Schroders is set to drop the derivative overlay investment strategy of its Schroder Global Property Income Maximiser fund and move towards non-derivative equity and income holdings.
Schroders has written to investors seeking approval for the change of name and strategy, which will see the fund's target yield fall from around 7% per annum to 4-5%.
Thomas See (pictured), head of structured fund management, responsible for the overlay strategy, confirmed the changes and said the remaining funds within the Income Maximiser range will not undergo any changes in their underlying and payoff structures, but declined to comment further.
Schroders regularly reviews its fund range and the objectives of those funds to ensure that it is offering its clients "the best proposition", according to a Schroders spokesperson. "We will be making some changes to the investment process of the Schroder Global Property Income Maximiser in the first quarter of 2016, subject to shareholder approval," said the official. "It is proposed that the fund's investment focus changes to investing globally in a liquid portfolio of real estate equities. The Maximiser overlay strategy will no longer be used and, consequently, we expect that the fund's income yield will be reduced but that there will be potential for improved capital and income growth over time."
The Schroder Global Property Income Maximiser's underlying portfolio which is co-managed by Hugo Machin and Tom Walker, invested in global real estate trusts and property equities, and deployed covered call options to increase an enhanced level of yield.
However, Schroders has decided to review the £58.9m fund as it has been outperformed by its benchmark, the FTSE Epra/Nareit Developed index, across one and three years, and drop the use of derivative techniques to enhance its potential return.
Going forward the fund will focus on a "liquid portfolio of real estate equities", targeting listed real estate companies, Reits and preferred stock on sustainable dividends.
The new fund will be renamed Schroder Global Real Estate Securities Income and its benchmark index will change to the FTSE Epra/Nareit Developed Dividend Plus, which focuses on stocks with a dividend yield above 2%.
"If the change is approved, the fund's risk profile will not significantly change and investments will be selected using the existing process and investment framework," said the Schroders spokesperson.
The Schroder Global Property Income Maximiser which was launched on February 2011 has returned 13.7% over three years, compared with a 33.5% rise in its current benchmark the FTSE Epra/Nareit Developed and failed to reach the 7% annual target income in 2013 (6.93%) and 2014 (6.70%).
The Maximiser range is comprised of four call-overwriting structures, as well as the Global Property Income Maximiser Fund, which was launched in 2010. The Maximiser strategy is currently employed in seven listed UK and Luxembourg-domiciled funds, with a total of US$3.9bn in assets under management.
Investors in the Schroder Global Property Income Maximiser will vote on the changes on February 12.
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