Near zero interest rates globally have created an “insatiable” desire for income among retail investors, says Iain Cunningham, a multi-asset portfolio manager with Schroders, a $474.3 billion asset management company.
“Moving into other investments, from lower to higher risk, has become a trend, potentially exposing savings to great losses,” he said.
Advisors are under pressure to address risk concerns while searching out new investment opportunities for clients eager to grow retirement money and college funds, says Cunningham, who co-manages the Schroders Global Multi-Asset Income and Global Multi-Asset Allocation funds. “Value stocks are not as attractive,” he said.
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 Schroders multi-asset team is adhering to the company's philosophy of seeking sustainable income, quality, diversification and liquidity.
They have cast a wide net in their search for performance. They're diversifying holdings through an unconstrained strategy that encompasses 20 asset classes and upwards of 1,000 securities across nearly every region, from emerging markets to core Europe, and index funds to commodities, said Cunningham. “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 in June 2014 and is co-managed by Aymeric Forest.
They keep bond risk at an average BB+ rating, and aim for a total return of 5 percent to 7 percent. Despite a 33 percent turnover rate, the expense ratio is .80 percent, under an .85% cap, due to an expense waiver from the advisor, Schroder Fund Advisors LLC, until February 29. The minimum investment is $250,000.
The offshore fund, which runs the same strategy, has a 3-year total return of 7 percent.
“This is not the product for investors who want to grow capital at 10 percent,” Cunningham says. “But it is for those who want to preserve capital and make a low risk return.”