1) Congratulations on the second anniversary of the Short Dated Enhanced Income Fund (SDEI). Looking back, what was the rationale for creating this Fund?

Mark: We felt there was something of a gap in the marketplace. Essentially, we anticipated there could be strong demand for a low-risk, yield-enhancing solution that combined the benefits of money market instruments with short-dated credit.

You see, many investors tend to have allocations to either cash or short-dated credit to help with portfolio liquidity and/or manage risk. Money market funds are known for their defensive nature, high-quality assets and excellent liquidity. But the downside is their lower yields.

By contrast, short-dated credit allocations can usually achieve a bit more on the yield side. However, we felt many of the existing offerings in this space were either too restricted in their universe or had too much duration and interest rate risk.

By combining the best features of money markets and global short-dated credit, we felt we could strike the right balance between yield enhancement and low volatility. Helped by its truly global approach, we think the SDEI achieves this, while also offering a differentiated risk/return profile.

2) Two years on, how do you think the Fund has fared in terms of its key objectives?

Joyce: We’re pleased to see that, so far, the Fund has comfortably met all its key objectives. On the return side, we achieved our annual excess over cash target. Most importantly, we’ve delivered this while staying well within our pre-defined risk parameters, including maintaining a minimum A- average credit rating and a low portfolio duration of less than two years. Not to mention volatility very close to 1%.

Particularly reassuring was the stability of the Fund during the period of pronounced volatility in April when President Trump outlined his reciprocal tariff proposals. This was easily the most challenging period for the Fund since its inception. Encouragingly, the Fund stayed resilient throughout this time and within all its key risk parameters, including maximum drawdown and volatility limits. 

On top of that, the Fund ended the month with a positive return that outperformed cash. As such, we view this whole time as a clear demonstration that the Fund can remain resilient in tough market conditions and still deliver on its yield objective.

3) Globally, policy interest rates have been moving lower – what does this mean for the Fund?

Mark: Since the launch of the Fund, interest rates have gradually decreased. Bond prices move inversely to interest rate changes, and the extent of the price impact depends on duration. Compared to other areas of fixed income, the Fund has a relatively low duration, with a maximum of two years. This means it naturally has less price sensitivity to interest rate changes, making it less volatile, more defensive option.

The Fund's duration profile and core opportunity set of short-dated credit means there’s some benefit from falling interest rates. This differs from cash alternatives like money market funds, which don’t get any such benefit. While a higher-duration fund could potentially gain more from falling interest rates, there’s still much debate about the impact of global trade wars and increased fiscal spending on inflation. Given all that, we expect volatility to remain high in longer-dated bonds.

In terms of duration exposure, it’s useful to circle back to the Fund’s key objective – a ‘step out of cash’ solution that seeks to deliver a yield above cash, but with low risk and volatility. 

4) Can you explain a bit more about what differentiates the Fund?

Joyce: Most traditional short-dated credit funds focus on developed markets and are managed relative to benchmarks. However, we are less restricted and have more flexibility in several respects.

For example, we currently hold approximately 40% in bonds with less than one year to maturity. We view this as a sweet spot in the market, offering some of the best risk-adjusted yields. Yet this market portion – which is more akin to money market assets and which exhibits extremely low volatility – doesn’t feature in traditional short-dated benchmarks.

Another key difference is that we have a genuine global opportunity set, which means we’ve got more places to look for high-quality assets with good yields. In this respect, having access to Aberdeen’s global research platform is critical. It enables us to confidently combine developed market issuers with high-quality issuers in well-rated emerging markets and across Asia.

5) Is there ever a better or worse time to invest in this type of fund?

Mark: The Fund is expressly designed to be an all-weather ‘step out of cash’ solution that can provide an attractive yield and total returns over cash irrespective of where we are in the market cycle.

Given its focus on robust liquidity and price stability, we also think the Fund has a wide range of investment applications. For example, it can serve as a risk-controlled step out of money market fund, a core defensive allocation to help reduce overall portfolio volatility, and an efficient solution for insurers seeking low capital requirements.

As we’ve seen in the first two years, the Fund has delivered on its key goals across a range of market environments. We’re confident it will continue to do so in the years ahead.

Explore the Fund information, pricing and performance details here