Schroder BRIC Fund Semi-Annual Report & Financial Statements June 2017
(a sub-fund of Schroder International Opportunities Portfolio) Constituted under a Trust Deed in the Republic of Singapore on 3 January 2006 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 Allen & Gledhill LLP One Marina Boulevard #28-00 Singapore 018989 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.00019.SF.702 1
(a sub-fund of Schroder International Opportunities Portfolio) Constituted under a Trust Deed in the Republic of Singapore on 3 January 2006 Commentary BRIC markets generated a positive return over the six-month period, supported by strong gains in China and India. The MSCI BRIC index increased in value, outperforming the MSCI World but lagging the MSCI Emerging Markets index. Chinese equities rallied strongly over the period. Gains were supported by reduced concerns over protectionist trade policy in the US. Meanwhile, macroeconomic data remained firm and first quarter GDP growth increased slightly to 6.9% year-onyear (YoY). India also registered a sharp gain as concerns over the impact of demonetisation receded. Furthermore, the ruling Bharatiya Janata Party (BJP) performed well in state elections, paving the way for political stability and future reform implementation. The central bank held its key rate at 6.25%, but inflation eased to a five-year low of 2.2% in May, opening the door to further policy easing. Brazil posted a more modest gain, primarily due to an increase in political risk following corruption allegations against President Temer. However, the market had started the period well, as inflation maintained a downward trajectory, and the central bank increased the pace of interest rate cuts. Meanwhile, Russia recorded a negative return, with weaker crude prices the key headwind. Political developments in the US, given investigations into the Trump campaign s links to Russia, also weighed on the market; the US increased sanctions in June. The Fund outperformed the benchmark on an underlying basis, due to positive stock selection. In Russia, the off-index holdings 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. An off-index position in rail freight operator Globaltrans also worked well. In China, the overweights to Alibaba and Tencent added significant contribution as internet stocks posted strong earnings results. The overweight to private education provider New Oriental Education & Technology was also beneficial. In India, the offindex holding in HDFC Bank and an overweight to Maruti Suzuki supported gains. HDFC Bank s first quarter earnings beat expectations while Maruti benefitted from a rebound in consumption following demonetisation. 2
(a sub-fund of Schroder International Opportunities Portfolio) Constituted under a Trust Deed in the Republic of Singapore on 3 January 2006 Conversely, country allocation detracted, primarily due to the overweight to Russia. Being overweight to Brazil and underweight to China had a small negative impact. Outlook BRIC markets have generated a strong return year-to-date, supported by accelerating global trade, attractive valuations and a 5% decline in the US Dollar. BRIC 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 US Federal Reserve policy normalisation; the inability of the Trump administration to implement its pro-growth agenda risks protectionist trade policy with potential negative ramifications for BRIC; and we are watching carefully for the impact on Chinese growth of policy tightening undertaken in H1. 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. Over the longer term, we believe the outlook for BRIC 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 BRIC market returns to continue to improve, supporting earnings, while valuations remain attractive. We made no material changes to our country allocation and the Fund remains positioned as follows: Russia is held overweight given cheap valuations and a cyclical recovery in the economy. In Brazil, despite increased political uncertainty, the economy appears to be bottoming and expectations are for further monetary policy loosening. The Fund is underweight China, where valuations and growth are reasonable but monetary policy is being tightened. India is our largest underweight. Reform momentum has picked up but valuations are elevated. 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 19,763 18,210 Valuation fees 8,642 7,860 Audit fees 8,624 7,833 Transaction costs 258 126 Others 17,711 17,986 54,998 52,015 Net expense (54,998) (52,015) Net gains or losses on value of investments and financial derivatives Net gains/(losses) on investments 9,446,588 (2,712,661) Net losses on spot foreign exchange contracts (14,578) (5,785) Net foreign exchange gains/ (losses) 6,996 (1,218) 9,439,006 (2,719,664) Total return/(deficit) for the period 9,384,008 (2,771,679) 4
Statement of Financial Position As at 30 June 2017 (Unaudited) ASSETS 30 Jun 2017 $ 31 Dec 2016 $ Portfolio of investments 83,624,652 84,864,507 Bank balances 541,622 479,016 Sales awaiting settlement 609,236 636,469 Receivables 98,886 8,823 Financial derivatives - 159 Total assets 84,874,396 85,988,974 LIABILITIES Payables 331,470 200,226 Total liabilities 331,470 200,226 EQUITY Net assets attributable to unitholders 84,542,926 85,788,748 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 85,788,748 88,004,925 Operations Change in net assets attributable to unitholders resulting from operations 9,384,008 8,715,550 Unitholders contributions/ (withdrawals) Creation of units 1,322,446 1,583,186 Cancellation of units (11,952,276) (12,514,913) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (10,629,830) (10,931,727) Total decrease in net assets attributable to unitholders (1,245,822) (2,216,177) Net assets attributable to unitholders at the end of the financial period/year 84,542,926 85,788,748 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 BRIC (Brazil, Russia, India, China) A Accumulation Share Class 303,715 83,624,652 98.91 Portfolio of investments 83,624,652 98.91 Other net assets 918,274 1.09 Net assets attributable to unitholders 84,542,926 100.00 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 98.91 98.92 Portfolio of investments 98.91 98.92 Other net assets 1.09 1.08 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 Units 31 Dec 2016 Units At the beginning of the financial period/year 73,196,094 83,440,108 Created 1,056,951 1,480,982 Cancelled (9,458,684) (11,724,996) At the end of the financial period/year 64,794,361 73,196,094 $ $ Net assets attributable to unitholders 84,542,926 85,788,748 Net assets attributable to unitholders per unit 1.30 1.17 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) 0.12% 0.12% Expense ratio 2 (including underlying fund s unaudited expense ratio) 1.96% 2.04% Turnover ratio 3 - - 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 102,163 108,192 Average net asset value 86,795,033 86,761,582 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 - (purchases) - (purchases) Average net asset value 87,164,154 78,921,378 11
Report to Unitholders 30 June 2017 The following is a report on the (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 - BRIC (Brazil, Russia, India, China) A Accumulation Share Class 83,624,652 98.91 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 - BRIC (Brazil, Russia, India, China) A Accumulation Share Class 79,670,406 99.05 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 1,322,446 Redemptions 11,952,276 $ 5. Expense Ratio (including underlying fund) 1 July 2016 to 30 June 2017 1.96% 1 July 2015 to 30 June 2016 2.04% 6. Turnover of Portfolio 1 January 2017 to 30 June 2017-1 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 541,622 479,016 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 - BRIC (Brazil, Russia, India, China) A Acc 1.500% 9. Performance of Fund for periods ended 30 June 2017 3 6 mths mths 1 yr 3 yrs* 5 yrs* 10 yrs* Since Launch* # Fund 4.4% 11.3% 27.4% 4.3% 5.3% -0.8% 2.4% Benchmark** 3.2% 11.3% 28.3% 5.1% 5.7% -0.1% 3.1% * Returns of more than 1 year are annualised # Since launch figures from 16 February 2006 ** Benchmark: MSCI BRIC Net TR Source: Schroders, S$, bid to bid, net income reinvested. 14
Report to Unitholders 30 June 2017 10. The Fund invests more than 30% of its assets in Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) A Accumulation Share Class. The following are the key information on the underlying fund: i. Top 10 holdings as at 30 June 2017: Percentage Market of total net value assets US$ % Alibaba Group Hldg Ltd 85,409,816 9.76 Tencent Hldg Ltd 84,972,266 9.71 China Construction Bank Corp 73,158,408 8.36 China Pacific Insurance Group Co Ltd 44,630,129 5.10 China Petroleum & Chemical Corp 43,142,458 4.93 China Mobile Ltd 41,304,747 4.72 HDFC Bank Ltd 35,529,083 4.06 Sberbank of Russia PJSC 29,140,849 3.33 New Oriental Education & Technology Group Inc 28,440,769 3.25 Hindustan Unilever Ltd 25,815,467 2.95 15
Report to Unitholders 30 June 2017 Top 10 holdings as at 30 June 2016: Percentage Market of total net value assets US$ % China Construction Bank Corp 77,821,981 9.72 Tencent Hldg Ltd 76,861,216 9.60 China Mobile Ltd 68,374,456 8.54 Alibaba Group Hldg Ltd 51,881,321 6.48 China Petroleum & Chemical Corp 46,356,921 5.79 China Pacific Insurance Group Co Ltd 38,670,799 4.83 HDFC Bank Ltd 31,545,124 3.94 Itau Unibanco Hldg SA 30,664,423 3.83 New Oriental Education & Technology Group Inc 26,661,234 3.33 Sberbank of Russia PJSC 24,259,321 3.03 ii. Expense Ratio 1 July 2016 to 30 June 2017 1.86% 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 36.52% 1 July 2015 to 30 June 2016 44.05% 16