Schroder Investment Management is re-opening its Asian asset income fund in an effort to boost assets, which have dropped by almost a third from their peak earlier this year. It has also launched a renminbi-hedged share class for the product.
Income strategies have been popular in recent years as an alternative to cash due to record low interest rates, and Schroders’ Asian asset income fund is no exception. The firm raised $5.2 billion in assets for the Hong Kong-domiciled fund in less than two years after launching in June 2011, and closed to new money in March this year.
Assets have since plunged, slumping to $3.5 billion as of September 30.
Performance has been mixed. The fund lost -7.25% in 2011, gained 26.13% in 2012 and is up 1.27% year-to-date to September 30.
Declines are largely due to outflows as opposed to performance, as investors showed a preference for cash earlier this year, says Garth Taljard, multi-asset product manager at Schroders in Hong Kong.
The firm is now on a fundraising push with both retail and institutional investors through its distribution partners in Asia Pacific, Taljard tells AsianInvestor. He says the firm does not have a target.
He highlights the firm’s distribution partners in China, which include a number of international and local banks geared towards Chinese retail investors. He declined to name any of the distributors.
Schroders launched the RMB-hedged share class for the Hong Kong-domiciled income fund on November 1 after receiving approval from Hong Kong’s Securities and Futures Commission.
Taljard says the share class is aimed at investors who have existing RMB-based investments and are looking for a diversified source of income in China’s currency. This will primarily include retail investors in the region, he says, although the firm has also attracted interest from global investors.
However, fixed income as a strategy looks to be losing some of its shine. Once the US Federal Reserve begins tapering its quantitative easing programme, interest rates will rise, which is expected to dampen returns on bonds. Aberdeen Asset Management argues bonds will suffer poor returns for the next 20-40 years.
Taljard acknowledges that the QE tapering and rising interest rates will lead to some investors “drifting away from certain bond investments”. But he argues that interest rates don’t have the same impact on all bonds, saying high-yield bonds aren’t hit as hard as government bonds, for example.
“As fund managers, we have to be very careful to limit our interest rate exposure in the portfolio. We have almost no sovereign bond exposure [at the moment], and have low durations as well,” Taljard says.
Richard Coghlan, head of multi-asset for Hong Kong, manages the Asian asset income fund, which can invest 30-70% in Asian high-yield bonds or Asian high-dividend equities, 0-30% in cash and 0-10% in other assets, mostly commodities and real estate securities.