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Schroder High Yield Opportunities

Elite Rated by FundCalibre

Run by Michael Scott, this fund invests primarily in pan-European high yield bonds. The team identify investment themes that drive the global fixed income market and then look for assets that can achieve consistent performance through their market cycle. The fund is well diversified and uses a disciplined, repeatable process that draws on a variety of sources to generate a monthly income for investors. The fund was recently renamed from Monthly High Income.

Company Description

Founded in London in 1804, today Schroders operates in more than 25 countries, employing more than 3,500 people, close to the markets in which they invest. With more than 35 offices worldwide, Schroders is listed on the London Stock Exchange and invests in a range of asset classes including equity, fixed income, multi-asset and alternatives.

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Fund Manager

Michael Scott has been lead manager of this fund since August 2012, ably assisted by Schroders’ global credit team. He joined the company in 2006 as a credit analyst covering high yield bonds and was made portfolio manager in 2010. Michael achieved a Bachelor of Arts in Geography from the University of Oxford, is a CFA charterholder and previously worked as researcher for various not-for-profit organisations.

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Our process is bottom-up, themes-based, unconstrained, and we like under-researched areas. Let everyone else drive on the motorway – we’re having fun on the country lanes.

Michael Scott - Fund Manager

The Investment Process

The team combine broad macroeconomic themes—ones they believe will play a major role in global credit markets —and fundamental research—where analysts rank specific issuers they believe will thrive on those themes—to find investments they believe offer the best risk/reward profile. Themes are categorised by the time horizon in which they are expected to develop. Analysts focus on companies that may have fallen under their competitors’ radars and particularly like those that they believe can benefit from multiple themes. The higher conviction and more ‘table-thumping’ the analyst’s views on a certain company, the greater its position in the portfolio.

Risk

This fund has higher volatility than many of its peers, although since Michael took over as manager, it has had good downside protection in falling markets. The fund’s biggest risk is the chance of companies in the portfolio defaulting on their loan repayments. This is managed by capping exposure to a single company at 5% of the portfolio. Short selling may also be used to manage the overall risk of the portfolio. It is important to note that investing in high yield bonds comes with higher risk than many other types of bond.

Our Opinion

This fund offers a high yield, both in absolute terms and relative to its peers. Under Michael’s tenure, volatility has been controlled to offer investors some protection during tough markets. The monthly payment aspect should also appeal to investors seeking a regular income stream. The fund is a long-term performer among the very best in its peer group, outperforming the sector consistently over the past ten years.

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