November 2008 Monthly Report Schroder Fixed Income Fund Total Return (%) 1 Market Update 20 November was another volatile month as global recession fears played havoc 18 Post Fee UBS Composite Bond Index with markets. The news on economies around the globe worsened and central 16 banks eased monetary policy aggressively while governments took more 14 13.4 decisive steps to support growth through fiscal stimulus. Offshore, it became apparent that the advanced economies were in recession. In the US, the 12 9.1 National Bureau of Economic Research nominated that the US economy as 10 having been in recession since December 2007. 8 6.4 6.9 6.6 6.1 6.3 6 In Australia, the RBA announced a 1% cut in the official cash rate on 2 3.0 3.5 4 December, taking the cash rate to 4.25%. The RBA has now cut the official 1.8 2 cash rate by 3% since September given the significant moderation in demand 0 and activity. With the local economy weak, there will be more significant 1 month 3 Months 1 Year 3.Years Inception downward adjustments to cash rates in early 2009. (% p.a) (%p.a) Credit markets had another bad month in November. Most credit indices posted Inception date: 25 February 2004 substantial negative returns driven by a raft of poor economic data, uncertainty over the TARP package and heightened fears of the viability of GM, Ford and Citigroup in the US. Fund Review The Schroder Fixed Income Fund (‘The Fund’) produced a return of 1.8% (post fee) in November vs the return on the benchmark UBS Composite Bond Index of 3.0%. In the year to November, the Fund produced a return of 9.1% (post- Asset Allocation 1, 2 fee) versus benchmark of 13.4%. Given the dramatic repricing of credit we have seen and the very attractive yields now on offer, we have started to add some high yielding credit back into the Fund, primarily through exposure to Australian hybrids. This exposure detracted from performance with November with negative returns across credit Cash International markets. Continuing dislocations in financial markets, the Lehman Brothers 18% Bonds 11% bankruptcy in September, widespread deleveraging by market participants, worsening economic data, and a broad-based flight-to-quality are among the chief culprits for the three-month meltdown. Total Return With government bonds rallying hard since June this year and substantial 10% easings now priced into markets, we have reduced some of our long duration position in the fund, mainly in Australia and Europe. Outlook Asian Fixed Australian Income Bonds Given the extent of the sell off in global credit markets and the initiatives 3% 48% undertaken by governments in response to the credit crisis we anticipate that markets should begin to stabilise with a large amount of downside risk already Hybrid factored into credit market risk premiums. We believe investors are being securities handsomely rewarded for these risks going forward despite current market 10% volatility. In expectation of further global monetary policy easing we still remain long duration vs benchmark. We expect the RBA easing monetary policy further early next year to avoid a recession in Australia. The realisation that the US is in recession, as is Europe and the UK, has spilled over to fears of a deep global 1. All figures are as at 30 November 2008 unless otherwise stated. recession. Despite the breathtaking pace of the recent rally, risks remain to the 2. Figures may not total 100 due to rounding. downside for government bond yields until growth conditions show signs of stabilizing. Monthly Report Schroder Fixed Income Fund Growth of $10,000 invested since inception * 1 Investment Objective $13,500 The objective of the Fund is to obtain exposure to a diversified range of domestic and international fixed income securities with the principal aim of out $13,000 Schroder Fixed Income performing the UBS Composite Bond Index over the medium term. $12,500 Investment Process and Philosophy $12,000 The primary focus of Schroders in relation to investments is on economic and $11,500 financial outcomes. Schroders does not have a predetermined view about $11,000 labour standards or environmental, social and ethical considerations in relation to investment decision making. Schroders may however take into $10,500 account these considerations if Schroders becomes aware of them, but only to the extent that they financially affect the investments. $10,000 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 At the heart of the investment philosophy for the Fund is a belief that fixed income portfolios should address the primary reasons why investors hold fixed income assets. Schroders has established this Fund to provide investors with the opportunity to invest in a portfolio of defensive assets that Schroders * Inception date is Feb 2004. Calculations are based on post fee believes better matches the trade-offs that most investors have to make performance returns with distributions reinvested. between liquidity, duration (sensitivity to interest rate movements), diversification, absolute risk and credit risk. Distribution History Product Details 1 Distribution Date Distribution CPU * APIR Code SCH0028AU Fund Size (AUD) $168,250,835 Sep-08 0.67476 NAV Unit Price $1.0630 Withdrawal Unit Price $1.0627 Jun-08 4.03460 Fund Inception Date Feb-04 Mar-08 0.54000 Valuation Frequency Normally each business day Dec-07 0.94910 Buy / Sell Spread 0.03% on Application *Cents Per Unit 0.03% on Withdrawal Entry / Exit Fee Nil Management Costs (Target ICR 0.52% *) Normally quarterly, calculated on Distribution the last business day of each 1. All figures are as at 30 November 2008 unless otherwise stated. quarter. * Indirect Cost Ratio Contact www.schroders.com.au E-mail: email@example.com Schroder Investment Management Australia Limited ABN 22 000 443 274 Australian Financial Services Licence 226473 Level 20 Angel Place, 123 Pitt Street, Sydney NSW 2000 Phone: 1300 136 471 Fax: (02) 9231 1119 Investment in the Schroder Fixed Income Fund ("the Fund") may be made on an application form in the Product Disclosure Statement dated 1 December 2008, available from the Manager, Schroder Investment Management Australia Limited (ABN 22 000 443 274 AFSL 226473) (“Schroders”).This Report is intended solely for the information of the person to whom it is provided by Schroders. It should not be relied on by any person for the purposes of making investment decisions. Total returns are calculated using exit price to exit price, after fees and expenses, and assuming reinvestment of income. The repayment of capital and performance of the Fund is not guaranteed by Schroders or any company in the Schroders Group. Past performance is not a reliable indicator of future performance. Unless otherwise stated the source for all graphs and tables contained in this report is Schroders. Opinions constitute our judgement at the time of issue and are subject to change. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation. For security reasons telephone conversations may be taped.
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