A primer on securitisation - Schroders - Schroders · ABS, MBS, CMBS...it’s all about the backing ... Truth all told, we chose the term “securitised” because it contains the

A primer on securitisationOctober 2019

For financial intermediary, institutional and consultant use only. Not for redistribution under any circumstances.

ABS, MBS, CMBS...it’s all about the backingWhat we refer to as securitised debt is known by many names: structured products, structured finance, securitised credit, or it can be known by its acronyms, ABS, MBS, CMBS, and CLO1 to name a few. With this many monikers, it’s no wonder that this area of finance is considered more complex than ‘traditional’ fixed income.

Truth all told, we chose the term “securitised” because it contains the word “secure” and we think that the secured nature of the debt is one of the most important features of the sector. We often think of securitised debt as benefiting from three pillars: collateral (secured nature), structure (credit protection) and amortization (of the underlying debt).

1 Asset-backedsecurities(ABS)aresecuritiesbackedbycashflowsfromreceivablesorloanssuchasautomobileloans,creditcardreceivablesorstudentloans.Mortgage-backedsecurities(MBS)aresecuritiesbackedbycashflowsfromresidentialmortgageloans.Commercialmortgage-backedsecurities(CMBS)aresecuritiesbackedbycashflowsoncommercialmortgageloans.Collateralizedloanobligations(CLOs)aresecuritiesbackedbycashflowsfromcorporateloans.

Michelle Russell-Dowe HeadofSecuritisedCredit

Introduction

Securitiseddebtisbackedbyfinancialcontracts.Forexample,autoABSarebackedbyloanssecuredbyautomobiles.Astheloansarerepaidbytheborrowers, thepaymentsareforwardedtothesecuritisationtrust andusedtorepaytheABSbondsthathavebeenissued.Thesecuritisationtrustisakeyconceptwhichwewilldiscussfurtherinthisprimer,butthetrustitselfisa vehiclesetuptoowntheloansandtoissuethedebt.

The“security”fortheABSdebtistwo-fold:first,theprimarysecurityisthefinancialcontract,orloan,whichprovidesthattheborrowerrepaytheirdebt.Second,itiscommonthatthefinancialcontractcontainstermswhichprovidesforrecoursetocollateral(inthiscase,theautomobile)shouldtheborrowerceasemakingpaymentsasrequiredbytheautoloancontract.Thesetwocomponentsrepresentthe“secured”and“collateralized”natureof thedebt,whichisourfirstpillar(wewilldivedeeper intotheothertwopillarslaterinthepaper).

Size is a surprise; the consumer debt, housing debt and real estate debt are large markets.Consumerdebt,realestatedebt,andcommercialandresidentialmortgagedebt,areallsubstantial,sizablemarkets.Figure1helpsillustratethispointasthereisawideuniverseofdebts thataresecuritised.Ontheconsumerside,thereareautoloans,cellphoneloans,mortgageloans,studentloans,personalloans,creditcardreceivablesandevenpeer-to-peerlending.Aswell,thereareloansthatfaceabusinessratherthanaconsumer;theseareoftencommercialrealestatemortgageloans,smallbusinessloans,equipmentleases,cellulartowerloans,solarpowerpurchasecontracts,insurancelinked-securities,orevenleveragedloans.Thisdiversitymeansthattheuniverseislarge. Theoutstandingcurrentfacevalueof“securitiseddebt” globallyis$12.9trillion.Thismakesitoneofthelargestdebtmarketsoutstanding.

Thebreakdownofthissizablemarketoffersinsightintowhythereisvaluetobefoundwithinandacrossthesecuritisedmarkets.

Asubstantialcomponentoftheglobalsecuritisedmarketisthe$8trillionmarketthatisguaranteedbyFannieMae,FreddieMacandGinnieMae.TheUSmortgagemarkethasmorethan$11trillionindebtoutstandingandthegovernmentguaranteesaboutthreequartersofittoensureaccesstofinancing.Thisgovernmentguaranteedmortgagemarket(AgencyMBS)istheportionofthesecuritiseddebtmarketthatisrepresentedas“securitised”intheBloombergBarclaysGlobalAggregateIndexuniverse,amajorbenchmarkforinvestors.AgencyMBSisclearlyamajorcategoryofdebt,anditoffersadifferenttypeof“high-grade”riskpremiumthantheriskpremiumthatisofferedbycorporatedebt.Ithasvalueasadiversifyingsourceofreturnandasariskmitigating,guaranteeddebtwithprincipalprotectionsimilartoTreasurynotes.TheprincipalriskthatAgencyMBScompensatesinvestorsforisprepaymentrisk,orthe riskthataUSmortgageborrowerrefinancestheirhigherratemortgagewheninterestratesdecline.

TheSecuritisedComponentoftheBloombergBarclaysGlobalAggregateIndexisprimarilyAgencyMBS.Assuch,itexcludesmostofthe$4.5trillioninsecuritiseddebtthatisnotAgencyMBS.MostABS,non-agencyMBS,CMBS,CLO,EuropeanMBS/ABSandAustralianABS/MBSarenotincludedintheindex.Therefore,thesesecuritiseddebtsaregenerallyregardedasout-of-benchmarkexposures.Asout-of-benchmarkexposures,indexbuyersarenotrequiredtobuythesesecuritiesandETF’sthatreplicatetheindexwouldnotincludethem.Theseexposureshavetypicallybeenembracedbymanagerswithsignificantresourcesandwithhistoriesinmanagingthesespecific,research-intensiveassets,andinaformataccessiblemainlybylargerinstitutionalinvestors.Withoutanaudiencefrompassiveinvestors,wethinkthesecuritiestypicallyexcludedfromtheindexofferattractivereturnwithouttakingonadditionalrisk.

Figure 1: Securitisation is a sizable market, comprised of diverse asset classes

Global Securitised

$12.9 trillion

US Securitised

$11.4 trillion

US Agency guaranteed

$8.4 trillion

Agency CMBS

$0.6 trillion

Agency MBS

$7.8 trillion

US Non-guaranteed

$3.0 trillion

ABS

$1.0 trillion

MBS

$0.8 trillion

CMBS

$0.6 trillion

CLO

$0.6 trillion

Non US Securitised

$1.5 trillion

In Bloomberg Barclays Global Aggregate Index Majority excluded from the Bloomberg Barclays Global Aggregate Index

Source:Schroders,SIFMA,Fed,BarclaysasofJune2019.

3A primer on securitisation

Figure2showsthatthereismorethan$3trillionofsecuritiseddebtsoutsideoftheAgencyMBSmarketinaggregate,asubstantialout-of-benchmarkopportunityset.

Figure 2: US securitised aggregate issuance by high level category (ex Agency MBS)

0

100

200

300

400

500

600

700

800

900

ABS MBS CLO CMBS AgencyCMBS

CDO

USD billions

Source:SIFMA,SchrodersasofDecember31,2018.

Thereisaverydiversesetofdebttypes,asshowninFigure3below,thataninvestorcanaccessthroughthesemarkets,offeringatremendousadvantageinmakingselectionsofsectorsandsecuritiesthathavebetterfundamentalsupport.

Figure 3: Outstanding debt (excluding agency guaranteed)

USD billions

554 554

406

167 155 137 126 112 109 10871 62 62 55 44 30 22 18 16 13 12 9

0

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400

500

600

Source:SIFMA,SchrodersasofDecember31,2018

Aswell,annualissuanceisquiterobustacrossthesesectors,offeringamplesupply.Figure4showsthatevenafterexcludingAgencyMBSthereiscloseto$600billioninannualissuance intheUSsecuritisedmarkets.

Figure 4: US securitised 2018 issuance by high level category (ex Agency MBS)

235

181

102 9379

40

50

100

150

200

250

ABS MBS AgencyCMBS

CLO CMBS CDO

USD billions


Figure5showsthenearly$600billioninannualissuancefrom2018wasalsodiversifiedacrosssectors.

Figure 5: 2018 debt issuance (excluding agency guaranteed)

103

84 83

40 39 3833 33 33

1513 12 10 10 10 8 7 7 4 4 4 3

0

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40

60

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120USD billions


Themostgranular,datarich,sectorsarealsothelargest:MBS,orsecuritiesbackedbyresidentialmortgageloans,autoloan-backedsecurities(prime,near-primeandsub-prime),CLOsandCMBS, orsecuritiesbackedbycommercialrealestatemortgagesall offerthemostextensiverangeofopportunities.Itisdifficult toaccessthistypeofdebtexposurethroughthecorporatebondmarketortheequitymarketwithoutalsotakingonthebusinessriskofbankornon-banklendersorretailers.So,withaprincipalfocusontheconsumer,onhousingandoncommercialreal estate,thesecuritisedmarketoffersdiversificationtotraditionalcreditexposure.

A primer on securitisation4

Figure6highlightstheissuanceofABSdebtbackedbytheconsumer,housingdebt(MBS)andcommercialrealestate debt(CMBS).

Figure 6: 2018 ABS issuance excluding agency, $592 billion

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60

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120

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200

ABS-Consumer

MBS CLO CMBS ABS-Other CDO

USD billions


InadditiontotheseUSmarketsthereisaroughly1.2trillionEuronon-USsecuritiseddebtmarket,equivalentto$1.5trillioninUSdollars.So,notonlyisthereasubstantialdiversificationacrosssectorsandtypesofdebt,thereistheabilitytoaccessregionaldiversification.Figure7illustratessecuritiseddebtbycountry.

Figure 7: Issuance by country

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30

40

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60

70Billions, Euro


Asshowninthepiechart(Figure8),RMBS,orresidentialmortgage-backedsecurities,dominatestheEuropeanandAustralianmarkets.ThisRMBSexposureinEuropeandAustraliaisnotguaranteedandisaparalleltotheUSnon-agencyMBSmarket.TheacronymsRMBSandMBSareoftenusedinterchangeably,whereascommercialmortgage-backedsecuritiesarealwayscalledCMBS.

Figure 8: European and Australian percent of outstanding issuance by sector

4%

58%

9%

18%

RMBS

By sector

6%

5%

ABS

CLO

Small business

Whole business

CMBS


Thesumofalloftheseglobalsecuritisedmarketsisaninvestmentuniversethatisextraordinarilylarge,diverse,andonethatallowsforexcessreturngenerationasitisnotaformalportionofthelargest,more“traditional”fixedincomeindices.Fromacreditworthinessperspective,thesecuritisedopportunityspansfromthehighestgrade(AAA,governmentguaranteed),tohigher-yielding,below-investment-gradeopportunities.Assuch,thereisawiderangeofinvestmenttoolsthatcanbecalledontocreatelowrisk,lowvolatilitystrategies,orinvestmenttoolstotakeadvantageofcreditopportunities.Thewiderangeofoptionsalsooffersacompellingcaseforusingdifferentinvestmentsoverthecourseofacreditcycletomanagecreditrisk.InFigure9onthenextpage,weillustratetherelativeattractivenessofreturnbyratingofsecuritisedsectorsversusothertraditionalfixedincome.Forexample,someAAAratedclassesinABSandMBSearnasimilarreturnascorporatesecuritiesratedtwocategorieslower(single-A).


Figure 9: Superior return (yield) per unit of risk relative to many traditional sectors

Government Securitised/Secured finance Corporate US Municipals Emerging Market Debt

Credit Quality

US Treasury

Agency MBS

Agency CMBS

Corp

Corp

Corp

Muni

Auto ABS

Container Lease

Aircraft Lease

Auto ABSABS

RMBS

CMBSLeveraged Loans

EMD Sov

EMD Corp

AAA AA A BBB HY

CMBSRMBS

Comm. Bridge Loans

Comm. Mezzanine Loan

Non-US CMBS Non-US MBSNon-US CMBS

CLO Senior

CLO

CLO EquityTrade Receivables

CRT

CRT

Non-US MBS

Resi. Rental LoanCLO

0%

2%

4%

6%

8%

10%

Yield to worst (%)

Circlesizerepresentssizeofmarket.Forillustrativepurposesonlyandshouldnotbeviewedasarecommendationtobuyorsell.Source:Bloomberg,SIFMA,asofAugust31,2019.Basedon5yeardurationequivalentyieldtoworstforindexproxiesofeachassetclass.Pastperformanceisnoguaranteeoffutureresults.Yieldscanfluctuateovertime.

Inadditiontothediversityofcollateralbackingsecuritiseddebt,eachsegmentoffersawiderangeofdebtmaturitiesaswell.Thisenhancesamanager’sabilitytocopewithavarietyofyieldcurveenvironments.Usingthecurrentenvironmentasanexample,theyieldcurveisveryflat,andhasevenbeenslightlyinvertedearlierthisyear.Theamortizingnatureofmanyconsumerdebts(mortgage,auto,etc.)isthereforeattractivetodaygiventheflatyieldcurve.Inthisflatyieldcurveenvironmentinvestorsarenotpaidadditionyieldtoextendoutthematuritycurve,noraretheyofferedadditionalyieldspreadfortakingonlongerexposures.Assuch,maximizingyieldandspreadreallyoccursatthe3-yearpointintheyieldcurve,wherealotofABScashflowssit.Withtheshortermaturityprofileandlimitedcontributionofrolldowntosecurityreturn,ABSlookattractiveinaflatyieldcurveenvironment,liketoday.However,theamortizingnatureofABSdebtisvaluableeveninotherenvironmentsforafewreasons:itoffersliquiditythroughpaydowns,itoffersareductioninriskexposure(theoutstandingdebtdeclinesasthedebtgetsclosertomaturity),anditoffersshortermaturityoptionswhichminimizevolatilitywithalowerexposureto“spreadduration”.

The second pillar: looking at the benefits of a securitisation trust and structureOursecondpillarofsecuritisationis“structure”.Whenwerefertostructureitmeansthepriorityofpaymentsthatthesecuritisationusestopaythedebtissuedbythesecuritisationtrust.Butlet’sstopthereandtalkabouttheimportanceofthesecuritisationtrustastheissuerofthedebt.Securitisationwasbuiltsothattheassets,ortheloanssoldtothetrust/issuer,couldberelieduponaspaymentfordebtregardlessofwhathappenedtotheloanoriginator.Thisindependencefromthecorporateriskoftheloanoriginatorisakeyconcept;itmakestheloans,orassets,remotefromthebankruptcyriskofthelender.Thisprotectsinvestorsfromthemoreidiosyncraticnatureofcorporaterisk.Second,diversificationisanotherfeatureofsecuritisation.Securitisationpoolstheriskacrosshundreds,oreventhousandsofborrowers.Withbankruptcyremotenessanddiversificationhighlighted,wewilldiscusswithsignificantdetailoursecondimportantpillarofsecuritisationwhichisstructure,orcredittranching,(seenextpagefordiagram).

Structurecanfacilitateadditionalcreditprotection,oritcanisolateotherriskssuchascashflowtiming,orprepaymentrisk,asisdoneincollateralizedmortgageobligation(CMO)structuring.

Whatdotheseadvantageslooklike?

Figure 10: Different risk and return for different investors

Loans to many borrowers

1

2 9

3 10

4 11

5 12

6 13

7 14

8

Cred

it R

isk

Retu

rn

Lower

Higher

Lower

Higher

Protected by all the bonds

below

Protected by any equity inthe collateral

Pool of Loans

AAA

AA

BBB

A

BB

B

First loss

Source:Wikipedia(https://en.wikipedia.org/wiki/Tranche),Schroders.

Thediagramaboveiswhatpoolingadiversegroupofloanstogetherandissuingmultipleclassesofdebtlookslike.Thereisaspecificpriorityofpayments,typicallyfirsttothesenior-mostclassandthen,oncethatsecurityhasbeensatisfied,thenextmostseniorclassispaid.Inthiswaythemoreseniorclassesbenefitfromadditionalprotectionbeyondthefirstpillar(collateral).Therulesofpaymentandthenumberofclassescanbequitesimple,assimpleasevenasingleclassissuance,whichisknownasapass-throughcertificate.Aswell,therulesofpaymentcanalsobemorecomplex,includingclassesofvariouscreditpriority,and,classeswithvarioustimingpriority.Timingprioritycanbeusedandservedemandfromdifferentinvestortypestocreatedebtwithverycertainpaymentwindows.Theconceptofstructureallowscashflowsfromloansto


beusedtocreatedebtofvariousqualitiesandmaturities.Inthisway,avarietyofriskprofilescanbecreated,andsold,tooptimizethecostofcapitalforanissuer.Theimportanceofstructureis whymanypeoplerefertosecuritisationas“structuredfinance” or“structuredproducts”.

Wehavediscussedtheimportanceofthesecuritisationtrust,buttoillustratetheconcept,thesecuritisationitselfisalegalarrangementwherethedebtisissuedbyaspecialpurposevehicleoftenreferredtoasa“trust”.EvenWikipediahasadiagramonsecuritisation.Thereareseveralpartiestoasecuritisationthatmanagethecashflow(paymentrules)andtheindependenceofthetrust.Anillustrationisbelow.

Figure 12: A mortgage securitisation flow chart

Lender Borrower

MortgageBroker

Investors

Servicer

Credit EnhancementProvider

Ratings Agency

Underwriter

Trustee

Issuer

Step 2 Ȃ The Lender sells the loan to the Issuer and the Borrower begins making monthly payments to the Servicer.

Step 1 Ȃ The Borrower obtains a loan from a Lender. This may be done with help from a Mortgage Broker. In many cases the Lender and the Mortgage Broker have no further interaction with the Borrower after the loan is made.

Step 3 Ȃ The Issuer sells securities to the Investors. The Underwriter assists in the sale, the Rating Agency rates the securities, and Credit Enhancement may be obtained.

Step 4 Ȃ The Servicer collects monthly payments from the Borrower and remits payments to the Issuer. The Servicerand the Trustee manage delinquent loans according to terms set forth in the Pooling & Servicing Agreement.

Cash

Securities

Loans

Loans

Monthly Payments

Monthly Payments

Loans Proceeds

Cash

MonthlyPayments

Source:Wikipedia.

Theinitialpartiestoaloanaresimple:aborrower,alenderandapaymentcollector,oftenknownastheservicer.

Sometimesthereisabrokerthatarrangestheloanbetweentheborrowerandthelender,butthestepsflowasfollows:1)alendermakesaloantoaborrower,2)borrowermakespaymentsontheloan,3)servicercollectstheperiodicpaymentsontheloanand4)theservicerwouldwork-outtheloaniftheborrowerstoppedpaying.

Inthecaseofasecuritisation,thelendersellstheloantoatrust;therearerequiredrepresentationsabouttheunderwritingandqualityoftheloans.Thelenderisthenoutofthepictureexceptfortheserepresentations.Theservicerishiredandpaidbythetrustandcontinuestheirroleincollectingpayments.Anunderwritersetsupthetrustandunderwritesthebondissuance,oftenmakingsecondarymarketsintheissueddebt.Atrustee(fiduciary)overseesthetrustandthecashflow.Thetrustissuesdebt(bonds),whichispurchasedbyinvestorsandthetrust,makespaymentstothebondholders.Theratingagenciesassessthedebtqualitybasedontheircriteriontoprovideinformationtoinvestors.Theyalsomonitorperformance.

Figure 11: Two critical components work together to impact return, stability and liquidity

Forillustrativepurposesonly.Protectionreferstorelativecapitalstructurestanding, notanabsoluteguaranteeagainstcapitalloss.

LoansSecuritisation

Junior

Senior Protected class

Shock absorber

Collateral: The asset(s) can vary in terms of quality and cash flowStructure: Can enhance return or mitigate risk


So why securitise?Fromanissuer’sperspective,securitisationtypicallyoffersalowercostoffunding,oradiversifiedfundingsource,andinmanycases,theissuer’screditratingbecomeslessrelevant.Assuch,ifajunk-ratedlenderhasveryhigh-qualitydebtreceivables,theycanoftenachievemuchmoreattractivecostofcapitalthroughsellingthereceivablesthroughasecuritisation.Why?Thisistheimportanceofbankruptcyremotenessdiscussedearlier.Oncetheloansaresoldtothesecuritisationtrust,thelenderiseffectivelyoutofthepicture,theloansareseparatedfromthelender’sassetsandarenotsubjecttothelender’shigherriskofbankruptcyordefault.Butissuersdonothavetobesmaller,lowerratedcorporations.Commonissuersincludelargecompaniesaswellasgovernmententities.Examplesare:CapitalOne,WellsFargo,JPMorganChase,Ford,GeneralMotors,HarleyDavidson,GinnieMae,FannieMae,andFreddieMac.Inaddition,privatefirmslikeStarwood,Annaly,Redwood,Exeter,Blackstone,Brookfield,Fortress,andmanyothersallusesecuritisation.

Thethirdpillarrelatestocashflowfromtheunderlyingloansorreceivables;basicallywhatsupportstheamortization.Whilewehavetouchedonamortizationtwicealready,itisworthmentioningthisasadifferentiator.Manyloansprovidefortheamortizationofthedebtpriortothematurityoftheloan.Thisisquitedifferentfromthatofmostfixed-incomedebt,whichistypicallyabulletmaturity(corporatesecuritiesandsovereigndebtaretypicallybulletmaturity).Butmanyloans,inparticularconsumerloanssuchasmortgagesandautomobileloans,areamortizing.Astheloansrepayprincipal,thisprincipalisoftenusedtopaydownprincipal ontheoutstandingsecuritiseddebt.Thiscreatesadeleveraging, orde-risking,ofthedebtoutstanding,overtime.Italsocreates someliquidityovertime.

Sowithournew-foundunderstandingofthethreepillars–collateral,structureandamortization–wenowmovetounderstandingsomeofthechangestothemarket,postfinancialcrisis,andtheuseofthedebtwithinstrategiesandportfolios.

The house won’t fall if the bones are goodThesecuritisationmarketisoftenapolarizingone.Giventhemassiverunupinunregulated,andpoorlyunderwrittenconsumerdebtpriortothelastfinancialcrisis,afewinvestorsstillhaveanemotionalbiasagainstsecuritiseddebtandexcludeitwithoutregardtothechangesthathavehappenedinthesubsequent 12yearspostfinancialcrisis.

Duringthefinancialcrisis,manyinvestorsexperiencedlossesinMBSorCDOs.TheselosseswereconcentratedinCDOsandinmorejuniorMBSandCMBSexposureswhichweresmallershockabsorbingclasses.Therewerelossesin2006-2007vintagenon-agencyMBSwheresufficientborrowerincomeunderwritingwasnotdone.InvestorsthatdidnotownMBSorCDOsstillexperiencedsignificantpricevolatilitywhichhasleftalastingimpression.But,asaresultofthefinancialcrisis,therehavebeenseveralcriticalchanges.Regulation of lenders, issuers and investors has restrictedlending,improvedthequalityoforigination,andrequiredriskretention–nomore“noincome”loans.Intermediaries,suchasratingagencies,aswellasinvestors,haveamuch larger data setwithwhichtomakeperformanceassessments.Risk has been meaningfully re-priced withaconservativetiltasregulationhaslimitedbuyerslikeEuropeaninsurancecompanies.

EvenforvilifiedsectorssuchassubprimeMBS,timehasprovidedasortofhealing.Manyoftheweakerloanshavebeenliquidatedfrompools,andbecauseoflastingregulatorychange,manywell-

performingborrowershavenotbeenabletorefinance,keepingthemintheseoldervintagedebts.Ifweweretoaskyouwhatwouldyoucallaborrowerwhichhasbeenmakingconsistentpaymentsforfive,even10years.Wouldyoucallit‘sub-prime’?Wewouldn’t.Therearemanyinstancesofthisverydebtservicingadherence.Theyarenolongerreallythesame“subprime”customertheywerefiveyearsprior.Thesefactsareoftenignoredasthebabyhasbeen“thrownoutwiththebathwater”anditisoneofthekeyreasonsmanagerswithdata,experience,andskillcangeneratealphainthesemarkets.MortgageloansintheUSgenerallyhavetermtomaturityof30years.Assuchtherearemany,manyvintagesofsecuritiesbackedbyloanswithavariety ofseasoningandavarietyofborrowers.

Figure 13: Always current default rate (first time becoming 30 days delinquent)

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Jan-05 Aug-06 Mar-08 Oct-09 May-11 Dec-12 Jul-14 Feb-16 Sep-17

ALT A Prime Subprime

Source:LoanPerformanceasofMay2018.Pastperformanceisnoguaranteeoffutureresults.Yieldscanfluctuateovertime.

Butlet’stouchonthevastarrayofregulationofsecuritisationasithascreatedinefficienciesthatcreateexcessreturnopportunityandtheyhavemassivelychangedlendingstandards.Verylittle“risky”productoriginationoccursinUSmortgagespace.NINJAloans(theso-called“noincome,nojob,noassets”underwriting)areathingofthepast.

US RegulationBaselIII(rollingintoBaselIV)establishesriskweightingsandcapitalrequirementsforbanks’securitiesinvestmentsandloanbooks.Thislimitsbanks’abilitytoleveragetheseholdingsandreducesdemandfrombanksleadingtomoreattractiveyieldspreadsandlesscompetition.Aswell,theDodd-FrankWallStreetReformandConsumerProtectionActwasincrediblywide-ranging,dishingoutrulessuchas:TheVolckerRulewhicheliminatedbankpropdesktrading.Theruleestablishesstandardsformortgagelending,servicing,appraisalregulation.DoddFrankbringshedgefundsinscopeforregulation,andbringsinriskretentionrequirementsforissuersinsecuritisation.DoddFrankestablisheshigherbankcapitalrequirements,minimumcapitalcharges,maximumleveragelevelsanditincludesStructurallyImportantFinancialInstitution(SIFI)designationsforextraregulation.But,inourview,importantlyDoddFrankestablishedcriterionforincome-basedunderwritinginmortgageloansthroughthedefinitionofaqualifyingmortgage(QM)andthroughAbilitytoRepay(ATR)underwritingstandardsforallnon-QMloans.


European regulationTheEUCapitalRequirementsDirective(CRD)establishedtheriskretentionandduediligencerequirementsforEuropeanSecuritisationissuers;thisisanissuerrequirementtokeep“skininthegame”.BaselIII(rollingintoBaselIV)establishesriskweightingsandcapitalrequirementsforbanks’securitiesinvestmentsandloanbooks;thislimitsbanks’abilitytoleveragetheseholdingsandreducesdemandfrombanks.SolvencyIIforEuropeanInsuranceCompaniesestablishesriskweightings,(extremelyhighforsecuritisedrelativetocorporateandcoveredbonds).SolvencyIIeffectivelylimitedEUinsurancebuyingofsecuritisationcompletelypostcrisis.TheAlternativeInvestmentFundManagersDirective(AIFMD)coversEuropeanhedgefunds,privateequity,andanyotheralternativeinvestmentfirmsanditestablishedrequirementsforbuyers(EU-RR,duediligence).EUSecuritisationRegulation,ineffectfrom1/1/19establishedrulesforissuanceofSimple,Transparent,andStandardised(STS)Securitisations,anditbringsUCITS(equivalentto40-Act)vehiclesintotheriskretentionandduediligencerequirements.

Ascanbeseen,postglobalfinancialcrisis,theregulatorypendulumhasswunghardintermsofmonitoringandlimitingsecuritisationpracticesglobally.Inmanycasestheimpacthasbeenmassive;limitstolending(outstandinglendingonhomesintheUSactuallydeclinedfor10-yearspostfinancialcrisis,whileoverthesametimeperiod,outstandingnon-financialcorporatedebt,roughlydoubledinsize.Regulationofthismagnitudehaslonglastingimplications,includingcheapervaluationsforimpactedassetclassesandstrongerfundamentals.

Asset class positioningTheassetclassoffersthreeprincipalbenefits

1 Diversificationfromcorporatecredit

2 Lessrecentgrowthandbettersupply/demandbalance (lowervolatility)

3 Moreattractivevaluations(lesscrowded)

Securitisedcreditisawaytoaccessexposuretotheconsumer, tohousingandtocommercialrealestate.Thereare,ofcourse,

otherwaystogetthisaccessthroughlenders,throughREITs, forexample.However,inthiscaseyouarebuyingexposuretoon-goingbusinessmodelsofcorporations,whereasinthesecuritisedmarketyouhavedirectexposuretoaspecificpoolofloanswithouttheexposuretothecorporationorthebusinessmodel.ThinkWellsFargoCorporationversustheriskofprimemortgageloansoriginatedandsoldbyWellsFargo.Thisisquitedifferentthancorporatecredit.

USsecuritisationoffersvarietyandthereisahighnumberofunderlyingassetclasses,whichoffersawaytomanagethroughcreditcyclesgiventhediversityoftheexposures.

Figure 14: Asset cycles are not always synchronized

Offers diversification to traditional credit risk such as corporate or sovereign credit risk

Ȃ Accesstodifferentiatedconsumersectors:real-estate,financeandhousing Ȃ Diverseuniversewithwiderangeoffundamentalexposure

Peak cycle

Bottom cycle

Apartments

Office-SuburbanIndustrial property

CorporateHotel

Auto financeOffice -Major City

Luxury mallsUK residential

Luxury apartments

Low quality malls

Railcar lease

Shipping Container Lease

US residential housing

Consumer, low income (US)

Consumer, high net worth (US)

Leveraged LoansLoans

Junior

Senior Protected class

Shock absorber

Source:Schroders.Forillustrationonly.

Ourstrategiesoffertheabilitytohelpdiversifyportfolios,giventheirlowercorrelationstotraditionalfixedincomeassetreturns.Webelievethisisespeciallyimportantaswemovelaterinthecorporatecreditcycleandseemoreidiosyncraticrisk.

Figure 15: Securitised strategies have low correlation to various asset classes, including other ‘floating rate’ sectors

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

BloombergBarclays USAggregate

BloombergBarclays US IG

Corporate

BloombergBarclays US

MBS

BAML US HighYield

S&P 500 JPM EMBIGlobal

JPM CLO BBBIndex

BloombergBarclays Int.Govt/Credit

S&P PerformingLoans

Enhanced Securitised USD LIBOR (Gross) Enhanced Securitised Plus USD LIBOR (Gross) Opportunistic Multi-Sector Securitised (Gross)

Five year correlation as of March 2019

Source:Schroders,Bloomberg,asofAugust31,2019.Correlationsbasedoncompositereturns,grossoffees,relativetounmanagedindexproxies.Correlationsreflectpastperformance,whichisnoguaranteeoffutureresults.Pleaserefertothebackforimportantinformation.


Therisk/returnprofilehasbeensuperioracrossboththelowervolatilitystrategiesandthereturn-seekingstrategies.

Figure 16: Low historical volatility/diversification

5 year annualized risk/return

Volatility

Enhanced LIBOR

Enhanced Plus LIBOR

Opportunistic

BB US Aggregate

BB US IG CorporateBB Global

Corporate

BAML US High Yield

JPM EMBI Global

JPM CLO BBB

BB Int. Govt/Credit

0%

1%

2%

3%

4%

5%

6%

7%

0% 1% 2% 3% 4% 5% 6% 7%

Source:Schroders,BloombergasofAugust31,2019.

Withoutgivingupreturn,investorshavetheabilitytocapturesecurity,structureandamortization.

Figure 17: Attractive return seeking potential

5 year cumulative return

90

100

110

120

130

140

Aug-14 Aug-15 Aug-16 Aug-17 Aug-18

Opportunistic S&P Lev. Loan BAML HYBB Corp JPM EMBI JPM CLO BBB

Source:Schroders,BloombergasofAugust31,2019.Pastperformanceisnoguaranteeoffutureresults.Yieldscanfluctuateovertime.

Overallthereissignificantalphaadded,substantialbenefittoriskpremiumdiversificationandanadditionalbenefittoaspecialistmanagerthatcanmineforthevaluesacrossthecomplexanddiversemarketplace.

Figure 18: Securitised credit: attractive returns & diversification relative to traditional and alternative fixed income strategies

5-yearrisk/returnasofAugust2019

Standard Deviation (Annualized) Standard Deviation (Annualized)

Return ReturnBenchmarked: Index duration with added return Low duration/Opportunistic: Income/growth with low volatility

Bloomberg Barclays

Securitised

Bloomberg Barclays US Aggregate

Bloomberg Barclays Corporate

Enhanced Securitised

IG Securitised

0%

1%

2%

3%

4%

5%

6%

0% 1% 2% 3% 4% 5%

Opportunistic

S&P 500

JPM Emerging Market Bond

ICE BofAML US High Yield

S&P Performing Loans

Enhanced Securitised LIBOR

Enhanced Securitised Plus LIBOR

0%

2%

4%

6%

8%

10%

12%

0% 2% 4% 6% 8% 10% 12% 14%

Withinthisdiverseanddynamicmarket,Schroder’steamhasagenuineappreciationforriskandopportunity,andalonghistory ofservingclientsinthisregard.

Source:Bloomberg,SchrodersasofAugust31,2019.Performanceshownreflectspastperformance,whichisnoguaranteeoffutureresults.Thevalueofaninvestmentcan godownaswellasupandisnotguaranteed.Pleaserefertothebackforimportantinformation.

Correlation Comparison (5 years)

Bloomberg Barclays

Securitised

Bloomberg Barclays US Aggregate

Bloomberg Barclays

Corporates

InvestmentGradeSecuritised 0.95 0.95 0.78

Enhanced Securitised 0.84 0.80 0.66

Correlation Comparison (5 years) S&P 500 JPM Emerging

Market BondICE BoAML

US High Yield

S&P Performing

Loans

OpportunisticSecuritised 0.26 0.21 0.41 0.45

EnhancedSecuritised 0.32 0.24 0.49 0.52

EnhanceLIBOR 0.32 0.25 0.50 0.55

Wide range of underlying assets creates opportunity to benefit from asynchronous asset cycles


Figure 19: Securitised credit strategy performance as of June 30, 2019

1 Year 3 years (p.a) 5 years (p.a.) 7 years (p.a.) 10 years (p.a.)

Total return

Excess return

Total return

Excess return

Total return

Excess return

Total return

Excess return

Total return

Excess return

InvestmentGradeSecuritised(vsBarclaysSecuritised) 7.16% 0.79% 3.12% 1.01% 3.83% 1.24% 4.40% 2.02% 6.85% 3.34%

EnhancedSecuritised(vsBarclaysSecuritised) 7.38% 1.01% 4.47% 2.37% 5.56% 2.96% 7.44% 5.06% 9.49% 5.97%

EnhancedSecuritisedLIBOR(vs3-MonthLIBOR) 3.68% 1.12% 4.05% 2.30% 3.01% 1.82% 4.25% 3.32% 6.07% 5.30%

EnhancedSecuritisedPlusLIBOR(vs3-MonthLIBOR) 4.09% 1.53% 6.14% 4.40% 4.44% 3.25% 5.91% 4.97% - -

OpportunisticMulti-SectorSecuritised(vs1-MonthLIBOR) 4.44% 2.09% 8.13% 6.61% 6.33% 5.32% 9.76% 8.99% 11.13% 10.52%

OpportunisticLong/ShortSecuritised 5.14% - 10.11% - 7.24% - 10.56% - - -

SchroderEuropeanABS* (vs3-MonthGBPLIBOR) 0.63% -0.20% 2.54% 1.98% 1.42% 0.86% 2.65% 2.09% - -

Source:Schroders.Returnsreflectpastperformancegrossofanyfees,whichwouldhavebeenloweronanetbasis.Pastperformanceisnoguaranteeoffutureresults.Pleaserefertothebackofthispresentationformoredetails.*SchroderEuropeanABSreturnsareshowninGBP.

A word about securitised investment riskAllinvestmentsinvolverisksincludingtheriskofpossiblelossofprincipal.Themarketvalueofabondportfoliomaydeclineasaresultofanumberoffactors,includinginterestraterisk,creditrisk,inflation/deflationrisk,mortgageandasset-backedsecuritiesrisk,USGovernmentsecuritiesrisk,foreigninvestmentrisk,high-yieldsecuritiesriskandderivativesrisk.Asset-backed,mortgage-backedormortgage-relatedsecuritiesaresubjecttospecificprepaymentandextensionrisks,delinquencyandforeclosure.BondsratedBBB/Baaorhigherareconsideredinvestmentgrade,whilebondsratedBB/Baorlowerareconsideredspeculativeastothetimelypaymentofprincipalandinterest.Theuseofderivativesinvolvesrisksdifferentfrom,orpossiblygreaterthan,therisksassociatedwithinvestingdirectlyintheunderlyingassets.Theuseofleveragemaymagnifygainsorloses.Noinvestmentstrategyorriskmanagementtechniquecanguaranteereturnsoreliminateriskinanymarketenvironment.Assetallocationanddiversificationcannotensureaprofitorprotectagainstlossofprincipal.Durationisameasureofvolatilityexpressedinyears.Thehigherthenumber,thegreaterpotentialforvolatilityasinterestrateschange.


Appendix

Benchmarking is the hardest part

Benchmark data is attainable with the exception of non-agency MBS Ȃ MortgageIndicesarefocusedonAgencyMBSanddonotcovernonagencyMBS

Ȃ BloombergBarclaysMBSIndex Ȃ BAMLMortgageMasterII

Ȃ ABSindices Ȃ theBAMLfamilyhavereasonablecoverage

Ȃ BAMLABSfixed Ȃ BAMLABSfloating

Ȃ TheBloombergBarclaysSecuritisedIndexhasalmostnoABSduetoinclusioncriterialikesize,and144aeligibility

Ȃ CMBSindices Ȃ theBAMLfamilyhavereasonablecoverage

Ȃ BAMLCMBSfixed Ȃ BAMLCMBSfloating

Ȃ TheBloombergBarclaysSecuritisedIndexhasalmostnoCMBSduetoinclusioncriterialikesize,and144aeligibility

Ȃ JPCLOIEIndexcoversCLOs

Ȃ Non-agencyMBSisalargesectorwithoutanindex,creatinganinefficiency

Mark to market is the easy part

What data is available for pricing?MostABS,MBSandCMBSbecameTRACEeligiblein2016

Trace reporting is now a required element of trading for securitised products

Ȃ ABS,CMBS,certainnon-agencyMBS Ȃ Volumeandpricereportingrequiredwithin15minutesofatrade Ȃ Morepricetransparencyforindependentservices

Ȃ FT-IDCD,Reuters,S&PMarkitallprovidedailypricing


Disclosures

Schroder Enhanced Securitised CompositeAsof:December31,2018

Composite:SchroderEnhancedSecuritisedComposite Benchmark:BarclaysU.S.SecuritisedIndexTLCurrency:USDReturns as of: Dec-31-2018Inception Date:Dec-31-2005

Past performance is not indicative of future results.1Annualizedstandarddeviationofgrossmonthlyreturnsforthecompositeandmonthlyreturnsforthebenchmark2Assetweightedstandarddeviationofannualgrossreturnsofaccountsthathavebeeninthecompositefortheentireyear.Partperiodsarenotannualized.3SinceInceptionDecember31,20054SinceDec31,2003TotalFirmAssetsincludenon-feepayingaccounts.2003TotalFirmAssetsvaluehasbeenrestatedduetotheinclusionofthosenon-feepayingaccounts.TotalFirmAssetsfrom2007incorporatetheUK&USfirmmergerasdetailedintheDefinitionoftheFirm,fromthestartof2011SchroderPropertyInvestmentManagementMultiManageraccountsareincludedintheTotalFirmAssets

5Benchmarkvolatilitynotshownasthebenchmarkiscashwhichisnotcomparabletothecomposite*ReturnsareforapartperiodyearN/A-Informationisnotstatisticallymeaningfulduetoaninsufficientnumberofportfoliosfortheentireyear N/Aforperiodswithlessthan36monthsofavailablereturns

YearGross Composite

Return (%)Net Composite

Return (%)

Primary Benchmark Return (%)

3 Year Composite Risk (%)1

3 Year Primary Benchmark Risk

(%)1

Number of Portfolios

(throughout period)

Account Dispersion (%)2

Market Value at end of Period

Average Account Value at end of Period

Percentage of Firm Assets (%) Total Firm Assets4

2018 1.71 1.20 0.99 2.16 2.28 < 5 N/A 1,664,518,813.00 33.406,938,455 12.162,773,308,48334.0 2017 4.65 4.13 2.51 1.74 1.81 < 5 N/A 1,378,766,751.00 00.719,885,954 80.247,000,211,55403.0 2016 5.34 4.81 1.78 1.85 2.13 < 5 N/A 1,543,042,837.00 52.907,067,583 75.836,084,721,20315.0 2015 6.93 6.40 1.47 2.45 2.30 < 5 N/A 415,702,415.77 98.702,158,702 00.000,000,597,6184.2 2014 11.06 10.51 5.88 2.45 2.20 < 5 N/A 482,600,145.34 76.270,003,142 00.000,000,600,8186.2 2013 9.92 9.37 -1.31 2.71 2.03 < 5 N/A 568,870,422.13 70.112,534,482 00.000,000,614,0297.2 2012 15.25 14.75 3.01 2.66 1.66 < 5 N/A 984,612,262.20 04.780,402,823 00.000,000,326,6129.5 2011 10.13 9.74 6.22 3.81 2.15 < 5 N/A 991,842,950.10 07.613,416,033 00.000,000,089,0237.4 2010 18.25 17.84 6.52 9.24 3.19 < 5 N/A 1,263,845,184.90 03.827,182,124 00.000,000,211,2227.5 2009 9.88 9.50 7.78 8.39 3.21 5 (5) 1.50 1,496,220,591.70 43.811,442,992 00.000,000,450,4222.6 2008 -29.47 -29.72 4.64 7.78 3.13 6 (6) 9.48 1,550,155,084.82 08.081,953,852 00.000,000,636,6123.9 2007 -1.27 -1.61 6.64 N/A N/A 8 (6) 0.77 3,114,274,271.00 88.382,482,983 00.000,000,822,2210.41 2006 5.66 5.29 5.16 N/A N/A 6 (5) 0.30 2,613,607,123.00 71.781,106,534 00.000,000,707,0226.21

As of Dec-2018Gross Composite


Return (%)


Composite Risk (%)1

Primary Benchmark Risk

(%)1

Annualized 3 Year 3.89 3.37 1.76 2.16 2.28Annualized 5 Year 5.89 5.37 2.51 2.07 2.16Annualized 7 Year 7.76 7.23 2.03 2.43 2.14

Annualized 10 Yea 9.21 8.72 3.45 2.96 2.22Annualized S.I.3 4.52 4.07 3.91 5.06 2.46

Definition of the Firm: TheFirmisdefinedasallaccountsmanagedbySchroderInvestmentManagementintheUS,UK,Switzerland,Singapore,HongKong,JapanandAustraliabywhollyownedsubsidiariesofSchrodersPLC.AccountsmanagedbySchrodersAdveqareexcluded,SchrodersAdveqclaimscomplianceseparately.AssetsmanagedagainstaliabilitydrivenmandateorinvestedindirectpropertyareexcludedfromtheGIPSFirm.AdvisoryportfoliossignedtoSchrodersInvestmentManagementHongKong(SIMHK)arealsoexcludedfromtheGIPSFirm.OnJanuary1,2017theSchrodersInvestmentManagementGIPSFirm(‘theFirm”)wasformedfollowingthemergerofindependentregionalSchrodersInvestmentManagement(SIM)GIPSFirmsdefinedbasedpredominantlyonlocationoftheinvestmentdeskandheldouttoclientsorprospectiveclientsasthefollowingdistinctfirms:combinedLondon/NewYork/Zurich(SIMUK/US&SIMSAGrespectively),Singapore(SIMSL),HongKong(SIMHK),Australia(SIMAL)andJapan(SIMJP).TheseFirmsweremergedasaresultoftheincreasinglyglobalnatureofthebusiness,detailsofpreviousfirmmergersareavailableuponrequest.OnSeptember19,2016,SchroderU.S.HoldingsInc., asubsidiaryofSchrodersplc,purchasedasecuritisedproductsteamfromanothermanager,assetsmanagedbythesecuritisedproductsteamare includedintheFirmfromDecember31,2016.Composite Definition: TheDiversifiedGrowthComposite(the“Composite”)iscomprisedofallfullydiscretionaryaccountsintheFirm,whichtargetareturnofInflationplus5.0%p.a.overaninvestmentcycle,primarilythroughinvestmentinadiversifiedrangeofassetclassesincludingequities,credit,governmentbondsandalternatives.Derivativesmaybeusedtoachievetheinvestmentobjectiveandtoreduceriskormanagethefundmoreefficiently.Fundsmayusegrossleverageandtakeshortpositions,howeverfundsdonotemploynetleverage.CompositereportspublishedfromJanuary1,2017havereplacedtheUKRetailPriceIndex(RPI)withtheUKConsumerPriceIndex(CPI)asourreportedmeasureofinflation,sinceevidenceshowsCPIisabettermeasureofeconomy-wideinflationandthisbringsthefundinlinewiththeindustryconvention.Composite Construction: ThecompositereturnsincludealloftheFirm’sseparateaccountsandcommingledfundswhicharediscretionary,feepaying,taxexempt,above$30millionandmanagedasdescribedabove.Newaccountsareincludedinthecompositeonefullmonthafterinceptiondatetoensuretheaccounthasbeenfullyinvested.Terminatedaccountsareexcludedfromthecompositeattheendofthepreviousmonth.Thecomposite’screationdateisOctober31,2016.Thecomposite’sstartdateisDecember31,2005.

Performance Calculation: Compositereturnsarepresentedasgrossreturns,includingcash,reinvestmentofdividends,interestandotherincomeearnedintheperiodandarecalculatedonatradedatebasisaftertransactioncharges(brokeragecommissions).Eachaccount’sinvestmentperformancerateofreturniscalculatedmonthlyinaccordancewiththe‘time-weighted’rateofreturnmethod(ModifiedDietz).Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsisavailableuponrequest.TheCurrencyoftheCompositeisUSD.WithholdingTaxtreatmentmayvaryfromportfoliotoportfoliowithinthiscomposite.Fee Schedule: Returnsarenetoftradingexpensesbutgrossofcustodyfeesandothercosts.Netoffeesreturnshavebeencalculatedbaseduponthefollowingschedules:InceptiontoMay31,2012:grossreturnshavebeenreducedbyamodelfeerateof35bpsFromMay31,2012:grossreturnshavebeenreduced byamodelfeerateof50bps.Dispersion:Thedispersionofannualreturnsismeasuredbytheassetweightedstandarddeviationofportfolioreturnsrepresentedwithinthecompositeforthefullyearprovidedaminimumof5portfoliosareavailable.GIPS Compliance and Verification: SchroderInvestmentManagement(‘theFirm’)claimscompliancewiththeGlobalInvestmentPerformanceStandards(GIPS®)andhaspreparedandpresentedthisreportincompliancewiththe GIPSstandards.TheFirmhasbeenindependentlyverifiedfortheperiodsJanuary1,1996toDecember31,2018.Theverificationreport(s)is/areavailableuponrequest.Verificationassesseswhether(1)theFirmhascompliedwithallthecompositeconstructionrequirementsoftheGIPSstandardsonafirm-widebasisand(2)theFirm’spoliciesandproceduresaredesignedtocalculateandpresentperformanceincompliancewiththeGIPSstandards.Verificationdoesnotensuretheaccuracyofanyspecificcompositepresentation.Acompletelistofallcompositesandtheirdescriptionsisavailableuponrequest.Additionalinformationregardingpoliciesforcalculatingandreportingreturnsisavailableuponrequest.Additional Information: TheexchangeratesusedareprovidedbyWM.Eachcurrencyisvaluedat4pmonthelastbusinessdayofthemonth.Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsandadescriptionofallcompositesareavailableonrequest.Risk Statistics:UnavailabilityStandardDeviationsforcompositeanditsbenchmarkthathavenotbeenactiveorinexistencefor3yearsormoreare notprovidedinthepresentation.


Schroder Enhanced Securitised Plus USD LIBOR CompositeAsof:December31,2018

Composite:SchroderEnhancedSecuritisedPlusUSDLIBORComposite Benchmark:3MonthUSLiborCurrency:USDReturns as of: Dec-31-2018Inception Date:Aug-31-2009

Past performance is not indicative of future results.1Annualizedstandarddeviationofgrossmonthlyreturnsforthecompositeandmonthlyreturnsforthebenchmark2Assetweightedstandarddeviationofannualgrossreturnsofaccountsthathavebeeninthecompositefortheentireyear.Partperiodsarenotannualized.3SinceInceptionAugust31,20094SinceDec31,2003TotalFirmAssetsincludenon-feepayingaccounts.2003TotalFirmAssetsvaluehasbeenrestatedduetotheinclusionofthosenon-feepayingaccounts.TotalFirmAssetsfrom2007incorporatetheUK&USfirmmergerasdetailedintheDefinitionoftheFirm,fromthestartof2011SchroderPropertyInvestmentManagementMultiManageraccountsareincludedintheTotalFirmAssets


YearGross Composite


Return (%)


3 Year Composite Risk (%)1


(%)1


(throughout period)




Percentage of Firm Assets (%) Total Firm Assets4

2018 3.43 2.91 2.37 1.44 0.20 < 5 N/A 180,038,143.00 180,038,143.00 0.05 384,803,377,261.212017 8.50 7.96 1.29 1.52 0.12 < 5 N/A 203,499,944.00 203,499,944.00 0.04 455,112,000,742.082016 4.48 3.96 0.75 1.75 0.07 < 5 N/A 206,983,918.10 206,983,918.10 0.07 302,127,480,638.572015 1.44 0.93 0.31 2.80 0.01 < 5 N/A 197,644,208.10 197,644,208.10 1.18 16,795,000,000.002014 5.95 5.42 0.24 3.60 0.03 < 5 N/A 177,097,898.50 177,097,898.50 0.98 18,006,000,000.002013 4.70 4.18 0.27 4.30 0.03 < 5 N/A 158,188,972.60 158,188,972.60 0.77 20,416,000,000.002012 16.92 16.33 0.44 4.69 0.03 < 5 N/A 115,986,114.60 115,986,114.60 0.70 16,623,000,000.002011 -5.10 -5.57 0.34 N/A N/A < 5 N/A 58,289,010.74 58,289,010.74 0.28 20,980,000,000.002010 14.17 13.60 0 35 N/A N/A < 5 N/A 135,929,006.70 135,929,006.70 0.61 22,112,000,000.00

Sep 09 to end Dec 09 4.14 3.96 0.09 N/A N/A < 5 N/A 257,113,861.40 257,113,861.40



Return (%)


Composite Risk (%)1


(%)1

Annualized 3 Year 5.45 4.92 1.47 1.44 0.20Annualized 5 Year 4.73 4.21 0.99 1.51 0.23Annualized 7 Year 6.39 5.86 0.81 2.63 0.21

Annualized 10 Year N/A N/A N/A N/A N/AAnnualized S.I.3 6.12 5.59 0.69 3.27 0.19

Definition of the Firm: TheFirmisdefinedasallaccountsmanagedbySchroderInvestmentManagementintheUS,UK,Switzerland,Singapore,HongKong,JapanandAustraliabywhollyownedsubsidiariesofSchrodersPLC.AccountsmanagedbySchrodersAdveqareexcluded,SchrodersAdveqclaimscomplianceseparately.AssetsmanagedagainstaliabilitydrivenmandateorinvestedindirectpropertyareexcludedfromtheGIPSFirm.AdvisoryportfoliossignedtoSchrodersInvestmentManagementHongKong(SIMHK)arealsoexcludedfromtheGIPSFirm.OnJanuary1,2017theSchrodersInvestmentManagementGIPSFirm(‘theFirm”)wasformedfollowingthemergerofindependentregionalSchrodersInvestmentManagement(SIM)GIPSFirmsdefinedbasedpredominantlyonlocationoftheinvestmentdeskandheldouttoclientsorprospectiveclientsasthefollowingdistinctfirms:combinedLondon/NewYork/Zurich(SIMUK/US&SIMSAGrespectively),Singapore(SIMSL),HongKong(SIMHK),Australia(SIMAL)andJapan(SIMJP).TheseFirmsweremergedasaresultoftheincreasinglyglobalnatureofthebusiness,detailsofpreviousfirmmergersareavailableuponrequest.OnSeptember19,2016,SchroderU.S.HoldingsInc., asubsidiaryofSchrodersplc,purchasedasecuritisedproductsteamfromanothermanager,assetsmanagedbythesecuritisedproductsteamare includedintheFirmfromDecember31,2016.Composite Definition: AccountsincludedintheSchroderEnhancedSecuritisedUSDLIBORCompositeseektoachievereturnsabove3monthUSDLIBORoranequivalentbenchmarkbyprovidingcapitalgrowthandincomeprimarilythroughinvestmentinsecuritisedassetssuchasasset-backedsecuritiesandmortgage-backedsecurities.Theaccountsmaysubstantiallyinvestinbelowinvestmentgradesecurities.Composite Construction: ThecompositereturnsincludealloftheFirm’sseparateaccountsandcommingledfundswhicharediscretionary,feepaying,taxexempt,above$30millionandmanagedasdescribedabove.Newaccountsareincludedinthecompositeonefullmonthafterinceptiondatetoensuretheaccounthasbeenfullyinvested.Terminatedaccountsareexcludedfromthecompositeattheendofthepreviousmonth.Thecomposite’screationdateisOctober31,2016.Thecomposite’sstartdateisAugust31,2009.Performance Calculation: ThecompositereturnsincludealloftheFirm’sseparateaccountsandcommingledfundswhicharediscretionary,feepaying,taxexempt,above$30millionandmanagedasdescribedabove.Newaccountsareincludedinthecompositeonefullmonthafterinceptiondatetoensuretheaccounthasbeenfullyinvested.Terminatedaccountsareexcludedfromthecompositeattheendofthepreviousmonth.Thecomposite’screationdateisOctober31,2016.Thecomposite’sstartdateisAugust31,2009.Composite

returnsarepresentedasgrossreturns,includingcash,reinvestmentofdividends,interestandotherincomeearnedintheperiodandarecalculatedonatradedatebasisaftertransactioncharges(brokeragecommissions).Eachaccount’sinvestmentperformancerateofreturniscalculatedmonthlyinaccordancewiththe‘time-weighted’rateofreturnmethod(ModifiedDietz).Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsisavailableuponrequest.TheCurrencyoftheCompositeisUSD.WithholdingTaxtreatmentmayvaryfromportfoliotoportfoliowithinthiscomposite.Performanceresultscanbepresentedbothnetoffeesand/orgrossoffees.“Netoffees”performanceresultsarenetofmanagementfee.Clientswithaccountsinthecompositeincurotherexpensesinconnectionwiththeiraccountssuchascustodyfeesandothercosts.Netreturnshavebeencalculatedbaseduponthehighestfeeratechargedtoeachaccountinthecomposite.Fee Schedule: Returnsarenetoftradingexpensesbutgrossofcustodyfeesandothercosts.Netoffeesreturnshavebeencalculatedbaseduponthegrossreturnsandamodelfeerateof50bpsp.a.Dispersion: Internaldispersioniscalculatedusingassetweightedstandarddeviationofallportfolioswherethereareatleast5portfoliosthatareincluded inthecompositefortheentireyear.GIPS Compliance and Verification: SchroderInvestmentManagement(‘theFirm’)claimscompliancewiththeGlobalInvestmentPerformanceStandards(GIPS®)andhaspreparedandpresentedthisreportincompliancewiththeGIPSstandards.TheFirmhasbeenindependentlyverifiedfortheperiodsJanuary1,1996toDecember31,2018.Theverificationreport(s)is/areavailableuponrequest.Verificationassesseswhether(1)theFirmhascompliedwithallthecompositeconstructionrequirementsoftheGIPSstandardsonafirm-widebasisand(2)theFirm’spoliciesandproceduresaredesignedtocalculateandpresentperformanceincompliancewiththeGIPSstandards.Verificationdoesnotensuretheaccuracyofanyspecificcompositepresentation.Acompletelistofallcompositesandtheirdescriptionsisavailableuponrequest.Additionalinformationregardingpoliciesforcalculatingandreportingreturnsisavailableuponrequest.Additional Information:TheexchangeratesusedareprovidedbyWM.Eachcurrencyisvaluedat4pmonthelastbusinessdayofthemonth.Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsandadescriptionofallcompositesareavailableonrequest.Risk Statistics: UnavailabilityStandardDeviationsforcompositeanditsbenchmarkthathavenotbeenactiveorinexistencefor3yearsormore arenotprovidedinthepresentation.


Schroder – European ABS CompositeAsof:December31,2018

Pastperformanceisnotindicativeoffutureresults.Futureperformancemaybemoreorlessthantheperformanceshown.Time-weightedtotalratesofreturnadjustforcontributionsandwithdrawals.Theyincludebothincomeandchangeinmarketvalue.

ThebenchmarkfortheSchroder–EuropeanABSPortfoliois3-monthGBPLIBOR.

TheEuropeanABSportfolioholdsGBP,USD,andEUR-denominatedABSandismanagedbyChrisAmes(FundManager,FixedIncome).IthasbeensetupasaseparateGBP-denominatedcustodyaccount.Somepointstonote:

Ȃ Apartfromcurrencyforwards(tohedgetheEURandUSDexposuresbacktoGBP)thereistobenoexchangetradedorOTCderivatives

Ȃ TheportfolioissetupforspotFXwithGBPasbasecurrency Ȃ AsthisisaUKAUT,coupons,maturities,principalpaymentsandallotherincomewillbesettoautomaticallysweeptoGBP

Ȃ Benchmarkis3-moGBPLIBOR(UKC0TR03) Ȃ ReturnTarget:+150-250bpinexcessofLIBOR Ȃ Notrackingerrorasthisisacashbenchmark

TheABSportfoliooperatesasaleadportfoliowithGBPreportingwithalltradingfromGBPwithtradessetupwithCRTSFXfromSterling.Coupons,maturities,principlepaymentsandallotherincomearesettoautomaticallysweeptoGBP.


Schroder Investment Grade Securitised CompositeAsof:December31,2018

Composite:SchroderInvestmentGradeSecuritisedComposite Benchmark:BarclaysU.S.SecuritisedIndexCurrency:USDReturns as of: Dec-31-2018Inception Date:Dec-31-2005

Past performance is not indicative of future results.1Annualizedstandarddeviationofgrossmonthlyreturnsforthecompositeandmonthlyreturnsforthebenchmark2Assetweightedstandarddeviationofannualgrossreturnsofaccountsthathavebeeninthecompositefortheentireyear.Partperiodsarenotannualized.3SinceInceptionDecember31,20054SinceDec31,2003TotalFirmAssetsincludenon-feepayingaccounts.2003TotalFirmAssetsvaluehasbeenrestatedduetotheinclusionofthosenon-feepayingaccounts.TotalFirmAssetsfrom2007incorporatetheUK&USfirmmergerasdetailedintheDefinitionoftheFirm,fromthestartof2011SchroderPropertyInvestmentManagementMultiManageraccountsareincludedintheTotalFirmAssets


YearGross Composite


Return (%)


3 Year Composite Risk

(%)1


(%)1


(throughout period)




Percentage of Firm Assets (%)

Total Firm Assets4

2018 1.35 1.05 0.99 2.29 2.28 < 5 N/A 1,116,112,245.00 279,028,061.25 0.29 384,803,377,261.21 2017 3.24 2.93 2.51 2.14 1.81 < 5 N/A 837,457,890.00 209,364,472.50 0.18 455,112,000,742.08 2016 3.69 3.38 1.78 2.32 2.13 < 5 N/A 273,900,525.00 136,950,262.50 0.09 302,127,480,638.57 2015 2.66 2.35 1.47 2.71 2.30 < 5 N/A 264,621,861.54 132,310,930.77 1.58 16,795,000,000.00 2014 7.04 6.72 5.88 2.61 2.20 < 5 N/A 264,384,063.50 132,192,031.75 1.47 18,006,000,000.00 2013 2.19 1.88 -1.31 2.61 2.03 < 5 N/A 179,190,798.10 179,190,798.10 0.88 20,416,000,000.00 2012 11.97 11.64 3.01 1.90 1.66 < 5 N/A 175,620,327.96 175,620,327.96 1.06 16,623,000,000.00 2011 8.70 8.38 6.22 2.88 2.15 < 5 N/A 157,089,706.61 157,089,706.61 0.75 20,980,000,000.00 2010 13.72 13.38 6.52 8.97 3.19 < 5 N/A 144,738,362.32 144,738,362.32 0.65 22,112,000,000.00 2009 14.85 14.51 7.78 8.53 3.21 < 5 N/A 127,490,239.98 127,490,239.98 0.53 24,054,000,000.00 2008 -29.54 -29.75 4.64 7.77 3.13 < 5 N/A 111,100,392.68 111,100,392.68 0.67 16,636,000,000.00 2007 -1.92 -2.22 6.64 N/A N/A < 5 N/A 157,899,572.31 157,899,572.31 0.71 22,228,000,000.00 2006 6.10 5.78 5.16 N/A N/A < 5 N/A 105,017,859.21 105,017,859.21 0.51 20,707,000,000.00



Return (%)


Composite Risk (%)1


(%)1

Annualized 3 Year 2.76 2.45 1.76 2.29 2.28Annualized 5 Year 3.58 3.27 2.51 2.29 2.16Annualized 7 Year 4.54 4.22 2.03 2.49 2.14Annualized 10 Year 6.83 6.51 3.45 2.78 2.22

Annualized S.I.3 2.74 2.43 3.91 4.87 2.46

Definition of the Firm: TheFirmisdefinedasallaccountsmanagedbySchroderInvestmentManagementintheUS,UK,Switzerland,Singapore,HongKong,JapanandAustraliabywhollyownedsubsidiariesofSchrodersPLC.AccountsmanagedbySchrodersAdveqareexcluded,SchrodersAdveqclaimscomplianceseparately.AssetsmanagedagainstaliabilitydrivenmandateorinvestedindirectpropertyareexcludedfromtheGIPSFirm.AdvisoryportfoliossignedtoSchrodersInvestmentManagementHongKong(SIMHK)arealsoexcludedfromtheGIPSFirm.OnJanuary1,2017theSchrodersInvestmentManagementGIPSFirm(‘theFirm”)wasformedfollowingthemergerofindependentregionalSchrodersInvestmentManagement(SIM)GIPSFirmsdefinedbasedpredominantlyonlocationoftheinvestmentdeskandheldouttoclientsorprospectiveclientsasthefollowingdistinctfirms:combinedLondon/NewYork/Zurich(SIMUK/US&SIMSAGrespectively),Singapore(SIMSL),HongKong(SIMHK),Australia(SIMAL)andJapan(SIMJP).TheseFirmsweremergedasaresultoftheincreasinglyglobalnatureofthebusiness,detailsofpreviousfirmmergersareavailableuponrequest.OnSeptember19,2016,SchroderU.S.HoldingsInc.,asubsidiaryofSchrodersplc,purchasedasecuritisedproductsteamfromanothermanager,assetsmanagedbythesecuritisedproductsteamareincludedintheFirmfromDecember31,2016.Composite Definition: AccountsincludedintheSchroderInvestmentGradeSecuritisedCompositeseektoachievereturnsabovetheBloombergBarclaysUSSecuritisedIndexoranequivalentbenchmarkbyprovidingcapitalgrowthandincomeprimarilythroughinvestmentininvestmentgradesecuritisedassetssuchasasset-backedsecuritiesandmortgage-backedsecurities.AminimumaccountsizerestrictionofUSD30mappliestoaccountsinthiscomposite.Performance Calculation: ThecompositereturnsincludealloftheFirm’sseparateaccountsandcommingledfundswhicharediscretionary,feepaying,taxexempt,above$30millionandmanagedasdescribedabove.Newaccountsareincludedinthecompositeonefullmonthafterinceptiondatetoensuretheaccounthasbeenfullyinvested.Terminatedaccountsareexcludedfromthecompositeattheendofthepreviousmonth.Thecomposite’screationdateisOctober31,2016Thecomposite’sstartdateisDecember31,2005Compositereturnsarepresentedasgrossreturns,includingcash,reinvestmentofdividends,interestandotherincomeearnedintheperiodandarecalculatedonatradedatebasisaftertransactioncharges(brokeragecommissions).Eachaccount’sinvestmentperformancerateofreturniscalculatedmonthlyinaccordancewith

the‘time-weighted’rateofreturnmethod(ModifiedDietz).Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsisavailableuponrequest.TheCurrencyoftheCompositeisUSD.WithholdingTaxtreatmentmayvaryfromportfoliotoportfoliowithinthiscomposite.Performanceresultscanbepresentedbothnetoffeesand/orgrossoffees.“Netoffees”performanceresultsarenetofmanagementfee.Clientswithaccountsinthecompositeincurotherexpensesinconnectionwiththeiraccountssuchascustodyfeesandothercosts.Netreturnshavebeencalculatedbaseduponthehighestfeeratechargedtoeachaccountinthecomposite.Fee Schedule: Returnsarenetoftradingexpensesbutgrossofcustodyfeesandothercosts.Netoffeesreturnshavebeencalculatedbaseduponthegrossreturnsandamodelfeerateof30bpsp.a.Dispersion: Internaldispersioniscalculatedusingassetweightedstandarddeviationofallportfolioswherethereareatleast5portfoliosthatareincluded inthecompositefortheentireyear.Leverage: NoneoftheaccountsintheCompositeuseleverage.GIPS Compliance and Verification: SchroderInvestmentManagement(‘theFirm’)claimscompliancewiththeGlobalInvestmentPerformanceStandards(GIPS®)andhaspreparedandpresentedthisreportincompliancewiththeGIPSstandards.TheFirmhasbeenindependentlyverifiedfortheperiodsJanuary1,1996toDecember31,2018.Theverificationreport(s)is/areavailableuponrequest.Verificationassesseswhether(1)theFirmhascompliedwithallthecompositeconstructionrequirementsoftheGIPSstandardsonafirm-widebasisand(2)theFirm’spoliciesandproceduresaredesignedtocalculateandpresentperformanceincompliancewiththeGIPSstandards.Verificationdoesnotensuretheaccuracyofanyspecificcompositepresentation.Acompletelistofallcompositesandtheirdescriptionsisavailableuponrequest.Additionalinformationregardingpoliciesforcalculatingandreportingreturnsisavailableuponrequest.Additional Information:TheexchangeratesusedareprovidedbyWM.Eachcurrencyisvaluedat4pmonthelastbusinessdayofthemonth.Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsandadescriptionofallcompositesareavailableonrequest.Risk Statistics:UnavailabilityStandardDeviationsforcompositeanditsbenchmarkthathavenotbeenactiveorinexistencefor3yearsormoreare notprovidedinthepresentation.


Schroder Opportunistic Long Short Securitised CompositeAsof:December31,2018

Composite:SchroderOpportunisticLongShortSecuritisedComposite Benchmark:n/aCurrency:USDReturns as of: Dec-31-2018Inception Date:Apr-30-2012

Past performance is not indicative of future results.1Annualizedstandarddeviationofgrossmonthlyreturnsforthecompositeandmonthlyreturnsforthebenchmark2Assetweightedstandarddeviationofannualgrossreturnsofaccountsthathavebeeninthecompositefortheentireyear.Partperiodsarenotannualized.3SinceInceptionApril30,20124SinceDec31,2003TotalFirmAssetsincludenon-feepayingaccounts.2003TotalFirmAssetsvaluehasbeenrestatedduetotheinclusionofthosenon-feepayingaccounts.TotalFirmAssetsfrom2007incorporatetheUK&USfirmmergerasdetailedintheDefinitionoftheFirm,fromthestartof2011SchroderPropertyInvestmentManagementMultiManageraccountsareincludedintheTotalFirmAssets


YearGross Composite


Return (%)



(%)1


(%)1


(throughout period)





Total Firm Assets4

2018 5.12 2.74 N/A 2.88 N/A < 5 N/A 36,289,711.49 36,289,711.49 0.01 384,803,377,261.21 2017 15.56 12.23 N/A 3.03 N/A < 5 N/A 32,142,177.98 32,142,177.98 0.01 455,112,000,742.08 2016 7.19 5.91 N/A 3.28 N/A < 5 N/A 28,093,582.42 28,093,582.42 0.01 302,127,480,638.57 2015 1.45 0.40 N/A 5.00 N/A < 5 N/A 31,103,726.88 31,103,726.88 0.19 16,795,000,000.00 2014 13.14 10.76 N/A N/A N/A < 5 N/A 36,800,129.47 36,800,129.47 0.20 18,006,000,000.00 2013 12.40 10.51 N/A N/A N/A < 5 N/A 32,291,794.26 32,291,794.26 0.16 20,416,000,000.00

May 12 to end Dec 12 16.08 13.80 N/A N/A N/A < 5 N/A 29,374,499.51 29,374,499.51



Return (%)


Composite Risk (%)1


(%)1

Annualized 3 Year 9.20 6.89 N/A 2.88 N/AAnnualized 5 Year 8.37 6.31 N/A 2.93 N/AAnnualized 7 Year N/A N/A N/A N/A N/AAnnualized 10 Year N/A N/A N/A N/A N/A

Annualized S.I.3 10.54 8.36 N/A 4.38 N/A

Definition of the Firm: TheFirmisdefinedasallaccountsmanagedbySchroderInvestmentManagementintheUS,UK,Switzerland,Singapore,HongKong,JapanandAustraliabywhollyownedsubsidiariesofSchrodersPLC.AccountsmanagedbySchrodersAdveqareexcluded,SchrodersAdveqclaimscomplianceseparately.AssetsmanagedagainstaliabilitydrivenmandateorinvestedindirectpropertyareexcludedfromtheGIPSFirm.AdvisoryportfoliossignedtoSchrodersInvestmentManagementHongKong(SIMHK)arealsoexcludedfromtheGIPSFirm.OnJanuary1,2017theSchrodersInvestmentManagementGIPSFirm(‘theFirm”)wasformedfollowingthemergerofindependentregionalSchrodersInvestmentManagement(SIM)GIPSFirmsdefinedbasedpredominantlyonlocationoftheinvestmentdeskandheldouttoclientsorprospectiveclientsasthefollowingdistinctfirms:combinedLondon/NewYork/Zurich(SIMUK/US&SIMSAGrespectively),Singapore(SIMSL),HongKong(SIMHK),Australia(SIMAL)andJapan(SIMJP).TheseFirmsweremergedasa resultoftheincreasinglyglobalnatureofthebusiness,detailsofpreviousfirmmergersareavailableuponrequest.Composite Definition: AccountsincludedintheSchroderLongShortSecuritisedCompositeseekstoachieveareturnof10%-12%overaninvestmentcyclebyprovidingcapitalgrowthandincomeprimarilythroughinvestmentinsecuritisedassetssuchasasset-backedsecurities,mortgage-backedsecuritiesandrelatedloans.Theaccountsmayinvestinbelowinvestmentgradesecuritiesandderivatives.InMay2017thenameofthecompositechangedfromOpportunisticLongShortCompositetoSchroderOpportunisticLongShortSecuritisedComposite.Thischangedoesnotaffectthecompositehistoryortheinvestmentstrategy.Performance Calculation: ThecompositereturnsincludealloftheFirm’sseparateaccountsandcommingledfundswhicharediscretionary,feepaying,taxexemptandmanagedasdescribedabove.Newaccountsareincludedinthecompositeonefullmonthafterinceptiondatetoensuretheaccounthasbeenfullyinvested.Terminatedaccountsareexcludedfromthecompositeattheendofthepreviousmonth.NOTE–NOMinimumonthiscomposite.Thecomposite’screationdateisOctober31,2016Thecomposite’sstartdateisApril30,2012.Compositereturnsarepresentedasgrossreturns,includingcash,reinvestmentofdividends,interestandotherincomeearnedintheperiodandarecalculatedonatradedatebasisaftertransactioncharges(brokeragecommissions).Eachaccount’sinvestmentperformancerateofreturniscalculatedmonthlyinaccordancewiththe‘time-weighted’rateofreturnmethod(ModifiedDietz).Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsisavailableuponrequest.TheCurrencyoftheCompositeis

USD.WithholdingTaxtreatmentmayvaryfromportfoliotoportfoliowithinthiscomposite.Performanceresultscanbepresentedbothnetoffeesand/orgrossoffees.“Netoffees”performanceresultsarenetofmanagementfee.Clientswithaccountsinthecompositeincurotherexpensesinconnectionwiththeiraccountssuchascustodyfeesandothercosts.Netreturnshavebeencalculatedbaseduponthehighestfeeratechargedtoeachaccountinthecomposite.Thefeeschedulesmayhavearangeofcombinedmanagementandperformancefees,thehighestbasefeeis1.5%perannum.Fee Schedule: Returnsarenetoftradingexpensesbutgrossofcustodyfeesandothercosts.Accountsmaypayaperformancefee,netreturnsaretheassetweightedactualnetreturnsfortheunderlyingaccounts.Netoffeesreturns havebeencalculatedbaseduponthefollowingschedules:FromMay1,2012toApr30,2017:amodelhighestfeeof1%p.a.plusa10%performancefee.FromApr30,2017:amodelhighestfeeof1.5%p.a.plusa20%performancefee.Dispersion: Internaldispersioniscalculatedusingassetweightedstandarddeviationofallportfolioswherethereareatleast5portfoliosthatareincluded inthecompositefortheentireyear.Leverage: Leverageispermittedintheaccountinthiscompositeupto300%.GIPS Compliance and Verification: SchroderInvestmentManagement(‘theFirm’)claimscompliancewiththeGlobalInvestmentPerformanceStandards(GIPS®)andhaspreparedandpresentedthisreportincompliancewiththe GIPSstandards.TheFirmhasbeenindependentlyverifiedfortheperiodsJanuary1,1996toDecember31,2018.Theverificationreport(s)is/areavailableuponrequest.Verificationassesseswhether(1)theFirmhascompliedwithallthecompositeconstructionrequirementsoftheGIPSstandardsonafirm-widebasisand(2)theFirm’spoliciesandproceduresaredesignedtocalculateandpresentperformanceincompliancewiththeGIPSstandards.Verificationdoesnotensuretheaccuracyofanyspecificcompositepresentation.Acompletelistofallcompositesandtheirdescriptionsisavailableuponrequest.Additionalinformationregardingpoliciesforcalculatingandreportingreturnsisavailableuponrequest.Additional Information:TheexchangeratesusedareprovidedbyWM.Eachcurrencyisvaluedat4pmonthelastbusinessdayofthemonth.Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsandadescriptionofallcompositesareavailableonrequest.Risk Statistics:UnavailabilityStandardDeviationsforcompositeanditsbenchmarkthathavenotbeenactiveorinexistencefor3yearsormoreare notprovidedinthepresentation.


Schroder Opportunistic Multi-Sector Securitised CompositeAsof:December31,2017

Composite:SchroderOpportunisticMulti-SectorSecuritisedComposite Benchmark:1MonthUSLIBORCurrency:USDReturns as of: Dec-31-2018Inception Date:Mar-31-2008

Past performance is not indicative of future results.1Annualizedstandarddeviationofgrossmonthlyreturnsforthecompositeandmonthlyreturnsforthebenchmark2Assetweightedstandarddeviationofannualgrossreturnsofaccountsthathavebeeninthecompositefortheentireyear.Partperiodsarenotannualized.3SinceInceptionMarch31,20084SinceDec31,2003TotalFirmAssetsincludenon-feepayingaccounts.2003TotalFirmAssetsvaluehasbeenrestatedduetotheinclusionofthosenon-feepayingaccounts.TotalFirmAssetsfrom2007incorporatetheUK&USfirmmergerasdetailedintheDefinitionoftheFirm,fromthestartof2011SchroderPropertyInvestmentManagementMultiManageraccountsareincludedintheTotalFirmAssets


YearGross Composite


Return (%)



(%)1


(%)1


(throughout period)





Total Firm Assets4

2018 4.41 3.63 2.07 2.07 0.20 < 5 N/A 1,400,372,360.00 700,186,180.00 0.36 384,803,377,261.21 2017 12.05 11.39 1.13 2.09 0.12 < 5 N/A 1,289,083,340.00 644,541,670.00 0.28 455,112,000,742.08 2016 7.49 7.15 0.49 2.50 0.05 < 5 N/A 1,151,760,432.00 575,880,216.00 0.38 302,127,480,638.57 2015 2.48 2.15 0.20 4.49 0.01 < 5 N/A 1,072,535,954.10 536,267,977.05 6.39 16,795,000,000.00 2014 9.94 8.87 0.16 5.58 0.01 < 5 N/A 924,656,268.53 462,328,134.27 5.14 18,006,000,000.00 2013 10.61 9.56 0.19 6.65 0.01 < 5 N/A 784,384,074.19 392,192,037.10 3.84 20,416,000,000.00 2012 29.14 28.18 0.24 6.43 0.01 < 5 N/A 690,721,459.39 345,360,729.70 4.16 16,623,000,000.00 2011 -5.51 -6.21 0.24 8.09 0.02 < 5 N/A 460,404,373.70 230,202,186.85 2.19 20,980,000,000.00 2010 21.44 20.54 0.28 N/A N/A < 5 N/A 871,479,233.80 290,493,077.93 3.94 22,112,000,000.00 2009 19.89 19.00 0.34 N/A N/A 5 (4) N/A 990,588,773.60 198,117,754.72 4.12 24,054,000,000.00

Q2 08 to end Q4 08 -20.89 -21.33 1.89 N/A N/A < 5 N/A 556,465,304.90 139,116,326.23



Return (%)


Composite Risk (%)1


(%)1

Annualized 3 Year 7.94 7.34 1.23 2.07 0.20Annualized 5 Year 7.22 6.58 0.81 2.19 0.21Annualized 7 Year 10.60 9.86 0.64 4.11 0.20Annualized 10 Year 10.78 10.02 0.53 5.57 0.17

Annualized S.I.3 7.62 6.88 0.67 8.28 0.23

Definition of the Firm: TheFirmisdefinedasallaccountsmanagedbySchroderInvestmentManagementintheUS,UK,Switzerland,Singapore,HongKong,JapanandAustraliabywhollyownedsubsidiariesofSchrodersPLC.AccountsmanagedbySchrodersAdveqareexcluded,SchrodersAdveqclaimscomplianceseparately.AssetsmanagedagainstaliabilitydrivenmandateorinvestedindirectpropertyareexcludedfromtheGIPSFirm.AdvisoryportfoliossignedtoSchrodersInvestmentManagementHongKong(SIMHK)arealsoexcludedfromtheGIPSFirm.OnJanuary1,2017theSchrodersInvestmentManagementGIPSFirm(‘theFirm”)wasformedfollowingthemergerofindependentregionalSchrodersInvestmentManagement(SIM)GIPSFirmsdefinedbasedpredominantlyonlocationoftheinvestmentdeskandheldouttoclientsorprospectiveclientsasthefollowingdistinctfirms:combinedLondon/NewYork/Zurich(SIMUK/US&SIMSAGrespectively),Singapore(SIMSL),HongKong(SIMHK),Australia(SIMAL)andJapan(SIMJP).TheseFirmsweremergedasa resultoftheincreasinglyglobalnatureofthebusiness,detailsofpreviousfirmmergersareavailableuponrequest.Composite Definition: AccountsincludedintheSchroderOpportunisticMulti-SectorSecuritisedCompositeseektoachievereturnsaboveUSDLIBORoranequivalentbenchmarkbyprovidingcapitalgrowthandincomeprimarilythroughinvestmentinsecuritisedassetssuchasasset-backedsecurities,mortgage-backedsecuritiesandrelatedloans.Theaccountsmaysubstantiallyinvestinbelowinvestmentgradesecurities.InMay2017thenameofthecompositechangedfromSIMNAOpportunisticMulti-SectorMBSCompositetoSIMNAOpportunisticMulti-SectorSecuritisedComposite.Thischangedoesnotaffect thecompositehistoryortheinvestmentstrategy.Composite Construction: ThecompositereturnsincludealloftheFirm’sseparateaccountsandcommingledfundswhicharediscretionary,feepaying, taxexempt,andmanagedasdescribedabove.Newaccountsareincludedin thecompositeonefullmonthafterinceptiondatetoensuretheaccounthas beenfullyinvested.Terminatedaccountsareexcludedfromthecompositeat theendofthepreviousmonth.TheCompositehasnominimumassetlevel. Thecomposite’screationdateisOctober31,2016.Thecomposite’sstartdate isMarch31,2008.Performance Calculation: Compositereturnsarepresentedasgrossreturns,includingcash,reinvestmentofdividends,interestandotherincomeearnedintheperiodandarecalculatedonatradedatebasisaftertransactioncharges(brokeragecommissions).Eachaccount’sinvestmentperformancerateofreturniscalculatedmonthlyinaccordancewiththe‘time-weighted’rateofreturnmethod(ModifiedDietz).Additionalinformationregardingpoliciesforvaluing

portfolios,calculatingandreportingreturnsisavailableuponrequest.TheCurrencyoftheCompositeisUSD.WithholdingTaxtreatmentmayvaryfromportfoliotoportfoliowithinthiscomposite.Performanceresultscanbepresentedbothnetoffeesand/orgrossoffees.“Netoffees”performanceresultsarenetofmanagementfee.Clientswithaccountsinthecompositeincurotherexpensesinconnectionwiththeiraccountssuchascustodyfeesandothercosts.Netreturnshavebeencalculatedbaseduponthehighestfeeratechargedtoeachaccountinthecomposite.Fee Schedule: Returnsarenetoftradingexpensesbutgrossofcustodyfeesandothercosts.Netoffeesreturnshavebeencalculatedbaseduponthefollowingschedules:InceptiontoDec31,2012:grossreturnshavebeenreducedbyamodelfeerateof75bps.FromJan1,2013toApr30,2017:assetweightedactualnetreturnsfortheunderlyingaccountsFromApr30,2017:grossreturnshavebeenreducedbyamodelfeerateof75bps.Dispersion: Internaldispersioniscalculatedusingassetweightedstandarddeviationofallportfolioswherethereareatleast5portfoliosthatareincluded inthecompositefortheentireyear.Leverage: NoneoftheaccountsintheCompositeuseleverage.GIPS Compliance and Verification: SchroderInvestmentManagement(‘theFirm’)claimscompliancewiththeGlobalInvestmentPerformanceStandards(GIPS®)andhaspreparedandpresentedthisreportincompliancewiththeGIPSstandards.TheFirmhasbeenindependentlyverifiedfortheperiodsJanuary1,1996toDecember31,2018.Theverificationreport(s)is/areavailableuponrequest.Verificationassesseswhether(1)theFirmhascompliedwithallthecompositeconstructionrequirementsoftheGIPSstandardsonafirm-widebasisand(2)theFirm’spoliciesandproceduresaredesignedtocalculateandpresentperformanceincompliancewiththeGIPSstandards.Verificationdoesnotensuretheaccuracyofanyspecificcompositepresentation.Acompletelistofallcompositesandtheirdescriptionsisavailableuponrequest.Additionalinformationregardingpoliciesforcalculatingandreportingreturnsisavailableuponrequest.Additional Information:TheexchangeratesusedareprovidedbyWM.Eachcurrencyisvaluedat4pmonthelastbusinessdayofthemonth.Additionalinformationregardingpoliciesforvaluingportfolios,calculatingandreportingreturnsandadescriptionofallcompositesareavailableonrequest.Risk Statistics:UnavailabilityStandardDeviationsforcompositeanditsbenchmarkthathavenotbeenactiveorinexistencefor3yearsormoreare notprovidedinthepresentation.


Thereturnsarepresentedasgrossreturns,includingcash,reinvestmentofdividends,interestandotherincomeearnedintheperiodandarecalculatedonatradedatebasisaftertransactioncharges(brokeragecommissions),butbeforetaxesandmanagementandcustodyfees.Performancewouldhavebeenreducedbysuchfeesandtheeffectofthesefeesonperformancecompoundsovertime.

Asanillustrationseethechartbelow.Thevalueofa$5,000,000accountwouldbereducedbythefollowingamountsduetothecompoundeffectofthemanagementfees.(Thishasbeencalculatedassuminganassumedconstantreturnof10%perannum*andahypotheticalmanagementfeeof0.75%perannum,whichhasbeenappliedonasimpleaverageofopeningandclosingannualfundvalues).

Gross value Net value Compound effect

1Year $5,500,000 $5,460,625 $39,375

3Years 6,655,000 6,513,090 141,910

5Years 8,052,550 7,768.403 284,147

10Years 12,968,712 12,069,617 899,095

*Theassumed10%returnishypotheticalandshouldnotbeconsideredarepresentationofpastorfuturereturns.Theactualeffectoffeesonthevalueofanaccountovertimewillvarywithfuturereturns,whichcannotbepredictedandmaybemoreorlessthantheamountassumedinthisillustration.Actualfeesmaydifferfromtheassumedratepresentedabove.PleaseconsulttheFirm’sAdvisoryBrochure(ADVPart2)foradescriptionofthefees.

Important information


Important information: Theviewsandopinionscontainedhereinarethoseoftheauthorsasatthedateofpublicationandaresubjecttochangeduetomarketandother conditions.SuchviewsandopinionsmaynotnecessarilyrepresentthoseexpressedorreflectedinotherSchroderscommunications,strategiesorfunds.Thisdocumentisintendedtobeforinformationpurposesonly.Thematerialisnotintendedasanofferorsolicitationforthepurchaseorsaleofanyfinancialinstrumentorsecurityortoadoptanyinvestmentstrategy.Theinformationprovidedisnotintendedtoconstituteinvestmentadvice,aninvestmentrecommendationorinvestmentresearchanddoesnottakeintoaccountspecificcircumstancesofanyrecipient.Thematerialisnotintendedtoprovide,andshouldnotbereliedonfor,accounting,legalortaxadvice.Anyreferencestosecurities,sectors,regionsand/orcountriesareforillustrativepurposesonly.InformationhereinisbelievedtobereliablebutSchrodersdoesnotrepresentorwarrantitscompletenessoraccuracy.NoresponsibilityorliabilityisacceptedbySchroders,itsofficers,employeesoragentsforerrorsoffactoropinionorforanylossarisingfromuseofalloranypartoftheinformation inthisdocument.Norelianceshouldbeplacedontheviewsandinformationinthedocumentwhentakingindividualinvestmentand/orstrategicdecisions.Schrodershasnoobligationtonotifyanyrecipientshouldanyinformationcontainedhereinchangeorsubsequentlybecomeinaccurate.UnlessotherwiseauthorisedbySchroders,anyreproductionofallorpartoftheinformationinthisdocumentisprohibited.Anydatacontainedinthisdocumenthavebeenobtainedfromsourcesweconsidertobereliable.Schrodershasnotindependentlyverifiedorvalidatedsuchdataandtheyshouldbeindependentlyverifiedbeforefurtherpublicationoruse.Schrodersdoesnotrepresentorwarranttheaccuracy orcompletenessofanysuchdata.Allinvestinginvolvesriskincludingthepossiblelossofprincipal.Notallstrategiesareavailableinalljurisdictions.Exchangeratechangesmay causethevalueofanyoverseasinvestmentstoriseorfall.PastPerformanceisnotaguidetofutureperformanceandmaynotberepeated.Thisdocumentmaycontain“forward-looking”information,suchasforecastsorprojections.

Pleasenotethatanysuchinformationisnotaguaranteeofanyfutureperformanceandthereisnoassurancethatanyforecastorprojectionwillberealised.Note to readers in Australia: ThismaterialhasbeenissuedbySchroderInvestmentManagementAustraliaLimited(ABN22000443274,AFSL226473).Itisintendedforprofessionalinvestorsandfinancialadvisersonlyandisnotsuitableforretailclients.Schrodersmayrecordandmonitortelephonecallsforsecurity,trainingandcompliancepurposes.

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Schroders Investment Management Australia Limited Level 20, 123 Pitt Street, Sydney, NSW 2000 Tel: + 612 9210 9200

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