Schroder Wholesale Real Return

Schroder Wholesale Real Return
Personal super
FirstChoice Wholesale Option Profile & Commentary - December 2014
3 month
6 month
1 year
(%) pa
Distribution Return
Growth Return
Personal super
3 years
(%) pa
5 years
(%) pa
10 years
(%) pa
Fund size
May 2014
May 2014
May 2014
^Estimated 'CPI - Australia (Trim)
Past performance is not an indicator of future performance for this option or any other option available from Colonial First State.
For options less than 12 months old, meaningful performance figures are not yet available.
All returns are calculated on an annualised basis using exit price to exit price with distributions reinvested, net of management costs, transaction costs and for FirstChoice Personal Super and FirstChoice Employer Super net of
tax payable by the trustee. All return calculations exclude contribution surcharge, excess contribution tax or individual taxes payable by the investor and all other fees and rebates disclosed in the relevant product disclosure
statements available on our website or by calling us. For FirstChoice Investments, the ‘distribution’ component is the amount paid by the way of distribution, which may include net realised capital gains.
* Management costs include management fees, estimated performance fees (if applicable), investment expenses and custody fees but do not include contribution fees, transaction costs or adviser or plan service fees which may
also apply. Please refer to the PDS for full details of the applicable fees and costs.
Investment objective
To deliver an investment return of 5% pa before fees and taxes above inflation over rolling three-year periods. Inflation is defined as the Reserve Bank of Australia’s
Trimmed Mean, as published by the Australian Bureau of Statistics.
Investment strategy
Schroder’s approach to inflation plus (real return) investing is to choose the portfolio that has the highest probability of achieving the required return objective over
the investment horizon, and the least expected variability around this objective. The fund employs an objective based asset allocation framework in which asset
market risk premia, and consequently, the fund’s asset allocation are constantly reviewed so that they are most closely aligned with meeting the objective. The fund
may hedge currency risk up to 100% of the fund’s value.
Investment category
Investment ranges
Cash and cash equivalents, investment grade securities
0 - 100%
Australian and global high yield, emerging market
0 debt
- 75%and Asian bonds
Australian and global shares and property securities
0 - 75%
0 - 10%
Minimum suggested timeframe
At least 5 years
Income distribution
Cents per
Total 13/14 fin yr
Performance chart ($100,000 invested since inception)
Dec 14
Nov 14
Oct 14
Sep 14
Aug 14
Jul 14
Jun 14
May 14
Schroder Wholesale Real Return returns are calculated using exit price to exit price with distributions reinvested,
net of management and transaction costs.
Asset allocation
Aust Shares
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension,
FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. The investment information in this option profile is historical, produced as at
the date specified above. The information below (except performance and key data information) relates to the FirstChoice Wholesale Investments option only. Information for other options in the FirstChoice product range will be
different and is available at or by calling us on 13 13 36. We may change asset allocation and securities within the option at any time. Past performance is not an indicator of future performance for this
option or any other option available from Colonial First State.
Fund Profile
Schroder Wholesale Real Return – 31 December 2014
Please note this is the view of the fund manager who manages this option.
Market review
Central banks continue to flood the world with liquidity, and while the US
Federal Reserve is taking its foot off the accelerator, it is very much
managing its messaging so as not to spook investors. Global economic
growth has remained in a low gear and many markets have been taken to a
point where valuations no longer look attractive.
The recent acceleration in US economic growth may be an indicator of a
change in the economic environment. Nevertheless, while economists
understood this empirical fact, there was little understanding of the drivers
of this process, making it problematic to forecast when these headwinds
would dissipate.
The Manager has seen the unemployment rate steadily fall over the last
five years. While there is debate about how tight the labour market really
is given it was largely driven by a fall in the participation rate, a key event
was the peak in profit margins during late 2013. Labour’s share of the
economic pie has stopped falling and stabilised, which is usually an
important marker for the business cycle. If the labour market remains
robust and therefore continues to tighten, wages share should start to rise
and profit share fall. This occurs in the later stages of the business cycle
and indicates recession risks are rising.
Historically this labour market indicator has been associated with rising
caution, reflected in an increase in volatility, both implied and actual.
Economic fundamentals therefore suggest that the lows for volatility were
put in place in 2014. However, during the last business cycle, this
relationship did not hold, as the US Federal Reserve managed to suppress
volatility for a time, due to their transparent, slow and modest tightening
cycle (0.25% per meeting every six weeks). This suppression of volatility
contributed to excessive risk taking, ultimately contributing to the GFC –
where fear and volatility surged to record levels.
With the quarter seeing strong performances across most financial assets,
most positions provided a positive contribution. The largest contribution
came from the Portfolio’s equities holdings, followed by the holdings of
investment grade bonds. Despite the pick-up in overall market volatility in
2014, volatility in the Fund remained low. Consistent with this, the Fund
posted only one modest negative monthly return in March, compared to
sharp declines in local equities in January, June, September and
Outlook and strategy
So the question for the Manager in 2015: does volatility increase in line
with fundamentals or do central banks manage to suppress it? In the near
term, the Manager thinks that fundamentals will be the driver. Given that
markets are pricing in much less monetary policy tightening in the US
than the Fed itself expects, the risk to markets is for a surprise.
Given the expensiveness of traditional diversifiers (bonds) the Manager
holds assets that are cheap and generally work in times of risk off.
Cash holdings remain elevated, which will give the Fund the flexibility to
respond to opportunities provided by an increase in volatility.
While the Manager did not anticipate the collapse in oil prices and the
subsequent rise in market concern about deflation, the Manager has for
some time highlighted the need to maintain a level of absolute duration in
the Fund to protect against this risk. Ultimately the Manager sees the
decline in oil prices as being positive for consumers and growth in key
markets more broadly. In the near term, it also alleviates some pressure on
the Fed to raise rates due to stronger activity and declining
Fund performance and activity
This document provides general advice only and is not personal advice. It does not take into account your individual objectives, financial situation or needs. Product
Disclosure Statements (PDSs) for all Colonial First State products are available at or by contacting Investor Services on 13 13 36 or from your
financial adviser. You should read the relevant PDS and assess whether the information in it is appropriate for you, and consider talking to a financial adviser before making
an investment decision. Commonwealth Bank of Australia and its subsidiaries do not guarantee the performance of Colonial First State’s products or the repayment of
capital by the products. Investments in these products are not deposits or other liabilities of the Commonwealth Bank of Australia or its subsidiaries and investment type
products are subject to investment risk including loss of income and capital invested. Information used in this publication, which is taken from sources other than Colonial
First State is believed to be accurate. Information provided by the Investment Manager are views of the Investment Manager only and can be subject to change. Subject to
any contrary provision in any applicable law, neither Colonial First State nor any of its related parties, their employees or directors, provides any warranty of accuracy or
reliability in relation to such information or accept any liability to any person who relies on it.