Interim Short Report 15 November 2018 Fund Managers Report Mark Burgess Alex Lyle Fund Performance During the period under review the offer price of Class A units fell by 5.16% from 205.30p to 194.70p and the offer price of Class B units fell by 5.06% from 203.70p to 193.40p. Looking at performance within its peer group (the UK IA Flexible Investment Sector), the total return on the trust for the six months ending 31 October 2018, including net reinvested income, is -2.80% as compared to a median return of -2.45% over the same period. (Source: Morningstar, bid to bid, income reinvested for a UK basic rate taxpayer). Please note that this period has been used for peer group comparisons due to updated peer group information only being available from Morningstar at month-end points. In view of the nature of the fund and its investment remit, there is no directly comparable market index. Market Overview and Portfolio Activity The six months under review proved a volatile period for global equity markets, with October a particularly challenging month. The period began on a positive note, buoyed by further economic expansion, robust corporate earnings and an improvement in political relations between North and South Korea. The second half of the period saw investors become increasingly risk averse, amid the escalation of trade tensions between the US and China. Following the earlier imposition of tariffs of 25% on $50bn of Chinese imports, the US administration pressed ahead with levies of 10% on a further $200bn of imports from China from late September. China responded by imposing tariffs on $60bn of US imports. There were also worries over US sanctions against Iran and Turkey, with the latter fuelling a fall in the Turkish lira. Along with President Trump s increasingly protectionist stance, there were a number of other geopolitical concerns. The European Commission rejected the new Italian government s expansionary budget proposals as the country is already heavily indebted. Additionally, relations between the West and Saudi Arabia have deteriorated following the killing of journalist Jamal Khashoggi. However, in Brazil investors have responded positively to the recent election victory of market-friendly candidate Jair Bolsonaro. Over the past year, the rise in the oil price has benefited energy companies across the globe, including UK oil majors BP and Shell. However, uncertainties over the Brexit negotiations have continued to cast a shadow over the UK stock market, which fell back over the period. Among the major equity markets, only the US recorded a positive return, reaching record highs in the summer fuelled by gains in leading technology companies. The US economy has remained buoyant, boosted by President Trump s tax cuts. However, economic momentum in the eurozone has slowed, with GDP growth in the third quarter slipping to a four-year low, partly a result of economic stagnation in Italy. Recent Japanese economic data also proved far from robust, partially due to the disruptions caused by recent natural disasters. Ongoing Charges Figure Global equity and bond markets were also buffeted by higher US interest rates and the spike in US Treasury bond yields. The Federal Reserve announced two quarter-point hikes in US interest rates, in June and September, bringing the target range to 2% to 2.25%. UK gilts outperformed US Treasury bonds as the pace of UK rate hikes is likely to be much more pedestrian, particularly with Brexit due next March. On 2 August, the Bank of England announced a quarter-point rise in interest rates from 0.5% to 0.75%, only the second increase in a decade. UK rates were raised after stronger economic releases convinced policymakers that the softer data earlier this year was due to the harsh winter weather. While the European Central Bank maintained rates at 0%, the bank confirmed that its bond-buying stimulus programme will end in December. The Bank of Japan left rates unchanged. In early November, markets responded positively to the outcome of the US mid-term elections. Strong gains by the Democrats in the House of Representatives, mean that they now hold the balance of power. While the Republicans increased their majority in the Senate, there are hopes that a divided Congress could help curb some of Donald Trump s more disruptive policies. Within the equity portion of the portfolio, we increased the allocation to the US via the Threadneedle American Fund. We had been encouraged by the strength of the domestic economy and US corporate earnings, which, when we added to our US equities position, had not been rewarded by the market. Conversely, we pared back the exposure to the UK, notably by reducing the holding in the Threadneedle UK Equity Alpha Income Fund. There are ongoing concerns over the Brexit negotiations and the implications for the UK economy. However, sterling weakness has made UK companies more attractive to foreign buyers, and there has been a pick-up in takeover activity. We also trimmed the exposure to other markets, most notably Europe. In the fixed income segment, we increased the holding in the Threadneedle Global Bond Fund, where the emphasis is on overseas government bonds. Additionally, we lowered the exposure to the Threadneedle High Yield Bond Fund and sold out of the Threadneedle Global Opportunities Bond Fund. Developed economies are currently experiencing reasonable recoveries, though the degree of global synchronisation appears to have slowed since the start of the year. The recent escalation of tensions between the US and China may have impacted the growth in world trade. While developed economies appear in good shape, it is unclear whether long-term growth potential has increased. A key uncertainty is whether the US tax reforms can meaningfully boost investment and productivity. While growth should be supported in the first part of 2019, growth further out will be hindered by the increased debt burden of the fiscal package. Overall, we believe the economic outlook of solid GDP growth but low inflation represents a reasonable investment background for financial markets. Fund Facts Fund Accounting and Distribution Dates Accounting Dates All classes Payment Dates 15 May 15 July Class T Income units have the following additional fund accounting and distribution dates 15 November 15 January The Ongoing Charges Figure (OCF) 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.
Unit class 15 November 2018 15 May 2018 Class A Accumulation units 1.60% 1.68% Class B Accumulation units 1.35% 1.42% Class T Income units 1.25% 1.33% Class Z Accumulation units 1.00% 1.08% The Ongoing Charges Figure is annualised based on the fees incurred during the accounting period or since commencement date. Summary of Fund Performance Performance History (%) Unit class 2018 1 2017 2016 2015 2014 2013 Class A Net accumulation units -0.36 +12.45 +13.99 +5.55 +4.72 +18.20 Class B Net accumulation units -3.79 +12.63 +14.24 +5.77 +4.84 +18.55 Class Z Net accumulation units 2-3.58 +12.93 +14.64 +5.97 +3.80 Class T Net income units 3-3.67 +12.73 +14.23 +1.50 1 To 31 October 2018. 2 Class Z Net accumulation shares commenced 16 December 2014. 3 Class T Net income shares commenced 30 October 2015. 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) As at Unit class NAV ( ) NAV pence per unit Number of units in issue 15 November 2018 Class A Accumulation units 157,710,679 187.62 84,059,554 15 May 2018 Class A Accumulation units 172,530,041 197.83 87,210,758 15 May 2017 Class A Accumulation units 182,900,815 184.22 99,285,426 15 May 2016 Class A Accumulation units 166,258,990 151.07 110,050,885 15 November 2018 Class B Accumulation units 93,063,174 193.31 48,142,614 15 May 2018 Class B Accumulation units 102,253,047 203.62 50,216,898 15 May 2017 Class B Accumulation units 84,538,344 189.24 44,672,597 15 May 2016 Class B Accumulation units 80,479,098 154.89 51,959,499 15 November 2018 Class T Income units 51,813,704 123.40 41,988,189 15 May 2018 Class T Income units 56,096,542 130.28 43,058,835 15 May 2017 Class T Income units 54,905,187 121.79 45,083,172 15 May 2016 Class T Income units 48,161,834 100.49 47,926,648 15 November 2018 Class Z Accumulation units 73,220,587 137.52 53,244,850 15 May 2018 Class Z Accumulation units 69,274,659 144.65 47,889,596 15 May 2017 Class Z Accumulation units 45,488,634 134.06 33,932,632 15 May 2016 Class Z Accumulation units 31,077,712 109.39 28,409,238 Distribution History/Unit Price Range Year to Unit class Pence per unit Highest offer Lowest bid 15 November 2018 Class A Accumulation units 211.20 185.10 15 May 2018 Class A Accumulation units 0.7218 206.50 181.90 15 May 2017 Class A Accumulation units 1.0616 191.30 149.10 15 May 2016 Class A Accumulation units 1.0232 163.10 138.20 15 November 2018 Class B Accumulation units 209.60 190.70 15 May 2018 Class B Accumulation units 1.1792 204.70 186.90 15 May 2017 Class B Accumulation units 1.4747 189.40 152.90 15 May 2016 Class B Accumulation units 1.4129 160.90 141.70 15 November 2018 Class T Income units 0.3267 134.10 122.10 15 May 2018 Class T Income units 0.8622 131.40 120.30 15 May 2017 Class T Income units 1.0455 122.50 99.21 15 May 2016 Class T Income units¹ 0.6154 104.50 92.43
Pence per unit Highest offer Lowest bid Year to Unit class 15 November 2018 Class Z Accumulation units 149.00 135.70 15 May 2018 Class Z Accumulation units 1.2103 145.30 132.40 15 May 2017 Class Z Accumulation units 1.3878 134.20 108.00 15 May 2016 Class Z Accumulation units 1.2586 113.40 99.96 1 Commenced 30 October 2015. Past performance is not a guide to future performance. Classification of Investments 15 November 2018 vs 15 May 2018 70% 60% 15 November 2018 15 May 2018 50% 40% 30% 20% 10% 0% Overseas equity UK equity UK bond Overseas bond Net other assets Portfolio Information Top Five Holdings as at 15 November 2018 % of Fund Threadneedle American Select Fund 12.12 Threadneedle Sterling Fund 10.46 Threadneedle Japan Fund 8.09 Threadneedle American Fund 7.27 Threadneedle European Select Fund 5.40 Top Five Holdings as at 15 May 2018 % of Fund Threadneedle American Select Fund 11.58 Threadneedle Japan Fund 9.09 Threadneedle Sterling Fund 6.32 Threadneedle European Select Fund 5.95 Threadneedle American Fund 5.89
Investment Objective and Policy To provide a return by way of 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 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. 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 Mr. Peter Stone on 5 September 2018 Changes to the Prospectus There were no changes to the prospectus of the funds during the period from 16 May 2018 to 15 November 2018. Changes to the Trust Deed There were no changes to the Trusts Deeds during the period from 16 May 2018 to 15 November 2018. Brexit In June 2016 the United Kingdom voted to leave the European Union. While negotiations progress, there is significant uncertainty relating to the UK s withdrawal from the EU, the potential consequences and precise timeframe. It is expected that the UK will exit from the EU on 29 March 2019. Depending on the outcome of the UK s negotiations with the European Union, and the existence or otherwise of any formal implementation period, it is possible that the Funds may no longer be eligible to enjoy the rights set out in the UCITS Directive. Ceasing to be so eligible may affect the ability of non-uk domiciled investors to make new investments in the Company. The ACD is monitoring the situation and will keep shareholders informed. Key Risks 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. Currency Risk: Where investments are in assets that are denominated in multiple currencies, or currencies other than your own, changes in exchange rates may affect the value of the investments. 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. Risk and Reward Profile As at 15 November 2018 the figure for the risk and reward profile disclosed in the most recent KIID representing this fund is 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).it 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.
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 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 Kremer A Roughead (non-executive) M Scrimgeour P Stone (Appointed to the Board on 5 September 2018) L Weatherup Investment Manager Threadneedle Asset Management Limited (Authorised and regulated by the FCA) Registered Office Cannon Place 78 Cannon Street London EC4N 6AG *Calls will be recorded. 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
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 ENUK 258532