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This investment strategy addresses issues faced by SMSFs

Nicholas Grove  |  31 Aug 2016Text size  Decrease  Increase  |  

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There is an exchange-traded managed fund that can help SMSFs address commonly confronted issues such as the need for better diversification and the need for real returns in a low-return world.


Various data have shown that Australian direct investors and self-managed super funds are far less diversified than those investors who are advised by financial planners, or those within large institutional super funds.

And in addition to the need for better diversification, and therefore better protection in volatile markets, SMSF investors also have a need to achieve real returns in a what is currently a low-return world.

They also need to quickly and easily adjust exposures as risk premia change. However, there are strategies that can enable SMSF investors to address these issues.

One such strategy is the Schroder Real Return Fund (ASX: GROW), which recently became the first active, global multi-asset exchange-traded managed fund (which isn't a hedge fund) to be made available on the ASX.

The Schroder Real Return strategy has received a Silver rating from Morningstar, which has described the fund as an "excellent option for those suited to the strategy's objective".

The vehicle aims for returns of inflation plus 5 per cent (before fees) over rolling three-year periods.

"We have a very high regard for the people and process, which has a strong emphasis on risk management driving the approach," Morningstar says.

"Head of fixed income and multi-asset Simon Doyle is the key man behind this strategy."

Doyle says Australian investors are slowly coming to terms with the new low-return environment--and the need to change their portfolios in order to achieve future investment outcomes.

"The problem with many Australians' portfolios is that with high allocations to a few listed shares and property, people have very high exposures to the same themes, very low protection from certain risks and, overall, little true diversification" he says.

"With historically low interest rates around the world, investors need to make some changes--so they can be far more dynamic in their management of asset allocation and ensure they have much better diversification of both risk and return.

"GROW provides all of this in a simple, packaged solution and without the use of complex derivatives or leverage."

GROW has a low minimum investment hurdle, which means investors can now access a diversified active portfolio of assets with less than $1,000 to invest, Schroders says.

As Morningstar explains, the strategy follows three interwoven steps in creating the overall portfolio: asset allocation, risk mitigation and portfolio construction.

Schroder Real Return has significant flexibility to move between asset classes and has no pre-defined asset allocation to achieve its objective, Morningstar says. This means positions change depending on the team's views of expected returns and risk across the major asset classes.

As at 31 July 2016, the fund had delivered a 6.4 per cent per annum post-fee return to investors since its inception in October 2008.

The fund is one of the longest-running global multi-asset funds targeting real returns with low volatility for Australian investors.

CEO of Schroder Investment Management Australia, Greg Cooper, said the move to offer the strategy via an exchanged-quoted managed fund structure reflected the growing desire of many retail investors--and specifically SMSF investors--to improve portfolio diversification and boost returns, but through a preferred quoted format.

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Nicholas Grove is a Morningstar journalist.

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