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TEMPLETON FRONTIER MARKETS SCHRODER INCOME MAXIMISER
Mark Mobius and Carlos Hardenberg’s five FE Crown-rated fund has re-opened to
new investors, four years after soft-closing This fund uses covered-call options to help it reach its dividend target of 7 per cent
Source: FE Analytics
16
20%
0%
-20%
-40%
-60%
-50%
MANAGERS: Nick Kirrage, Kevin
Murphy & Mike Hodgson
LAUNCHED: 04/11/2005
FUND SIZE: £1.1bn
OCF: 0.91%
40%
-25%
60%
FILE
0%
Schroder Income Maximiser (83.08%)
FTSE All Share (71.42%)
80%
25%
100%
50%
growth causing it to lag behind the
fast-rising market.
It is in the bottom quartile of its
IA UK Equity Income sector over
the past three years, its returns of
20.88 per cent well below the 26.3
per cent made by its peer group
composite. However, it is an above-
average performer over the past
five and 10 years.
The core portfolio is the same
as the Schroder Income fund
run by value-focused FE Alpha
Managers Nick Kirrage and Kevin
Murphy, while the options book is
run by Mike Hodgson.
Schroder Income Maximiser has
outperformed its FTSE All Share
index benchmark since the trio
took over the fund from Thomas
See in July last year. An investment
of £10,000 at this time would have
paid out £896.70 in income alone
since then.
The fund is currently yielding 6.8
per cent and has a clean ongoing
charges figure of 0.91 per cent.
PERFORMANCE OF FUND VS INDEX OVER 10YRS
75%
These options are contracts
relating to individual shares in
which a financial institution agrees
to provide an upfront payment in
exchange for any rise in the share
price above a certain level over a
set period of time.
The Schroder Income Maximiser
fund sells these options on a
recurring basis, typically for three-
month periods, using the upfront
payments to help boost the natural
annual dividend.
It invests in a diversified range of
equities with a target of achieving
an annual underlying yield of
around 3.5 per cent, then aims to
double this through the use of its
covered call option strategy.
Square Mile Research said:
“The options overlay strategy is
a complex one, but the fund’s
objective is simple.”
The fund has made a total return
of 83.08 per cent over the past
decade but has struggled in recent
years, with its forfeiture of capital
100%
M
OST INVESTORS BEGIN TO
FOCUS MORE ON INCOME
when they are close to or
at retirement age.
With yields near to record-lows,
BMO Global Asset Management’s
co-head of multi-manager Rob
Burdett said that equities currently
offer the best opportunity for
investors who prioritise this
outcome.
Even on an average basis, he
said the asset class provides a
yield that is materially above both
cash and inflation and is set to
grow over the course of this year.
Equity funds that use a type of
derivative called a covered-call
option to enhance their dividend
tend to pay out the highest amount
of income to investors, although it
should be noted that this can come
at the expense of some capital
returns. One of the highest
yielding funds of this type is
Schroder Income Maximiser.
“Schroder Income Maximiser –
which has a covered-call structure
on top – gets you to a 6.8 per cent
yield and we’re quite happy to give
up some capital growth with the
elevated levels in the market,” said
Burdett.
While some investors find it
difficult to get their head around
the notion of covered-call options,
the fund’s consistent performance
warrants a closer look.
125%
Templeton Frontier Markets (144.31%)
MSCI Frontier Markets (63.50%)
MANAGERS: Mark Mobius &
Carlos Hardenberg
LAUNCHED: 14/10/2008
FUND SIZE: £681.2m
OCF: 1.75%
150%
FILE
He added that the sector also
has little correlation with emerging
or developed markets, making it a
potential portfolio diversifier.
While risks remain for frontier
market investors, Mobius and
Hardenberg are confident that active
management can help to mitigate
some of these.
Templeton Frontier Markets is
currently overweight Vietnam, Saudi
Arabia, Sri Lanka and Egypt.
“Saudi Arabia is one of the most
exciting sectors from an investment
perspective,” said Hardenberg.
He added Vietnam has strong
supporting demographics while
Egypt is an example of a country that
has embraced reform.
The portfolio’s main underweights
are Argentina and Kuwait, although
the managers have highlighted the
progress made by reform-minded
Argentinian president Mauricio Macri
who has set about investigating
corruption and returning to the
international capital markets.
PERFORMANCE OF FUND VS INDEX SINCE LAUNCH
ever higher over the past year
thanks to a mixture of better-than-
expected corporate earnings figures
and greater optimism following
the election of Donald Trump as
president of the US.
However, questions have been
raised over the sustainability of such
a rally and investors have begun to
search out other destinations for
their cash.
Against this backdrop, Franklin
Templeton Investments has decided
to re-open its Templeton Frontier
Markets fund to new investors, four
years after soft-closing the strategy.
The $868m, five FE Crown-rated
fund is managed by Mark Mobius
and Carlos Hardenberg, who aim to
deliver long-term returns through
investing in companies that are
either listed or have the majority of
their operations in frontier markets.
While the prospect of trusting their
money to less developed economies
may leave some investors on edge,
the managers believe that now is the
perfect time to re-open the fund.
MSCI Frontier Markets is up 79.85
per cent over the past five years,
compared with a 50.93 per cent rise
in the MSCI Emerging Markets index.
Emerging markets specialist
Mobius expects a number of
fundamental tailwinds to help drive
outperformance in frontier markets
over the long term, including
younger work forces, urbanisation
and strengthening economies.
“The US, Europe and developed
world are making a major move
towards trade restrictions, which is
really kind of a backwards market
development,” added co-manager
Hardenberg, noting the moves
that have been made by frontier
markets to open themselves up to
international investors.
Hardenberg said that this focus
on easier accessibility followed the
recent weakening of commodity
prices, reducing revenues for many
natural resource-rich frontier
economies and promoting greater
reform. This has further increased
the sector’s appeal.
Valuations also make for
compelling investment arguments,
the co-manager added, noting MSCI
Frontier Markets is currently trading
at a lower price/earnings ratio than
MSCI Emerging Markets and almost
half that of the MSCI World index.
D
EVELOPED MARKET
EQUITIES HAVE PUSHED
Source: FE Analytics
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