Fund Focus July 2010

Fund Focus - July 2010

Shorder Income Fund


Fund Aims:

The fund's investment objective is to provide a growing income, predominantly from investment in UK equities. In seeking a yield higher than that offered by the major UK equity indices, the fund will invest primarily in above-average yielding equities rather than fixed interest securities. Investment will be in directly held transferable securities. The fund may also invest in collective investment schemes, warrants and money market instruments.

About the fund:

Fund Size: £1,361.0m

Launch Date: 31 May 1987

Sector: UK Equity Income

About the sector - UK equity income

The UK Equity Income sector is limited to funds which invest at least 80 per cent of their assets in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110 per cent of the yield on the FTSE All Share index. The equity income sector is one of the more popular sectors among investors, and is often the core income producing component, favoured ahead of fixed income alternatives.

The funds in the sector have a number of strategies they can follow to generate income, the most obvious being to invest in high yielding stocks. The number of quality companies with stable and growing earnings whose shares are attractively valued, are few and far between however, and there is a danger of concentration in a relatively low number of stocks. The strategy can be supplemented by looking for unfashionable companies that never the less remain sound and are trading at a yield above intrinsic value. This is one of the most common approaches by funds in the sector and is primarily a value strategy and is contrarian by nature, a fall in stock prices can be a good thing as it allows funds to capture attractive yields, thus while total return may fall, income remains solid.

Alternatively, funds have the option to invest in growth stocks that have large potential for capital appreciation, and synthetically manufacture dividends by selling shares and return the proceeds to investors in the form of income. This strategy allows for broader diversification away from the few high income stocks available, although it is very susceptible to market movements. In the event of a down turn, the fund would be forced to sell shares at unfavourable prices in order to generate income, which would severely impact on the value of the fund. Many funds now employ a combination of these two approaches in order to maximise their returns and the income available.

Source of information: Financial Express

About the manager - Schroders

Schroders runs a diversified asset management business managing about £167.9bn of assets across multiple geographies, asset classes and distribution channels, ranging from banking through intermediary channels to institutions in both pensions and insurance, and to official institutions.

 Schroders is primarily an equity manager, although it does offer fixed income and property. It also has a multi-asset business, and offers quant driven equity funds, and a range of alternatives including hedge fund of funds, its own structured products group, commodities and emerging market debt.

Source of information: Financial Express

Comments

The Schroder Income fund exceeded expectations in July and has been the leading fund in our portfolio in terms of return. According to Morningstar data the fund has returned 8.84%* over the period 30/06/2010 to 30/07/2010. This is extremely encouraging given the global economic climate and the difficulties facing many fund managers.

Having said this, the fund was still in the negative over the 3 month period (30/04/2010 to 30/07/2010), returning  minus 1.86%*, again, according to Morningstar data. It is still quite apparent that global markets are as uncertain and volatile as ever and we do not expect this to change in the short term, especially considering the fragility of the economic recovery across Europe and the US where growth has been affected by economic headwinds. Many of our client’s are still exercising caution with their portfolio’s and a number are still holding a significant proportion of cash. For those that wish to avoid any short term fluctuations in value, holding cash is the best method for achieving this. For those that wish to discuss their strategy for re-entering the market please call one of our advisers on 0871 271 1280.


*Source data morning star

Reeves Independent, 47 St. Georges Terrace, Jesmond, Newcastle upon-Tyne, NE2 2SX,

0871 271 1280

Authorised and Regulated by the Financial Services Authority

This document is intended to provide general information and does not represent a personal recommendation of any service or product. The value of investments can fall as well as rise and you may not get back the full amount invested. Past performance is not a guide to future returns. The sections within this document are opinion onlyand do not constitute advice. Other charges may be applicable and are subject to change without prior notice. Please refer to our brochure for information on our other products and services. We will always recommend that our clients seek advice before making a decision on whether to invest.