FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 FOR THE YEAR ENDED 31 OCTOBER 2016 ABSOLUTE INSIGHT FUNDS PLC ANNUAL REPORT AND FINANCIAL STATEMENTS

Transcription

1 FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 FOR THE YEAR ENDED 31 OCTOBER 2016 ABSOLUTE INSIGHT FUNDS PLC ANNUAL REPORT AND FINANCIAL STATEMENTS

2 Contents Directors and Other Information 1 Directors Report 3 Statement of Directors Responsibilities 9 Investment Manager s Reports 10 Depositary s Report to the Shareholders 16 Independent Auditor s report to the Members 17 Schedules of Investments: Absolute Insight Equity Market Neutral Fund 19 Absolute Insight Currency Fund 28 Absolute Insight Emerging Market Debt Fund 33 Absolute Insight Credit Fund 40 Insight Broad Opportunities Fund 48 Absolute Insight Dynamic Opportunities Fund 57 Statements of Financial Position 64 Statements of Comprehensive Income 68 Statements of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 72 Notes forming part of the Financial Statements 76 Unaudited Appendices 149 Schedules of Significant Portfolio Changes (unaudited) 154 Page

3 Directors and other information Directors Michael Boyce (Irish)* Charles Farquharson (British) John Fitzpatrick (Irish)* Barry McGrath (Irish)* Mark Stancombe (British) (resigned 1 March 2017) Greg Brisk (British) (appointed 1 March 2017) *Independent and non executive Directors Registered Office 2nd Floor Beaux Lane House Mercer Street Dublin 2 Ireland (until 7 May 2017) 32 Molesworth Street Dublin 2 Ireland (from 8 May 2017) Manager Administrator Investment Manager Sub-Investment Manager and Administrative Support Provider Irish Legal Advisor Secretary Insight Investment Management (Ireland) Limited 32 Molesworth Street Dublin 2 Ireland (from 1 February 2017) State Street Fund Services (Ireland) Limited 78 Sir John Rogerson s Quay Dublin 2 Ireland Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England Insight Investment Management (Global) Limited 160 Queen Victoria Street London EC4V 4LA England (until 31 January 2017) Maples and Calder 75 St. Stephen's Green Dublin 2 Ireland MFD Secretaries Limited 2nd Floor Beaux Lane House Mercer Street Dublin 2 Ireland (until 7 May 2017) 32 Molesworth Street Dublin 2 Ireland (from 8 May 2017) 1

4 Directors and other information (continued) Depositary Independent Auditor Listing Sponsor State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson s Quay Dublin 2 Ireland KPMG Chartered Accountants 1 Harbourmaster Place International Financial Services Centre Dublin 1 Ireland Maples and Calder 75 St. Stephen's Green Dublin 2 Ireland Registered Number

5 Directors Report for the financial year ended 31 October 2017 The Directors present their report together with the audited financial statements of Absolute Insight Funds plc (the Company ) for the financial year ended 31 October The Company has segregated liability between its funds and is organised under the laws of Ireland as a public limited company pursuant to the Companies Act 2014 (as amended) (the Companies Act ). The Company is subject to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (the UCITS Regulations ) 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 UCITS Regulations ). As at 31 October 2017, the Company comprises six Funds each a "Fund", collectively (the Funds ): Absolute Insight Equity Market Neutral Fund Absolute Insight Currency Fund Absolute Insight Emerging Market Debt Fund Absolute Insight Credit Fund Insight Broad Opportunities Fund Absolute Insight Dynamic Opportunities Fund All of the above Funds, with the exception of the Absolute Insight Dynamic Opportunities Fund were listed on the Irish Stock Exchange ( ISE ). With effect from 12 October 2017, the Funds were delisted from the ISE. Review of performance of the business and future developments The performance of each of the Funds within the Company is set out in the Investment Manager s Report for each Fund. The Company s principal activity is collective investment in transferable securities of capital raised from the public and which operates on the basis of risk spreading. The Company will continue to act as an investment vehicle as set out in its Prospectus. Results for the financial year and state of affairs The results for the financial year are set out in the Statement of Comprehensive Income for the financial year ended 31 October The state of affairs of each Fund is set out in the Statement of Financial Position as at 31 October Principal risks and uncertainties The principal risks and uncertainties faced by the Company include but are not limited to market risks, credit risk (including sovereign issuers) and liquidity risk. A detailed analysis of the risks faced by each Fund is included in note 9 to the financial statements. Directors and Secretary The following Directors held office on 31 October 2017 and throughout the financial year then ended: Michael Boyce* Charles Farquharson John Fitzpatrick* Barry McGrath* Mark Stancombe (resigned 1 March 2017) Greg Brisk (appointed 1 March 2017) *Independent Directors MFD Secretaries Limited is the Company Secretary to the Company. Directors and Secretary s interests None of the Directors, their families or the Secretary hold or held any beneficial interest in the shares of the Company during the financial year. No Director had at any time during the financial year or at the financial year end a material interest in any contract of significance in relation to the business of the Company. Distributions A detailed distribution policy note is included in the Statement of Accounting Policies in note 2(h) and details of distributions declared during the financial year ended 31 October 2017 are included in note 13. 3

6 Directors Report (continued) for the financial year ended 31 October 2017 Audit Committee There are no committees of the Board in existence. The Directors are aware of section 167 of the Companies Act 2014 which requires certain companies to establish an audit committee. For the year ending 31 October 2017, the Directors confirm that they did not establish an audit committee having given due consideration to the following: (a) (b) (c) (d) the responsibilities of the audit committee as outlined in section 167 are already carried out by the Board such that establishing a separate committee of the Board was determined not to be necessary; the nature, scale and complexity of the Company; the internal control and risk management systems relating to the financial reporting process already in place at the Company; and the resources available to the Company and the resources and expertise of the various third parties engaged to support the Company. Significant events during the financial year Dollar Class B1p USD of Absolute Insight Credit Fund fully redeemed on 7 December Sterling Class B2p GBP of Absolute Insight Credit Fund fully redeemed on 4 January On 1 March 2017, Mark Stancombe resigned as a Director of the Company and Greg Brisk was appointed as a Director of the Company. On 16 March 2017, the Insight Broad Opportunities Fund supplement was further revised to include Canadian dollar share classes. Dollar Class B1 USD of Insight Broad Opportunities Fund re-launched on 28 March Dollar Class Ap USD of Absolute Insight Equity Market Neutral Fund fully redeemed on 4 May On 8 May 2017, the Company s registered address changed from 2nd Floor, Beaux Lane House, Mercer Street Lower, Dublin 2, Ireland to 32 Molesworth Street, Dublin 2, Ireland. Euro Class B4p EUR of Absolute Insight Equity Market Neutral Fund fully redeemed on 10 July Swiss Franc Class B1 CHF of Insight Broad Opportunities Fund launched on 31 August Prospectus update 1 February 2017 On 1 February 2017 a revised prospectus for the Company was noted by the Central Bank of Ireland. The changes are summarized below: the appointment of Insight Investment Management (Ireland) Limited as UCITS management company to the Company; adjustments and enhanced disclosure relating to the Company's various liquidity features; adjustments to the fee structure for the various service providers to the Company (noting there is no change to the investment management fees or performance fees). Fixed Operating Expenses ( FOE ) Effective 1 February 2017, the Manager shall be entitled to FOE out of the assets of the Funds equal to a percentage of the Net Asset Value of the relevant Class as detailed in the Supplements to the Prospectus and in notes 3 and 11. In return for receiving this FOE, the Manager will pay a range of incurred fees and expenses relating to the operation of the Funds, including administration fees, depositary fees, audit fees, directors fees and other expenses. 4

7 Directors Report (continued) for the financial year ended 31 October 2017 Significant events during the financial year (continued) Prospectus update 11 July 2017 On 11 July 2017 a revised prospectus for the Company was noted by the Central Bank of Ireland. The changes are summarized below: Securities Financing Transaction Regulation (SFTR) disclosures Removal of disclosure of listing of certain share classes from the Irish Stock Exchange Change of registered address of Company, Manager and Secretary Additional disclosure on the Company s share class promotion restrictions Director changes: removal of Mark Stancombe, appointment of Greg Brisk Risk factors: amendment to Collateral Risk and new Margin Risk disclosure New disclosures relating to Compulsory Repurchase of Shares/Deduction of Tax and Disclosure of Holdings Absolute Insight Dynamic Opportunities Fund Maximum limit of investment in debt and debt-related securities rated below BBB- raised to 20% of NAV New risk factor: High Yield/Sub-Investment Grade Securities Risk Insight Broad Opportunities Fund Clarification of investment policy to state the Fund invests in several asset classes through investment in collective investment schemes, direct holdings and financial derivative instruments. Irish Stock Exchange Delisting of Absolute Insight Funds Plc With effect from 12 October 2017, the Funds were delisted from the Irish Stock Exchange (the ISE ), following the enactment of the EU Audit Directive on 17 June 2016 (the Directive ), which applies to all public interest entities in the EU ( EU PIEs ). The Company was previously categorised as an EU PIE by virtue of its listing on the ISE. The Directive features a number of new requirements, including the mandatory rotation of auditor after a predetermined timeframe and a limitation on audit firms providing non-audit services in the areas of tax, consultancy or advisory. These requirements extend to auditing arrangements already in place, therefore should the Funds have remained listed on the ISE, the Funds would be forced to comply with the new requirements of the Directive effective for the 31 October 2017 year end. Post Statement of Financial Position events There were no post Statement of Financial Position events, which would require disclosure in this financial report. Independent Auditor KPMG, Chartered Accountants have indicated their willingness to continue in office in accordance with Section 383 of the Companies Act

8 Directors Report (continued) for the financial year ended 31 October 2017 Accounting Records As outlined in the Statement of Directors' Responsibilities, the Directors are responsible for ensuring that adequate accounting records are kept by the Company. To achieve this, the Administrator has been appointed by the Directors to ensure that the requirements of Section 281 of the Companies Act are complied with. The Administrator maintains the accounting records of the Company at its offices at 78 Sir John Rogerson s Quay, Dublin 2, Ireland. Statement on relevant audit information So far as the Directors are aware, there is no relevant audit information of which the Company s auditors are unaware and the Directors have taken all the steps that should have been taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company s auditors are aware of that information. CORPORATE GOVERNANCE STATEMENT Corporate Governance Code The Company is subject to compliance with the requirements of the Companies Act 2014, UCITS Regulations and the Central Bank UCITS Regulations, as applicable to investment funds. Chapter 3, Part 23 of the Companies Act 2014 requires the inclusion of a corporate governance statement in the Directors Report. During the financial year under review, the Company was subject to corporate governance practices imposed by: (i) (ii) (iii) (iv) The Companies Act 2014 which is available for inspection at the registered office of the Company; and may also be obtained at The Articles of Association of the Company which are available for inspection at the registered office of the Company at 32 Molesworth Street, Dublin 2, Ireland and at the Companies Registration Office in Ireland; The Central Bank UCITS Regulations which can be obtained from the Central Bank of Ireland ( Central Bank ) website at: and are available for inspection at the registered office of the Company; and The Irish Stock Exchange ( ISE ) through the ISE Code of Listing Requirements and Procedures which can be obtained from the ISE s website at: On 12 October 2017, the Funds were delisted from the ISE. The Company assessed the measures included in the voluntary Corporate Governance Code for Collective Investment Schemes as published by Irish Funds in December 2011 (the IF Code ). The Directors have adopted the corporate governance practices and procedures in the IF Code. The Board considers that the Company has complied with the provisions of the IF Code throughout this accounting year. The Company is not subject to the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations Financial Reporting The Company is responsible for establishing and maintaining adequate internal control and risk management systems for the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of error or fraud in achieving the Company s financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Company has procedures in place to ensure that all relevant accounting records are properly maintained and are readily available, including production of annual and half yearly financial statements. The Board has appointed the Administrator to maintain the books and records of the Company. The Administrator is authorised and regulated by the Central Bank and must comply with the rules imposed by the Central Bank. From time to time the Board reviews reports with respect to the Administrator s financial accounting and reporting functions. The annual financial statements of the Company are produced by the Administrator and reviewed by the Investment Manager (the IM ). They are required to be approved by the Board and the annual and half yearly financial statements of the Company are required to be filed with the Central Bank. The Board is responsible for the review and approval of the annual financial statements as set out in the Statement of Directors Responsibilities. The statutory financial statements are required to be audited by independent auditors who report annually to the Board on their findings. The Board periodically reviews the independent auditor s performance, qualifications and independence. As part of its review procedures, the Board receives presentations from relevant parties with respect to accounting standards and their impact on the annual financial statements, and presentations and reports on the audit process. The Board evaluates and discusses significant accounting and reporting issues as the need arises. 6

9 Directors Report (continued) for the financial year ended 31 October 2017 CORPORATE GOVERNANCE STATEMENT (continued) Shareholder Meetings The convening and conduct of shareholders meetings are governed by the Articles of Association of the Company and the Companies Act Although the Directors may convene an extraordinary general meeting of the Company at any time, the Directors are required to convene the first annual general meeting of the Company within eighteen months of incorporation and fifteen months of the date of the previous annual general meeting thereafter, provided that an annual general meeting is held once in each year within six months of the end of each accounting period of the Company. At least twenty-one clear days notice of every annual general meeting and any meeting convened for the passing of a special resolution must be given to shareholders and fourteen days notice must be given in the case of any other general meeting, unless the auditors of the Company and all the shareholders of the Company entitled to attend and vote agree to shorter notice. Two shareholders present either in person or by proxy constitutes a quorum at a general meeting. The share capital of the Company is divided into different classes of shares and the Companies Act 2014 and the Articles of Association provide that the quorum for a general meeting convened to consider any alteration to the rights attached to any class of shares, is two or more shareholders present in person or by proxy, holding or representing by proxy at least one third of the issued shares of the relevant class. Every holder of participating shares or non-participating shares present, in person or by proxy who votes on a show of hands is entitled to one vote. On a poll, every holder of participating shares present, in person or by proxy, is entitled to one vote in respect of each share held by him, and every holder of non-participating shares is entitled to one vote in respect of all non-participating shares held by him. At any general meeting, a resolution put to the vote of the meeting is decided on a show of hands unless, before or upon the declaration of the result of the show of hands, a poll is demanded by the chairman of the general meeting, or by at least two members or shareholders present, in person or by proxy, having the right to vote at such meeting, or any holder or holders of participating shares present, in person or by proxy, representing at least one tenth of the shares in issue having the right to vote at such meeting. Shareholders may resolve to sanction an ordinary resolution or special resolution at a shareholders meeting. Alternatively, a resolution in writing signed by all of the shareholders and holders of non-participating shares for the time being entitled to attend and vote on such resolution at a general meeting of the Company, will be valid and effective for all purposes as if the resolution had been passed at a general meeting of the Company duly convened and held. An ordinary resolution of the Company (or of the shareholders of a particular fund or class of shares) requires a simple majority of the votes cast by the shareholders voting, in person or by proxy, at the meeting at which the resolution is proposed. A special resolution of the Company (or of the shareholders of a particular fund or class of shares) requires a majority of not less than 75% of shareholders present, in person or by proxy, and voting in general meeting in order to pass a special resolution including a resolution to amend the Articles of Association. Composition and Operation of the Board The business of the Company is managed by the Directors who exercise all such powers of the Company as are not by the Companies Act 2014 or by the Articles of Association of the Company required to be exercised by the Company in general meeting. Unless otherwise determined by the Company in a general meeting, the number of Directors shall not be less than two. Currently the Board is composed of five Directors, being those listed in the directory in these financial statements. The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed at any other number will be two. Questions arising at any meeting of the Directors are determined by a majority of votes and in the case of an equality of votes the chairman of the meeting will have a casting vote. A Director may, and the Company s Secretary on the request of a Director will, at any time call a meeting of the Directors. Directors Remuneration Note 11 of these financial statements provides details of Director s fees for the year ended 31 October 2017 and prior year. 7

10 Directors Report (continued) for the financial year ended 31 October 2017 CORPORATE GOVERNANCE STATEMENT (continued) Directors Compliance Statement The Directors, in accordance with Section 225(2) of the Companies Act 2014, acknowledge that they are responsible for securing the Company s compliance with certain obligations specified in that section arising from the Companies Act 2014 and Tax laws ( relevant obligations ).The directors confirm that: a compliance policy statement has been drawn up setting out the Company s policies with regard to such compliance; appropriate arrangements and structures that, in their opinion, are designed to secure material compliance with the Company s relevant obligations, have been put in place; and a review has been conducted, during the financial year, of the arrangements and structures that have been put in place to secure the Company s compliance with its relevant obligations. For and on behalf of the Board John Fitzpatrick Michael Boyce 14 February

11 Statement of Directors Responsibilities for the financial year ended 31 October 2017 The Directors are responsible for preparing the Directors Report and the financial statements, in accordance with applicable law and regulations. Irish Company law requires the Directors to prepare financial statements for each financial year. Under the law, the Directors have elected to prepare the financial statements in accordance with FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland. The Company s financial statements are required by law and FRS 102, to present fairly the financial position and performance of the Company. The Companies Act 2014 provides in relation to such financial statements that references in the relevant parts of this Act to the financial statements giving a true and fair view are references to their achieving fair presentation. In preparing the financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether the financial statements have been prepared in accordance with applicable accounting standards, identify these standards, and note the effect and reasons for any material departure from these standards; and prepare 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 the maintenance and integrity of the corporate and financial information included on the Company s website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors are also responsible for preparing a Directors Report that complies with the requirements of the Companies Act Dealings with Connected Parties Chapter 10 of Central Bank UCITS Regulations states that a responsible person shall ensure that any transaction between a UCITS and connected persons is conducted a) at arm s length; and b) in the best interest of the shareholders of the UCITS. As required under Chapter 10 of Central Bank UCITS Regulations, the Directors, as responsible persons are satisfied that there are in place arrangements, evidenced by written procedures, to ensure that the obligations that are prescribed by Chapter 10 of Central Bank UCITS Regulations are applied to all transactions with a connected party; and all transactions with connected parties that were entered into during the period to which the report relates complied with the obligations that are prescribed by Chapter 10 of Central Bank UCITS Regulations. For and on behalf of the Board John Fitzpatrick Michael Boyce 14 February

12 Investment Manager s Reports for the financial year ended 31 October 2017 Absolute Insight Equity Market Neutral Fund The Fund returned 0.86% (net of fees) over the period, compared to a 3-month sterling Libid return of 0.21% 1. In recent years, we have observed that markets have been dominated by central banks quantitative easing (QE) policies, which have led to high correlations across markets and low dispersion between stock returns within sectors. This has weighed on returns from active stock picking. Over the period under review, we observed that the market is in a period of transition away from a QE-dominated world. Correlation between stocks has fallen markedly since the middle of 2016, but dispersion of stock returns within sectors remained low. Against this backdrop, we raised gross exposure, but maintained tight hedges to shield the portfolio from background market noise. Returns started to pick up as a result. The Fund s positive performance over the year under review was driven by contributions from a range of positions, notably from long positions in semiconductor-related holdings. A long position in ASML, a Dutch semiconductor equipment manufacturer, performed well over the year. Positive earnings updates helped, and the market consensus became more optimistic regarding its extreme ultraviolet lithography technology. The position was hedged with the Stoxx Europe 600 Personal & Household Goods Index to manage down growth-style factor risk. Separately, we initiated a position in Siltronic, a leading manufacturer of silicon wafers, in March as our analysis suggested that near-term expectations were too low given the growth in demand for processing power. The company updated full-year earnings guidance later in the year, which helped performance. The position is hedged mostly with the European technology sector. Looking ahead, with decent levels of economic growth and at least stable inflation, we expect central banks to gradually proceed with quantitative tightening, which should mean that dispersion picks up. Indeed, if markets were to become less certain on the path of policy tightening, or if we saw new policy formation such as meaningful US tax reform, that would accelerate a widening in dispersion. That said, part of our challenge has been to evolve as market dynamics change. It is possible that the new normal level of dispersion may now be lower given the influence of passive strategies, among other things. All other things being equal, one of the main ways we can respond to this is by raising the Fund s gross exposure levels while remaining tightly hedged. To help us do this, in September, we hired a new manager into the team to focus on generating ideas in banks and broader financials. The former is an area that has become increasingly investible given the healing that has taken place, and an area we have tended to have low exposure to in the past. We have also added further quantitative resource to help us ensure we add risk intelligently. Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England November Fund return is sterling, share class B1p and net of 1% annual management charge and 10% performance fee. 10

13 Investment Manager s Reports (continued) for the financial year ended 31 October 2017 Absolute Insight Currency Fund The Fund returned -3.66% (net of fees) over the period, compared to a 3-month sterling Libid return of 0.21% 1. A long US dollar (USD) against a short in Japanese yen (JPY) was the single largest contributor in the first half of the period, but this became the biggest detractor from performance during the second half of the review period. Towards the end of the period, offsetting this were gains from a long in sterling (GBP) and some positions in emerging market currencies. After the US election in November the managers began to build a long USD position once it became clear that investors were interpreting a Trump presidency as positive for US bond yields. During December they also took advantage of the recent rally in GBP to add a short position versus USD. The overall negative return stemmed from the long USD positions in early 2017 as the currency weakened. These included positions held against the Japanese yen (JPY) on the expectation of increasing yield differentials, driven by Bank of Japan (BoJ) policy to target 10-year government bond yields at zero and the Federal Reserve rate hike in March. The positions detracted from performance as the USD depreciated, and this was exacerbated in January by the fact that investors had built up large short positions in the JPY, which led to increased volatility as these positions were cut. We added a short euro (EUR) position in June following a large rally in the currency that saw it approach the top of its range; this suffered after less dovish comments from European Central Bank President Mario Draghi gave the EUR a further boost. Our long USD versus JPY was hit by a sell-off in May and we reduced exposure before adding some back via US dollar call options, given low implied volatility levels. In our view, the Japanese yen should underperform, as the BoJ shows no signs of deviating from its current easy policy. Partially offsetting these losses later on in the period were long Swedish krona and Canadian dollar (CAD) positions, which benefited from the hawkishness of central banks. In August and towards the end of September however, the CAD gains were unwound. The short JPY versus USD position also detracted from performance in the third quarter. Increasing tensions between the US and North Korea gave a safe haven bid to the JPY. Performance from our positions in emerging market currencies was mixed towards the end of the period. Our long Czech koruna and Indian rupee positions contributed positively. In September however, the broad rally in the USD and higher bond yields meant that emerging market currencies generally performed poorly. Looking forward, we expect the ongoing strength of global growth to continue to provide support for emerging market currencies, but rising yields should put pressure on currencies with poor fundamentals. Potential differentiation across currencies should provide opportunities both for long and short positions. Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England November Fund return is sterling, share class B1p and net of 1% annual management charge and 10% performance fee. 11

14 Investment Manager s Reports (continued) for the financial year ended 31 October 2017 Absolute Insight Emerging Market Debt Fund The Fund returned 1.67% (net of fees) over the period, compared to a 3-month sterling Libid return of 0.21% 1. The greatest contributor to returns was local government and external government debt. At the beginning of the period under review, the market experienced some volatility due to the election of Donald Trump as US President. The impact on markets was mainly felt through a stronger US dollar and a move higher in US treasury yields which negatively impacted emerging market assets. This was then reversed into the end of the year as markets calmed. Q was a strong period for emerging market debt, supported by a weakening US dollar and falling yields driven by uncertainty over the Trump administration s policy agenda. Positive global economic data and strong inflows also supported the asset class. Local rates generated the largest contribution to Fund performance, with external government, external corporate and local currency corporate debt also recording gains. Portfolio hedges and some single-country credit default swaps detracted from performance. In terms of activity, we increased net exposure and duration early in the quarter as we were positive on valuations overall. We subsequently reduced both in February in recognition of potential risks, but after the US rate hike in March and in light of the continuing global economic recovery we increased both net exposure and duration once more. Positive momentum from Q1 rolled over into Q2, and emerging market assets were supported by a broadening global recovery and a moderation in US inflation which led to a fall in longer maturity US treasury yields. Sentiment became more fragile at the end of the quarter as hawkish rhetoric from a number of major central banks led to a steepening of yield curves. European markets generated the largest returns as their currencies tracked the euro (EUR) appreciation versus the US dollar (USD). A drop in global oil prices caused by concerns about rising US shale oil production resulted in an underperformance in Russia via currency depreciation. In Brazil, the return of political risk resulted in currency depreciation and a steepening local yield curve. Over the quarter, local and external debt holdings made a positive contribution to performance but this was partially offset by currency losses. In terms of activity, we increased our risk exposure in local government holdings and currencies in the first half of the quarter. We then focused on risk management across a range of positions at the end of the quarter as the market environment shifted. In Q3 developed market yields took a turn higher over September as investors recalibrated the prospect of tighter monetary policy in the months ahead. Overall risk sentiment remained positive, although emerging market debt performance was more muted versus August s positive returns. Against this backdrop our exposures to local currency sovereign debt and corporate debt were key drivers to performance, while the net currency exposure detracted. The portfolio s hedges also added positive return. Performance across regions diverged, with Latin America driving the positive return. European, Middle Eastern and African exposures marginally detracted. In terms of positioning themes, we generally switched more defensive by paring down our currency exposure and reducing exposure to long duration assets. In October, Sovereign and corporate spreads continued to grind tighter, while local yields increased and emerging market currencies underperformed. We expect emerging markets to be supported by high real yields and a solid growth outlook. Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England November Fund return is sterling, share class B1p and net of 1% annual management charge and 10% performance fee. 12

15 Investment Manager s Reports (continued) for the financial year ended 31 October 2017 Absolute Insight Credit Fund The Fund returned 6.61% (net of fees) over the period, compared to a 3-month sterling Libid return of 0.21% 1. The Fund benefited from its long exposure to credit markets, particularly investment grade credit (particularly subordinated financials) and asset backed securities (ABS). We held a long bias to credit risk throughout the entire period. Risk assets enjoyed a positive environment due to a synchronised global upswing, benign inflation environment, overall accommodative monetary policy environment and the potential for fiscal stimulus in the US. Following the US elections, we continued emphasis on ABS and subordinated financials. We had a limited allocation to high yield. Within ABS markets, residential mortgage-backed securities and collateralised loan obligations contributed positively. We reacted to political risk events during the year, positioning more defensively into the French election earlier in the year in our index-derivatives strategies, where we benefited from long positions in European investment-grade indices versus US indices. Within the financial sector, we rotated exposure around concerns in the Spanish and Italian banking sectors but maintained our overweight credit risk exposure. Within corporate high yield, we focused our efforts on short-dated opportunities where we have identified positive convexity and are being compensated at current yields given low expected near-term default rates. Looking ahead, we maintain our cautious strategic outlook and are monitoring central bank actions very closely in a context of stretched valuations. For now, the synchronised economic upturn, subdued volatility across asset classes, and supportive earnings continue to be supportive. Dispersion is picking up in US high yield, expanding the alpha opportunity set through security selection. We continue to believe opportunities exist in certain segments of the market such as subordinated financial debt, short-dated high yield and synthetic credit markets, while valuations and supply technicals in ABS remain attractive. Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England November Fund return is sterling, share class B1p2 and net of 1% annual management charge and 20% performance fee. 13

16 Investment Manager s Reports (continued) for the financial year ended 31 October 2017 Insight Broad Opportunities Fund The Fund returned 8.6% (gross of fees) over the period, compared to a 3-month sterling Libid return of 0.41% 1. The Fund continued to allocate investments across the asset spectrum, and this diversification again added to performance over the year. Equity markets provided the largest contribution to performance, with significant contributions from US, Europe and emerging markets. Total return strategies provided a further positive, led by breakout strategies and dividend strategies. At the beginning of the period under review, the market experienced some volatility due to the election of Donald Trump as US President. The impact on markets was mainly felt through a stronger US dollar and a move higher in US treasury yields. This was then reversed into the end of the year as markets calmed. In Q1 equities performed well, as the economic growth outlook continued to strengthen. Political uncertainty in the US and Europe has caused minimal pull-backs in risk markets. Government bond yields rose in the US on the expectation of the Federal Open Market Committee s (FOMC s) rate rise, but rallied into the end of the quarter, ending almost flat, as the rate of change of the cyclical upswing moderated. All the other main components of the portfolio fixed income, real assets and total return strategies delivered positive returns. The improving economic growth outlook led us to increase the cyclicality of the portfolio early in the quarter, before moderating this slightly as we neared the end of March. In Q2 the portfolio delivered a positive return led by positive contributions from equities, total return strategies and fixed income holdings. Returns from real assets were a modest detractor from overall returns. The synchronous cyclical upswing in global economic activity showed signs of moderation in the period, with the eurozone economy retaining strength. We reduced the portfolio s cyclical stance over the quarter with additions to government bonds and a reduction in commodities exposure, as the long-term outlook for inflation remained muted. In Q3 positive returns were made across the portfolio, with equities the stand out performer. Our total return strategies and fixed income holdings made positive contributions and real assets also made a small gain. Throughout the quarter, equities benefited from a combination of improving global growth data, largely weaker-than-expected inflation outturns, and the related assumption that the Federal Reserve would end up raising rates less than it expected over the next year or so. That changed towards the end of the quarter, when markets reacted badly to the revelation that a larger number of Federal Open Market Committee (FOMC) members expected to raise rates by the end of the year. Bonds sold off around the globe, but the scale of the sell-off was fairly limited. Indeed, US 10-year yields were largely unchanged in Q3. In October equity holdings led returns, with key contributions from Eurozone and Japanese holdings, the latter benefitting from expectations of continued economic reforms following the election. Our range-bound position on the Australian equity market detracted but breakout strategies on emerging market and eurozone equities were positive. We initiated new positions that could benefit from upside in US equities and downside in US small-caps, as well as a position which could benefit from range-bound Swiss equities. Within fixed income strategies, returns from investment grade and high yield credit holdings were positive, while emerging market debt holdings detracted. German bonds contributed notable gains, following the ECB s suggestion that rates would remain low. Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England November Fund return is sterling, share class B1 and net of 0.5% annual management charge. 14

17 Investment Manager s Reports (continued) for the financial year ended 31 October 2017 Absolute Insight Dynamic Opportunities Fund The Fund returned 1.67% (net of fees) over the period, compared to a 3-month sterling Libid return of 0.21% 1. Infrastructure holdings and dividend strategies contributed to returns, with equity derivative strategies another positive. Strategies designed to benefit from breakouts in equity markets contributed some of the largest returns. At the beginning of the period under review, the market experienced some volatility due to the election of Donald Trump as US President. The impact on markets was mainly felt through a stronger US dollar and a move higher in US treasury yields. This was then reversed into the end of the year as markets calmed. In Q1 non-linear derivative strategies and positions focused on generating stable returns were positive, while relative value positions detracted from performance. In non-linear derivative strategies, positions designed to benefit from upside in eurozone, Swiss, emerging market and US equity markets made notable contributions to returns, as did a new rangebound strategy focused on the South African equity market. In positions aiming to generate stable returns, both infrastructure holdings and dividend derivative positions generated positive contributions. Relative value positions detracted from returns largely as a result of currency positions, most of which we closed by the end of the quarter. In Q2 non-linear derivative strategies, gains were led by breakout strategies, with notable contributions from upside positions focused on the European and US equity markets and the US fixed income market. Range-bound strategies were also positive, led by a sideways trade on South African equity which generated a strong return in June. In positions aiming to generate stable returns, both infrastructure holdings and dividend positions recorded gains. Relative value positions detracted somewhat from returns due to fixed income and equity positions. In Q3 positions across the portfolio performed well with notable contributions from equity breakout and range-bound positions, and dividend derivative positions. Positions on emerging market and eurozone equities, and US high yield and treasuries, led overall returns within breakout strategies. Elsewhere our position on the Australian equity market within range-bound positions helped overall returns. Within relative value positions, our preference for UK gilts over German bunds detracted from returns, but these losses were more than offset by gains in equity and currency positions. Returns from infrastructure holdings marginally contributed to overall portfolio returns. In October, financial conditions remain supportive in aggregate for prospective economic growth across most regions, supporting a positive contribution from breakout strategies on emerging market and eurozone equity positions. European dividend derivatives also contributed positively, although our range-bound position on the Australian equity market detracted. We initiated new positions that could benefit from upside in US equity markets and downside in the US smallcap equities, also introducing a position that could benefit from range-bound conditions in Swiss equities. In fixed income markets our relative value trade of UK gilts versus German bunds detracted from returns and we introduced positions that could benefit from range-bound conditions in European and US high yield markets. A relative value position in the Turkish lira versus the US dollar detracted from returns. Insight Investment Funds Management Limited 160 Queen Victoria Street London EC4V 4LA England November Fund return is sterling, share class B1p and net of 1% annual management charge and 10% performance fee. 15

18 Depositary s Report to the Shareholders of Absolute Insight Funds plc We have enquired into the conduct of Absolute Insight Funds plc ( the Company ) for the financial year ended 31 October 2017, 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 as a body, in accordance with Regulation 34, (1), (3) and (4) in Part 5 of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended, ( the UCITS Regulations ), 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 Regulation 34, (1), (3) and (4) in Part 5 of the UCITS 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 (the "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 Regulation 34, (1), (3) and (4) in Part 5 of the UCITS 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 Constitution and the UCITS Regulations and (ii) otherwise in accordance with the Company s constitutional documentation and the appropriate regulations. Opinion In our opinion, the Company has been managed during the year, in all material respects: (i) (ii) 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 (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 ( the Central Bank UCITS Regulations ); and otherwise in accordance with the provisions of the Deed of Constitution, the UCITS Regulations and the Central Bank UCITS Regulations. State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson s Quay Dublin 2 Ireland 14 February

19 Independent Auditor s Report to the Members of Absolute Insight Funds plc 1 Report on the audit of the financial statements Opinion We have audited the financial statements of Absolute Insight Funds plc ( the Company ) for the year ended 31 October 2017, which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares and related notes, including the summary of significant accounting policies set out in note 2. The financial reporting framework that has been applied in their preparation is Irish Law and FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. In our opinion accompanying financial statements: give a true and fair view of the assets, liabilities and financial position of the Company as at 31 October 2017 and of its increase in net assets attributable to holders of redeemable participating shares for the year then ended; have been properly prepared in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; 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 and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Going concern We have nothing to report on going concern We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects. Other information The directors are responsible for the other information presented in the financial statements. The other information comprises the information included in the directors report. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Based solely on that work, we report that: we have not identified material misstatements in the directors report; in our opinion, the information given in the directors report is consistent with the financial statements; in our opinion, the directors report has been prepared in accordance with the Companies Act Opinion on other matter prescribed by the Companies Act 2014 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. 17