BMO INVESTMENTS (IRELAND) PLC (an investment company with variable capital incorporated with limited liability in Ireland with registered number

Transcription

1 BMO INVESTMENTS (IRELAND) PLC (an investment company with variable capital incorporated with limited liability in Ireland with registered number and operating as an umbrella fund with segregated liability between sub-funds pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended.) Annual Report and Audited Financial Statements for the financial year ended 31 December 2016

2 Contents Directory 1 Page General Information 2 Investment Manager s Reports 3 Directors Report 9 Report of the Depositary to the Shareholders of the Company 13 Independent Auditor s Report 14 Financial Statements Statement of Financial Position 16 Statement of Comprehensive Income 20 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 24 Statement of Cash Flows 28 Notes to the Financial Statements 32 Schedule of Investments BMO Global Low Volatility Alpha Equity 72 Pyrford Asia Pacific ex-japan Equity 81 Total Return (Sterling) 83 Equity (US$) 87 Pyrford International (EAFE) Equity 91 Pyrford Shariah Global Equity 95 Total Return (Euro) 98 Total Return (US$) 102 Equity (Sterling) 106 Equity (Euro) 110 Supplemental Unaudited Information 114 Statements of Significant Changes on Composition of Portfolio (Unaudited) 120

3 Directory DIRECTORS Anthony Cousins (British)* Eimear Cowhey (Irish)ǂ Barry McInerney (Canadian)**** Paul McNaughton (Irish)ǂ* Liam Miley (Irish)ǂ** Hugh Moir (British)*** Lars Nielsen (Danish)** Drew Newman (British) Diane Seymour-Williams (British)* ǂIndependent Directors *Resigned 1 April 2016 **Appointed 1 April 2016 ***Appointed 1 April 2016 and resigned 3 April 2017 ****Resigned 9 August 2016 ADMINISTRATOR State Street Services (Ireland) Limited, 78 Sir John Rogerson s Quay, Dublin 2, Ireland. DEPOSITARY State Street Custodial Services (Ireland) Limited, 78 Sir John Rogerson s Quay, Dublin 2, Ireland. REGISTERED OFFICE 78 Sir John Rogerson s Quay, Dublin 2, Ireland. INDEPENDENT AUDITOR KPMG, 1 Harbourmaster Place, International Financial Services Centre, Dublin 1, Ireland. INVESTMENT MANAGER Pyrford International Ltd., 95 Wigmore Street, London, W1U 1FD, United Kingdom. SUB-INVESTMENT MANAGERS Monegy, Inc., 100 King Street West, 42 nd Floor, First Canadian Place, Toronto, Ontario, M5X 1A1, Canada. BMO Asset Management, Corp 1209 Orange Street, Wilmington New Castle DE USA. LEGAL ADVISOR Arthur Cox, 10 Earlsfort Terrace, Dublin 2, Ireland. COMPANY SECRETARY Bradwell Limited, 10 Earlsfort Terrace, Dublin 2, Ireland. GOVERNANCE SERVICE PROVIDER KB Associates, 5 George s Dock, IFSC, Dublin 1, Ireland. REGISTRATION NUMBER

4 General Information The following information is derived from and should be read in conjunction with the full text and definitions section of the prospectus of BMO Investments (Ireland) plc dated 27 January 2016 (the Prospectus ). Capitalised terms used but not defined herein shall have the meaning ascribed thereto in the Prospectus. BMO Investments (Ireland) plc (the Company ), was incorporated on 5 March 2007 and operates in Ireland as a public limited company pursuant to the Companies Act 2014 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended (the UCITS Regulations ). The Company was initially authorised by the Central Bank of Ireland (the Central Bank ) as a non-ucits qualifying investor fund on 2 May 2007 and effective 30 June 2011 has been authorised by the Central Bank pursuant to the UCITS Regulations. The Company is organised in the form of an umbrella fund with segregated liability between sub-funds (each a Sub-, collectively the Sub-s ). The Company may offer separate classes of shares, each representing interests in a Sub-. The Company may create additional Sub-s and issue multiple classes of shares in respect of each Sub- provided they are effected in accordance with the requirements of the Central Bank. As at 31 December 2016 there were fourteen Sub-s available for investment namely: Pyrford Asia Pacific ex-japan Equity Total Return (Euro) Equity (US$) Pyrford International (EAFE) Equity Pyrford Pan-European Equity Pyrford Shariah Asia Pacific ex-japan Equity Pyrford Shariah Global Equity Pyrford Shariah Pan-European Equity Total Return (Sterling) Total Return (US$) BMO Short Duration US Dollar BMO Global Low Volatility Alpha Equity Equity (Sterling) Equity (Euro) As at 31 December 2016 ten Sub-s had been launched and in operation namely: Sub-s BMO Global Low Volatility Alpha Equity Pyrford Asia Pacific ex-japan Equity Total Return (Sterling) Equity (US$) Pyrford International (EAFE) Equity Pyrford Shariah Global Equity Total Return (Euro) Total Return (US$) Equity (Sterling) Equity (Euro) Benchmark MSCI All Country World Index MSCI All Country (AC) Asia Pacific Ex Japan Index SM n/a MSCI World Index SM MSCI EAFE Index SM S&P Global BMI Shariah Index n/a n/a MSCI World Index SM MSCI World Index SM Reporting to investors UK Reporting Regime It is the intention of each Sub- to continue to meet its annual obligations to be a reporting fund, as defined in the Offshore s (Tax) Regulations 2009 (SI 2009 No. 3001). The Sub- will report income to investors via the Company s website at and this is expected to be made available to investors by 30 June in each year. 2

5 Investment Manager s Report Macro-Economic Backdrop Investors nervousness is symptomatic of concerns on capital market valuations which have been driven to excessive levels by the tsunami of liquidity that has been released over the last 8 years by the major central banks of the world. This quantitative easing or money printing has been very successful in inflating asset prices but has been unsuccessful at generating real economic growth. Output growth is fundamentally driven by labour force growth plus productivity and in much of the developed world this is not a rosy picture. No amount of money printing can change this. What it has achieved is the misallocation of funds as borrowers assume that the free ride of effectively zero interest rates will persist indefinitely. Low rates have encouraged an explosion in borrowing, much in US dollars, on the expectation of loose monetary conditions far into the future. Severe imbalances have developed in emerging markets, especially in Turkey, Eastern Europe, Brazil and South Africa. The rally in the US dollar has already increased the stress in this situation considerably; potential rises in the cost of credit through Federal Reserve tightening will only serve to make this worse. The global bond markets have provided exceptional performance as interest rates have been driven down partly because of the liquidity being poured into the system and partly because of a lack of alternatives. Yields remain at artificially low levels and continue to offer extremely poor value relative to the outlook for inflation. Rises in inflation expectations towards the end of 2016 saw yields widen, nonetheless valuations remain expensive. The easing cycle now appears over in fact the US Federal Reserve has increased interest rates twice over the last twelve months and has indicated there will be more increases in A continued increase in yields and associated capital destruction should be expected. Holding short duration securities will continue to protect capital. The ascendancy of Donald Trump in the United States adds additional uncertainty as we enter He has promised a significant increase in infrastructure spending but US government finances are already stretched and any additional burden will increasingly place pressure on interest rates. Equity markets performed strongly over 2016, recovering after the sell-off early in the year as concerns grew on the impact of Fed rate hikes, negative interest rate policy in both Japan and the Eurozone, and the devaluation of the Chinese Renminbi. Following the Trump election victory in the US, investors rotated out of more defensive sectors and into cyclical sectors as the expectation that deregulation and fiscal stimulus would drive reflation and support earnings in these sectors. Cyclical sectors rerated over the second half of 2016 but momentum waned towards the end of the year. Similar to bond markets, many equity markets represent poor long-term value as liquidity has caused valuations to expand without an improvement in fundamentals. In currency markets the US dollar remains strong. This is not really a reflection of US economic performance in absolute terms. The US economy is growing but this remains by far the weakest recovery from recession since the Second World War. In relative terms, though, US performance does look very good precisely because of the weakness in economic conditions in the other major developed countries. Following the UK s decision to leave the EU, Sterling weakened rapidly and remains undervalued relative to other major currencies. The weakness in Sterling has benefitted UK companies with revenues denominated outside of the UK, helping push the equity market to all-time highs. Despite a slowing of the rate of Chinese growth, the one bright spot for the global economy remains the emerging markets of Asia (excluding Japan). These economies continue to exhibit healthy growth driven by good demographics, high savings ratios, strong productivity gains and soundly financed banking systems. Compared to unorthodox policies pursued by some Western governments, Asia (excluding Japan) has not had to embark on quantitative easing or negative interest rate policies boasting the luxury of positive real rates and lower debt levels. Countries such as Taiwan and Malaysia have large current account surpluses and are therefore less vulnerable to the removal of the liquidity prop. These superior fundamentals should be expected to continue. In Japan, Abenomics appears to have lost its gloss and the credibility of the Bank of Japan (BoJ) took another blow following the introduction of negative interest rates to weaken the Japanese Yen early in 2016 only for the currency to strengthen and domestic bank earnings weaken further. The BoJ has engaged in significant quantitative easing expanding the central bank balance sheet to astronomical levels. The sharp incline in BoJ liabilities will cause international markets to lose confidence in policy makers and may lead to a currency rout. For a government actually to have a goal of creating inflation appears bizarre in the context of post-ww2 economic doctrine; but inflation is clearly the friend of the debtor and Japan is certainly a debtor. 3

6 Investment Manager s Report cont/d Macro-Economic Backdrop cont/d The Japanese public sector debt burden (in excess of 200% of GDP) dwarfs that of even the worst Eurozone nations and the country s historic ability to borrow necessary funds from its own people must be brought into question given the sharp decline in the personal savings ratio seen in recent years. Japan continues to access the fixed income market at extremely low rates. However, should these rates begin to rise, the implications of compounding clearly become more scary. The key to the success of Abenomics remains meaningful structural reform but there has so far been precious little evidence of this. Portfolio Positioning Global Low Volatility Alpha Equity The portfolio positioning is determined on an absolute basis without respect to benchmark weights, with the objective of investing in a highly diversified, low risk portfolio with a meaningful potential for excess returns. The portfolio is thus invested in a combination of low risk securities, low correlation securities, and high return potential securities. The ideal security for the portfolio represents all three attributes. Thematically, the portfolio positioning is best described by its sector allocation globally. While portfolio weights are determined irrespective of benchmark weight, the resulting portfolio is overweight in low volatility segments of the economy, including Health Care, Consumer Staples, Telecommunications, and Utilities sectors. The portfolio is underweight higher volatility segments of the economy, including Financials, Energy, Information Technology, Materials, and Consumer Discretionary. Geographically, the portfolio is diversified across 22 countries, including both Developed and Emerging Markets. The largest overweights are in Singapore, Canada, New Zealand, Israel, and Malaysia. The biggest underweights are in the United States, France, the United Kingdom, Switzerland, and the Netherlands. Neutral yet meaningful weights in absolute terms are in Japan and Germany. Looking forward, we expect volatility to be higher than in recent years due to macroeconomic uncertainty regarding geopolitical events and the global economy. We continue to focus on risk management and on owning companies with high-quality fundamentals that should well in a period of heightened volatility. Additionally, we are mindful of valuations and have identified certain groups of low risk stocks that are expensive. Finally, we continue to identify many attractive portfolio candidates with a combination of low risk, low correlation, and high return potential within our 7,000 stock universe. Performance in USD (Periods longer than one year are annualized): 1 Month 3 Month 6 Months 1 Year Since 1/1/2014 (Gross) 1.29% -2.55% -0.13% 7.60% 25.07% MSCI ACWI 2.20% 1.30% 6.81% 8.48% 11.37% Global Total Return (GBP) The fund returned 10.48% over The asset allocation of the portfolio remains defensive. The model allocation is: fixed income 67%, equities 30% and cash 3%. In fixed income markets real yields remain low despite the recent widening. Pyrford continues to adopt a defensive stance by owning short duration securities in order to protect the capital value of the portfolio from further rises in yields. The target modified duration of the fixed income portfolio is approximately 2 years. Currently, we own high quality UK, Australian and Canadian sovereign debt having sold our US Treasury holdings due to heightened currency risk. The equity portfolio remains defensively positioned with a greater exposure to consumer staples and health care sectors over consumer discretionary and materials. We retain our zero weighting in UK and European banks. In line with Pyrford s purchasing power parity analysis, the Swiss Franc and Australian Dollar exposure within the portfolio remains fully hedged. These currencies are overvalued versus sterling and the hedging position insulates the portfolio against any fall in their value. 4

7 Investment Manager s Report cont/d Global Total Return (USD) The fund returned 1.54% over The asset allocation of the portfolio remains defensive. The model allocation is: fixed income 72%, equities 25% and cash 3%. In fixed income markets real yields remain low despite the recent widening. Pyrford continues to adopt a defensive stance by owning short duration securities in order to protect the capital value of the portfolio from further rises in yields. The target modified duration of the fixed income portfolio is approximately 2 years. Currently, we own high quality US, Canadian and UK sovereign debt. The equity portfolio remains defensively positioned with a greater exposure to consumer staples and telecommunication sectors over consumer discretionary and materials. We retain our zero weighting in UK and European banks. Global Total Return (Euro) The fund returned 3.06% over The asset allocation of the portfolio remains defensive. The model allocation is: fixed income 62%, equities 35% and cash 3%. In fixed income markets real yields remain low despite the recent widening. Pyrford continues to adopt a defensive stance by owning short duration securities in order to protect the capital value of the portfolio from further rises in yields. The target modified duration of the fixed income portfolio is approximately 2 years. Currently, we own high quality German, Canadian, US and UK sovereign debt. The equity portfolio remains defensively positioned with a greater exposure to consumer staples and telecommunication sectors over consumer discretionary and financials. We retain our zero weighting in UK and European banks. In line with Pyrford s purchasing power parity analysis, the Australian dollar exposure within the portfolio remains fully hedged. This currency is overvalued and the hedging position insulates the portfolio against any fall in the value of the currency. International (EAFE) Equity The fund returned 3.64% over 2016, versus the MSCI EAFE Index return of 1.51%. The portfolio remains defensively positioned with an underweight to the QE fuelled markets and an overweight to the Southeast Asian markets. The European portfolio is concentrated in Switzerland and the relatively healthy economies of core Europe. Economies in Southeast Asia offer sustainable economic growth supported by increased labour output or productivity growth and trade at more reasonable valuations. We remain underweight to Japan as the potential economic growth rate remains low given the poor demographics and low productivity growth. In terms of sectors, we have limited exposure to more cyclical sectors such as financials and consumer discretionary. Overweight positions are held in defensive sectors such as utilities, energy and telecommunications. These sectors offer predictable revenue streams and attractive valuations. The focus of the portfolio is on balance sheet strength, profitability, earnings visibility and value. Global Equity (USD) The fund returned 8.09% over 2016, versus the MSCI World Index return of 8.15%. The portfolio remains overweight the Asia ex-japan region and underweight the QE-driven markets of Japan, the Eurozone and the US. We are underweight the US as we view the market as overvalued. The companies we do hold are defensive names, which we would expect to perform well during volatile periods. Within Europe there are no holdings in the peripheral Eurozone countries where sovereign debt concerns remain. The European portfolio is concentrated in Switzerland and the relatively healthy economies of core Europe. We remain underweight the UK due to concerns over the impact much needed deleveraging will have on the UK economy. In Asia, we have a preference for the Southeast Asian markets over Japan. The potential growth rate in Japan remains low given the poor demographics and low productivity growth. Economies in Southeast Asia offer sustainable economic growth supported by increased labour output or productivity growth and trade at more reasonable valuations. 5

8 Investment Manager s Report cont/d Global Equity (USD) cont/d In terms of sectors, the portfolio is very defensively positioned with underweight exposure to cyclical sectors. Overweight sectors include consumer staples and telecommunications which offer high dividend yields and visible earnings streams. Global Equity (GBP) The fund returned 26.42% over 2016, versus the MSCI World Index return of 29.01%. The portfolio remains overweight the Asia ex-japan region and underweight the QE-driven markets of Japan, the Eurozone and the US. We are underweight the US as we view the market as overvalued. The companies we do hold are defensive names, which we would expect to perform well during volatile periods. Within Europe there are no holdings in the peripheral Eurozone countries where sovereign debt concerns remain. The European portfolio is concentrated in Switzerland and the relatively healthy economies of core Europe. We remain underweight the UK due to concerns over the impact much needed deleveraging will have on the UK economy. In Asia, we have a preference for the Southeast Asian markets over Japan. The potential growth rate in Japan remains low given the poor demographics and low productivity growth. Economies in Southeast Asia offer sustainable economic growth supported by increased labour output or productivity growth and trade at more reasonable valuations. In terms of sectors, the portfolio is very defensively positioned with underweight exposure to cyclical sectors. Overweight sectors include consumer staples and telecommunications which offer high dividend yields and visible earnings streams. In line with Pyrford s purchasing power parity analysis, the Swiss Franc and Australian Dollar exposure within the portfolio remains fully hedged. These currencies are overvalued versus sterling and the hedging position insulates the portfolio against any fall in their value. Global Equity (EUR) The fund returned 10.08% over 2016, versus the MSCI World Index return of 11.39%. The portfolio remains overweight the Asia ex-japan region and underweight the QE-driven markets of Japan, the Eurozone and the US. We are underweight the US as we view the market as overvalued. The companies we do hold are defensive names, which we would expect to perform well during volatile periods. Within Europe there are no holdings in the peripheral Eurozone countries where sovereign debt concerns remain. The European portfolio is concentrated in Switzerland and the relatively healthy economies of core Europe. We remain underweight the UK due to concerns over the impact much needed deleveraging will have on the UK economy. In Asia, we have a preference for the Southeast Asian markets over Japan. The potential growth rate in Japan remains low given the poor demographics and low productivity growth. Economies in Southeast Asia offer sustainable economic growth supported by increased labour output or productivity growth and trade at more reasonable valuations. In terms of sectors, the portfolio is very defensively positioned with underweight exposure to cyclical sectors. Overweight sectors include consumer staples and telecommunications which offer high dividend yields and visible earnings streams. In line with Pyrford s purchasing power parity analysis, the Australian dollar exposure within the portfolio remains fully hedged. This currency is overvalued and the hedging position insulates the portfolio against any fall in the value of the currency. Asia Pacific ex-japan The fund returned 10.82% over 2016, versus the MSCI AC Asia Pacific ex Japan Index return of 7.06%. The portfolio is overweight in Australia, Malaysia, Singapore and Taiwan. It is correspondingly underweight in China, India and Korea. The equity portfolio is defensively positioned with underweight positions in banks and a zero weighting in real estate which remains overvalued throughout much of the region. The portfolio is also underweight the materials and consumer discretionary sectors. Overweight positions are held in industrials and telecommunications which offer more predictable revenue streams and attractive valuations. The focus of the portfolio is on balance sheet strength, profitability, earnings visibility and value. 6

9 Investment Manager s Report cont/d Global Shariah Equity The fund returned 10.46% over 2016, versus the S&P Global BMI Shariah Index return of 6.43%. The portfolio remains overweight the Asia ex-japan region and underweight the QE-driven markets of Japan and the US. We are underweight the US as we view the market as overvalued. The companies we do hold are defensive names, which we would expect to perform well during volatile periods. Within Europe there are no holdings in the peripheral Eurozone countries where sovereign debt concerns remain. The European portfolio is concentrated in Switzerland and the relatively healthy economies of core Europe. In Asia, we have a preference for the Southeast Asian markets over Japan. The potential growth rate in Japan remains low given the poor demographics and low productivity growth. Economies in Southeast Asia offer sustainable economic growth supported by increased labour output or productivity growth and trade at more reasonable valuations. In terms of sectors, the portfolio is very defensively positioned with underweight exposure to cyclical sectors. Overweight sectors include telecommunications and industrials which offer high dividend yields and visible earnings streams. Investment Outlook Eight years on from the global financial crisis and it has been a distinctly sub-par performance in terms of real wages, consumption, employment, GDP, trade, capital investment and labour productivity. The easing cycle, propelled by extraordinary and unorthodox central bank actions, could normally be expected to stimulate global growth but this has not happened. It seems that the excessive levels of debt built up prior to the crisis, fragile banks and wounded confidence levels of corporates and consumers have been the main reasons. The excess liquidity created by central bank actions has clearly leaked into equity and bond markets, chasing asset prices higher. The 35 year-old bond bull market appears to be over. The forward-looking investment return from mid to long-dated securities is likely to be no greater than their market yield which remains at an extremely low level despite the recent increase. At the same time all of our normal valuation metrics indicate that equities are expensive. The economic cycle is mature and the monetary tightening process has commenced. Return on equity in the corporate sector has been relatively high but profit margins have started to narrow. Significant risks exist in global capital markets through elevated global debt levels, a slowdown in Chinese growth and upcoming elections in Holland, France, Germany and possibly Italy. These have the potential to deliver serious shocks to market sentiment and the real economy. Investment caution and defensive positioning is essential in this economic climate. If valuations were not already stretched a more aggressive investment posture could be justified but circumstances dictate otherwise. Sub-Investment Manager s Report Monegy Global High Yield Bond Over the full year 2016, Broad US High Yield Indexi returned 17.49% with 273 bps of spread tightening while the Higher Quality sub-indexii was up 14.72% with 223 bps of spread tightening. The distressed end of the high yield market performed best at 37.7%, while Bs returned 16.66% and BBs 13.44%. Commodity price linked sectors, including Energy (38.4%), Metals/Mining (43.8%), and Steel (48.3%), were the primary drivers of the strong return. flows have been volatile in But high yield bond ETFs and mutual funds have seen over 17 billion of net inflows over the years. Inflows were particularly strong after the US presidential election. Defaults have been increasing in 2016, highly concentrated in the distressed energy, coal and other commodity-linked sectors. The BAML trailing twelve month speculative grade issuer weighted default rate for U.S. high yield bonds rose to 6.99% in December, up from 3.38% last year. 7

10 Sub-Investment Manager s Report cont/d Monegy Global High Yield Bond cont/d As of November 30, 2016, the fund has been closed, with full liquidation and redemption completed in December. For the 11 month period, the fund returned 9.68%, underperforming the benchmark by 3.38%. The chief detractor was the s underweight in distressed commodity names, which rebounded sharply in Gross Performance: as at November 31 st, months 11 months Monegy Global HY Bond -0.03% 9.68% Benchmark -0.38% 13.06% i. BAML U.S. High Yield Bond Index (H0A0) ii. BAML BB-B US High Yield Constrained Index (HUC4) 8

11 Directors Report for the financial year ended 31 December 2016 The Directors the Company present herewith their report together with the audited financial statements for the financial year ended 31 December The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ( EU ), the Companies Act 2014, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 as amended and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 as amended (the Central Bank Regulations ). Statement of Directors responsibilities The Directors are responsible for overseeing the preparation of the directors report and the financial statements in accordance with applicable Irish laws and regulations. Irish company law requires the Directors to oversee the preparation of the financial statements for each financial year. Under that law, the Directors have prepared the financial statements in accordance with IFRS as adopted by the EU and applicable law. Under Irish company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the Company s assets, liabilities and financial position, as at the end of the financial year and of the profit or loss and change in net assets attributable to holders of redeemable participating shares of the Company for the financial year. In preparing these financial statements, the Directors are required to: oversee the selection of suitable accounting policies and ensure that such policies are consistently applied; ensure that judgements and estimates applied are reasonable and prudent; state whether the financial statements have been prepared in accordance with IFRS as adopted by the EU and ensure that they contain the additional information required by the Companies Act 2014; and oversee the preparation of the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for ensuring that adequate accounting records are kept which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and enable them to ensure that its financial statements comply with the Companies Act They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company. In this regard they have entrusted the assets of the Company to a depositary for safe-keeping. They have general responsibility for taking such steps as are reasonably open to them to prevent and detect fraud and other irregularities. The Directors are also responsible for preparing a directors report that complies with the requirements of the Companies Act Statement of Compliance on Corporate Governance The Company has adopted in full the voluntary Corporate Governance Code for Collective Investment Schemes and Management Companies (the IF Code ), as published by Irish s (formerly the Irish s Industry Association), the text of which is available from the Irish s website, The Company has been fully complaint with the Code for the financial year ended 31 December

12 Directors Report for the financial year ended 31 December 2016 cont/d Directors The name and nationality of persons who were Directors at any time during the financial year ended 31 December 2016 are set out below and all are non-executive: Anthony Cousins (British)* Eimear Cowhey (Irish)ǂ Barry McInerney (Canadian)**** Paul McNaughton (Irish)ǂ* Liam Miley (Irish)ǂ** Hugh Moir (British)*** Lars Nielsen (Danish)** Drew Newman (British) Diane Seymour-Williams (British)* ǂIndependent Directors *Resigned 1 April 2016 **Appointed 1 April 2016 ***Appointed 1 April 2016 and resigned 3 April 2017 ****Resigned 9 August 2016 The Directors are not required to retire by rotation under the Company s constitution (the Constitution ). Directors and Company Secretary s interests in shares and contracts The Irish resident directors have a service contract with the Company. The Directors and company secretary have no material interest in any contract of significance, subsisting during or at the end of the financial year, in relation to the business of the Company. Note 9 provides details of Directors shareholdings in the Company. Transactions Involving Directors The Directors are not aware of any contracts or arrangements of any significance in relation to the business of the Company in which the Directors had any interest as defined in the Companies Act 2014 at any time during the financial year ended 31 December 2016 (2015: None) other than those disclosed in note 9 of the audited financial statements. Directors Compliance Statement It is the policy of the Company to comply with its relevant obligations (as defined in the Companies Act 2014). As required by Section 225(2) of the Companies Act 2014, the Directors acknowledge that they are responsible for securing the Company s compliance with the relevant obligations. The Directors have drawn up a compliance policy statement as defined in Section 225(3)(a) of the Companies Act 2014 and a compliance policy which refers to the arrangements and structures that are in place and which are, in the Directors opinion, designed to secure material compliance with the Company s relevant obligations. These arrangements and structures were reviewed by the Company during the financial year. In discharging their responsibilities under Section 225, the Directors relied upon, among other things, the services provided, advice and/or representations from third parties whom the Directors believe have the requisite knowledge and experience in order to secure material compliance with the Company s relevant obligations. Audit Committee The Company has not established an audit committee. Given the size and internal organisation of the Company, the nature, scope and complexity of the Company s activities and the existing processes and procedures adopted by the Company, the Board does not consider that an audit committee is required for the purposes of Section 167 of the Companies Act Results, review of development of the business and future developments The results of operations are set out on pages 20 and 21. A detailed review of the development of the business and future developments is included in each launched Sub- s Investment Manager s Report on pages 3 to 8. The Directors do not anticipate any significant change in the structure or investment objective of the Sub-s. 10

13 Directors Report for the financial year ended 31 December 2016 cont/d Risk management objectives and policies Investments in certain securities markets involve a greater degree of risk than is usually associated with investment in the securities of other major securities markets. The information required by the Central Bank s UCITS Regulation 78 and IFRS 7 as adopted by the EU in relation to the use, by the Company and its Sub- s, of financial instruments and the financial risk management policies and objectives of the Company to market risk, currency risk, interest rate risk, liquidity risk and credit risk are outlined in note 6 to these audited financial statements. Key Performance Indicators The Directors consider that the change in net asset value ( NAV ) per share is a key indicator of the performance of the Company. Key performance indicators ( KPI s ) monitored by the Directors for each Sub- include: the month to month movement in the NAV per share; the share capital movements; and performance of the relevant Sub- against the benchmark it may use for performance comparison, where relevant. Distribution policy and distributions paid during the financial year The Company may issue either or both distributing share classes and accumulating share classes. As at the date of this report, in the case of Sub-s with distributing share classes, except for Monegy Global High Yield Bond, the Company intended to distribute net income and realised and unrealised gains net of realised and unrealised loss attributable to such classes annually, on 31 December of each year or such other intervals as the Directors may determine and notify in advance to shareholders. In the case of Monegy Global High Yield Bond, the Company intends to distribute net income and realised and unrealised gains net of realised and unrealised losses attributable to distributing share classes quarterly, on 31 March, 30 June, 30 September and 31 December of each year or such other intervals as the Directors may determine and notify in advance to Shareholders. In the case of the accumulating share classes the Company will accumulate or retain net income and gains attributable to such classes as retained earnings. These will be included in the calculation of the relevant net asset value per share. No distributions will be declared in respect of the accumulating class of shares. Shareholders will be notified in advance of any change in distribution policy for the accumulating share classes and full details will be provided in an updated prospectus or supplemental prospectus. The following distributions were declared by the Sub-s during the financial years ended 31 December 2016 and 31 December Total Return (Sterling) Value Per Share Ex-date GBP GBP Class A Distributing Shares 794, January 2016 Class C Distributing Shares 64, January 2016 Total Return (Sterling) Value Per Share Ex-date GBP GBP Class B Accumulating Shares 1,478, January 2015 No other distributions were declared in respect of the accumulating or distributing class of shares during the financial year ended 31 December 2016 or financial year ended 31 December Segregated Liability The Company is an umbrella fund with segregated liability between the sub-funds, and as such, as a matter of Irish law, the assets of a Sub- will not be exposed to the liabilities of the Company s other Sub-s. Segregated liability ensures that the liabilities incurred on behalf of a Sub- will generally be discharged solely out of the assets of that Sub- and there can generally be no recourse to the other Sub-s to satisfy those liabilities. Each Sub- will be responsible for paying its fees and expenses regardless of the level of profitability. Notwithstanding the foregoing, there can be no guarantee or assurance that, should an action be brought against the Company in a court of another jurisdiction, that the segregated nature of the Sub-s would necessarily be upheld. 11

14 Directors Report for the financial year ended 31 December 2016 cont/d Connected Party Transactions Regulation 41(1) of the Central Bank Regulations states that a responsible person shall ensure that any transaction between a UCITS and a connected person is conducted: a) at arm s length; and b) in the best interest of the unit-holders of the UCITS. As required under Regulation 78(4) of the Central Bank Regulation, the Directors are satisfied that there are in place arrangements, evidenced by written procedures, to ensure that the obligations that are prescribed by Regulation 41(1) are applied to all transactions with connected parties; and all transactions with a connected parties that were entered into during the period to which the report relates complied with the obligations that are prescribed by Regulation 41(1). Share Capital The net assets under management amounted to USD 2,998,060,459 as at 31 December 2016 (2015: USD 3,296,248,473). Full Details of the Company s share capital and charge during the financial year under review is disclosed in note 3 of these audited financial statements. Significant shareholders are disclosed in note 3 of these financial statements. The Company is not subject to the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations Employees There were no employees of the Company during the financial year under review or during prior financial year. Significant Events During the Financial Year See note 12 of the audited financial statements for details of significant events affecting the Company s financial statements during the financial year. Significant Events Since the Financial Year End See note 13 of the audited financial statements for details of significant events affecting the Company since the financial year end. Irish Regulatory Management The Company has appointed KB Associates as the Governance Service Provider. KB Associates is a company that offers operational compliance and governance support services to Irish funds and management companies. KB Associates' oversight of the Company enables the Directors to receive additional assurance that operations are being conducted to a consistently high standard. Frank Connolly and Ross Allen of KB Associates have been appointed as designated individuals and have been approved by the Central Bank to act in this capacity. Adequate Accounting Records To ensure that adequate accounting records are kept in accordance with Section 281 of the Companies Act 2014, the Company has employed State Street Services (Ireland) Limited (the Administrator") as its administrator. The accounting records are maintained at the offices of the Administrator at 78 Sir John Rogerson s Quay, Dublin 2, Ireland. Relevant Audit Information The Directors confirm that during the financial year ended 31 December 2016: a) so far as the Directors are aware, there is no relevant audit information of which the Company s statutory auditors are unaware; and b) the Directors have taken all steps that ought to have been taken as directors in order to make themselves aware of any relevant audit information and to establish that the Company s statutory auditors are aware of that information. Independent Auditors KPMG, Chartered Accountants, are the Company s auditors and have indicated their willingness to continue in office in accordance with Section 383 (2) of the Companies Act On behalf of the board of Directors Eimear Cowhey Drew Newman Date: 25 April

15 Report of the Depositary to the Shareholders of the Company We have enquired into the conduct of BMO Investments (Ireland) Plc ( the Company ) for the financial year ended 31 December 2016, in our capacity as depositary to the Company. This report including the opinion has been prepared for and solely for the shareholders in the Company and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown. Responsibilities of the Depositary Our duties and responsibilities are outlined in Part 5 of the UCITS Regulations and Part 12 of the Central Bank Regulations. One of those duties is to enquire into the conduct of the Company in each annual accounting period and report thereon to the shareholders. Our report shall state whether, in our opinion, the Company has been managed in that period in accordance with the provisions of the Company s Constitution and the UCITS Regulations. It is the overall responsibility of the Company to comply with these provisions. If the Company has not so complied, we as depositary must state why this is the case and outline the steps which we have taken to rectify the situation. Basis of Depositary Opinion The Depositary conducts such reviews as it, in its reasonable opinion, considers necessary in order to comply with its duties as outlined in Part 5 of the UCITS Regulations and Part 12 of the Central Bank Regulations and to ensure that, in all material respects, the Company has been managed (i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of the Company s Constitution and the UCITS Regulations and (ii) otherwise in accordance with the Company s Constitution and the appropriate regulations. Opinion In our opinion, the Company has been managed during the year, in all material respects: (i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Constitution, the UCITS Regulations and the Central Bank Regulations; and (ii) otherwise in accordance with the provisions of the Company s Constitution, the UCITS Regulations and the Central Bank Regulations. State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson s Quay Dublin 2 Ireland Date: 25 April

16 Independent Auditor s Report to the Members of BMO Investments (Ireland) Plc We have audited the financial statements of BMO Investments (Ireland) PLC ( the Company ) for the year ended 31 December 2016 which comprise the statement of financial position, statement of comprehensive income, statement of changes in net assets attributable to holders of redeemable participating shares, statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards (IFRS) as adopted by the European Union. Our audit was conducted in accordance with International Standards on Auditing (UK and Ireland). Opinions and conclusions arising from our audit 1 Our opinion on the financial statements is unmodified In our opinion the financial statements: give a true and fair view of the assets, liabilities and financial position of the Company as at 31 December 2016 and of its change in net assets attributable to holders of redeemable participating shares for the year then ended; have been properly prepared in accordance with IFRS as adopted by the European Union; and have been properly prepared in accordance with the requirements of the Companies Act 2014, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 as amended and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 as amended. 2 Our conclusions on other matters on which we are required to report by the Companies Act 2014 are set out below We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records. In our opinion the information given in the Directors Report is consistent with the financial statements. 3 We have nothing to report in respect of matters on which we are required to report by exception ISAs (UK & Ireland) require that we report to you if, based on the knowledge we acquired during our audit, we have identified information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In addition, the Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors remuneration and transactions required by sections 305 to 312 of the Companies Act 2014 are not made. Basis of our report, responsibilities and restrictions on use As explained more fully in the Statement of Directors Responsibilities set out on page 8, the directors of the Company are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company and otherwise comply with the Companies Act Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council s Ethical Standards for Auditors. An audit undertaken in accordance with ISAs (UK & Ireland) involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors of the Company; and the overall presentation of the financial statements. 14

17 Independent Auditor s Report to the Members of BMO Investments (Ireland) Plc cont/d In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Whilst an audit conducted in accordance with ISAs (UK & Ireland) is designed to provide reasonable assurance of identifying material misstatements or omissions it is not guaranteed to do so. Rather the auditor plans the audit to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements does not exceed materiality for the financial statements as a whole. This testing requires us to conduct significant audit work on a broad range of assets, liabilities, income and expense as well as devoting significant time of the most experienced members of the audit team, in particular the engagement partner responsible for the audit, to subjective areas of the accounting and reporting. Our report is made solely to the Company s members, as a body, in accordance with section 391 of the Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Darina Barrett for and on behalf of KPMG Chartered Accountants, Statutory Audit Firm 1 Harbourmaster Place IFSC Dublin 1 Ireland Date 25 April