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strategy directly from the fund manager himself.

research and market views together with an explanation of the

Schroders’ Maximiser equity strategy focuses on delivering a sustainable high level of income. A highly experienced structured investment team and specialist equity teams ensure the Maximiser strategy continues to stand the test of time, delivering attractive income returns through all market environments since 2005.

Axis analyses the fund from four perspectives to bring you insight,

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Review By Gary Corcoran

COMPANY_ Last Word

Schroder Income Maximiser is one of very few funds indeed that consistently pays 7% p.a. income to investors and has maintained this level each quarter through even the most tumultuous of market conditions since its launch at the very end of 2005. Scroll down to read more...

“Investors should look to maximise the income they can generate while equity and bond yields, as well as bank base rates, remain this low.”

JOB TITLE_ Director

YEARS IN INDUSTRY_ 25+

LOCATION_ London

at Last Word

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investors seeking an elevated

level of yield

A proposition that appeals to

COMPANY_ Square Mile Investment

JOB TITLE_ Managing Director

“Measured against value for money and cost, both elements benefit from a good level of expertise and experience within the respective areas.”

There are two key elements to the Schroder Income Maximiser fund. Firstly it invests in a range of higher yielding UK shares to form a portfolio that is essentially identical to that of the Schroder Income fund. Investors should note that a contrarian approach such as this does tend to be more volatile than other equity income strategies. The second part uses an options overlay strategy in order to enhance the fund’s yield to around 7%. Scroll down to read more...

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RICHARD ROMER-LEE

Last Word Perspective

Since launch in November 2005, Schroder Income Maximiser has delivered on its mandate to provide investors with 7% income per year, paid out each and every quarter through the many different market conditions it has faced in the past decade. The underlying stock selection and initial income generation is provided by the Schroder Income Fund managed by Nick Kirrage and Kevin Murphy on a long-term value basis, aiming to generate 3.5-4% income each year. The additional 3-3.5% income comes from the skills and expertise of a separate specialist team led by Mike Hodgson, head of risk managed investments and structuring, dedicated to writing options. Hodgson took on the role in July last year from Thomas See and has made very few changes while maintaining the same dedicated team of five experts managing the call option overlay.

In the case of Income Maximiser, the compromise is that as well as generating the 7% p.a. income, they will capture up to 85% of the market upside rather than 100% as the fund gives away some of the returns to deliver the higher income levels. Investors need to be aware that while they will get a very good chunk of equity returns in a runaway bull market, some of those potential returns will be cashed in to deliver the higher income payments they expect. Therefore, this is a fund that is suitable for investors who want the higher level of regular income payments in this low-yield environment, and who are prepared to take more risk with their capital to do so. It is also suitable for those who buy into the team’s long-term value approach. Their view is that the safest way to buy into equities for the long term is to buy companies cheaply. It can take a long time for value to come through so it is important that the investors’ timeline is closely aligned to that of Kirrage, Murphy, Hodgson and team.

Long-term value approach provides consistent income

AUTHOR_ GARY CORCORAN

Schroders writes around £4bn in options on Income Maximiser alone - Income Maximiser is the UK element of a suite of products that makes up the Maximiser range. This volume of business alongside the reputation, long-standing experience and consistency of the team coupled with Schroders’ scale allows them to receive cash up-front from the counterparties thereby generating income not risk. Income Maximiser does not pay income out of capital. The stocks within the fund are picked by Kirrage and Murphy with options written on some of the stocks, some of the time. Options are only written on stocks held within the fund - Hodgson and his team are derivatives experts while Kirrage and Murphy do what they do best which is to pick stocks. With interest rates and deposit yields at close to zero, investors will have to take more risk than in the past to generate the income they still require. They will have to make a trade-off that combines equity risk with a cap on how much market growth they will be able to capture.

Source: Schroders

Schroder Income Maximiser - quarterly distribution history

Payments calculated using mid-price on 1 March, 1 June, 1 September, 1 December

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Schroder Income Maximiser

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Data correct as at 20.2.2017

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Kames Global Diversified Income Fund

Fund

Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.

Manager

Vincent McEntegart

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Over the very long term there is unlikely to be too much difference in the total return from a fund such as this and a more traditional equity income fund. However, investors should recognise that by taking advantage of the higher yield available in the present, future capital growth is likely to be limited. It is also worth noting that if the underlying equity portfolio loses value, the managers will still be able to meet the yield target, but the absolute level of income will be reduced. We believe Schroders has structured an interesting proposition that may be of interest to investors requiring an elevated level of yield. In an environment where value for money, which we feel is a more suitable measure than simply looking at cost, is under considerable scrutiny, our view is that this fund is at an acceptable level - both elements benefit from a good level of expertise and experience within the respective areas.

AUTHOR_ RICHARD ROMER-LEE

“In terms of providing an elevated level of yield the Schroder Income Maximiser fund has a prominent position within the UK market. It combines the expertise of two highly regarded teams within the group. The underlying stock portfolio is run by two experienced fund managers who have a clearly defined philosophy and process, whilst the options overlay strategy is the responsibility of a team that have considerable expertise in their field.”

The central tenet of the managers’ philosophy is that share prices often move more than the changes in companies' fundamentals justify. When markets are low and falling, the managers are likely to be more aggressively positioned as they very much see short-term volatility as an opportunity. The likelihood is that this could cause investors near-term pain, but these are times when the opportunities for the strategy are greatest. The focus tends to be on companies listed within the FTSE 350 index but given the investment style the complexion of the portfolio can be vastly different from that of the index. The second part of the strategy, the options overlay, involves selling call options on the shares held in the portfolio. Through these options, the managers consent to sell the shares at an agreed price some time in the future (typically three months hence). In return, the fund receives an up-front payment, referred to as the premium. The premiums are added to the dividend payments from the underlying share portfolio and this produces an enhanced income stream to holders of the fund.

Schroder Income Maximiser has a rather simplistic investment objective and that is to achieve an annual yield of 7%. Therefore, this is not a typical UK equity income fund - it combines a portfolio of UK companies with a complex options strategy in order to boost the yield. We would point out importantly that this and other similar products have yield and not income targets, meaning that while, in any given year, they may meet their yield target, the absolute level of income received can vary. The first element invests in a range of higher yielding UK shares to form a portfolio typical of traditional equity income funds. This is managed along identical lines to the Schroder Income fund, which is run by Nick Kirrage and Kevin Murphy. In our view, the strategy deployed by Kirrage and Murphy is a credible one, which should add value over the longer term. It should be recognised however, that a contrarian approach such as this does tend to be more volatile than other equity income strategies.

A portfolio of UK companies combined with a complex options strategy boosts the income yield

John Monaghan, Senior Investment Research Analyst, Square Mile Investment Consulting and Research Limited

Square Mile Perspective

Schroder Income Maximiser - annual distribution and yield history

Fund buyers' perspective

Income Maximiser answers a very specific need from investors which is to provide a level of income over and above a natural equity income level.

Market Reaction

Adrian Lowcock_ Investment Director_ Architas

“The fund has a clear deep value style which came back into favour towards the end of last year, having been unloved by investors for several years as they focused on stable growth. Exposure to banks and oil majors helped the fund recover strongly as the oil price rebounded and global growth outlooks improved.”

Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management

“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”

“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”

Richard Philbin_ CIO_ Wellian Investment Solutions

Ben Seager-Scott_ Director of investment strategy and research_ Tilney Group

“Our preference would be for a natural income, but where client demand is explicitly for higher income in a low-interest rate world then we look to Income Maximiser. There are additional complexities around the option-writing process and clients need to understand these in terms of their overall investment strategy. That said, by essentially converting potential future gains into an income stream, this product can be an effective way of boosting portfolio income.”

Robert Shepherd_ Director_ Bright & Co.

We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”

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Achievable, sustainable, reliable

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Fund Manager Perspective

Fund Buyer Perspective

This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.

to bring you insight, research and market views

together with an explanation of the strategy

directly from the fund manager himself.

Axis analyses the fund from four perspectives

Size of fund in £_

Launch date_25/02/2014

Kames Diversified Monthly Income Fund

pa paid monthly

Total return target_

Schroders Income Maximiser - quarterly distribution history

Payments calculated using mid-price on 1 March, 1 June, 1 September, 1 December

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Mike Hodgson is head of risk managed investments and structuring at Schroders, which involves, in the case of RMI, the management of outcome-oriented growth strategies.

Rupert Rucker

Mike Hodgson

Rupert Rucker is the product manager for Schroders Maximiser Funds. From 2012 to 2016 Rupert was the head of product management for Asia ex Japan Equities, based in Singapore, and brings that experience to the Income Maximiser Fund.

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seeking an elevated level of yield

“Measured against value for money and cost, both elements benefit from a good level of expertise and experience within the respective areas. ”

A proposition that appeals to investors

John Monaghan, Senior Investment Research Analyst, Square Mile Investment Consulting and Research Limited

Schroders Income Maximiser - annual distribution and yield history

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market viewpoints, together with the

to bring you incisive analysis, research and

Fund Manager’s own investment strategy.

Axis interrogates the fund from four perspectives

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Review By Gary Corcoran at Last Word

Mike Hodgson is head of risk managed investments and structuring at Schroders, which involves, in the case of RMI, the management of outcome-oriented growth strategies.

A proposition that appeals to investors seeking an elevated level of yield

Schroder Income Maximiser

and market views together

Axis analyses the fund

strategy directly from the

from four perspectives to

bring you insight, research

fund manager himself.

with an explanation of the

John Monaghan, Senior Investment Research Analyst, Square Mile Investment Consulting and Research limited

Ben Seager-Scott_ Director of investment strategy and research_ Tilney Group

investors seeking an elevated

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