The Schroder Real Return Fund aims to smooth your investment journey in four ways. To do this, we:

  • CONTINUALLY ASSESS VALUATIONS
  • CHANGE EXPOSURES SIGNIFICANTLY WHEN NEEDED
  • MANAGE RISK
  • TAKE A LOCAL APPROACH WHILE USING OUR GLOBAL REACH

Taking advantage of opportunities wherever they arise, our local portfolio management team have the ability to change exposures significantly and actively manage risks, to help grow your wealth for the future.

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What is objective-based investing?

Objective-based investing starts with the objective in mind rather than some arbitrary benchmark index or strategic allocation. It is generally focused on generating a return above Australian inflation (which is referred to as a ‘real’ return).

Traditional Approach

Schroders’ Objective Based Approach

Artboard 1

These charts show key comparisons between a more traditional, fixed strategic-asset allocation (SAA) approach and the objective-based approach employed by GROW.

The traditional approach of using a fixed SAA may deliver over the long term but it tends to follow a return path similar to shares where the outcome can diverge greatly from the return target at any point in time. The risk is that a significant drawdown could come at just the wrong time, as many investors would remember happened during the Global Financial Crisis.

With GROW, we believe there’s a better way to manage the risk-and-return dynamic that gives clients greater certainty over the way they invest versus traditional approaches.

Why diversify?

Given the unpredictability of markets, diversifying your investments is crucial to delivering more reliable returns. Many investor portfolios tend to have high exposures to the same themes, low protection from certain risks and overall little true diversification.


True diversification is a portfolio with a broad range of exposures. As the saying goes: “Don’t put all your eggs in one basket.”

Dealing with volatility

For years investors have been taught that the more risk you take on, the greater the potential returns on your investment.

While this is generally true over the very long term, there will always be periods where greater risk will detract from returns – as happens when share markets are falling. This can create significant variations in returns from year to year.

Given the unpredictability of markets, diversifying your investments across shares, corporate debt, bonds, property and cash around the world, is crucial to delivering more reliable returns.

To illustrate this point, we have created the “Multi Asset Sorter” which shows calendar-year returns for the major asset classes available to an Australian investor.

Multi-asset sorter

SELECT
ASSET
  • Australian Equities
    S&P / ASX 200
  • Global Emerging Market Equities
    MSCI Emerging Markets A$ Unhedged
  • Australian Fixed Income
    Bloomberg AusBond Composite 0+Yr Index
  • Australian Property Trusts
    S&P / ASX 200 A-REIT
  • Cash
    Bloomberg AusBond Bank Bill Index
  • Global Equities
    MSCI World ex Australia A$ Unhedged
  • Australian Credit
    Bloomberg AusBond Credit 0+Yr
  • Global Fixed Income
    Barclays Global Aggregate A$ Hedged
  • Inflation
    ABS Consumer Price Index
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
77.6%
5.3%
26.7%
14.4%
42.2%
33.0%
55.3%
20.0%
15.0%
12.0%
16.9%
30.4%
43.0%
33.0%
25.6%
14.9%
39.2%
9.3%
11.4%
33.0%
49.3%
26.6%
14.3%
13.2%
40.1%
2.6%
21.1%
13.0%
20.8%
18.6%
18.7%
12.0%
10.4%
11.6%
14.6%
28.0%
22.8%
24.2%
16.1%
10.7%
37.0%
7.1%
10.5%
20.3%
20.2%
15.6%
11.8%
11.8%
32.8%
-0.1%
20.6%
12.6%
12.7%
10.0%
17.1%
11.1%
8.3%
8.8%
8.9%
21.4%
16.8%
23.4%
6.8%
9.2%
9.2%
6.0%
9.1%
17.0%
13.8%
10.4%
3.3%
11.7%
24.9%
-2.5%
18.7%
11.9%
12.2%
9.8%
5.0%
9.7%
6.7%
7.8%
6.6%
10.7%
12.6%
12.1%
6.6%
7.6%
8.0%
5.7%
5.0%
14.7%
7.3%
9.8%
3.0%
7.9%
16.3%
-4.7%
15.1%
9.5%
10.7%
9.5%
1.9%
6.4%
6.1%
4.8%
4.9%
8.9%
6.6%
6.0%
3.5%
3.7%
6.1%
4.7%
3.0%
9.9%
4.3%
8.1%
2.6%
5.2%
13.5%
-7.6%
10.7%
7.6%
10.6%
8.0%
0.8%
6.2%
5.5%
2.9%
3.7%
7.1%
6.0%
4.4%
3.2%
-24.6%
3.5%
2.8%
-1.1%
9.7%
2.9%
7.3%
2.6%
3.8%
13.5%
-8.8%
8.0%
6.6%
7.8%
5.1%
0.3%
5.8%
5.3%
-8.8%
3.0%
7.0%
5.8%
3.9%
2.9%
-38.4%
2.1%
1.6%
-6.0%
7.7%
2.8%
5.6%
2.3%
2.9%
5.4%
-11.0%
5.1%
1.5%
5.6%
1.5%
-1.2%
2.7%
3.1%
-14.6%
2.4%
5.6%
5.7%
3.3%
-2.1%
-41.2%
1.7%
-0.3%
-10.5%
4.0%
2.3%
2.7%
1.7%
2.1%
1.8%
-18.9%
-1.1%
-0.8%
-0.3%
-20.6%
-5.6%
-18.1%
-9.6%
-27.1%
-0.2%
2.5%
2.8%
3.1%
-8.6%
-55.7%
0.7%
-0.4%
-19.2%
2.2%
1.2%
1.7%
-4.3%
1.5%
DRAG
SLIDER

Why the traditional approach of using a fixed strategic-asset allocation flawed?

At Schroders, we believe there are two significant downsides to using a fixed strategic asset allocation.

  • 1
    Timing

    Firstly, the timing of when a portfolio commences and the performance of shares over the investment horizon will determine the future outcome, hence the saying ‘Timing is everything’. You are unable to control when you were born or started investing, you can change asset allocations to achieve successful outcomes.

  • 2
    Inflexibility

    The inflexibility of asset allocation ranges in a typical portfolio restricts the ability to deliver on objectives. The reason we require greater flexibility in asset-class ranges is to respond to changing market environments by selling assets when they are expensive and buying them when they represent good value.

The difference timing can make – an example

Why does the year you were born matter?

As a way of introducing the concept of the difference timing can make when investing, let’s consider the hypothetical examples of Ray, Mardi and Chris using historical data.

The only difference is when they were born, or specifically when they started investing. Ray started in 1919, Chris started in 1935 and Mardi began in 1958. The chart shows their average return over 40 years and their multiple of final salary. While Ray and Mardi achieved an average real rate of return close to 6% p.a. Chris’ average return barely broke 2% p.a.

Same savings strategy, different birth year
  • Accumulation as multiple of salary (LHS)
  • Average rate of return over 40 years (RHS)

Sequencing risk

This example highlights the impact of ‘sequencing risk’, the term that describes the impact a large negative return can have on superannuation balances as you near retirement. So while Ray and Mardi achieved similar returns over their careers, Mardi retired with a larger nest egg as the sequence of her returns was more favourable because the largest positive returns occurred closer to her retirement when her portfolio balance was large.

The lesson is investors need to be wary of sudden shifts in investment markets that could occur as they near retirement. It shows why it is so important to protect your investments against sudden market falls, as occurred during the Global Financial Crisis.

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