We have added Schroder Strategic Credit to our Recommended list.

Fund manager, Peter Harvey, has managed the fund since its launch in 2006 and joined Schroders as part of the acquisition of Cazenove Capital in 2013.  He is an experienced fixed income manager and a member of Schroders’ extensive European Credit team.

The fund is a flexible fixed income offering, with the manager seeking to generate income without putting the capital of the fund at undue risk over the long term.  With this in mind, the performance aspiration is to deliver 2-3% in excess of 3-month LIBOR over the medium to long term.  This makes the fund a differentiated offering within the IA £ Strategic Bond sector.

To achieve these objectives, the investment process emphasises in-depth credit analysis, with Mr Harvey seeking opportunities in lower-rated bonds, particularly those in the BB and B-rated area, where he argues that opportunities are richer.  His long experience of managing credit portfolios, particularly in more specialist areas, means he is well-placed to understand what can be a fine balance between credit quality and yield opportunity.  Acknowledging that the focus upon lower-rated and less liquid bonds exposes the fund to elevated credit risk, he uses derivatives to manage exposures and mitigate downside risk.  He also aims to keep the fund’s aggregate duration exposure at a relatively low level (typically 1-2 years), again, using derivatives to achieve this.

It is noteworthy that the fund pays out its “natural income” on a semi-annual basis and therefore distributions may fluctuate.  Investors can expect an attractive level of income relative to prevailing conditions, but it is important to note that the manager will sacrifice some income at times when he deems bond pricing to offer inadequate value.

The fund is suitable for investors seeking a specialist credit fund which is managed in a risk-controlled fashion.  Its unique mandate means that it differs from its peers in the sector and therefore, its outcome should be judged according to its own risk and return expectations.