THREADNEEDLE MANAGED EQUITY INCOME FUND

Transcription

1 INTERIM REPORT AND UNAUDITED FINANCIAL STATEMENTS THREADNEEDLE MANAGED EQUITY INCOME FUND AUGUST 2017 THREADNEEDLE MANAGED EQUITY INCOME FUND COLUMBIATHREADNEEDLE.COM

2 Contents Introduction... 2 Directors Statement*... 2 Investment Report*... 3 Statement of Total Return... 5 Statement of Change in Net Assets Attributable to Unitholders... 5 Balance Sheet... 5 Table... 5 Comparative Table Disclosure... 6 Notes to the Financial Statements... 7 Portfolio Statement*... 8 Risk and Reward Profiles*... 9 Important Information* Directory* *Collectively these comprise the Manager s Report. 1

3 Introduction This Interim Report and Unaudited Financial Statements cover the 6 months to 25 August 2017 and review the performance and market background for the Threadneedle Managed Equity Income Fund. We hope that you find the report informative. Should you require any further information regarding any aspect of your investment, or about our other products, we would be pleased to help. Alternatively, you may find it helpful to visit columbiathreadneedle.com for further information about Columbia Threadneedle Investments. DIRECTORS STATEMENT In accordance with the requirements of the Financial Conduct Authority s Collective Investment Schemes (COLL) Sourcebook, we hereby certify the Interim Report and Unaudited Financial Statements on behalf of the Directors of Threadneedle Investment Services Limited. Thank you for your continued support. M Scrimgeour Director L Weatherup Director M Scrimgeour Director 18 October

4 Investment Report Investment Objective and Policy To provide a growing income with potential for capital growth. The Fund will invest at least two-thirds of its assets in funds managed or operated by companies in the Threadneedle group. These funds may invest worldwide. The Fund will invest at least two-thirds of its assets in funds that invest in company shares, but will also have some exposure to fixed income securities. The Fund may also hold cash, near cash and money market instruments. Up to 20% of the value of the Fund may be invested in funds that invest in derivatives for purposes other than Efficient Portfolio Management. Performance Over the six months to 25 August 2017, the offer price of Class A units for the Threadneedle Managed Income Fund has risen from 82.17p to 83.56p. Over the same period, the offer price of Class B units has risen from 81.75p to 83.25p. Over the same period, the offer price of Class Z units has risen from p to p. Looking at performance within its peer group, the total return on the fund* for the 6 month period ending 31 August 2017, including net reinvested income, is +3.22% as compared to a median return of +3.72% over the same period. (For information the FTSE All-Share Total Return Index returned +5.30% over the same period.) In view of the nature of the fund and its investment remit, there is no directly comparable market index. The requirement to maintain a good level of income for investors means that a significant proportion of the portfolio continues to be held in funds with exposure to bonds. Market Overview and Portfolio Activity Global equities posted positive returns over the review period despite concerns over falling oil prices and unfavourable geopolitical developments in the Middle East and the Korean peninsula. Factors that bolstered sentiment included better-than-expected corporate results and signs of economic stabilisation in China. Initially, hopes that President Trump would deliver growth-friendly policies propelled risk assets higher. However, investors turned more pessimistic in March as the failure of his healthcare bill cast doubt on his other reforms. The fallout from the sacking of FBI director James Comey in May had a similar impact. Later, Trump encountered further setbacks in his attempts to repeal Obamacare; this, along with concerns over alleged Russian involvement in his election campaign fuelled even more scepticism about Trumponomics. Politics also came to the fore in Europe. The start of the review period saw investors fret over populism. However, these concerns ebbed after Geert Wilders eurosceptic party suffered a defeat in the Dutch election. Emmanuel Macron s decisive victory in the French presidential election did even more to appease investors fears about eurosceptic movements. Even as political uncertainty was receding on the continent, it remained a prominent factor for UK investors. While the triggering of Article 50 had virtually no market impact, Prime Minister Theresa May s surprise call in April for a snap general election buoyed sterling due to hopes that an increased majority for the Conservatives could strengthen the government s hand in Brexit negotiations. In the event, the Conservatives lost their overall majority, leading to some short-term jitters; however, these receded on hopes of a soft Brexit. Economic activity globally has generally been more robust than expected. However, the UK s growth indicators disappointed in the main. Real wages lagged inflation in the first half of 2017; sterling s Brexit-induced slump pushed up general price levels. Within the US, robust employment data and solid economic growth heightened expectations for rate hikes. The Federal Reserve (Fed) duly delivered two quarter-point hikes: in March and June. But over the summer, some lacklustre indicators along with pessimism over Trump s ability to boost growth led investors to push back their expectations of the timing of the Fed s next rate hike. Emerging markets outperformed global averages in local-currency terms despite jitters over protectionism and higher US rates. Chinese equities performed particularly well amid optimism over the country s economic prospects and MSCI s decision to include A-shares into its indices. However, Russian equities lost ground in local-currency terms; falling oil prices soured sentiment as did the prospect, then reality, of increased US sanctions. Brazilian equities also lagged as allegations of corruption against President Michel Temer cast a shadow over his ability to implement key reforms. By contrast, the policy landscape in India appeared brighter the ruling party s victory in a key state election buoyed hopes of future reform. The review period also saw the roll-out of the nationwide goods and services tax. The Threadneedle Managed Equity Income Fund provides investors with exposure to a carefully selected portfolio of equity and bond funds. There is an overall UK bias and a tilt towards equities. At the end of the period, about 83% of the fund was invested in UK-listed and overseas equity funds. This included an allocation of around 33% to monthly income sub funds (Threadneedle UK Monthly Income Fund and Threadneedle Monthly Extra Income Fund) and around 29% in UK income sub-funds (Threadneedle UK Equity Income Fund and Threadneedle UK Equity Alpha Income Fund). The remaining 21% was nearly equally distributed between two international income sub-funds Threadneedle Global Equity Income Fund and Threadneedle Pan European Equity Dividend Fund. The non-equity investments accounted for c. 17% of the portfolio and comprised the UK Corporate Bond Fund and Threadneedle High Yield Bond Fund. Global newsflow may continue to cause some market volatility. While any tightening of monetary policy might indicate a welcome move back towards normality, it could also be a headwind for the global economy in the near term. We note that stock markets have been among the primary beneficiaries of money printing; therefore, we are wary of how equities will cope as monetary easing is reduced. Against this backdrop, we continue our focus on quality income, seeking competitively advantaged companies that generate strong cashflows and offer high, growing and sustainable dividend yields. In our view, a strategy that emphasises both income and growth characteristics should remain attractive to long-term investors. We also retain our conviction in the ability of high dividend paying stocks to outperform over these longer time periods. Although the UK s domestic political and economic prospects are somewhat uncertain, the outlook for UK equities is more measured. These *Refers to the Retail Class A units. 3

5 Investment Report continue to trade at attractive valuations relative to those in the US and Europe. Brexit-induced uncertainty has driven global asset allocators to be extremely underweight UK equities we believe this makes domestic corporates attractive takeover targets. Sterling s weakness could also provide additional impetus to the Merger and Acquisition wave, which has taken off since the Brexit vote. In the underlying funds we will avoid whipsaw momentum trades and focus instead on bottom-up stock picking. As patient, conviction investors, we can use market volatility to add to favoured names at attractive valuations, while making sure that our portfolio construction remains focused on riskadjusted returns. 4

6 Threadneedle Managed Equity Income Fund STATEMENT OF TOTAL RETURN for the accounting period 26 February 2017 to 25 August Income Net capital gains 3,154 10,620 Revenue 2,589 2,616 Expenses (818) (781) Net revenue before taxation 1,771 1,835 Taxation (58) (70) Net revenue after taxation 1,713 1,765 Total return before distributions 4,867 12,385 s (1,825) (1,835) Change in net assets attributable to unitholders from investment activities 3,042 10,550 BALANCE SHEET as at 25 August 2017 February Assets: Fixed assets: Investments 117, ,295 Current assets: Debtors Cash and bank balances 1, Total assets 120, ,438 Liabilities: Creditors: payable (304) (1,269) Other creditors (488) (527) Total liabilities (792) (1,796) Net assets attributable to unitholders 119, ,642 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS for the accounting period 26 February 2017 to 25 August Opening net assets attributable to unitholders 116, ,652 Amounts receivable on the issue of units 6,142 5,310 Amounts payable on the cancellation of units (6,335) (9,337) (193) (4,027) Change in net assets attributable to unitholders from investment activities (see statement of total return above) 3,042 10,550 Unclaimed distributions 6 6 Closing net assets attributable to unitholders 119, ,181 The comparatives used within the Statement of Change in Net Assets Attributable to Unitholders are for the corresponding period of the previous year. Therefore the opening net assets attributable to unitholders for the current year are at 25 February 2017 whilst the figure disclosed in the comparatives closing net assets attributable to unitholders is at 25 August DISTRIBUTION TABLE for the accounting period 26 February 2017 to 25 August 2017 Dividend distribution in pence per unit Class A Income units Period Revenue Equalisation Paid/Payable Paid Group 1 26/02/17 to 25/03/ /03/17 to 25/04/ /04/17 to 25/05/ /05/17 to 25/06/ /06/17 to 25/07/ /07/17 to 25/08/ Group 2 26/02/17 to 25/03/ /03/17 to 25/04/ /04/17 to 25/05/ /05/17 to 25/06/ /06/17 to 25/07/ /07/17 to 25/08/ Total distributions in the period Class B Income units Period Revenue Equalisation Paid/Payable Paid Group 1 26/02/17 to 25/03/ /03/17 to 25/04/ /04/17 to 25/05/ /05/17 to 25/06/ /06/17 to 25/07/ /07/17 to 25/08/ Group 2 26/02/17 to 25/03/ /03/17 to 25/04/ /04/17 to 25/05/ /05/17 to 25/06/ /06/17 to 25/07/ /07/17 to 25/08/ Total distributions in the period Class Z Income units Period Revenue Equalisation Paid/Payable Paid Group 1 26/02/17 to 25/03/ /03/17 to 25/04/ /04/17 to 25/05/ /05/17 to 25/06/ /06/17 to 25/07/ /07/17 to 25/08/ Group 2 26/02/17 to 25/03/ /03/17 to 25/04/ /04/17 to 25/05/ /05/17 to 25/06/ /06/17 to 25/07/ /07/17 to 25/08/ Total distributions in the period Group 2: units purchased during a distribution period. 5

7 Threadneedle Managed Equity Income Fund Comparative Table Disclosure Class A Income units Class B Income units 25/08/ /02/ /02/ /08/ /02/ /02/2016 Change in net assets per unit Opening net asset value per unit (p) Return before operating charges (p) (1.21) (1.30) Operating charges (p) (0.66) (1.28) (1.24) (0.58) (1.12) (1.08) Return after operating charges (p)* (2.45) (2.38) s (p) (1.23) (3.01) (2.96) (1.26) (3.07) (3.00) Closing net asset value per unit (p) *after direct transaction costs of (p) Performance Return after charges (%) (3.22) (3.04) Other information Closing net asset value ( 000) 67,956 67,712 66,725 34,394 34,078 33,837 Closing number of units 84,596,475 86,445,971 94,290,041 41,420,242 42,134,925 46,422,558 Operating charges (%)** Direct transaction costs (%) Prices Highest unit price (p) Lowest unit price (p) Class Z Income units 25/08/ /02/ /02/2016 Change in net assets per unit Opening net asset value per unit (p) Return before operating charges (p) (1.84) Operating charges (p) (0.60) (1.17) (1.12) Return after operating charges (p)* (2.96) s (p) (1.74) (4.23) (4.12) Closing net asset value per unit (p) *after direct transaction costs of (p) Performance Return after charges (%) (2.75) Other information Closing net asset value ( 000) 17,147 14,852 10,090 Closing number of units 14,930,168 13,296,302 10,052,759 Operating charges (%)** Direct transaction costs (%) Prices Highest unit price (p) Lowest unit price (p) **The Operating charges are represented by the Ongoing Charges Figure (OCF) which is the European standard method of disclosing the charges of a unit class of a fund based on the financial year s expenses and may vary from year to year. It includes charges such as the fund s annual management charge, registration fee, custody fees and distribution cost but ordinarily excludes the costs of buying or selling assets for the fund (unless these assets are shares of another fund). The Key Investor Information Document (KIID) contains the current OCF. The calculation includes the fund s share of the expenses of the underlying fund less any fee rebates received. The share of the costs of the underlying funds may fluctuate due to changes in investment decisions, which may be required as a result of changes in market conditions. For a more detailed breakdown please visit columbiathreadneedle.com/fees. The Ongoing Charges Figure is annualised based on the fees incurred during the accounting period. 6

8 Notes to the Financial Statements for the accounting period 26 February 2017 to 25 August ACCOUNTING POLICIES (a) Basis of accounting The financial statements have been prepared on the historical cost basis, as modified by the revaluation of investments, in compliance with FRS 102 and in accordance with the Statement of Recommended Practice for Authorised Funds (SORP) issued by the Investment Management Association in May The accounting policies applied are consistent with those of the annual financial statements for the year ended 25 February 2017 and are described in those financial statements. (b) Notes In accordance with the guidelines of the SORP the fund has taken advantage of the facility not to provide further notes to the financial statements. 2 RECONCILIATION OF UNITS 2017 Class A Income units Opening units 86,445,971 Units issued 1,913,121 Units redeemed (3,762,617) Net conversions qqqqqq Closing units 84,596,475 zzzzzzzz Class B Income units Opening units 42,134,925 Units issued 1,446,926 Units redeemed (2,058,123) Net conversions qqqqqq (103,486) Closing units 41,420,242 zzzzzzzz Class Z Income units Opening units 13,296,302 Units issued 2,967,933 Units redeemed (1,408,889) Net conversions qqqqqq 74,822 Closing units 14,930,168 zzzzzzzz 7

9 Portfolio Statement as at 25 August 2017 Holding Investment Value 000 % of Net Asset Value COLLECTIVE INVESTMENT SCHEMES 98.53% (100.56%) UK equity 62.23% (63.86%) 28,361,193 Threadneedle Monthly Extra Income Fund 23, ,580,515 Threadneedle UK Equity Alpha Income Fund 18, ,529,129 Threadneedle UK Equity Income Fund 16, ,927,122 Threadneedle UK Monthly Income Fund 16, Total UK equity 74, UK bond 10.49% (10.77%) 19,886,988 Threadneedle UK Corporate Bond Fund 12, Total UK bond 12, Overseas equity 20.97% (21.00%) 8,857,014 Threadneedle Global Equity Income Fund 12, ,415,940 Threadneedle Pan European Equity Dividend Fund 12, Total overseas equity 25, Overseas bond 4.84% (4.93%) 13,307,713 Threadneedle High Yield Bond Fund 5, Total overseas bond 5, Total collective investment schemes 117, Total value of investments 117, Net other assets/(liabilities) (-0.56%) 1, Net assets 119, February 2017 comparatives in brackets. Total Purchases and Sales for the accounting period 26 February 2017 to 25 August Total purchases for the period 509 Total sales for the period 2,058 3,693 8

10 Risk and Reward Profiles Fund Share Class SRRI* Managed Equity Income Fund Class A Income units 4 Class B Income units 4 Class Z Income units 4 * As at 25 August 2017 the synthetic risk and reward indicator (SRRI) is explained in the table below: SRRI 1 The fund is in this specific category because historically it has shown a low level of volatility (how much the value of the fund went up and down compared to other categories). 2 The fund is in this specific category because historically it has shown a relatively low level of volatility (how much the value of the fund went up and down compared to other categories). 3 The fund is in this specific category because historically it has shown a medium to low level of volatility (how much the value of the fund went up and down compared to other categories). 4 The fund is in this specific category because historically it has shown a medium level of volatility (how much the value of the fund went up and down compared to other categories). 5 The fund is in this specific category because historically it has shown a medium to high level of volatility (how much the value of the fund went up and down compared to other categories). 6 The fund is in this specific category because historically it has shown a high level of volatility (how much the value of the fund went up and down compared to other categories). 7 The fund is in this specific category because historically it has shown a very high level of volatility (how much the value of the fund went up and down compared to other categories). The Risk and Reward Profile is based on past performance data in pound sterling. If your investment in the fund is not in pound sterling, please check the figure for the risk and reward profile disclosed on our website (columbiathreadneedle.com) according to the currency of your investment in the fund. Historical data may not be a reliable indication of the future risk profile of the fund. The SRRI category shown is not guaranteed to remain unchanged and that the categorisation of the fund may shift over time. The KIID contains the current SRRI. The lowest category does not mean a risk-free investment. No form of capital protection or capital guarantee applies to any of the classes. 9

11 Important Information General The Threadneedle Managed Equity Income Fund (the fund) is an authorised unit trust scheme that has been set up in accordance with the rules contained in the Financial Conduct Authority s (FCA) Collective Investment Schemes sourcebook (COLL) and operates under Chapter 5 of the COLL Rules. The funds have been certified by the FCA as eligible to enjoy the rights conferred by the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC). The prospectus, which describes the fund in detail, is available on request from Threadneedle Investment Services Limited (the Manager ). Key Investor Information Document Subscription requirements The KIID is a pre contractual document and investors have to confirm that they have read the latest KIID before making a subscription. Threadneedle has the right to reject a subscription if the investor does not confirm that they have read the latest KIID at the time of application. Investors can obtain the latest KIID from columbiathreadneedle.com. Investment objective To provide a growing income with potential for capital growth. Investment Policy The Fund will invest at least two-thirds of its assets in funds managed or operated by companies in the Threadneedle group. These funds may invest worldwide. The Fund will invest at least two-thirds of its assets in funds that invest in company shares, but will also have some exposure to fixed income securities. The Fund may also hold cash, near cash and money market instruments. Up to 20% of the value of the Fund may be invested in funds that invest in derivatives for purposes other than Efficient Portfolio Management. Change to the name of the Fund from 28 February 2017 The name of the fund was changed to Threadneedle Managed Equity Income Fund on 28 February 2017 and the trust deed and prospectus have been amended to reflect the change of name. At the same time, the investment objective for the fund was re-worded to provide a clearer explanation of the investment purpose of the fund. The changes to the wording will not affect the way the fund is run by the fund manager. Changes to the Prospectus During the period from 26 February 2017 to 25 August 2017, the following changes were made to the prospectus of the fund: Changes to the name of each of the funds and clarification of their investment objective and policy Restructuring the prospectus so details of each fund is included in a separate annex and replacing the definition of Trust with Fund throughout Updates to include changes to the COLL rules Updates to reflect changes being made to UK tax on distributions (gross vs net units) Updates to sections on performance and taxation Update address of Financial Ombudsman Service Changes to the Trust Deed During the period, the trust deed was amended to reflect the change of name of the fund. Changes to the management of the Manager The following changes have been made to the directors of the Manager: Resignation of Mr Tim Gillbanks on 31 March 2017 Appointment of Michelle Scrimgeour on 14 August 2017 Characteristics of Units The fund is an authorised unit trust scheme and currently consists of one fund. Several classes of unit may be issued in respect of the fund, distinguished by their criteria for subscription and fee structure. Units Minimum Investment Eligibility Class A 2,000 Retail investors Class B 5,000,000 Non-retail investors Class Z 1,000,000 Eligible investors only The limits for minimum initial investment, minimum subsequent investment and minimum holding of units may be waived at the discretion of the Manager. For further information please refer to the prospectus. Charges and Prices For the fund, two unit prices are quoted, the offer price at which you buy units and the bid price at which you sell them back to us. The difference between these two prices includes the initial charge and is called the bid/ offer spread. The fees and expenses of the Manager, Trustee, Registrar, Auditor and the FCA authorisation fee are payable by the fund. Income Equalisation Since the fund operates equalisation, the first allocation made after the acquisition of units will include an amount of equalisation. This amount represents the Manager s best estimate of the income included in the price at which the units were acquired (subject to grouping where appropriate) and represents a capital repayment for UK tax purposes which should be deducted from the cost of units in arriving at any capital gain realised on their subsequent disposal. Individual Savings Accounts Throughout the accounting period the fund has satisfied the requirements of the Individual Savings Account Regulations 1998 (as amended). It is the Manager s intention that the fund will be managed in such a way as to continue to meet this requirement. Foreign Account Tax Compliance Act (FATCA) Threadneedle and its funds (Threadneedle) have registered with the US Internal Revenue Service in accordance with FATCA and other current related legislation. Threadneedle has put in place appropriate processes and procedures to maintain its compliance with the statutory requirements, including ensuring that Threadneedle obtain the required certification from its clients and investors as necessary to mitigate any requirement upon Threadneedle to withhold or report such clients under the legislation. This registration and compliance process will ensure that Threadneedle should not suffer withholding tax under FATCA. Common Reporting Standard (CRS) The Common Reporting Standard ( CRS ) has come into effect in stages, starting from 1 January 2016, was developed by the Organisation for Economic Co-operation and Development ( OECD ). The CRS has been 10

12 Important Information (continued) adopted in the UK by The International Tax Compliance Regulations 2015, and may require Threadneedle funds to report account holder information to HMRC about their shareholdings. HMRC will in turn pass this information onto the competent authorities with which it has an agreement. Key Risks of the Fund: The following Key Risks apply to the Managed Equity Income Fund: Investment Risk The value of investments can fall as well as rise and investors might not get back the sum originally invested. Investment in Funds Risk The Investment Policy allows the fund to invest principally in units of other collective investment schemes. Investors should consider the investment policy and asset composition in the underlying funds when assessing their portfolio exposure. Issuer Risk The fund invests in securities whose value would be significantly affected if the issuer refused, was unable to or was perceived to be unable to pay. Inflation Risk Most bond and cash funds offer limited capital growth potential and an income that is not linked to inflation. Inflation is likely to affect the value of capital and income over time. Interest Rate Risk Changes in interest rates are likely to affect the fund s value. In general, as interest rates rise, the price of a fixed rate bond will fall, and vice versa. Derivatives for EPM/Hedging Risk The investment policy of the fund allows it to invest in derivatives for the purposes of reducing risk or minimising the cost of transactions. Volatility Risk The fund may exhibit significant price volatility. Effect of Dual Pricing Risk The fund is dual priced and there is a difference between the buying price and the selling price of units. Further risks applicable to the fund can be found in the Prospectus. 11

13 Directory Manager Threadneedle Investment Services Limited (Authorised and Regulated by the Financial Conduct Authority (FCA)) Registered Office Cannon Place 78 Cannon Street London EC4N 6AG Client Services Details Address: Threadneedle Investment Services Limited PO Box 10033, Chelmsford, Essex CM99 2AL Telephone UK Investors: (dealing & customer enquiries): * Telephone non-uk Residents: (dealing & customer enquiries): * Fax UK Investors (dealing): Fax non-uk Investors (dealing): (enquiries): Registrar Threadneedle Investment Services Limited Delegated to: DST Financial Services Europe Limited** (Authorised and regulated by the FCA ) St Nicholas Lane Basildon Essex SS15 5FS Directors of the Manager K Cates (non-executive) T N Gillbanks (Resigned from the Board on 31 March 2017) D Jordison D Kremer A Roughead (non-executive) M Scrimgeour (Appointed to the Board on 14 August 2017) L Weatherup Investment Manager Threadneedle Asset Management Limited (Authorised and regulated by the FCA) Registered Office Cannon Place 78 Cannon Street London EC4N 6AG Trustee Citibank Europe plc, UK Branch (Authorised by the Prudential Regulatory Authority (PRA) and regulated by the FCA and PRA) Head Office and Registered Office Citigroup Centre Canada Square Canary Wharf London E14 5LB Legal Advisers Eversheds LLP One Wood Street London EC2V 7WS Independent Auditor PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX *Calls will be recorded. **International Financial Data Services (UK) Limited changed its name to DST Financial Services Europe Limited on 15 August

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