Schroders has realigned the strategy of its Diversified Target Return fund to drive performance in turbulent market conditions.
With evidence of a spill-over from the financial turmoil into the real economy, “we are sitting tight on equities, taking advantage of extreme valuations in credit and avoiding the more cyclical areas of the market,” says Johanna Kyrkland, who manages the fund.
The £5.05m multi-asset growth fund is positioned for a bear market rally through tactical equity exposure, which will be maintained at 52%, she says.
“Undoubtedly, the economic outlook is bleak, but this is now reflected in the stockmarket and prices have sunk to attractive levels.”
The fund is biased towards ‘income approaches’ plus more defensive equities over emerging market equities, according to Schroders.
“Within equities, we continue to avoid most cyclically exposed stocks and concentrate on the more defensive areas for the time being,” says Kyrkland.
“We bought into the value-orientated Schroder Income fund at the beginning of the third quarter and since then it has significantly outperformed emerging markets,” she adds.
The fund is also negative on cyclically exposed assets in general, with reduced exposure to emerging markets and commodities. Emerging market exposure only accounts for 2% of the fund, emerging market debt constitutes 4%, while 3% is held in commodities. It has increased exposure to credit strategies, with a 7% position in investment-grade corporate bonds.
“Together with high yield exposures, credit now amounts to 17% of the fund. We expect to increase this allocation in the coming weeks. Higher quality investment-grade credit is at its cheapest levels since 1925. “
She remains negative on sterling, as she expects the currency to weaken further as the UK economy continues to deteriorate.
“Elsewhere in currencies, we have exposure to the US dollar and recently took profits on our Japanese yen position,” she adds.
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From 6 April 2019