Schroders’ portfolio manager Mik Kase has said the Schroder Absolute Return Income fund will maintain its defensive stance as the “worst is not yet over” for the global economy.
In a webcast, Kase said the fund had been adding to Australian investment grade credit while reducing the allocation to global investment grade and Australian high yield.
Its largest exposure was 34% to Australian investment grade, part of a total 61% exposure to corporate debt.
He said: “Prior to the crisis we viewed asset prices as elevated. We held a defensive position with high levels of cash and predominantly investment grade exposure.
“We have since added to Australian investment grade credit given wider spreads. We have trimmed global investment grade and Australian high yield. We have adjusted allocations by adding to Asia credit for additional yield. We continue to favour Australian investment grade credit.
“We remain well diversified via our emerging market debt and US securitised credit exposure and elevated cash levels provide additional flexibility to seek opportunities.”
Kase added the positioning prior to the crisis had “paid off” and he was happy to maintain this positioning, including 22% in cash and cash equivalents, as he wanted to ensure the portfolio remained liquid.
“We are by no means through the worst of the economic impact of the crisis, we are entering a difficult phase and expect extended volatility.
“We are still defensive as the crisis isn’t over and the range of outcomes remains wide.”
According to FE Analytics, within the Australian Core Strategies universe, the Schroder Absolute Return Income fund has returned 2% over one year to 30 June, 2020, versus losses of 0.3% by the absolute return sector.
