M&G Index Tracker Fund

Transcription

1 M&G Index Tracker Fund a sub-fund of M&G Investment Funds (2) Interim Short Report November 2017 For the six months ended 30 November 2017

2 Fund information The Authorised Corporate Director (ACD) of M&G Investment Funds (2) presents its Interim Short Report for M&G Index Tracker Fund which contains a review of the fund s investment activities and investment performance during the period. The ACD s Interim Long Report and unaudited Financial Statements for M&G Investment Funds (2), incorporating all the sub-funds and a Glossary of terms is available free of charge either from our website at or by calling M&G Customer Relations on ACD M&G Securities Limited, Laurence Pountney Hill, London EC4R 0HH Telephone: (Authorised and regulated by the Financial Conduct Authority. M&G Securities Limited is a member of the Investment Association and of the Tax Incentivised Savings Association.) Investment objective and policy The fund is designed to track the FTSE All-Share Index. The fund manager has full discretionary investment management powers within the confines of this investment objective of the fund. Investment approach The M&G Index Tracker Fund is a UK fund that broadly replicates the FTSE All-Share Index*. The fund holds nearly all of the companies in the index and closely matches the weight that each represents in the FTSE All-Share Index. * FTSE International. FTSE is a joint trademark of the London Stock Exchange Limited and the Financial Times Limited and is used by FTSE International Limited under licence. The FTSE All-Share Index is calculated by FTSE International Limited. FTSE International Limited does not sponsor, endorse or promote these products. All copyright in the index values and constituent lists rests with FTSE International Limited. M&G Securities Limited has obtained full licence from FTSE International Limited to use such copyright in the creation of this product. 1 2

3 Fund information Investment review Risk profile The fund is designed to track the performance of the FTSE All-Share Index, which represents a broad spread of UK company shares. Its performance, therefore, reflects the price volatility of the UK stockmarket and the performance of individual companies. The fund holds nearly all of the companies in the index and closely matches the weight that each represents in the FTSE All-Share Index. The fund s risks are measured and managed as an integral part of the investment process. The following table shows the risk number associated with the fund and is based on Sterling Class A shares. Low risk Typically lower rewards The above number: High risk Typically higher rewards is based on the rate at which the value of the fund has moved up and down in the past and is based on historical data so may not be a reliable indicator of the future risk profile of the fund. is not guaranteed and may change over time and the lowest risk number does not mean risk free. has not changed during this period. As at 1 December 2017, for the six months ended 30 November 2017 Performance against objective The M&G Index Tracker Fund is designed to track the FTSE All-Share Index. Between 1 June 2017 (the start of the review period) and 1 December 2017, the fund s Sterling Class A shares produced a total return (the combination of income and growth of capital) of -0.5% in sterling terms. Meanwhile, the FTSE All-Share Index produced a total return of -0.9% over the same period.* * For the performance of each share class, please refer to the Long-term performance by share class table in the Fund performance section of the Interim Long Report and unaudited Financial Statements for M&G Investment Funds (2). The fund s apparent outperformance of the index was mainly due to price swing. Price swings result from M&G s swinging single pricing policy for funds, which was adopted in October This method uses a dilution adjustment within the share price, which aims to protect existing shareholders from a dilution in performance resulting from deals placed to buy or sell shares. The method has the effect of moving the single price up or down from the mid-price this is known as swinging. To give an indication of the performance of the fund, the following table shows the compound rate of return, per annum, over the period for Sterling Class A (Accumulation) shares. Calculated on a price to price basis with income reinvested. Long-term performance Six Three Five Since months years years launch % [a] % p.a. % p.a. % p.a. Sterling [b] Class A [c] [a] Absolute basis. [b] Price to price with income reinvested. [c] 27 February 1998, the launch date of the predecessor unit trust. Please note past performance is not a guide to future performance and the value of investments, and the income from them, will fluctuate. This will cause the fund price to fall as well as rise and you may not get back the original amount you invested. 3 4

4 Investment performance As the fund tracks the index, its overall performance can largely be explained by market developments over the six months under review. It is worth noting that, in a global economy, the fates of individual markets are often closely connected to each other. As a result, the performance and prospects of the UK stockmarket tend to be affected by developments around the world. UK equities, or company shares, produced a lacklustre return over the past six months, thanks largely to muted domestic economic growth, a spike in inflation as well as concerns about domestic politics and the Brexit negotiations. Geopolitical tension surrounding North Korea and the US also led to increased stockmarket volatility at times. Notwithstanding these challenges, the very largest UK companies typically generate most of their revenue from abroad and they have benefited from buoyant global economic growth. In addition, over this period, the weakness of sterling versus the US dollar and euro had enhanced the profits of such companies when translated back into sterling. After an unexpectedly poor performance in the UK general election in June, Prime Minister Theresa May was forced to form a minority government with the support of Northern Ireland s Democratic Unionist Party; in this uncertain climate, UK equities edged lower. June also saw the start of talks concerning the UK s exit from the European Union (EU). With the prime minister s hand weakened following the election result, there has been little meaningful progress in the negotiations. Political uncertainty in the UK was further increased as two ministers were forced to leave the cabinet in November. The generally weaker sterling since last year s referendum on EU membership has helped to drive up inflation, due to higher import costs for raw materials and other goods. Although market observers had anticipated that the more competitive domestic currency would bolster exports, this boost to exports has been slow to materialise. Meanwhile, after encouraging data in October 2017, UK manufacturing and construction strengthened further in November, although growth in services eased. Business sentiment continues to be affected by Brexitrelated uncertainty, despite relative optimism in some areas, such as financial services and manufacturing. In November, against a backdrop of very low unemployment, higher inflation and stronger global growth, the Bank of England (BoE) raised interest rates from 0.25% to 0.5%. The widely expected move was the first increase in 10 years. Further increases are likely to be modest, with BoE Governor Mark Carney expecting two more rate hikes over the next three years. 5 While the UK economy was remarkably resilient in the immediate aftermath of the referendum last year, data has been less impressive this year. Compared with an expansion of 0.6% in the final quarter of 2016, economic growth was 0.3% in the first and second quarters of 2017 and 0.4% in the third quarter. Meanwhile, in November, the Office for Budget Responsibility (OBR) reduced its growth forecast for 2017; it revised its estimate of 2.0%, taken in March, down to 1.5%. The OBR then expects growth to dip to 1.3% by 2020 and rise to 1.5% in In terms of sectors, the top-performing sectors included industrial metals and miners, thanks to a favourable outlook for the sectors and solid commodity prices. Certain defensive sectors, which tend to be more resilient in economic downturns, also performed well. For example, beverages and personal goods were among the top performers over the six months. However, other defensives, namely fixed line telecommunications, electricity and other utilities, and pharmaceuticals, trailed behind. At stock level, leading contributors included banking group HSBC and energy firm BP, while underperformers included pharmaceutical companies GlaxoSmithKline and Shire, as well as British American Tobacco. Investment activities Merger and acquisition activity was a notable factor over the period under review, with a number of holdings leaving the index and therefore the portfolio. For example, UK investment management company Henderson Group merged with US firm Janus Capital Group. The new entity is named Janus Henderson, which was assigned a US nationality and was consequently illegible for inclusion in the fund. Similarly, UK property company Kennedy Wilson Europe Real Estate was bought by US firm Kennedy-Wilson Holdings and subsequently left the index and portfolio. Meanwhile, UK firm Berendsen, a provider of textile maintenance services, merged with French company Elis and left the portfolio. In other sales, insurance underwriter Novae was taken over by Axis Specialty UK Holdings which, although a UK company, is not listed on the Index. In terms of purchases, fertiliser development company Sirius Minerals was transferred from the Alternative Investment Market (AIM) and listed on the FTSE All-Share Index and subsequently joined the portfolio. We bought more shares in a number of companies which issued new shares in a secondary placing, namely security software and hardware firm Sophos Group, insurance business Hastings Group Holdings, Onesavings Bank and Georgia Healthcare Group. We bought more 6

5 shares in real estate investment trust Tritax Big Box and HICL Infrastructure Company, an investment company focused on infrastructure, which also issued shares in order to raise funds. Finally, we undertook some sales and purchases for portfolio management purposes; such transactions involved shares in British American Tobacco, Lloyds Banking Group, banking group HSBC and pharmaceutical firm GlaxoSmithKline. Outlook Against a background of buoyant global growth, expansion in the UK economy is slowing, with only modest growth expected this year and next. Meanwhile, progress on the Brexit process has been slow, with the government unclear about its aims for the UK in a post-brexit world. However, shortly after the end of the review period, some positive developments were made in the negotiations with the EU. Importantly, sufficient progress was made to move on to the next phase of the negotiations, which concern trade deals. Nevertheless, periodic volatility in the UK stockmarket is to be expected in the near term at least. Meanwhile, employment is strong and inflation, as measured by the Consumer Prices Index, may have reached its peak at 3.1% in November 2017, compared with 1.2% a year ago. The higher rate is due largely to sterling s depreciation since the referendum last year. Going forward, inflation rates should reduce as the effects of weaker sterling start to fall out of the comparison. This should ease pressure on consumers, the main driver of the economy, as they grapple with rising prices, with wage growth standing at just 2.3% in the three months to October 2017, compared with the previous year. At a corporate level, newsflow remains broadly encouraging and merger & acquisition activity has been buoyant across a range of sectors, thanks to low borrowing costs and the weakness of sterling, which has made UK assets attractive to overseas buyers. Meanwhile, having underperformed global stockmarkets this year, UK company shares look reasonably valued. Richard O Connor Fund manager An employee of M&G Limited which is an associate of M&G Securities Limited. Please note that the views expressed in this Report should not be taken as a recommendation or advice on how the fund or any holding mentioned in the Report is likely to perform. If you wish to obtain financial advice as to whether an investment is suitable for your needs, you should consult a Financial Adviser. 7 Portfolio statement Equities 541, Oil & gas producers 67, ,344,456 BP 21, ,311 Cairn Energy ,929 EnQuest ,134 Ophir Energy ,924 Premier Oil ,029,106 Royal Dutch Shell A 24, ,821 Royal Dutch Shell B 20, ,952 Soco International ,864 Tullow Oil Oil equipment, services & distribution 1, ,704 Hunting ,199 John Wood Group 1, ,272 Lamprell ,655 Petrofac Chemicals 3, ,000 Carclo ,825 Croda International 1, ,016 Elementis ,167 Johnson Matthey 1, ,472 Sirius Minerals ,858 Synthomer ,711 Victrex Forestry & paper 1, ,903 Mondi 1, Industrial metals & mining ,468 Evraz ,390 Ferrexpo ,132 Kenmare Resources Kenmare Resources wts Mining 32, ,524 Acacia Mining ,580 Anglo American 3, ,031 Antofagasta ,499 BHP Billiton 6, ,758 Centamin ,289 Fresnillo ,397 Gem Diamonds ,625,928 Glencore 9, ,453 Hochschild Mining ,149 KAZ Minerals ,648 Lonmin

6 9 Mining (continued) 120,997 Petra Diamonds ,572 Polymetal International ,107 Randgold Resources 1, ,923 Rio Tinto 9, ,128 Vedanta Resources Construction & materials 7, [a] 171,310 Balfour Beatty ,276 Costain Group ,859 CRH 4, ,988 Henry Boot ,734 Ibstock ,581 Keller Group ,339 Kier Group ,187 Low & Bonar ,210 Marshalls ,548 Melrose Industries ,357 Morgan Sindall ,215 Norcros ,055 Polypipe ,817 Tyman Aerospace & defence 9, ,707 Avon Rubber ,016 BAE Systems 4, ,509 Chemring Group ,558 Cobham ,150 Meggitt ,024 QinetiQ Group ,027 Rolls-Royce Holdings 3, ,908 Senior ,139 Ultra Electronics Holdings General industrials 5, [a] 292,815 Coats Group ,239 DS Smith 1, ,248 RPC Group ,393 Smiths Group 1, ,496 Smurfit Kappa 1, ,382 Vesuvius Electronic & electrical equipment 2, ,665 Dialight ,761 Halma 1, ,363 Morgan Advanced Materials ,436 Oxford Instruments ,823 Renishaw Electronic & electrical equipment (continued) 27,170 Spectris ,780 TT electronics ,246 Xaar ,641 XP Power Industrial engineering 4, ,912 Bodycote ,004 Fenner ,042 Goodwin ,805 Hill & Smith Holdings ,398 IMI ,066 Renold ,390 Rotork ,710 Severfield ,892 Spirax-Sarco Engineering ,176 Weir Group Industrial transportation 2, ,195 BBA Aviation ,159 Clarkson ,291 James Fisher & Sons ,124 Royal Mail ,400 Stobart Group ,574 Wincanton Support services 25, [a] 146,475 AA ,051 Aggreko ,105 Ashtead Group 2, ,835 Babcock International Group ,981 Bunzl 1, ,909 Capita Group ,424 Connect Group ,176 DCC 1, ,584 De La Rue ,288 Diploma ,680 Electrocomponents ,195 Equiniti ,501 Essentra ,120 Experian 3, ,285 Ferguson (formerly Wolseley) 3, ,658 G4S ,531 Grafton Group Units ,342 Hays ,066 Hogg Robinson ,358 Homeserve ,083 Howden Joinery Group

7 11 Support services (continued) 35,947 Interserve ,470 Intertek Group 1, ,024 IWG ,348 John Menzies ,681 Mears Group ,973 Michael Page International ,169 Mitie Group ,624 Northgate ,904 PayPoint ,276 Paysafe Group ,544 Rentokil Initial 1, ,784 Ricardo ,475 Robert Walters ,347 RPS Group ,532 Serco Group ,021 Shanks Group ,196 SIG ,075 Speedy Hire ,569 SThree ,204 Travis Perkins ,773 Vp Automobiles & parts 1, ,114 GKN 1, Beverages 16, ,044 A.G. Barr ,372 Britvic ,221 Coca-Cola Hellenic 1, ,869 Diageo 14, ,456 Stock Spirits Group Food producers 4, [a] 80,468 Associated British Foods 2, ,353 Cranswick ,103 Dairy Crest Group ,284 Devro ,185 Greencore ,618 Premier Foods ,000 PureCircle ,090 Tate & Lyle Household goods & home construction 17, [a] 227,240 Barratt Developments 1, ,056 Bellway ,192 Berkeley Group Holdings 1, Household goods & home construction (continued) 32,574 Bovis Homes Group ,539 Countryside Properties ,000 Crest Nicholson ,394 Galliford Try ,212 McBride ,605 McCarthy & Stone ,105 MJ Gleeson ,674 Persimmon 1, ,327 Reckitt Benckiser 9, ,209 Redrow ,788 Taylor Wimpey 1, Leisure goods ,700 Photo-Me International Personal goods 13, [a] 100,008 Burberry Group 1, ,316 PZ Cussons ,827 SuperGroup ,838 Ted Baker ,002 Unilever 11, Tobacco 31, ,652 British American Tobacco 24, ,061 Imperial Brands 6, Healthcare equipment & services 5, ,913 Consort Medical ,553 ConvaTec ,180 Georgia Healthcare Group ,143 Mediclinical International ,103 NMC Health ,198 Smith & Nephew 2, ,002 Spire Healthcare ,324 UDG Healthcare Pharmaceuticals & biotechnology 38, ,996 AstraZeneca 13, ,799 BTG ,028 Dechra Pharmaceuticals ,209 Genus ,089,889 GlaxoSmithKline 14, ,399 Hikma Pharmaceuticals ,391 Indivior ,687 Shire 7, ,968 Vectura Group

8 13 Food & drug retailers 7, ,764 Booker Group ,944 Greggs ,887 J Sainsbury ,804 Ocado Group ,841,769 Tesco 3, ,266 Wm Morrison Supermarkets 1, General retailers 10, [a] 155,052 B&M European Value Retail ,838 Card Factory ,414 Carpetright ,023 Debenhams ,153 DFS Furniture ,796 Dignity ,640 Dixons Carphone ,551 Dunelm Group ,315 Findel ,578 Halfords Group ,465 Inchcape ,780 JD Sports Fashion ,594 JUST EAT ,750 Kingfisher 1, ,504 Laura Ashley Holdings ,746 Lookers ,253 Marks & Spencer Group 1, ,146 Mothercare ,869 N Brown Group ,153 Next 1, ,904 Pendragon ,421 Pets at Home Group ,345 Saga ,566 Sports Direct International ,479 Topps Tiles ,853 WH Smith Media 18, ,581 4imprint Group ,126 Ascential ,805 Auto Trader Group ,581 Bloomsbury Publishing ,666 Entertainment One ,593 Euromoney Institutional Investor ,989 Gocompare.Com ,924 Informa 1, ,293 ITE Group Media (continued) 856,296 ITV 1, ,735 Moneysupermarket.com ,711 Pearson 1, ,028 RELX 4, ,086 Rightmove ,857 Sky 2, ,726 Trinity Mirror ,279 UBM ,971 WPP 3, ,293 ZPG Travel & leisure 24, ,117 Carnival 2, ,177 Cineworld ,314 Compass Group 5, ,293 Domino s Pizza Group ,012 easyjet ,704 EI Group ,496 FirstGroup ,404 Fuller Smith & Turner A ,796 Go-Ahead Group ,211 Greene King ,617 GVC Holdings ,530 HostelWorld ,673 InterContinental Hotels 1, ,005 International Consolidated Airlines Group 2, ,361 J.D.Wetherspoon ,062 Ladbrokes ,101 Marston s ,541 Merlin Entertainment ,526 Millennium & Copthorne Hotels ,892 Mitchells & Butlers ,357 National Express ,545 Paddy Power Betfair 1, ,272 Playtech ,084 Rank Group ,418 Restaurant Group ,480 SSP ,684 Stagecoach Group ,133 Thomas Cook Group ,827 TUI 1, ,445 Whitbread 1, ,957 William Hill ,517 Wizz Air Holdings

9 15 Fixed line telecommunications 5, ,890,959 BT Group 4, ,444 KCOM Group ,670 TalkTalk Telecom ,585 Telecom Plus Mobile telecommunications 14, ,266 Inmarsat ,988,267 Vodafone Group 13, Electricity 3, ,072 Drax Group ,642 SSE 3, Gas, water & multi-utilities 11, ,245,802 Centrica 1, ,824 National Grid 6, ,090 Pennon Group ,186 Severn Trent 1, ,276 United Utilities 1, Banks 61, [a] 57,704 Aldermore Group ,820,593 Barclays 7, ,871 BGEO Group ,971 Close Brothers Group ,000 CYBG ,530,183 HSBC Holdings 33, ,142,867 Lloyds Banking Group 10, ,424 Metro Bank ,506 Royal Bank of Scotland Group 1, ,715 Standard Chartered 4, ,284 Virgin Money Holdings (UK) Non-life insurance 5, ,723 Admiral Group ,560 Beazley ,029 Direct Line Insurance Group 1, ,000 esure ,828 Hastings Group ,837 Hiscox ,154 Jardine Lloyd Thompson Group ,879 Lancashire Holdings ,197 RSA Insurance Group 1, Life insurance 24, [a] 923,725 Aviva 4, ,408 Chesnara ,519 Just Group (formerly JRP) ,334,679 Legal & General Group 3, Life insurance (continued) 1,074,973 Old Mutual 2, ,872 Phoenix Group ,560 Prudential [b] 11, ,889 St. James s Place 1, Real estate investment & services 2, [a] 164,599 Capital & Counties Properties ,320 CLS Holdings ,000 Countrywide ,313 Daejan Holdings ,795 F&C Commercial Property Trust ,000 Foxtons Group ,230 Grainger (formerly Grainger Trust) ,362 Helical (formerly Helical Bar) ,460 LSL Property Services ,307 Medicx Fund ,327 Picton Property Income ,321 Raven Russia ,425 Savills ,703 St. Modwen Properties ,660 U and I ,517 UK Commercial Property Trust Real estate investment trusts 10, [a] 414,697 Assura Group ,399 Assura Subscription shares ,178 Big Yellow Group ,643 British Land 1, ,514 Capital & Regional ,923 Derwent London ,000 Ediston Property Investment Company ,000 Ediston Property Investments Subscription shares ,655 F&C UK Real Estate ,777 Great Portland Estates ,934 Hammerson ,944 Hansteen Holdings ,191 Intu Properties ,862 Land Securities Group 1, ,930 LondonMetric Property ,967 NewRiver ,069 Primary Health Properties ,781 RDI (formerly Redefine International) ,451 Safestore

10 17 Real estate investment trusts (continued) 120,865 Schroder Real Estate Investment Trust ,913 Segro 1, ,814 Shaftesbury ,278 Standard Life Investment Property Income Trust ,910 Town Centre Securities ,278 Tritax Big Box ,761 UNITE Group ,762 Workspace Group Financial services 17, [a] 215,035 3i Group 1, ,790 Allied Minds ,792 Ashmore Group ,960 Brewin Dolphin Holdings ,367 Charles Taylor (formerly Charles Taylor Consulting) ,000 City of London Investment Group ,018 Hargreaves Lansdown ,675 IG Group Holdings ,264 Intermediate Capital Group ,570 International Personal Finance ,000 Investec ,574 IP Group ,094 John Laing ,664 Jupiter Fund Management ,129 London Stock Exchange 2, ,323 Man Group ,982 Nex Group ,605 OneSavings Bank ,188 Paragon Group of Companies ,527 Provident Financial ,022 Rathbone Brothers ,692 Sanne ,808 Schroders ,740 Standard Life Aberdeen (formerly Standard Life) 2, ,864 SVG Capital ,928 TP Icap ,746 Worldpay 1, Equity investment instruments 24, [a] 157,312 3i Infrastructure ,232 Aberdeen Asian Income Fund ,869 Aberdeen Asian Smaller Companies Investment Trust Equity investment instruments (continued) 116,749 Aberdeen Diversified Income Trust (formerly BlackRock Income Trust) ,696 Aberdeen New Dawn Investment Trust ,204 Aberforth Smaller Companies Trust ,271 Alliance Trust ,508 Artemis Alpha Trust ,001 Artemis Alpha Trust (Subscription shares) ,767 Baillie Gifford Japan Trust ,648 Bankers Investment Trust ,784 Baring Emerging Europe ,141 BBGI ,235 BH Global (Sterling shares) ,444 BH Macro (Sterling shares) ,605 Biotech Growth Trust ,406 BlackRock Frontier Investment Trust ,332 BlackRock Latin American Investment Trust ,746 BlackRock Smaller Companies Investment Trust ,967 BlackRock Throgmorton Trust ,057 BlackRock World Mining Trust ,569 Bluefield Solar Income Fund ,330 British Empire Securities & General Trust ,952 Brunner Investment Trust ,571 Caledonia Investments Capital Gearing Trust ,759 City Merchants High Yield Trust ,879 Dragon Capital Vietnam Enterprise Investments ,288 Dunedin Income Growth Investment Trust ,162 Dunedin Smaller Companies Investment Trust ,621 Ecofin Global Utilities and Infrastructure Trust ,418 Edinburgh Dragon Trust ,494 Edinburgh Investment Trust ,019 Edinburgh Worldwide Investment Trust ,282 Electra Private Equity ,371 EP Global Opportunities Trust ,354 F&C Capital & Income Investment Trust

11 19 Equity investment instruments (continued) 17,778 F&C Global Smaller Companies ,956 F&C Private Equity Trust ,948 Fidelity Asian Values ,589 Fidelity Asian Values (Subscription shares) ,110 Fidelity China Special Situations ,890 Fidelity European Values ,515 Fidelity Special Values ,229 Finsbury Growth & Income Trust ,813 Foreign & Colonial Investment Trust ,000 Foresight Solar Fund ,000 Fundsmith Emerging Equities Trust ,796 GCP Infrastructure ,754 Genesis Emerging Markets ,754 Greencoat UK Wind ,000 Hansa Trust ,219 Harbourvest Global Private Equity ,144 Henderson Alternative Strategies Trust ,266 Henderson Diversified Income Trust ,185 Henderson European Focus Trust ,288 Henderson EuroTrust ,794 Henderson Far East Income ,474 Henderson High Income Trust ,599 Henderson Smaller Companies Investment Trust ,371 Herald Investment Trust ,684 HG Capital Trust ,470 HICL Infrastructure ,845 IGG Enterprise Trust ,010 Impax Environmental Markets ,000 International Biotechnology Trust ,921 International Public Partnerships ,914 INVESCO Asia Trust ,876 INVESCO Income Growth Trust ,128 John Laing Infrastructure Fund ,465 JPMorgan American Investment Trust ,860 JPMorgan Asian Investment Trust ,298 JPMorgan Chinese Investment Trust (Bonus issue) ,381 JPMorgan Claverhouse Investment Trust ,308 JPMorgan Emerging Markets Investment Trust Equity investment instrument (continued) 30,134 JPMorgan European Growth Investment Trust ,600 JPMorgan European Smaller Companies Investment Trust ,000 JPMorgan Global Convertibles Income Fund ,540 JPMorgan Global Emerging Markets Income Trust ,965 JPMorgan Global Growth Investment Trust ,674 JPMorgan Indian Investment Trust ,427 JPMorgan Japan Smaller Companies Investment Trust ,340 JPMorgan Japanese Investment Trust ,749 JPMorgan Mid Cap Investment Trust ,206 JPMorgan Russian Securities ,353 JPMorgan Smaller Companies Investment Trust ,877 Jupiter European Opportunities Trust ,455 Jupiter US Smaller Companies ,407 Keystone Investment Trust ,440 Law Debenture ,558 Lowland Investment ,893 Majedie Investments ,477 Martin Currie Asia Unconstrained Trust ,524 Martin Currie Global Portfolio Trust ,370 Mercantile Investment Trust ,619 Merchants Trust ,162 Middlefield Canadian Income Trusts ,929 Monks Investment Trust ,072 Montanaro UK Smaller Companies Investment Trust ,376 Murray Income Trust ,533 Murray International Trust ,550 NB Global Floating Rate Income Fund ,497 New India Investment Trust ,687 NextEnergy Solar Fund ,548 North American Income Trust ,919 North Atlantic Smaller Companies Investment Trust ,848 P2P Global Investments ,753 Pacific Assets Trust ,174 Pacific Horizon Investment Trust

12 21 Equity investment instrument (continued) 13,513 Pantheon International ,585 Perpetual Income & Growth Investment Trust ,232 Pershing Square Holdings Personal Assets Trust ,952 Polar Capital Global Healthcare Growth and Income Trust ,466 Polar Capital Technology Trust ,859 RIT Capital Partners ,710 Riverstone Energy ,743 Ruffer Investment Company Red. Pref. shares ,469 Schroder Asia Pacific Fund ,284 Schroder Asian Total Return Investment Company ,236 Schroder Income Growth Fund ,162 Schroder Japan Growth Fund ,527 Schroder Oriental Income Fund ,730 Schroder UK Growth Fund ,670 Schroder UK Mid & Small Cap Fund ,306 Scottish American Investment ,562 Scottish Investment Trust ,599 Scottish Mortgage Investment Trust 1, ,864 Scottish Oriental Small Companies Trust ,541 Securities Trust of Scotland ,939 Sequoia Economic Infrastructure Income Fund ,252 Standard Life Equity Income Trust ,011 Standard Life European Private Equity Trust ,578 Standard Life UK Smaller Companies Trust ,198 Syncona ,154 Temple Bar Investment Trust ,258 Templeton Emerging Markets Investment Trust ,252 The City of London Investment Trust ,000 The Diverse Income Trust ,277 The European Investment Trust ,241 The Renewables Infrastructure Group ,510 TR European Growth Trust ,712 TR Property Investment Trust ,234 Troy Income & Growth Trust ,000 TwentyFour Income Fund Equity investment instrument (continued) 63,982 Utilico Emerging Markets ,183 Value & Income Trust ,339 Witan Investment Trust ,102 Witan Pacific Investment Trust ,141 Woodford Patient Capital Trust ,955 Worldwide Healthcare Trust Non-equity investment instruments [a] Software & computer services 6, ,000 AVEVA ,300 Computacenter ,000 FDM Group ,560 Fidessa Group ,782 Micro Focus International 2, ,545 NCC Group ,489 Sage Group 1, ,606 SDL ,792 Servelec Group ,415 Sophos Technology hardware & equipment ,018 Laird ,534 Spirent Communications Unquoted / unlisted ,204 Bioscience Investment Trust [c] ,000 Dexion Equity Alternative [c] ,707 Electric & General Investment Trust [c] ,374 Gartmore Irish Growth Fund [c] Futures contracts FTSE 100 Index Futures December Portfolio of investments 541, AAA rated money market funds [d] ,000 Northern Trust Global Fund - Sterling Total portfolio 542, Net other assets / (liabilities) (5,285) (0.98) (0.89) Net assets attributable to shareholders 537, All securities are on an official stock exchange listing except where referenced. [a] The comparative sector weightings have been re-analysed to reflect changes to the sector classifications. [b] Related party to the fund. [c] Delisted. [d] Uncommitted surplus cash is placed into AAA rated money market funds with the aim of reducing counterparty risk. 22

13 Financial highlights Fund performance Top ten portfolio transactions for the six months to 30 November 2017 Largest purchases 000 British American Tobacco 5,114 Micro Focus International 1,164 Melrose Industries 1,062 Royal Dutch Shell A 742 Pershing Square Holdings 633 Lloyds Banking Group 613 RDI (formerly Redefine International) 310 BP 262 Coats Group 226 Elis 212 Other purchases 2,885 Total purchases 13,223 Largest sales 000 HSBC Holdings 990 GlaxoSmithKline 704 Royal Dutch Shell A 689 Janus Henderson (formerly Henderson) 686 Diageo 549 Atkins 496 Unilever 491 BP 485 British American Tobacco 438 Anglo American 437 Other sales 11,810 Total sales 17,775 Purchases and sales exclude the cost and proceeds of AAA rated money market funds. Please note past performance is not a guide to future performance and the value of investments, and the income from them, will fluctuate. This will cause the fund price to fall as well as rise and you may not get back the original amount you invested. The following chart and tables reflect the key financial information of a representative share class, Sterling Class A (Accumulation) shares. As different share classes have different attributes, for example charging structures and minimum investments, please be aware that their performance may be different. Please refer to the Prospectus for M&G Investment Funds (2), which is available free of charge either from our website at or by calling M&G Customer Relations. For the specific performance table of your share class please refer to the Interim Long Report and unaudited Financial Statements for M&G Investment Funds (2), which is available free of charge either from our website at or by calling M&G Customer Relations. Index tracking The tracking difference between the fund s investment return and that of the FTSE All-Share Index for the 12 month period ending 30 November 2017 was +0.25% (30 November 2016: +0.08%). The investment returns are calculated gross of fees using end of day pricing in order to be comparable with the index. The historic tracking error of the investment return of the fund relative to the FTSE All-Share Index for the period ending 30 November 2017 was +0.12% (30 November 2016: +0.08%), which falls within the predicted tracking error range of 0.00% to 0.30%. Historic tracking error is a measure of the monthly volatility of the investment returns relative to the index over a 36 month period. The differences are partly due to the fund not fully replicating the FTSE All-Share Index. In addition, in February 2017 the fund received an extraordinary payout of 700,000 (equivalent to 13 basis points in performance). This payment was made after courts ruled in shareholders favour, forcing Royal Bank of Scotland Group to award compensation to participants in a 2008 rights issue

14 Financial highlights Fund performance Fund level performance Fund net asset value as at Fund net asset value (NAV) 537, , ,024 Performance since launch To give an indication of how the fund has performed since launch, the chart below shows total return of Sterling Class A (Accumulation) shares. To give an indication of how the fund has performed during the period the table below shows the performance of Sterling Class A (Accumulation) shares. All Performance and charges percentages represent an annual rate except for the Return after operating charges which is calculated as a percentage of the opening net asset value per share (NAV). Dilution adjustments are only in respect of direct portfolio transaction costs. Historic yields for the current period are calculated as at 8 December Sterling Class A Accumulation share performance The share class was launched on 27 February February 1998 = 100, plotted monthly Chart date 1 December Sterling Class A (Accumulation) shares* FTSE All-Share Index * Income reinvested Source: Morningstar, Inc. and M&G Six months to Year to Year to Change in NAV per share UK p UK p UK p Opening NAV Return before operating charges and after direct portfolio transaction costs (7.90) Operating charges (0.37) (0.55) (0.48) Return after operating charges (8.38) Distributions (2.13) (4.06) (3.52) Retained distributions Closing NAV Direct portfolio transaction costs UK p UK p UK p Costs before dilution adjustments Dilution adjustments [a] (0.01) (0.01) (0.01) Total direct portfolio transaction costs Performance and charges % % % Direct portfolio transaction costs [b] Operating charges Return after operating charges Historic yield Effect on yield of charges offset against capital Other information Closing NAV ( 000) 157, , ,481 Closing NAV percentage of total fund NAV (%) Number of shares 118,273, ,808, ,656,185 Highest share price (UK p) Lowest share price (UK p) [a] In respect of direct portfolio transaction costs. [b] As a percentage of average net asset value

15 Financial highlights Operating charges and portfolio transaction costs We explain below the payments made to meet the ongoing costs of investing and managing the fund, comprising operating charges and portfolio transaction costs. Operating charges Operating charges include payments made to M&G and to providers independent of M&G: Investment management: Charge paid to M&G for investment management of the fund (also known as Annual Management Charge). Administration: Charge paid to M&G for administration services in addition to investment management any surplus from this charge will be retained by M&G. Oversight and other independent services: Charges paid to providers independent of M&G for services which include depositary, custody and audit. Ongoing charges from underlying funds: Ongoing charges on holdings in underlying funds that are not rebated. Operating charges do not include portfolio transaction costs or any entry and exit charges (also known as initial and redemption charges). The charging structures of share classes may differ, and therefore the operating charges may differ. Operating charges are the same as the ongoing charges shown in the Key Investor Information Document, other than where an estimate has been used for the ongoing charge because a material change has made the operating charges unreliable as an estimate of future charges. For this fund there is no difference between operating charges and ongoing charges figures, unless disclosed under the specific share class performance table. Portfolio transaction costs Portfolio transaction costs are incurred by funds when buying and selling investments. These costs vary depending on the types of investment, their market capitalisation, country of exchange and method of execution. They are made up of direct and indirect portfolio transaction costs: Direct portfolio transaction costs: Broker execution commission and taxes. Indirect portfolio transaction costs: Dealing spread the difference between the buying and selling prices of the fund s investments; some types of investment, such as fixed interest securities, have no direct transaction costs and only the dealing spread is paid. Investments are bought or sold by a fund when changes are made to the investment portfolio and in response to net flows of money into or out of the fund from investors buying and selling shares in the fund. To protect existing investors, portfolio transaction costs incurred as a result of investors buying and selling shares in the fund are recovered from those investors through a dilution adjustment to the price they pay or receive. The table below shows direct portfolio transaction costs paid by the fund before and after that part of the dilution adjustment relating to direct portfolio transaction costs. To give an indication of the indirect portfolio dealing costs the table also shows the average portfolio dealing spread. Further information on this process is in the Prospectus, which is available free of charge on request either from our website at or by calling M&G Customer Relations. Portfolio transaction costs Six months to Year to Year to Average [a] Direct portfolio transaction costs [b] % % % % Broker commission Taxes Costs before dilution adjustments Dilution adjustments [c] (0.01) (0.01) (0.01) (0.01) Total direct portfolio transaction costs as at Average [a] Indirect portfolio transaction costs % % % % Average portfolio dealing spread [a] Average of first three columns. [b] As a percentage of average net asset value. [c] In respect of direct portfolio transaction costs. Please see the section above this table for an explanation of dilution adjustments 27 28

16 Notes 29

17 Contact Customer Relations* Write to us at:** M&G Securities Limited PO Box 9039 Chelmsford CM99 2XG Our website: us with queries: * For security purposes and to improve the quality of our service, we may record and monitor telephone calls. You will require your M&G client reference. Failure to provide this will affect your ability to transact with us. ** Please remember to quote your name and M&G client reference and sign any written communication to M&G. Failure to provide this may affect your ability to transact with us. Please note that information contained within an cannot be guaranteed as secure. We advise that you do not include any sensitive information when corresponding with M&G in this way. M&G Securities Limited is authorised and regulated by the Financial Conduct Authority and provides investment products. The company s registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England number _SR_310718