Interim Short Report 1 December 2017 Fund Manager s Report Alasdair Ross Performance Over the six months to 1 December 2017, the iboxx Sterling Non-Gilt Index produced a total return of -0.59%. The offer price of accumulation units in the trust rose by +0.24% from 124.70p to 125.00p during the same period. Please note that the iboxx Sterling Non-Gilt Index returns quoted above are at global close as of 30 November 2017, although the trust is valued at 12 noon on the next working day. Market Overview and Portfolio Activity The UK gilt market posted a negative total return, with long-dated gilts being the worst performers. Over the six months to 1 December 2017, the 10-year benchmark gilt yield rose from 1.07% to 1.33%. However, UK investment-grade corporate bonds outperformed gilts as credit spreads tightened from +112 to +107 basis points (bps). As such, total returns were 0.28%, and excess returns were 0.91%. Fluctuations in gilt yields were primarily driven by political developments and somewhat driven by changing expectations regarding central bank monetary policy, as the market priced in higher rates. A contributing factor to the tightening of credit spreads was generally strong corporate earnings. On the political front, concerns in Europe initially eased following the victory of pro-eu candidate Emmanuel Macron in May s French presidential election, and his party s triumph in June s parliamentary elections. Investors also responded favourably to Angela Merkel s success in September s German federal elections; however, she has subsequently found it difficult to form a coalition government. In the UK, April s unexpected decision by Theresa May to call a snap general election on 8 June caused temporary nervousness, resulting in negotiations between the Conservatives and Northern Ireland s Democratic Unionist Party, in order to secure a working majority in parliament. Since then, markets have closely monitored developments in the UK s Brexit negotiations. Within the UK, the Bank of England raised rates from the record low of 0.25% to 0.5% at the start of November. Key concerns for the Bank are increasing inflationary pressures, fuelled by sterling s weakness since the Brexit vote, and the level of household debt. In Europe, amid the improved economic momentum, the European Central Bank announced that it would reduce its monthly bond-buying programme from 60bn to 30bn from January. We maintained our relatively cautious duration position (sensitivity to changes in the outlook for interest rates) and a modest overweight position in terms of credit-spread risk over the period. Increasingly, we viewed higher-quality bonds as offering better relative value as spreads moved tighter. Primary markets exhibited higher levels of activity over the period. Issuance was particularly strong on either side of the seasonal summer lull and was mostly dominated by the financial sector. Over the period, we participated in a number of new deals, including issues from Annington Funding, Digital Realty, Akelius Residential and DS Smith. Our activity in the secondary market included an addition to our holding in AT&T and a new position in Cenovus. Against this, we sold out of Aspire Defence and Morgan Stanley. Furthermore, we switched our exposure in Legal & General from short-dated bonds into longer-dated bonds. We hold a broadly balanced view on the prospects for corporate credit. We expect to see a gradual reduction in the supportive policy conditions via rising rates and an end to quantitative easing over the course of the next year. We also remain mindful of ongoing political risk as the Brexit saga drags on and as recent events in Germany and Spain (Catalonia s bid for independence) have brought political instability back into focus. The growth outlook appears to be reasonable without any meaningful signs of inflation in most countries except for the UK which is experiencing a currency related uptick in inflation. However, credit fundamentals look neutral at best. Market valuations (spreads) remain close to the long-run average and we expect to see a sustained pick-up in new issuance. Nevertheless, investor demand for income without too much risk remains a powerful supportive factor for investment-grade corporate bonds while yields on cash and short-dated government bonds remain around historical lows. Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 1 June 1 August 1 September 1 November 1 December 1 February 1 March 1 May Ongoing Charges Figure The Ongoing Charges Figure (OCF) is the European standard method of disclosing the charges of a unit class of a trust based on the financial year s expenses and may vary from year to year. It includes charges such as the trust s annual management charge, registration fee, custody fees and distribution cost but ordinarily excludes the costs of buying or selling assets for the trust (unless these assets are shares of another fund). The Key Investor Information Document (KIID) contains the current OCF. For a more detailed breakdown please visit columbiathreadneedle.com/fees. Unit class 1 December 2017 1 June 2017 Income units 1.46% 1.45% Accumulation units 1.46% 1.45% The Ongoing Charges Figure is annualised based on the fees incurred during the accounting period or since commencement date.
Summary of Trust Performance Performance History (%) Unit class 2017 1 2016 2015 2014 2013 2012 Income units +3.32 +9.12 +0.18 +8.48 +0.78 +14.17 Accumulation units +3.34 +9.11 +0.10 +8.56 +0.77 +14.18 1 To 30 November 2017. Source: Morningstar and Threadneedle. Bid to bid prices are quoted (i.e. not including any initial charge) with net income reinvested for a UK basic rate tax payer and gross income reinvested for a non-uk resident. Performance data is quoted in sterling apart from hedged share classes, where applicable, which are in the hedged currency. Past performance is not a guide to future investment performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Net Asset Value (NAV) NAV pence per unit Number of units in issue As at Unit class NAV ( ) 1 December 2017 Income units 3,557,840 58.31 6,101,651 1 June 2017 Income units 3,817,198 58.76 6,496,411 1 June 2016 Income units 3,832,333 55.20 6,943,225 1 June 2015 Income units 4,201,988 55.11 7,625,036 1 December 2017 Accumulation units 22,201,264 118.02 18,812,106 1 June 2017 Accumulation units 23,229,464 117.76 19,726,854 1 June 2016 Accumulation units 21,984,235 108.44 20,273,484 1 June 2015 Accumulation units 28,291,877 105.83 26,732,797 Distribution History/Unit Price Range Pence per unit Highest offer price (pence) Lowest bid price (pence) Year to Unit class 1 December 2017 Income units 0.5818 62.83 58.02 1 June 2017 Income units 1.1614 62.98 55.23 1 June 2016 Income units 1.2419 58.74 52.90 1 June 2015 Income units 1.3062 60.39 53.05 1 December 2017 Accumulation units 1.1689 126.20 116.50 1 June 2017 Accumulation units 2.2988 125.00 108.50 1 June 2016 Accumulation units 2.4053 114.80 102.80 1 June 2015 Accumulation units 2.4667 114.70 99.50 Past performance is not a guide to future performance.
Classification of Investments 1 December 2017 vs 1 June 2017 30% 25% Threadneedle Navigator Income Trust 1 December 2017 1 June 2017 20% 15% 10% 5% 0% -5% AAA Aaa AA+ Aa1u Portfolio Information Top Five Holdings as at 1 December 2017 A A2 A- % of Trust APT Pipelines 4.25% 26/11/2024 1.30 Innogy Finance 6.25% 03/06/2030 1.25 First Hydro Finance 9% 31/07/2021 1.17 Severn Trent Utilities Finance 3.625% 16/01/2026 1.14 AT&T 4.375% 14/09/2029 1.14 BBB+ Baa1 BBB Baa2 Top Five Holdings as at 1 June 2017 AA Aa2u AA- A+ A1 BBB- Baa3 BB+ BB BB- B+ B Not Rated Derivatives Net other assets % of Trust United Kingdom Gilt 1% 07/09/2017 1.70 APT Pipelines 4.25% 26/11/2024 1.25 Innogy Finance 6.25% 03/06/2030 1.22 First Hydro Finance 9% 31/07/2021 1.15 Severn Trent Utilities Finance 3.625% 16/01/2026 1.12
Investment Objective and Policy To achieve a high level of income. The Manager s investment policy is to invest in fixed interest investments primarily in the UK and Continental Europe. The Manager does not envisage remaining fully invested at all times and may utilise stock lending, forward transactions and derivatives in order to hedge against price or currency fluctuations and to facilitate Efficient Portfolio Management. Key Investor Information Document (KIID) Subscription requirements The KIID is a pre-contractual document and investors have to confirm that they have read the latest KIID before making a subscription. Threadneedle has the right to reject a subscription if the investor does not confirm that they have read the latest KIID at the time of application. Investors can obtain the latest KIID from columbiathreadneedle.com. Changes to the directors of the Manager The following changes have been made to the directors of the Manager: Appointment of Ms. Michelle Scrimgeour on 14 August 2017 Changes to the trusts The Threadneedle Navigator UK Index Tracker Trust, the Threadneedle Navigator Growth Trust and the Threadneedle Navigator Income Trust will be closed on 22 March 2018. Subject to approval by unitholders at an extraordinary meeting to be held on 14 February 2018, the Threadneedle Navigator Cautious Managed Trust, the Threadneedle Navigator Balanced Managed Trust, the Threadneedle Navigator Growth Managed Trust and the Threadneedle Navigator Adventurous Managed Trust will merge with similar funds in the Threadneedle Managed Funds range on 16 March 2018. For further information about the mergers, please refer to www.columbiathreadneedle.com/changes or contact the Manager using the details set out on the following page. Changes to the Prospectus There have been no changes made to the prospectus during the period from 2 June 2017 to 1 December 2017. Changes to the Trust Deed There have been no changes made to the trust deeds during the period from 2 June 2017 to 1 December 2017. Key Risks Investment Risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested. Issuer Risk: The trust invests in securities whose value would be significantly affected if the issuer refused, was unable to or was perceived to be unable to pay. Liquidity Risk: The trust holds assets which could prove difficult to sell. The trust may have to lower the selling price, sell other investments or forego more appealing investment opportunities. 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 trust 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 trust allows it to invest in derivatives for the purposes of reducing risk or minimising the cost of transactions. Volatility Risk: The trust may exhibit significant price volatility. Effect of Dual Pricing Risk: The trust is dual priced and there is a difference between the buying price and the selling price of units. Further risks applicable to the trust can be found in the Prospectus. Risk and Reward Profile As at 1 December 2017 the figure for the risk and reward profile disclosed in the most recent KIID representing this trust is 3. The trust is in this specific category because historically it has shown a medium to low level of volatility (how much the value of the trust went up and down compared to other categories). It is based on past performance data in pound sterling. If your investment in the trust 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 trust.
General Information The information in this report is designed to enable unitholders to make an informed judgement on the activities of the trust during the period it covers and the results of those activities at the end of the period. For further information, please contact Threadneedle Investment Services Limited. The Long Form Report and Financial Statements is available free of charge on request from the Manager and on our website. For more information about the activities and performance of the trust during the period and previous periods, please contact the Manager at the administration address noted below, or visit our website at columbiathreadneedle.com. Contacts: Manager and Alternative Investment Fund Manager (AIFM) 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): 0800 953 0134* Telephone non-uk Residents: (dealing & customer enquiries): +352 46 40 10 7020* Fax UK Investors (dealing): 0845 113 0274 Fax non-uk Investors (dealing): +352 2452 9807 Email (enquiries): questions@service.columbiathreadneedle.co.uk 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) 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 Sutherland (International) 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 2017.
To find out more visit columbiathreadneedle.com Threadneedle Investment Services Limited, ISA Manager, Authorised Corporate Director and Unit Trust Manager. Registered No. 3701768. 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 214308