Fixed Interest (Diversified): Cash is king for Schroders
The diversified fixed interest sector was this year characterised by an historically wide divergence in returns across its universe, which in turn drove the investment strategies of the winning fund in the Fixed Interest (Diversified) category of the awards, Schroder Fixed Income Fund W Class, and those of the two finalists.
Schroders fixed interest head Simon Doyle said while there is often variability of returns in the sector it is “not often this variability opens up as much as it did” in the 12 months to March 31 this year.
At one end of the investment spectrum, he said, structured credit and sub-investment grade credit delivered “large negative returns”, while, at the other end, government bonds delivered decent double-digit positive returns.”
“We avoided structured products completely in our portfolio and we moved out of credit from the middle of 2007 until the latter part of 2008.
“At one point in the fourth quarter of last year we had roughly 45 per cent of our portfolio in cash, and we retained that position through until the second quarter of 2008.
“Thereafter, we invested in government bond duration strategies that benefitted from the slowdown in the global economy and the big shift in interest rates that occurred.”
A finalist in this category last year, the Schroders fund returned 10.2 per cent to investors for the 12 months to March 31 this year.
A cautious approach to credit exposure was also a key performance feature of this year’s finalist, Goldman Sachs JBWere Asset Management (GSJBW AM) with its Core Plus Australian Fixed Income fund.
“We were cautious in adding active credit exposures to the fund, waiting to do so until the quarter and fourth quarter of 2008,” according to Subash Pillai, GSJBW AM’s head of cash and fixed income.
The fund returned 10.68 per cent gross in the year to March 2009, which Pillai said was “approximately 200 basis points” below the UBS Composite Bond Index (all maturities).
The other finalist in the category was UBS Global Asset Management. Its Diversified Fixed Income Fund maintained a “high quality defensively positioned portfolio in a sharply deteriorating economy”.
Head of fixed income Anne Anderson said the fund avoided poor quality credit debt.
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