Interim Short Report 15 November 2018 Fund Manager s Report Alex Lyle Fund Performance During the period under review the offer price of Class A units fell by 0.82% from 99.45p to 98.63p and the offer price of Class B units fell by 0.70% from 98.46p to 97.77p. The total return on the fund for the six months ending 31 October 2018, including net reinvested income, is +0.19%. (Source: Morningstar, bid to bid, income reinvested for a UK basic rate taxpayer). Over the same period the median return of the peer group (UK IA Unclassified Sector) was -0.99%. (Source: Morningstar, bid to bid, income reinvested for a UK basic rate taxpayer). In view of the nature of the fund and its investment remit, there is no directly comparable market index. The fund s remit is to pursue an investment strategy designed to achieve total return from a defensively-managed portfolio of fixed interest and UK equity funds managed by Threadneedle. 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. Global equity and bond markets were also buffeted by higher US interest rates and the spike in US Treasury bond yields. All of the core government Ongoing Charges Figure bond markets posted negative returns over the period under review. Corporate bonds were impacted too, particularly those issued by low-rated European companies. 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 quarterpoint 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, financial markets responded positively to the outcome of the US mid-term elections, with the House of Representatives now controlled by the Democrats and the Senate by the Republicans. There are hopes that a newly divided Congress could help curb some of Donald Trump s more disruptive policies. The fund has a bias towards bonds, and during the six months under review we increased the exposure to UK government bonds via the Sterling Bond Fund, and more notably the UK Fixed Interest Fund. Elsewhere, we significantly lowered the exposure to emerging market local currency bonds and high yield bonds, along with the positions in the European Bond Fund and the Dollar Bond Fund. We also adjusted the exposure to investment-grade corporate bonds by reducing the holdings in the UK Corporate Bond Fund and the European Corporate Bond Fund in favour of a fund invested in sterling short-dated corporate bonds, which are considered less sensitive to a rise in interest rates. In addition, we cut back the exposure to the Threadneedle (Lux) Flexible Asian Bond and sold out of the Global Opportunities Bond Fund. Within the equity portion of the portfolio, we reduced the positions in the US, Japan and Asia but increased the exposure to the UK and Europe. Within the UK, we lowered the holding in the Threadneedle UK Equity Income Fund in favour of funds that aim for long-term capital growth. In addition, we increased the exposure to global equity funds, notably the Global Select Fund, but with a smaller addition to the Threadneedle (Lux) Global Smaller Companies. Developed economies are currently experiencing reasonable cyclical 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 1.11% 1.32% Class B Accumulation units 0.86% 1.07% Class T Income units 0.91% 1.12% Class Z Accumulation units 0.51% 0.72% 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 +2.50 +3.62 +11.81 +0.11 +4.05 +3.73 Class B Net accumulation units -1.00 +3.88 +12.08 +0.29 +4.27 +3.92 Class Z Net accumulation units 2-0.75 +4.28 +12.37 +0.59 +1.30 Class T Net income units 3-1.07 +3.80 +12.08 +0.12 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 38,679,909 95.06 40,690,046 15 May 2018 Class A Accumulation units 41,391,779 95.85 43,185,168 15 May 2017 Class A Accumulation units 46,740,215 94.88 49,261,428 15 May 2016 Class A Accumulation units 47,139,975 85.90 54,877,124 15 November 2018 Class B Accumulation units 99,105,796 97.77 101,371,189 15 May 2018 Class B Accumulation units 104,713,229 98.45 106,360,502 15 May 2017 Class B Accumulation units 117,575,913 97.22 120,942,143 15 May 2016 Class B Accumulation units 105,398,075 87.80 120,040,839 15 November 2018 Class T Income units 49,519,723 109.61 45,177,765 15 May 2018 Class T Income units 52,082,076 111.18 46,845,351 15 May 2017 Class T Income units 54,133,908 111.55 48,529,219 15 May 2016 Class T Income units 52,528,254 102.43 51,283,263 15 November 2018 Class Z Accumulation units 37,265,390 117.84 31,624,709 15 May 2018 Class Z Accumulation units 39,421,922 118.46 33,279,584 15 May 2017 Class Z Accumulation units 39,596,652 116.56 33,970,672 15 May 2016 Class Z Accumulation units 27,057,042 104.90 25,792,083 Distribution History/Unit Price Range Year to Unit class Pence per unit Highest offer Lowest bid 15 November 2018 Class A Accumulation units 102.20 93.97 15 May 2018 Class A Accumulation units 1.2903 101.40 93.61 15 May 2017 Class A Accumulation units 1.3083 98.90 85.20 15 May 2016 Class A Accumulation units 0.9298 89.78 81.95 15 November 2018 Class B Accumulation units 101.30 96.62 15 May 2018 Class B Accumulation units 1.5701 100.20 96.12 15 May 2017 Class B Accumulation units 1.5683 97.51 87.08 15 May 2016 Class B Accumulation units 1.1194 88.42 83.72 15 November 2018 Class T Income units 0.7644 114.30 109.10 15 May 2018 Class T Income units 1.7382 114.90 109.30 15 May 2017 Class T Income units 1.5453 113.50 107.50 15 May 2016 Class T Income units¹ 0.6239 103.80 98.23
Pence per unit Highest offer Lowest bid Year to Unit class 15 November 2018 Class Z Accumulation units 121.90 116.50 15 May 2018 Class Z Accumulation units 2.3001 120.20 115.60 15 May 2017 Class Z Accumulation units 2.2654 116.90 104.10 15 May 2016 Class Z Accumulation units 1.6157 105.70 99.95 1 Commenced 30 October 2015. Past performance is not a guide to future performance. Classification of Investments 15 November 2018 vs 15 May 2018 60% 50% 15 November 2018 15 May 2018 40% 30% 20% 10% 0% UK bond Overseas bond Overseas equity UK equity Net other assets Portfolio Information Top Five Holdings as at 15 November 2018 % of Fund Threadneedle UK Corporate Bond Fund 11.88 Threadneedle Sterling Bond Fund 11.28 Threadneedle UK Fixed Interest Fund 10.98 Threadneedle Global Bond Fund 9.32 Threadneedle Dollar Bond Fund 6.51 Top Five Holdings as at 15 May 2018 % of Fund Threadneedle UK Corporate Bond Fund 14.25 Threadneedle European Corporate Bond Fund 12.92 Threadneedle Dollar Bond Fund 10.55 Threadneedle Global Bond Fund 8.76 Threadneedle Sterling Bond Fund 8.22
Investment Objective and Policy To provide 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 fixed income securities, but will also have some exposure to company shares. 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. The Fund will always invest so as to be eligible as an ISA investment. 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. 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. 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 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). 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