Threadneedle Sterling Fund

Transcription

1 Interim Short Report 7 September 2018 Fund Manager s Report Paul Witchalls Performance of Class 1 Income shares* Over the six months to 7 September 2018, the published share price of the has risen from 99.83p to 99.98p. The total return on the fund for the six months ending 31 August 2018, including net reinvested income, is +0.16%. (Source: Threadneedle, bid-bid, net income reinvested.) Market Overview and Portfolio Activity Sterling edged slightly lower over the six months to 7 September The Bank of England (BoE) s Effective Exchange Rate Index (ERI), which measures the pound s value against a basket of other currencies, fell 0.8% over the period. Sentiment towards sterling was dampened by Brexit-related uncertainty, a relatively sluggish UK economy, and, related to both of these factors, comparatively low expectations for the pace of interest-rate rises by the BoE. The modest fall in the ERI masks a near 7% decline in the value of sterling versus the dollar as the US and the UK diverged further in terms of both economic growth and monetary policy. Meanwhile, both countries leaders remained beset by mounting calls for their resignations, but Prime Minister Theresa May s position appeared less secure than that of her US counterpart. On the economic front, quarterly UK GDP growth was initially reported to have slowed from 0.4% in the fourth quarter (Q4) of 2017 to 0.1% in Q1 of 2018, though the latter figure was later revised up to 0.2%. The slowdown appears to have been largely due to unusually harsh weather, and Q2 was brighter, with GDP up 0.4%. Still, this pales in comparison with US GDP growth. According to the latest estimates, this accelerated from an annualised rate of 2.2% in Q1 to a whopping 4.2% in Q2, buoyed in part by President Donald Trump s recent tax cuts. The Federal Reserve raised interest rates twice during the period, as expected, but also forecast a quicker pace of future hikes. In the UK, the poor Q1 data and a bigger-than-expected drop in inflation dissuaded the BoE s Monetary Policy Committee (MPC) from raising rates in May, a move that had been previously seen as a nearcertainty. Sterling had been on a rising trend along with rate-hike expectations but fell sharply in mid-april when the disappointing *In pound Sterling and against UK peer group. Ongoing Charges Figure economic data emerged. Although the MPC voted unanimously for a hike in August, satisfied that the soft patch in the economy had indeed been due to the weather, the market appeared sceptical about the prospect of further such action in the near term. The hike was not accompanied by a rally in sterling. It was an eventful period in the political arena. In April, the resignation of UK home secretary Amber Rudd weighed on the pound. Ms Rudd is seen as a soft Brexiter and her departure stoked fears of a leadership challenge against the prime minister by proponents of a hard exit from the EU. In early July, the prime minister and her cabinet thrashed out a new Brexit strategy. Shortly afterwards, however, her foreign secretary and Brexit secretary both resigned in protest at the plan. This too raised the prospect of revolt within the Conservative party and forced investors to consider the possibility that Labour could gain power should an early general election be called. Sterling was down only modestly against the euro. The eurozone economy remained reasonably solid, with GDP growing 0.4% in both Q1 and Q2, but there was further evidence of cooling momentum as purchasing managers indices edged down from the highs achieved last year. The European Central Bank adopted a dovish tone, signalling that while it would end its bond-buying programme at the end of 2018, there would be no rate rises before the autumn of Political concerns in the eurozone also helped to keep the euro within touching distance of the pound. The success of eurosceptic parties in the Italian general election clouded the outlook for political harmony in the eurozone, as did disputes within and among EU member states about the ongoing migrant crisis. We kept the fund relatively short but broadly unchanged over the six months in review. The weighted average maturity of the fund is approximately 35 days and the weighted average yield 0.66%. The holdings comprise approximately 69% in bank-issued certificates of deposit, 13% in short-dated bank deposits (including 6% in an AAA rated external liquidity fund), 8% in euro commercial paper issued by banks and supranationals (i.e. government-backed issuers) and 10% in UK government-issued Treasury bills. The fund remains well diversified, liquid and invested in a mixture of well-rated banks and sovereign-backed institutions. The financial strength of these banks and financial institutions is taken into account when we are selecting suitable investments. The portfolio will continue to comprise very short-dated instruments with a view to achieving a competitive rate of interest. Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 7 March 7 May 7 September 7 November The Ongoing Charges Figure (OCF) is the European standard method of disclosing the charges of a share class of a fund based on the financial year s expenses and may vary from year to year. It includes charges such as the fund s annual management charge, registration fee, custody fees and distribution cost but ordinarily excludes the costs of buying or selling assets for the fund (unless these assets are shares of another fund). Where published, the Key Investor Information Document (KIID) contains the current OCF. For a more detailed breakdown please visit columbiathreadneedle.com/fees. Share class 7 September March 2018 Class 1 Income shares 0.23% 0.28% Class 2 Accumulation shares 0.21% 0.26% Class X Gross accumulation shares 0.06% 0.06% The Ongoing Charges Figure is annualised based on the fees incurred during the accounting period or since commencement date.

2 Summary of Fund Performance Performance History (%) Share class 2018¹ Class 1 Income shares Class 2 Accumulation shares Class 3 Gross accumulation shares Class X Gross accumulation shares To 31 August Commenced 12 October Commenced 28 October 2015 and closed 8 June Commenced 16 March Source: Morningstar and Threadneedle. Bid to bid prices are quoted (i.e. not including any initial charge) with net income reinvested for a UK basic rate tax payer and gross income reinvested for a non-uk resident. Performance data is quoted in sterling, apart from hedged share classes, where applicable, which are in the hedged currency. Past performance is not a guide to future investment performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Net Asset Value (NAV) As at Share class NAV ( ) NAV pence per share Number of shares in issue 7 September 2018 Class 1 Income shares 283,068, ,581,501 7 March 2018 Class 1 Income shares 343,101, ,751,180 7 March 2017 Class 1 Income shares 296,801, ,352,012 7 March 2016 Class 1 Income shares 224,538, ,954,864 7 September 2018 Class 2 Accumulation shares 38,898, ,803,668 7 March 2018 Class 2 Accumulation shares 39,196, ,172,736 7 March 2017 Class 2 Accumulation shares 49,032, ,020,940 7 March 2017 Class 3 Gross accumulation shares 2, ,000 7 March 2016 Class 3 Gross accumulation shares 41,443, ,464,121 7 September 2018 Class X Gross accumulation shares 157,827, ,442,735 7 March 2018 Class X Gross accumulation shares 131,858, ,044,192 7 March 2017 Class X Gross accumulation shares 113,987, ,546,450 Only available to eligible investors. Distribution History/Share Price Range Highest share price (pence) Lowest share price (pence) Year to Share class Pence per share 7 September 2018 Class 1 Income shares March 2018 Class 1 Income shares March 2017 Class 1 Income shares March 2016 Class 1 Income shares September 2018 Class 2 Accumulation shares March 2018 Class 2 Accumulation shares March 2017 Class 2 Accumulation shares¹ March 2018 Class 3 Gross accumulation shares March 2017 Class 3 Gross accumulation shares March 2016 Class 3 Gross accumulation shares September 2018 Class X Gross accumulation shares March 2018 Class X Gross accumulation shares March 2017 Class X Gross accumulation shares Commenced 12 October Closed 8 June Commenced 16 March Commenced 16 March Past performance is not a guide to future performance.

3 Classification of Investments 7 September 2018 vs 7 March % 70% 7 September March % 50% 40% 30% 20% 10% 0% -10% Certificate of deposit Government bonds Euro commercial paper Liquidity funds Portfolio Information Top Five Holdings as at 7 September 2018 % of Fund BlackRock Institutional Cash Series Sterling Liquidity Platinum 6.27 United Kingdom Gilt 0% 08/10/ Nationwide Building Society 0.56% 20/09/ DNB Bank 0.67% 05/10/ Oversea-Chinese Banking 0.55% 19/09/ Net other assets Top Five Holdings as at 7 March 2018 % of Fund Nationwide Building Society 0.55% 20/06/ Santander UK 0.56% 05/06/ Agence Centrale des Organismes % 16/03/ Caisse D'Amortis 0.45% 18/04/ Banque Federative 0% 18/05/

4 Investment Objective and Policy To achieve a high level of capital security and provide income. The ACD s investment policy is to invest the assets of the Fund in Sterling denominated cash deposits and certificates of deposit and UK Government issued Treasury Bills. If the ACD considers it desirable it may also invest up to 50% of the total assets of the Fund in Sterling denominated commercial paper. The investment policy shall be subject to the following credit rating restrictions: (i) Bank deposits shall be held with and certificates of deposit shall be issued by a deposit taking institution with a minimum long term credit rating of either (a) Standard & Poor s AA-, or (b) Moody s AA3; (ii) Commercial paper issued by institutions with a minimum short term credit rating either (a) Standard & Poor s A1, or (b) Moody s P1, and with a maximum term to maturity of 184 days; and (iii) UK Government issued treasury bills shall have a maximum term to maturity of 184 days. Key Investor Information Document (KIID) Subscription requirements The KIID is a pre-contractual document and investors have to confirm that they have read the latest KIID before making a subscription. Threadneedle has the right to reject a subscription if the investor does not confirm that they have read the latest KIID at the time of application. Investors can obtain the latest KIID from columbiathreadneedle.com. Changes to the management of the ACD The following changes have been made to the directors of the ACD: Resignation of Don Jordison on 1 May Appointment of Peter Stone on 5 September Changes to the Prospectus During the period from 8 March 2018 to 7 September 2018 the following changes were made to the Prospectus of the Threadneedle Investment Funds ICVC (the Company): Inclusion of information about the use of Hong Kong Stock Connect by certain funds; Updated privacy statement for GDPR; Inclusion of a note regarding the winding up of four sub-funds following successful votes in favour of cross-border mergers; Increase to the initial investment minimum for L Shares; Update to the list of funds managed by the ACD; Update to the list of countries where the funds are registered; Update to the list of available share classes, including deletion of a hedged share class for the European Fund; General updates (taxation, dilution, performance, etc). Changes to the Instrument of Incorporation There were no changes to the instrument of incorporation of the Company during the period from 8 March 2018 to 7 September Brexit In June 2016 the United Kingdom voted to leave the European Union. This is known as Brexit. While negotiations progress, there is significant uncertainty relating to the UK s withdrawal from the EU, the potential consequences and precise timeframe. It is expected that the UK will exit from the EU on 29 March Depending on the outcome of the UK s negotiations with the European Union, and the existence or otherwise of any formal implementation period, it is possible that the Funds may no longer be eligible to enjoy the rights set out in the UCITS Directive. Ceasing to be so eligible may affect the ability of non-uk domiciled investors to make new investments in the Company. The ACD has considered the impact of Brexit for investors in its funds and made a recommendation to investors in the European Corporate Bond Fund, European High Yield Bond Fund, Pan European Fund and Pan European Smaller Companies Fund that they should vote in favour of a resolution to transfer the funds, using a cross-border UCITS merger, to an equivalent Luxembourg-based fund, in order to provide continuity and certainty for investors. For EU investors, the transfers will remove uncertainty regarding the future status of their investment in their home country. Shareholders voted in favour of the proposal at a meeting of shareholders held on 24 August Following the mergers, which took place on the dates as set out in the table below, the European Corporate Bond Fund, European High Yield Bond Fund, Pan European Fund and Pan European Smaller Companies Fund closed and are now in the process of being wound up. Further information, including a Q&A document is available at Fund Date of Merger European Corporate Bond Fund 22 September 2018 European High Yield Bond Fund 6 October 2018 Pan European Fund 6 October 2018 Pan European Smaller Companies Fund 6 October 2018 Key Risks Investment Risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested. No Capital Guarantee Risk: Positive returns are not guaranteed and no form of capital protection applies. Counterparty Risk: The fund may enter into financial transactions with selected counterparties. Any financial difficulties arising at these counterparties could significantly affect the availability and the value of fund assets. Inflation Risk: Most bond and cash funds offer limited capital growth potential and an income that is not linked to inflation. Inflation is likely to affect the value of capital and income over time. Derivatives for EPM/Hedging Risk: The investment policy of the fund allows it to invest in derivatives for the purposes of reducing risk or minimising the cost of transactions. Investment in Deposits Risk: The Investment Policy of the fund allows it to invest principally in deposits. Further risks applicable to the fund can be found in the Prospectus. Risk and Reward Profile As at 7 September 2018 the figure for the risk and reward profile disclosed in the most recent KIID representing this fund is 1. The fund is in this specific category because historically it has shown a low level of volatility (how much the value of the fund went up and down compared to other categories). It is based on past performance data in pound sterling. If your investment in the fund is not in pound sterling, please check the figure for the risk and reward profile disclosed on our website (columbiathreadneedle.com) according to the currency of your investment in the fund.

5 General Information The information in this report is designed to enable shareholders to make an informed judgement on the activities of the fund during the period it covers and the results of those activities at the end of the period. For further information, please contact Threadneedle Investment Services Limited. The Long Form Report and Financial Statements is available free of charge on request from the ACD and on our website. For more information about the activities and performance of the Company during the period and previous periods, please contact the ACD at the administration address noted below, or visit our website at columbiathreadneedle.com. Contacts: Registered Office Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director (ACD) Threadneedle Investment Services Limited Cannon Place 78 Cannon Street London EC4N 6AG Registrar Threadneedle Investment Services Limited Delegated to: DST Financial Services Europe Limited (Authorised and regulated by the Financial Conduct Authority (FCA)) St Nicholas Lane Basildon Essex SS15 5FS Investment Manager Threadneedle Asset Management Limited Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director Client Services Details UK Investors Address: Threadneedle Investment Services Limited PO Box Chelmsford Essex CM99 2AL Telephone (dealing & customer enquiries): * Fax (dealing): (enquiries): Asian Investors Address: Threadneedle Investment Services Limited International Financial Data Services 47, avenue JF Kennedy L-1855 Luxembourg Telephone (dealing & customer enquiries): * Fax (dealing): (enquiries): *Calls will be recorded. All Other Investors Address: Threadneedle Investment Services Limited International Financial Data Services 47, avenue JF Kennedy L-1855 Luxembourg Telephone (dealing & customer enquiries): * Fax (dealing): (enquiries): Website: columbiathreadneedle.com Depositary Citibank Europe plc, UK branch (Authorised by the Prudential Regulatory Authority (PRA) and regulated by the FCA and PRA) Citigroup Centre 33 Canada Square Canary Wharf London E14 5LB Legal Advisers Eversheds LLP One Wood Street London EC2V 7WS Baum Financial Services Law Team Grosser Burstah Hamburg Germany Independent Auditor PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX Paying and Information Agent in Belgium CACEIS Belgium S.A. Avenue du Port 86C B Brussels Belgium Representative and Paying Agent in Switzerland BNP Paribas Securities Services, Paris, Succursale de Zurich Selnaustrasse Zurich Switzerland

6 To find out more visit columbiathreadneedle.com Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director and Unit Trust Manager. Registered No Registered in England and Wales. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com