailbaba Group Hldg Ltd 71,164,986 2.74 China Petroleum & Chemical Corp 67,788,545 2.61 Sberbank of Russia PJSC 66,749,640 2.57 AIA Group Ltd 57,139,769 2.20 Hon Hai Precision Ind Co Ltd 54,542,507 2.10 ii. Expense Ratio 1 July 2016 to 30 June 2017 1.87% 1 July 2015 to 30 June 2016 1.93% Brokerage and other transaction costs, performance fees, interest expense, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds, tax deducted at source or arising out of income received and dividends paid to unitholders are not included in the expense ratio. iii. Turnover of Portfolio 1 July 2016 to 30 June 2017 41.21% 1 July 2015 to 30 June 2016 58.07% 16