Near zero interest rates globally have created an “insatiable” desire for income among retail investors, says Iain Cunningham, CFA, a multi-asset portfolio manager with Schroders, a $474.3 billion asset management company.
Investors are so desperate today that in parts of the world they're actually paying institutions to hold their money, he notes. “Moving into other investments, from lower to higher risk has become a trend, potentially exposing savings to great losses.”
Advisors are under pressure to address risk concerns while searching out new investment opportunities for clients eager to grow retirement money and college funds. It's hard to follow the last few years of energetic equity markets with today's flat returns, says Cunningham, who co-manages the Global Multi-Asset Income and Global Multi-Asset Allocation funds. “Value stocks are not as attractive.”
Rather than simply adding a few nail-biters to a portfolio, or as Cunningham says, “trying to shoot out the lights in terms of capital growth,” the multi-asset team is adhering to Schroders' philosophy of seeking sustainable income, quality, diversification and liquidity. But former President Reagan's Star Wars approach to warfare may come closer to describing the team's wide net attack. They're diversifying holdings through an unconstrained strategy among 20 asset classes and upwards of 1,000 securities across nearly every region, says Cunningham, from emerging markets to core Europe, and index funds to commodities. “Anywhere there are opportunities,” he says. The goal is to lower risk ratios while capturing a portion of the riskier growth, held to a maximum 15 percent of the fund, and with less volatility.
The Income Fund (SGMNX), the U.S. version of Schroders' Luxembourg-domiciled allocation or offshore fund, was launched less than a year ago, June 2014, and is co-managed by Aymeric Forest. He and Cunningham decide where the best opportunities lay and select the sectors for quality and value.
They keep bond risk at an average BB+ rating. Both the off- and on-shore Global Multi-Asset Income fund target a 5 percent distribution, 7 percent total return gross of fees, with a volatility of 5 percent to 7 percent. From April 18, 2012, to March 31, 2015, the offshore fund delivered a 5 percent distribution, 7.9 percent total return gross of fees (6.4 percent net of fees), with a volatility of 4 percent. Despite a 33 percent turnover rate, the expense ratio for the onshore Income Fund is low at a current 0.80 percent, under an 0.85 percent cap, due to a waiver from the advisor, Schroder Fund Advisors LLC, in effect until February 29, 2016. The minimum investment is $250,000.
“This is not the product for investors who want to grow capital at 10%,” Cunningham says. “But it is for those who want to preserve capital and make a low risk return.” With asset growth of zero to $30 million in less than a year, it would seem investors are willing to live with that.