Schroder Strategic Bond Fund Interim Short Report 16 June 2016 to 15 December 2016
Review of Investment Activities From 15 June 2016 to 15 December 2016, the price of Z Accumulation units on a dealing price to dealing price basis rose 3.67%. In comparison, the Investment Association Sterling Strategic Bond Sector Average generated a total return of 3.43% 1. 1 Source: Lipper for Investment Management. From June 2016, improvement in leading economic indicators particularly in the US introduced momentum to more cyclical assets that would last into year end. Indeed, the dynamic only became more pronounced towards the end of the year with the election of Donald Trump as US President. Speculation increased, with higher inflation, of a rate rise from the Federal Reserve which was duly fulfilled in December. In the UK, the EU referendum further added to higher inflation expectations. Government bond yields broadly rose, weighing on investment grade credit while high yield was more resilient. The portfolio generated a positive total return, with the carry of the underlying bond portfolio contributing most of the gain. Ahead of the UK s EU referendum we positioned the portfolio to benefit from higher UK inflation; expecting a weaker sterling if the vote to leave was successful. The trade contributed positively and was closed. We also benefitted consistently from exposure to the ten year US break even rate, as inflation expectations rose. We maintain this position. 2017 could be another rollercoaster year for bonds and foreign exchange and we expect to adopt a more opportunistic trading strategy. Break even inflation which has moved higher post Trump s victory still has room to move higher. The US dollar probably also has room to move a little higher but we can express the bullish US economic view through a more defensive stance towards US government bonds (duration) as the two are linked. With regards to corporate bonds, the potential change in tax structure suggests US companies may shy away from debt, which is a positive sign for investors in both investment grade and high yield corporate bonds. As of 26 August 2016, Gareth Isaac s and Bob Jolly s fund management responsibilities were assumed by Paul Grainger, Michael Scott, James Lindsay-Fynn and Thomas Sartain. Co-Fund Manager: Paul Grainger Co-Fund Manager: Michael Scott Co-Fund Manager: James Lindsay- Fynn Co-Fund Manager: Thomas Sartain
Fund Information Interim Final Accounting dates 1 15 December 15 June Revenue allocation dates 1 15 February 15 August 1 X Income (Gross Quarterly) units have additional accounting dates of 15 September and 15 March with additional associated revenue allocation dates of 15 November and 15 May. For the period For the year Ongoing charges figure to 15.12.16 to 15.6.16 A Income units 1.44% 1 1.44% A Accumulation units 1.44% 1 1.44% L Income units 0.59% 1 0.59% L Accumulation units 0.59% 1 0.59% X Income (Gross Quarterly) units 2 0.04% 1 0.04% Z Income units 0.79% 1 0.79% Z Accumulation units 0.79% 1 0.79% 1 The Ongoing charges figure is annualised based on the fees incurred during the accounting period. 2 The Annual management charge for X Income (Gross Quarterly) units is invoiced directly to unitholders and is therefore not included in the Ongoing charges figure for that unit class. Performance Record Net Asset Net Asset Value as at Value as at Net Asset 15.12.16 15.6.16 Value Fund performance pence per unit pence per unit % change A Income units 51.75 50.90 1.67 A Accumulation units 60.50 58.57 3.30 L Income units 53.66 52.58 2.05 L Accumulation units 62.91 60.65 3.73 X Income (Gross Quarterly) units 55.77 54.51 2.31 Z Income units 53.41 52.36 2.01 Z Accumulation units 62.29 60.10 3.64 3 months 6 months Since launch Schroder Strategic Bond Fund 1.07% 3.67% 25.02% Investment Association Sterling Strategic Bond Sector Average (0.54)% 3.43% 36.09% Fund Source: Z Accumulation units on a dealing price to dealing price basis to 15.12.16. Index Source: Lipper for Investment Management, total return to 15.12.16. Schroder Strategic Bond Fund was launched on 27.3.12.
Performance Record (continued) Unit price range A Income units A Accumulation units L Income units Highest Lowest Highest Lowest Highest Lowest Financial year to dealing dealing dealing dealing dealing dealing 15 June p p p p p p 2014 55.92 51.53 59.78 54.02 56.91 52.05 2015 54.92 52.09 59.71 57.63 56.00 53.21 2016 52.91 48.69 59.03 55.10 54.28 50.18 15 December 2016 52.77 50.77 60.71 58.41 54.74 52.45 X Income (Gross L Accumulation units Quarterly) units Z Income units Highest Lowest Highest Lowest Highest Lowest Financial year to dealing dealing dealing dealing dealing dealing 15 June p p p p p p 2014 60.88 54.60 57.99 53.18 56.76 51.99 2015 60.98 58.93 57.64 54.75 55.85 53.06 2016 61.09 56.90 56.07 52.02 54.10 49.97 15 December 2016 63.13 60.50 56.53 54.40 54.46 52.23 Z Accumulation units Highest Lowest Financial year to dealing dealing 15 June p p 2014 60.55 54.38 2015 60.58 58.56 2016 60.54 56.43 15 December 2016 62.51 59.95 Net revenue Financial year to A Income units A Accumulation units 15 June pence per unit pence per unit 2014 1.9199 2.0400 2015 1.3687 1.5020 2016 1.5805 1.7758 15 December 2016 0.8362 0.9618 Financial year to L Income units L Accumulation units 15 June pence per unit pence per unit 2014 1.9921 2.1234 2015 1.4450 1.5855 2016 1.6664 1.8776 15 December 2016 0.8873 1.0233
Performance Record (continued) X Income (Gross Financial year to Quarterly) units Z Income units 15 June pence per unit pence per unit 2014 2.5765 1.9444 2015 1.8773 1.3811 2016 2.1678 1.6266 15 December 2016 1.1607 0.8616 Financial year to Z Accumulation units 15 June pence per unit 2014 2.0566 2015 1.5218 2016 1.8152 15 December 2016 0.9889 Portfolio Information % of net % of net assets assets as at as at Spread of investments 15.12.16 15.6.16 Australian Dollar Denominated Derivatives (0.10) (0.01) Canadian Dollar Denominated Derivatives 0.13 (0.11) Euro Denominated Short Term Bonds 4.23 2.50 Euro Denominated Medium Term Bonds 9.19 9.82 Euro Denominated Long Term Bonds 9.54 11.15 Euro Denominated Derivatives (1.92) (0.44) Japanese Yen Denominated Medium Term Bonds 0.00 0.70 Japanese Yen Denominated Derivatives 0.00 (0.04) Sterling Denominated Short Term Bonds 4.19 17.90 Sterling Denominated Medium Term Bonds 8.73 14.84 Sterling Denominated Long Term Bonds 6.71 7.22 Sterling Denominated Derivatives 0.04 (0.05) US Dollar Denominated Short Term Bonds 9.40 10.42 US Dollar Denominated Medium Term Bonds 27.99 15.10 US Dollar Denominated Long Term Bonds 6.71 9.11 US Dollar Denominated Derivatives 0.01 (0.87) Net other assets 15.15 2.76
Portfolio Information (continued) % of net assets as at Major holdings 15.12.16 US Treasury 0.125% Notes 2026 16.34 ALBA Group 8% Notes 2018 1.64 Royal Bank of Scotland Group 7.64% Perpetual Bonds 1.34 Bankia 4% Notes 2024 1.31 UBS 4.75% Notes 2026 1.17 Bank of Scotland 9.375% Bonds 2021 1.15 Unique Pub Finance 7.395% Bonds 2024 1.13 Eneco Holding 3.25% Perpetual Bonds 1.13 Franshion Capital 6.8% Perpetual Bonds 1.09 Oman 3.625% Bonds 2021 1.09 % of net assets as at 15.6.16 Treasury Bill 0% 15.8.16 6.48 Treasury 0.125% Index Linked Stock 2024 4.66 Treasury Bill 0% 20.6.16 4.48 Royal Bank of Scotland Group 7.64% Perpetual Bonds 1.37 Bankia 4% Notes 2024 1.31 Bank of Scotland 9.375% Bonds 2021 1.28 Boparan Finance 5.25% Notes 2019 1.23 UBS 4.75% Notes 2026 1.22 Unique Pub Finance 7.395% Bonds 2024 1.18 Tesco 5% Notes 2023 1.17 Investment Objective & Policy The fund s investment objective is to achieve a total return. The fund will invest in a portfolio of debt securities and other fixed and floating rate securities denominated in various currencies issued by governments, government agencies, supra-national and corporate issuers worldwide. The fund may also invest in asset backed securities and mortgage backed securities. Derivative instruments may also be used to take long or short exposures to credit markets, interest rates, foreign exchange currency contracts and to various sectors within these markets. The full spectrum of available securities, including non-investment grade, may be utilised. The fund may also invest in collective investment schemes, cash, deposits, warrants and money market instruments for defensive purposes.
Risk Profile Risk and reward indicator Lower risk Potentially lower reward Higher risk Potentially higher reward 1 2 3 4 5 6 7 The risk category is based upon the fund s risk target and there is no guarantee that the fund will achieve it. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund invests in assets which are exposed to currencies other than sterling. Exchange rates may cause the value of overseas investments and the revenue from them to rise or fall. The fund invests in emerging markets and the Far East. This involves a high degree of risk and should be seen as long term in nature. The fund is index unconstrained and has the potential for greater volatility. More than 35% of the property of the fund may be invested in Government securities. The fund invests in higher yielding bonds (non-investment grade). The risk of default is higher with non-investment grade bonds than with investment grade bonds. Higher yielding bonds may also have an increased potential to erode your capital sum than lower yielding bonds. The fund uses derivatives for specific investment purposes. This involves a higher degree of risk and may lead to a higher volatility in the unit prices of the fund. The Manager employs a risk management process to allow the Manager to measure derivative and forward positions and their contribution to the overall risk profile of the fund. As part of this risk management process, the Manager conducts daily value at risk analysis of the fund and performs both stress and back testing of the fund. As a result of the Annual management charge being charged wholly to capital for all unit classes except for X Income (Gross Quarterly) units, the distributable revenue of the fund may be higher, but the capital value of the fund may be eroded which may affect future performance. For these reasons, the purchase of units should not normally be regarded as a short term investment.
Report & Accounts This document is a short report for Schroder Strategic Bond Fund for the period ended 15 December 2016. The long form Report & Accounts for the fund are available on our website www.schroders.co.uk or upon written request to Schroders, FREEPOST, RLTZ-CHSY-HBUT, PO Box 1102, Chelmsford, Essex CM99 2XX. Other Information The information contained in this report is designed to enable unitholders to make an informed judgement on the activities of the fund during the period it covers and the results of those activities at the end of the period. For more information about the activities and performance of the fund during this and previous periods, please contact the Manager. The Prospectus, the Key Investor Information Document and details of investment charges and costs are available on request or can be downloaded from our website www.schroders.co.uk. Schroders is required by the European Union Savings Directive to report payments to HM Revenue and Customs that are made by the fund to investors living in other European Union member states. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. For investors security, calls to Schroder Investor Services may be recorded. Manager: Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Authorised and regulated by the Financial Conduct Authority. Investment Adviser: Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Authorised and regulated by the Financial Conduct Authority. Trustee: J.P. Morgan Europe Limited, Chaseside, Bournemouth BH7 7DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Independent Auditors: PricewaterhouseCoopers LLP, Atria One, 144 Morrison Street, Edinburgh EH3 8EX. For further literature please contact Schroder Investor Services on 0800 718 777 or at investorservices@schroders.com, or visit our website at www.schroders.co.uk. Issued in February 2017 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 04191730 England. Authorised and regulated by the Financial Conduct Authority. w35659 MRSTRATI16