Close Brothers swaps tracker for Schroders' US income fund

Close Brothers swaps tracker for Schroders' US income fund
Matthew Stanesby: Schroders’ Maximiser fund “gives me better income”

The ability to negotiate a cut-price deal has seen Close Brothers’ multi-manager team buy into Schroders’ latest Income Maximiser offering as part of a broader equity overhaul.

The team has shifted from a US high-dividend, low-volatility tracker product into the Schroder US Equity Income Maximiser active fund after the fund house offered the product at a comparable price.

“We brokered a very healthy deal with Schroders; we have got that for passive fees,” said Matthew Stanesby, who works on the Close Brothers range with Sam Grant-Dalton and James Davies.

Like Schroders’ other Maximiser funds, the US vehicle – launched in April – boosts its yield by writing call options on underlying stocks. But unlike its peers, the latest offering uses a passive offering for its core exposure. Its headline ongoing charges figure is 0.5 per cent.

“Schroders gives me better income and there was no cost disadvantage,” Mr Stanesby said.

The switch comes as part of a broader equity overhaul at the firm. This year the trio used portfolio inflows to allow an equity overweight to drift from 5 per cent to just 1 per cent.

“That’s an acknowledgement that there have been very strong markets,” Mr Stanesby explained.

But not all weightings have come down. In 2016 the team introduced emerging market exposure to the range via Capital Group Emerging Markets Total Opportunities, which uses an equity/bond split to give stockmarket returns with lower volatility. Mr Stanesby said it was now a “core holding”.

The team has bolstered this exposure by initiating a position in RWC Global Emerging Markets.

“[RWC] takes a top-down view. It’s bottom-up stockpicking, but if they find a great company in Brazil and they don’t like Brazil, they will temper their position size,” the manager said.

Meanwhile, the team has been adding to fixed income positions, including the Muzinich Global Tactical Credit and Schroder Strategic Credit funds.

Mr Stanesby said of the Muzinich vehicle: “They do investment grade and high yield, and target cash plus 5 per cent. They use gilts and Treasuries to manage duration. It’s low volatility.”

The team also added to a position in Royal London Short Duration Global High Yield Bond, which it views as akin to an absolute return fund.

The product, which seeks to deliver 3 month Libor plus 2 per cent a year over rolling three-year periods, had a 42 per cent weighting to bonds with a maturity of three months or shorter as of the end of May.

A position in Standard Life Investments’ Global Absolute Return Strategies, a fund that came under scrutiny last year after a bout of underperformance, remains in the Close portfolios. 

Mr Stanesby said he was “still happy” with the product.

“There are questions. Has it got too big? Have they lost staff? Is this something that’s not going to work in the current environment? But I’m happy with all three,” he said.