Threadneedle UK Equity Fund Range

Transcription

1 OEIC UK Equities Range brochure Retail clients Threadneedle UK Equity Fund Range Threadneedle UK Fund Threadneedle UK Absolute Alpha Fund Threadneedle UK Equity Income Fund Threadneedle UK Equity Alpha Income Fund Threadneedle UK Extended Alpha Fund Threadneedle UK Growth & Income Fund Threadneedle UK Mid 250 Fund Threadneedle Monthly Extra Income Fund Threadneedle UK Monthly Income Fund Threadneedle UK Select Fund Threadneedle UK Smaller Companies Fund threadneedle.com

2 Introduction Here at Threadneedle Investments we believe that there is a better way to manage money. By bringing together a diverse and disciplined team of UK equity investment professionals in one location, we have created a generator for the very best investment ideas. And we ve found that by rewarding contribution and giving ourselves permission to challenge conventional thinking, we quickly accelerate these ideas into powerful investment strategies. What does this mean for our clients? As those who invest with Threadneedle have found, it means being sure that we re constantly striving to out-think our peers. This brochure gives you some background on the opportunities offered by the UK equity market. It also highlights our UK equity range of funds, each offering a different route to access the investment potential of the UK market. We have also included a jargon-buster glossary on page 14. Please read this important information. You cannot predict future performance by looking at past performance. The value of investments, and the income from them, can go down as well as up, and you may not get back what you put in. Threadneedle is unable to provide financial advice and you should not interpret anything in this guide as advice. If you are unsure about anything you should speak to a financial adviser. For details of one in your area please go to The material in this brochure is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Contents Why Threadneedle?... 1 Why UK equities?... 2 Growth or income? Our experienced team Our fund managers Our UK equity fund range... 6 Investor profile and key risks A range of funds to meet investors needs Ratings explained Jargon-buster Charges and minimum investment Contacting us

3 Why Threadneedle? UK shares form the cornerstone of most UK investors portfolios and Threadneedle sees itself as the natural choice in this important area. Key points n nthreadneedle s UK equity team comprises 12* dedicated fund managers, one of the largest UK equity teams in the industry. n nthe team has an average of over 14 years investment experience* and has managed money during both rising and falling markets. n nthe team has developed a common-sense, high conviction approach to investing for income and growth. n nthe UK equity team operates within Threadneedle s wider team of more than 120* investment professionals. By combining and sharing research on a daily basis it enables the UK equity team to place UK companies in a global context. Given the global nature of many UK companies, this is of increasing importance. n na collaborative approach the investment process of each fund in the range leverages the stock ideas generated by the team as well as Threadneedle s macro and thematic thinking. n nthe team adopts a balanced risk approach, which is central to all parts of the investment process and independently monitored by a dedicated risk team. Information is common, but ideas scarce we ve shaped a business capable of the very best investment thinking. *As at

4 Why UK equities? Shares in UK companies continue to be a popular choice for UK investors. The broad range of businesses on offer, and the familiarity of many of the companies featured, make the UK market an attractive option for novices and highly sophisticated investors alike. Threadneedle s extensive UK equity fund range offers higher and lower risk options for income and growth and also includes portfolios targeting smaller companies. While short term conditions all too often affect inexperienced investors appetite for equities, many professional commentators agree that investing in the stock market is a good way to seek strong long term returns. Growth and yield Within the market there are different types of shares. Growth companies typically fund their expansion by ploughing their profits back into the business opening new offices, building factories, developing new products and so on. The investment return that these companies provide comes largely from changes in the share price. Other companies, meanwhile, opt to distribute most of their profits to shareholders in the form of dividends. These higher yielding companies also aim to grow their dividends over time. When investing in these companies, the return comes from two sources: changes in the share price and dividends. Higher yielding companies tend to be more mature and often operate in industries with highly predictable revenues, such as utilities. These factors help them to pay high and rising dividends. However, it is important to remember that past performance is not a guide to future returns. The value of investments and the income from them can go down as well as up. 2

5 Growth or income? The appeal of income UK equity income funds generally aim to provide an income (this is often referred to as yield) in excess of that generated by the FTSE All-Share. Most will look to grow their income, and the capital value of their investments over time. Their income generation characteristics give investors an attractive degree of flexibility, allowing them to: n nreceive regular payments from the fund, which may be used to augment a pension, for example, or n nreinvest dividends in the fund to boost long-term returns. The power of reinvested income Compound interest is a powerful but frequently underestimated investment phenomenon. Reinvesting income back into a fund of this type buys you more shares, which should then provide more income, to buy more shares, and so on. The graph below shows how this virtuous circle can significantly boost returns. Past performance is not a guide to the future. However, the power of reinvested income, together with the ability of well-established companies to weather difficult times, has led equity income funds to outperform the wider market over the long-term. Compound interest is a powerful but frequently underestimated investment phenomenon. Reinvesting income back into a fund of this type buys you more shares, which should then provide more income, to buy more shares, and so on. The appeal of growth Investors with a long-term time horizon (we usually define this as 3-5 years) and no need for regular income often opt for growth funds. Because these funds do not have a yield target, they can invest more of their capital in areas of the market that pay lower dividends, such as technology and smaller companies. This gives them the potential to deliver superior growth via share price appreciation. The value of 25,000 invested over last 20 years 200, , , , ,000 75,000 50,000 25,000 - High Yielding UK Shares with dividend reinvested (UK Equity Income) UK Shares with dividend reinvested Cash UK Shares Capital Only 165, ,391 76,947 69,315 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 The illustration is for comparative purposes only. It uses market indices so does not necessarily reflect what an investor would have received by investing in a collective fund. The figures represent the actual returns from each index and do not include any charges, fees or taxation levies, that an investor would expect to incur. It is not possible to invest directly in these indices. There are different risk factors involved when investing in equities compared with cash deposits and investors are reminded that the value of investments and any income from them can go down as well as up. Past performance is not a guide to future returns. Source: Thomson Datastream and Threadneedle as at Cash represented by Three Month LIBOR rate. UK shares represented by FTSE All Share Index, capital return only. UK shares with dividend income reinvested represented by FTSE All Share Index, with dividends reinvested. High yielding UK shares with dividend income reinvested represented by FTSE 350 Higher Yield Index, with dividends reinvested. 3

6 Our experienced team At Threadneedle we have a specific team of fund managers and analysts dedicated to managing UK equities. The team is headed by Simon Brazier, who has over 13 years investment experience. The team includes specialists focusing on income, growth and smaller companies as well as analysts with specific expertise in different industries. Strength in depth. Threadneedle s UK equity team consists of 12 dedicated UK fund managers who have an average of more than 14 years investment experience.* The team employs a clear way of managing money that is based on communication and the sharing of ideas. Meeting companies is at the core of our approach and the team sees the management of hundreds of companies each year. The human touch The hard, analytical research is complemented by human insight into the themes driving share prices. The team has gained this insight by having an average of more than 14 years experience* in managing UK funds. Long-term thinkers In their pursuit of excellent performance, our managers are not tied to a set way of thinking. This means that the funds can exploit opportunities wherever they appear in the UK market. Typically, at any given time there are a number of themes influencing the market these may be to do with changes in the path of economic growth, interest rates or inflation, or they may be regulatory developments impacting specific industries. Identifying key themes early, finding the companies that will benefit and backing those companies with conviction is central to the team s approach. Moreover, these themes can change and the team seeks to incorporate holdings benefiting from several different themes in the portfolios at all times. This diversity is an important risk control in the funds, protecting performance if themes do not develop as anticipated. Our fund managers Jonathan Barber Jonathan joined Threadneedle in He manages the Threadneedle UK Monthly Income Fund and is also deputy manager of the Threadneedle UK Growth and Income and Threadneedle Overseas Earnings Funds. Simon Brazier Simon is Head of UK Equities and is responsible for all UK Equity products. He joined Threadneedle in 2010 and manages the Threadneedle UK Fund. Stacey Cassidy Stacey joined Threadneedle in 2012 as a UK equity analyst. Richard Colwell Richard joined Threadneedle in 2010 as a fund manager in the UK equity income team. He manages the Threadneedle UK Growth & Income, UK Overseas Earnings and Managed Income Funds and co-manages the Threadneedle UK Equity Income, UK Equity Alpha Income and Monthly Extra Income Funds. *Information as at

7 Simon Haines Simon joined Threadneedle in 1999 as a trainee UK fund manager, progressing to fund manager in January He manages the Threadneedle UK Mid 250 Fund, the Threadneedle Pensions UK Equity High Alpha Fund and a UK Equity High Alpha segregated mandate and co-manages the UK Extended Alpha Fund. He also has research responsibility for the construction & materials and general financial sectors and has 10 years investment experience. Leigh Harrison Leigh is Threadneedle s Head of Equities. Leigh also co-manages the Threadneedle UK Equity Alpha Income Fund and the Threadneedle UK Equity Income Fund. He has over 25 years investment experience. Blake Hutchins Blake joined Threadneedle in 2011 as a fund manager in the UK Equities team. He is responsible for managing a number of institutional portfolios and for conducting stock and sector research and making recommendations to the team. He has a degree in Economics and Politics from the University of Edinburgh and is also CFA qualified. Chris Kinder Chris is a fund manager in Threadneedle s UK high alpha team. He co-manages the Threadneedle UK Extended Alpha and Threadneedle UK Absolute Alpha Funds. He also provides analytical input into to a number of high alpha mandates, coverage of the banking sector and idea generation for the wider UK equity team. Aamod Mishra Aamod joined Threadneedle in 2010 as a graduate trainee investment assistant. In this role he is responsible for assisting in the development of the UK Equity investment process and also working with the UK Investment Specialist to facilitate the communication of Threadneedle s views on the asset class. Aamod has a Master of Engineering degree from the University of Manchester. James Thorne James joined Threadneedle in 2010 and is responsible for managing the Threadneedle UK Smaller Companies Fund as well as generating small cap ideas for the company s UK portfolios. James has extensive experience of the smaller companies sector. Dan Vaughan Dan joined Threadneedle in 2000 and became Head of UK Smaller Companies in September Mark Westwood Mark joined Threadneedle in September 2006 as a fund manager in the UK equities team. He manages the Threadneedle UK Select Fund, co-manages Threadneedle UK Absolute Alpha Fund as well as a number of other high alpha segregated portfolios. He also has research responsibility for the industrial transportation and telecommunications sectors. 5

8 Our UK equity fund range Please read the Investor Profile and Key Risks for each fund on pages 10 and 11. For a breakdown of the Investment Management Association s (IMA) sector definitions see page 12. IMA UK Equity Income Sector UK Equity Income Fund Mainstream UK equity income fund UK Monthly Income Fund Aiming to generate growth and income UK Equity Alpha Income Fund Mainstream UK equity income fund Typically invests in 45 to 60 holdings spread across sectors Co-managed by Leigh Harrison, Head of Equities, and Richard Colwell who A -rated by Citywire AA rated by OBSR Pays income quarterly and semiannually Index: FTSE All Share Launched September 1985 Typically invests in a portfolio of 50 to 70 holdings A track record of delivering both income and growth Managed by Jonathan Barber One of the few funds that can pay income monthly Index: FTSE All Share Launched January 1964 Typically invests in a portfolio of 25 to 35 holdings spread across sectors Co-managed by Leigh Harrison, Head of Equities, and Richard Colwell who is A -rated by Citywire A rated by OBSR Pays income in June and December Index: FTSE All Share Launched May 2006 Richard Colwell Richard Colwell This is Threadneedle s core equity income offering and has built a strong long-term track record in its sector although please bear in mind that past performance is not a guide to future returns. The UK Equity Income Fund holds a wide enough spread of investments to reduce the impact of weakness in individual holdings, whilst still being focused enough to take meaningful positions in favoured stocks. The Fund may deduct the annual management charge from capital rather than from income which may have the effect of eroding the capital or reducing the potential for capital growth. Jonathan Barber, Fund Manager, has generated an enviable track record by focusing on under researched UK equities although please bear in mind that the past performance generated by the fund is not a guide to its possible future returns. As well as identifying companies whose share prices he believes will increase, he also considers the yield a stock is generating as well as the company s cash flow and earnings (both current and the potential for growth). By combining growth stocks with those companies paying a reasonable and growing dividend, this fund is one of the few equity income funds which can pay income monthly. Investing in approximately 25 to 35 companies, the Fund is designed to showcase our equity income fund management skills in a highly focused portfolio. As this is a more focused portfolio and therefore holds a limited number of stocks, if one of more of those investments declines or is otherwise adversely affected, it may have a pronounced effect on the Fund s value. Moreover, by taking significant positions in favoured stocks the portfolio aims to reflect the team s views with real conviction and aims to deliver superb long-term returns. Although please bear in mind that the past performance generated by the fund is not a guide to its possible future returns. All information as at

9 Please read the Investor Profile and Key Risks for each fund on pages 10 and 11. For a breakdown of the Investment Management Association s (IMA) sector definitions see page 12. IMA UK All Companies Sector UK Fund A classic equity fund UK Growth & Income Fund Aims to offer the best of both worlds: capital growth and income UK Select Fund A high conviction portfolio that aims to deliver growth Relatively diversified portfolio of typically 50 to 90 holdings Managed by Simon Brazier, Head of UK Equities who is independently A -rated by Citywire Index: FTSE All Share Launched in September 1985 A rated by OBSR Typically invests in a portfolio of 35 to 50 holdings Invests primarily in large capitalisation UK companies although has the flexibility to invest in smaller companies if suitable opportunities exist Managed by Richard Colwell since January 2010, who is independently A -rated by Citywire Index: FTSE All Share Launched November 1966 Typically invests in a portfolio of 30 to 50 holdings Flexible approach aiming to find the best opportunities across the market Managed by Mark Westwood, since October 2006 Index: FTSE All Share Launched March 1934 Simon Brazier Richard Colwell The UK Fund is Threadneedle s flagship core UK equity offering, representing the best ideas of the UK equity team. It typically invests in holdings so it offers investors the benefits of diversification whilst also being focused enough to ensure that every holding can make a meaningful contribution to the overall performance of the Fund. Investors should be aware that if an individual investment declines it may have a pronounced effect on the Fund s value. The Fund favours larger UK companies although it has the flexibility to invest in small companies if suitable opportunities exist. Fund manager Richard Colwell employs a diversified investment process to generate both capital growth and a rising level of income from a portfolio of UK equities although please bear in mind that past performance is not a guide to future returns. The Fund looks to invest in companies the fund manager believes are under valued as well as special situation stocks. This Fund seeks to deliver strong capital growth rather than a high income although please bear in mind that past performance is not a guide to future returns. Fund Manager Mark Westwood has the flexibility to pursue the most exciting growth opportunities in the UK stockmarket. The relatively concentrated portfolio means that the fund manager can invest with real conviction although this approach could mean that the Fund s price is adversely affected if one or more of the investments declines or is adversely affected. This focused approach is balanced by a rigorous buy and sell discipline designed to lock-in performance and limit risk. All information as at

10 Our UK equity fund range Please read the Investor Profile and Key Risks for each fund on pages 10 and 11. For a breakdown of the Investment Management Association s (IMA) sector definitions see page 12. IMA UK All Companies Sector IMA Absolute Return Sector UK Mid 250 Fund A flexible mid-cap fund that aims to generate growth A targeted portfolio of typically up to 50 holdings Implements a flexible approach to finding the stocks with highest growth potential Index: FTSE 250 Ex Investment Trusts Launched September 2003 UK Extended Alpha Fund Aims to deliver capital growth from a portfolio of both long and short positions in UK equities Typically 50 to 80 long and short positions Flexibility to invest across the UK market capitalisation spectrum The portfolio is a combination of a longonly portfolio and a short portfolio the proceeds of the short portfolio are used to extend the Fund s long positions Co-managed by Chris Kinder and Simon Haines, both of whom have extensive experience in managing UK equity portfolios Launched December 2010 UK Absolute Alpha Fund Aims to achieve an absolute return, irrespective of market conditions, over a market cycle (defined as three to five years) Typically 60 to 90 long and short positions Positive absolute returns the Fund aims to generate a positive return over a 12-month period Co-managed by Chris Kinder and Mark Westwood, both of whom have extensive experience in managing long/ short equity portfolios Launched October 2010 By focusing primarily on medium sized stocks, the Fund offers investors access to a range of companies that has historically offered outstanding growth potential. Please be aware that past performance is not a guide to future returns. Investors should also note that the Fund can invest in smaller companies. These types of companies may be more volatile and less liquid than larger companies. In order to pick the right stocks, Fund Manager Simon Haines employs a simple but rigorous investment process. The first step is trying to anticipate which stocks will experience earnings upgrades. He then looks to buy good growth franchises but only at reasonable valuations. If a stock satisfies these three criteria it is worthy of additional analysis. As the Fund holds a limited number of investments, if one or more of these declines it may have an adverse effect on the Fund s value. The Fund may be suitable for investors with a long-term investment horizon seeking capital growth who are prepared to tolerate large price fluctuations. This Fund is a sophisticated UCITS III portfolio similar to the UK Absolute Alpha Fund. The primary difference is that this Fund does not have an absolute return investment objective. The Fund is a combination of a longonly portfolio and a short portfolio the proceeds of the short portfolio are used to extend the Fund s long positions. The ability to adopt short positions allows the co-managers to take a more aggressive negative view on particular stocks than would be possible in a traditional longonly fund, increasing the opportunity to generate returns. As a result, the impact of stock selection on performance in this Fund is more important than in funds that closely match their benchmark. While the co-managers adhere to the specific industry restrictions (known as UCITS regulations) governing these types of funds, the fund is also governed by internal guidelines on sector exposure and position sizes. This means the fund is less constrained than a traditional long-only fund. The UK Absolute Alpha Fund is a sophisticated UCITS portfolio. This means it can invest in equities as well as equity related derivatives which enable it to generate performance from stocks that rise in value as well as stocks that fall in value. The co-fund managers believe that the stock market is influenced by short-term factors. For investors with a contrarian stance, this creates opportunities. The Fund looks to exploit these situations: Having long positions in those undervalued companies which can benefit from a re-rating. Having short positions in those overvalued companies which are vulnerable to de-rating. The Fund will tend to hold positions throughout a period of perception change as the managers believe this is the most efficient way to maximise returns. They therefore take a long-term view to valuing businesses, especially for those businesses offering good total returns (i.e. distribution and capital growth). All information as at

11 Please read the Investor Profile and Key Risks for each fund on pages 10 and 11. For a breakdown of the Investment Management Association s (IMA) sector definitions see page 12. IMA UK Smaller Co. Sector UK Smaller Companies Fund Offering access to small and medium sized UK companies IMA UK Equity & Bond Sector UK Extra Income Fund Monthly income from a portfolio of equities and bonds Diversified portfolio of typically 65 to 90 holdings A bottom-up stockpicking portfolio that maximises potential by aiming to employ accurate strategic positioning Managed by James Thorne since April 2010 Index: Hoare Govett Small Cap Ex Investment Trusts Launched February 1995 Typically invests in a portfolio of 40 to 60 holdings Combines the growth potential of large, blue-chip UK stocks with the income opportunity generated from a portfolio of investment grade UK fixed income bonds Co-managed by Richard Colwell, UK Equity Income Fund Manager, and Alasdair Ross, who is part of Threadneedle s Investment Grade Credit team. Richard has been independently rated A -rated by Citywire Launched October 1999 Richard Colwell The UK Smaller Companies Fund employs a bottom-up stockpicking investment process to find the highest quality stocks in this exciting part of the market. As this Fund invests in smaller companies, it may be more volatile than a fund focusing on larger companies as smaller companies may be more volatile and less liquid than larger companies. Fund Manager James Thorne strategically positions the portfolio to maximise returns by ensuring it has the most appropriate sector stance given the market environment and the team s investment outlook. Investors should also be aware that past performance is not a guide to future returns. The Monthly Extra Income Fund aims to deliver the best of both worlds: a high level of income as well as the opportunity of capital growth. Investors should be aware that past performance is not a guide to future returns. The Fund may deduct its annual management charge from capital rather than income. This may have the effect of eroding capital or reduce the potential for capital growth over time. It aims to achieve both income and growth by investing in a portfolio that combines core UK equities and sterling denominated fixed income bonds. As such, the portfolio combines the skills of two of Threadneedle s most experienced investment teams. All information as at

12 Investor profile and key risks Please read the risks below which relate to specific funds. If you are uncertain if a fund is suitable for you, please contact a financial adviser. Monthly Extra Income Fund investment horizon seeking a high level of income with prospects for capital growth who are prepared to tolerate large price fluctuations. The annual management charge may be charged against capital instead of against income. This may result in capital erosion or may constrain capital growth. Where funds invest in higher yielding bonds and other instruments where the amount distributed exceeds the total yield on the assets, the value of the units may be eroded over time. UK Fund investment horizon seeking capital growth who are prepared to tolerate large price fluctuations. UK Absolute Alpha Fund investment horizon seeking a total positive return who are prepared to tolerate large price fluctuations. Investors should note that this Fund does not offer any form of guarantee with respect to investment performance and no form of capital protection will apply. The Fund uses derivatives and forward transactions for efficient portfolio management (EPM) will not increase the risk profile of the Fund. The use of derivatives for investment purposes may increase the risk profile of the Fund. The Fund s exposure involves short sales of securities and leverage which increases the risk of the Fund. The term short sales refers to an exposure through derivatives to the selling of securities that are not owned by the seller at the time of the sale in anticipation that its value will fall. However, if the value of that security increases, it will have a negative effect on the Fund s value. In a rising market, leverage can enhance returns to Shareholders but if the market falls, losses may be greater. UK Extended Alpha Fund investment horizon seeking above average capital growth who are prepared to tolerate large price fluctuations. The Fund has a concentrated portfolio (holds a limited number of investments and/or takes large positions in a relatively small number of stocks) and if one or more of these investments declines or is otherwise affected, it may have a pronounced effect on the Fund s value. The Fund uses derivatives and forward transactions for EPM will not increase the risk profile of the Fund. The use of derivatives for investment purposes may increase the risk profile of the Fund. The Fund s exposure involves short sales of securities and leverage which increases the risk of the Fund. The term short sales refers to an exposure through derivatives to the selling of securities that are not owned by the seller at the time of the sale in anticipation that its value will fall. However, if the value of that security increases, it will have a negative effect on the Fund s value. In a rising market, leverage can enhance returns to Shareholders but if the market falls, losses may be greater. UK Equity Alpha Income Fund investment horizon seeking above average capital growth who are prepared to tolerate large price fluctuations. All or part of the Authorised Corporate Director s (ACD) fee, as well as all or part of other fees and expenses of the Company, may be charged against capital instead of against income. The Company will charge such fees and expenses to capital in order to manage the level of income paid and/or available to shareholders. This may result in capital erosion or may constrain capital growth. The Fund has a concentrated portfolio (holds a limited number of investments and/or takes large positions in a relatively small number of stocks) and if one or more of these investments declines or is otherwise affected, it may have a pronounced effect on the Fund s value. 10

13 UK Equity Income Fund investment horizon seeking an above average income with sound prospects for capital growth who are prepared to tolerate large price fluctuations. All or part of the ACD s fee, as well as all or part of other fees and expenses of the company, may be charged against capital instead of against income. The company will charge such fees and expenses to capital in order to manage the level of income paid and/or available to shareholders. This may result in capital erosion or may constrain capital growth. UK Growth & Income Fund investment horizon seeking a reasonable and growing income with prospects for capital growth who are prepared to tolerate large price fluctuations. The annual management charge may be charged against capital instead of against income. This may result in capital erosion or may constrain capital growth. Where funds invest in higher yielding bonds and other instruments where the amount distributed exceeds the total yield on the assets, the value of the units may be eroded over time. UK Mid 250 Fund investment horizon seeking capital growth who are prepared to tolerate large price fluctuations. The Fund may fluctuate more than other funds because of the greater volatility of share prices of smaller companies. As smaller companies have less capital, trading in their stock is often less liquid which can create greater volatility. In extreme market conditions it may be difficult for a fund to realise an investment at short notice without suffering a discount to market value. In such circumstances the investor may suffer a delay in realising his investment or the fund may suffer a larger dilution adjustment. UK Monthly Income Fund investment horizon seeking an above average income with sound prospects for capital growth who are prepared to tolerate large price fluctuations. The annual management charge may be charged against capital instead of against income. This may result in capital erosion or may constrain capital growth. Where funds invest in higher yielding bonds and other instruments where the amount distributed exceeds the total yield on the assets, the value of the units may be eroded over time. UK Select Fund investment horizon seeking above average capital growth who are prepared to tolerate large price fluctuations. The Fund has a concentrated portfolio (holds a limited number of investments and/or takes large positions in a relatively small number of stocks) and if one or more of these investments declines or is otherwise affected, it may have a pronounced effect on the Fund s value. UK Smaller Companies Fund investment horizon seeking an above average income with sound prospects for capital growth who are prepared to tolerate large price fluctuations. The Fund may fluctuate in value more than other funds because of the greater volatility of share prices of smaller companies. As smaller companies have less capital, trading in their stock is often less liquid which can create greater volatility. In extreme market conditions it may be difficult for a fund to realise an investment at short notice without suffering a discount to market value. In such circumstances the investor may suffer a delay in realising his investment or the fund may suffer a larger dilution adjustment. The following risks are applicable to all funds: The investments are subject to normal market fluctuations and other risks inherent in investing in securities. There can be no assurance that any appreciation in value of investments will occur. The value of investments and the income derived from them may fall as well as rise and investors may not recoup the original amount invested. Past performance is not indicative of future performance. There is no assurance that the investment objectives of any fund will actually be achieved. Where an initial charge is imposed, an investor who realises his shares after a short period may not (even in the absence of a fall in the value of the relevant investments) realise the amount originally invested. Therefore, the shares should be viewed as a longterm investment. 11

14 A range of funds to meet investors needs Threadneedle s extensive UK equity fund range offers options for income and growth. All of our funds are driven by the same team-based research so, whilst they may focus on different areas of the UK stock market, they all aim to deliver the best possible performance within their own investment remit. Although please be aware that past performance is not a guide to future returns. The Investment Management Association (IMA) is the trade body for the UK s asset management industry. The IMA also maintains and regularly reviews a sector classification system into which member IMA firms classify their UK funds. This allows investors to compare funds from different companies which are in the same sector as they will have similar overall investment objectives. Sector (IMA) UK Equity Income UK All Companies UK Smaller Companies UK Equity Income Fund UK Monthly Income Fund UK Equity Alpha Income Fund UK Fund UK Growth & Income Fund UK Select Fund UK Extended Alpha Fund UK Mid 250 Fund UK Smaller Companies Fund UK Equity & Bond Monthly Extra Income Fund Absolute Return UK Absolute Alpha Fund IMA sector definitions * UK Equity Income Funds which invest at least 80% in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110% of the FTSE All Share yield at the fund s year end. UK All Companies Funds which invest at least 80% of their assets in UK equities which have a primary objective of achieving capital growth. UK Smaller Companies Funds which invest at least 80% of their assets in UK equities of companies which form the bottom 10% by market capitalisation. UK Equity & Bond Funds which invest at least 80% of their assets in the UK, between 20% and 80% in UK fixed interest securities and between 20% and 80% in UK equities. These funds aim to have a yield in excess of 120% of the FTSE All Share Index. Absolute Return Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions. Typically funds in this sector would normally expect to deliver absolute (more than zero) returns on a 12 months basis. *As at

15 Ratings explained Threadneedle funds and fund managers regularly receive ratings. These ratings are provided by independent rating agencies based on a number of investment criteria. Details of the different ratings are provided below. Citywire Fund Manager Ratings The Citywire Fund Manager Ratings track the performance of individual fund managers whilst agencies such as OBSR and Standard & Poor s focus on funds. The ratings given run from A to AAA (AAA being the highest possible rating). Citywire Rating definitions* The very best fewer than 5% of all UK fund managers achieve an AAA rating from Citywire. If they do it means that they have performed very well and are among the elite. Managers who achieve an A or AA rating are still well above average performers. Fewer than one in five fund managers get any rating at all from Citywire. OBSR Rating definitions* OBSR is an independent ratings company which gives ratings based on performance and quality of investment process. The ratings given run from A to AAA (AAA being the highest possible rating). This is the highest rating awarded. It is given to funds which demonstrate very powerful investment processes and disciplines which they believe will translate into exceptional long-term performance. The OBSR AAA Rating is an indication of excellence. This is determined using the same methodology as for the OBSR AAA Rating. The OBSR AA Rating is an indication of highly superior quality based on process and track record. This is again determined using a methodology consistent with that applied for the OBSR AAA and the OBSR AA Ratings. A fund which achieves the OBSR A Rating status is a highly commendable one. *Source: OBSR and Citywire. 13

16 Jargon-buster 130/30 fund a generic term for a relative return fund that incorporates long and short positions up to a maximum gross exposure of 200% in a bid to increase outperformance potential Absolute return fund a fund that aims to produce modest, positive returns over the medium term, irrespective of market conditions Alpha the part of a fund s performance that is attributable to fund manager skill Balance sheet accounting statement detailing a company s assets and liabilities at a given point in time Beta the part of a fund s performance that is attributable to moves in the market. Also, the extent to which a fund is exposed to moves in an underlying market Bottom line another term for profit or loss (derived from the fact that this figure is shown on the bottom line of a company s P&L account) Capital growth an investment return generated by changes in the price of the shares and so on CFD an abbreviation of contract for difference, an agreement whereby one investor agrees to pay another the difference between the current price of a security and the price at a set date in the future Compound interest by reinvesting income back into a fund, more shares can be bought which in turn can provide more income which then can be used to buy more shares Credit default swap a swap contract relating to the corporate bond market, which allows investors to express pure views on the prospects for a company s bonds Cyclical company whose profits are relatively dependent on the pace of economic growth Derivatives financial instruments whose price is derived from an underlying market or security Dividend the regular payment of part of a company s profits to its shareholders Dividend yield valuation measure defined as the dividend divided by the share price Enhanced income funds funds that use covered call options to boost the income generated by equity holdings Extended alpha an alternative name for 130/30 funds (see above) FTSE All Share main benchmark for UK portfolio performance. This is a composite index of nearly all UK shares on the London Stock Exchange and covers small, medium and large companies Futures derivative contracts whereby one party agrees to purchase something from another party at a set price and date Gross exposure the sum of the long and short exposures of a fund, as a percentage of its net asset value Income the receipt of dividends from a company into a fund. These can be reinvested back into the fund or paid out to investors Leverage extent to which borrowing is used to increase a fund s exposure Liquidity the ease or difficulty with which an investment can be bought or sold Long investing the purchase of an investment with the expectation of an increase in its price Management Directive one of the two parts of UCITS III, which increased product providers ability to work across European borders and created the concept of the Simplified Prospectus Margin the difference between the cost of producing something and the revenue gained from selling it Net exposure a measure of fund exposure calculated by subtracting the value of short positions from the value of long positions, and expressing the result as a percentage of net asset value Non-cyclical company whose profits are relatively independent of the economic cycle Options derivative contracts that give the buyer the option to buy or sell at a given price and at a set date in the future Portfolio swap tailor-made swaps contract designed to mimic the economic benefits of holding an agreed range of investments Premium the price paid to open an options position Product Directive one of the two parts of UCITS III, concerned with expanding the investment powers of regulated funds Profit the excess of cash generated by a business over the cash used during the period Revenue proceeds of a company s sales Reinvested income when income that can be paid out by a fund to an investor is reinvested back into a fund to buy additional shares Sector way of grouping companies according to the industry that they operate in Short investing the purchase of an investment with the expectation of a decrease in its price Strike price part of a futures or options contract defining when the contract may be exercised Swaps derivative contracts in which two parties agree to exchange cash flows from different assets Valuation way of assessing the cheapness of company shares. Examples include price to earnings ratio and dividend yield Volatility the extent to which the value of an investment fluctuates over time UCITS Undertaking for Collective Investments in Transferable Securities. The UCITS legislation widens the range of investments open to those funds which are designed to use the full investment powers, e.g. Threadneedle UK Absolute Alpha Fund 14

17 Notes 15

18 Notes 16

19 Charges and minimum investments Our range of UK equities funds all have the same charges Initial charge 3.75% (of gross investment). Annual management charge (AMC) 1.50% (except Monthly Extra Income Fund AMC 1.25% and UK Extended Alpha Fund AMC 1.25% plus 20% performance fee). Minimum investment 2,000 also available inside ISA and SIPPS. Our fund range is available via most platforms and fund supermarkets. Threadneedle does not offer investment advice. If you are unsure about anything you should speak to a financial advisor. Contacting us You can contact us in a variety of ways: Telephone: * Fax: Our team is available from 8am to 6pm, Monday to Friday. Website: threadneedle.co.uk Our website contains information on all our products and services and gives you full details of all fund prices as well as literature to download including application forms. Post: questions@service.threadneedle.co.uk Threadneedle Investment Services Limited PO Box 1331, Swindon, SW38 7TA *Telephone calls are recorded. 17

20 Find out more Visit threadneedle.com Speak to your usual Threadneedle Investments contact. Important information. All data as at unless otherwise shown. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up, and an investor may not get back the amount invested. Subscriptions to a Fund may only be made on the basis of the current Prospectus or Simplified Prospectus (to be replaced by the Key Investor Information Document in 2012) and the latest annual or interim reports, which can be obtained free of charge on request. Please refer to the Risk Factors section of the Prospectus for all risks applicable to investing in any fund and specifically the funds mentioned in this brochure. This material is for information purposes only and does not constitute an offer or solicitation to an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Threadneedle Investment Funds ICVC ( TIF ) and Threadneedle Specialist Investment Funds ( TSIF ) are open-ended investment companies, each structured as an umbrella company; incorporated in England and Wales, authorised and regulated in the UK by the Financial Services Authority (FSA) as UCITS schemes. le to investing in any fund and specifically the funds shown above. The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. In some instances the information contained in this publication, other than statements of fact, was obtained from external sources believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice. Threadneedle Investment Services Limited, 60 St Mary Axe, London EC3A 8JQ. Registered No Authorised and regulated in the UK by the Financial Services Authority. Threadneedle Investments is a brand name, and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies. threadneedle.com Information for Investment Professionals (not for onward distribution to, or to be relied upon by, private investors). Issued Valid to T5088