Annual Short Report 7 March 2018 Fund Manager s Report Adrian Hilton Performance of Class 1 Income shares* Over the twelve months to 7 March 2018, the published share price of Class 1 Income shares in the has risen from 77.61p to 79.09p. The sterling total return on the fund for the twelve months ending 28 February 2018, including net reinvested income, is +2.32%, which equates approximately to +3.53% gross of tax and charges**. For information the ML Pan Euro Large Cap. Index returned +3.48% over the same period. Market Overview and Portfolio Activity Core sovereigns had a difficult year as investors braced for a world with less easy money and favoured risk amid optimism over strong corporate earnings and economic indicators. Core bonds were also pressured by expectations that President Trump would implement his growth-friendly policies. Trump s move to repeal Obamacare failed but he achieved his goal of reforming the US tax code shortly before Christmas. The 10-year gilt yield finished the year around 35bps higher, as did its German counterpart. However, the French 10-year yield edged lower as did most periphery yields. The outperformance of peripheral debt relative to bunds was fuelled by some favourable political developments and generally encouraging economic markers from the eurozone. The start of the review period saw optimism about European politics as Eurosceptics were defeated in the Dutch and French elections. Investors also cheered Angela Merkel s success in September s German federal elections but her subsequent struggles in forming a coalition caused some angst, as did Catalonia s unsanctioned independence referendum in Spain. Early 2018 saw investors turn more optimistic about German politics as Merkel succeeded in reaching a coalition deal with the SDP. However, investors worried over Italian politics as populists fared well in a general election in March 2018; the overall result was inconclusive. In the UK, the prime minister s unexpected call for a snap election in April fuelled hopes that an increased Conservative majority could strengthen the government s hand in the Brexit negotiations. However, these hopes were dashed as the Conservatives lost their absolute majority in June s election. The end of 2017 saw UK and European officials conclude the first stage of the Brexit negotiations with agreement on some key sticking points, but investors remained anxious about the next stage and the UK s ability to secure a favourable post-brexit transition period. Higher inflation prompted a quarter-point interest-rate hike from the Bank of England (BoE) in early November. This was accompanied by dovish guidance but policymakers turned more hawkish in early 2018. The Federal Reserve *In pound Sterling and against UK peer group. **Gross performance is calculated in Factset using daily cash flows and daily global close valuations. raised rates by 25 basis points three times during the review period and in October, started to scale down the size of its balance sheet. The European Central Bank (ECB) halved its monthly bond purchases to 30bn from January, but extended the duration of the economic stimulus plan to September 2018. We generally maintained an overweight duration (interest-rate risk) position, but this was adjusted tactically. Our largest transactions over the period were carried out in government bond markets. Here we significantly increased exposure to French government debt ahead of the presidential election in April, as we felt that the market was overplaying the risk of an adverse result. This was mainly funded by a reduction in German bunds and UK gilts. We later scaled back the overweight position in French sovereign bonds, and completely sold out by the end of the year. We also closed our position in Spanish government debt. In aggregate, we increased our exposure to gilts and German sovereign debt over the year. We added Belgian and Dutch sovereign debt to the portfolio. We topped up our holdings of Italian government bonds. Within corporate credit, we exited Credit Suisse, Banca Monte dei Paschi di Siena, Thames Water Utilities, CRH Finance and Aigues de Barcelona. We added bonds from SCA Hygiene and DS Smith, among others. We topped up some existing positions, such as Innogy Finance, Cadent Finance and AT&T. Developed economies are currently experiencing reasonable cyclical recoveries, characterised by robust consumption and, in some cases, improvements in investment. Global trade has been expanding, albeit at slower rates than before the crisis; this is delivering a high level of synchronisation to the world recovery. At current levels, core European government bond yields are yet to adequately reflect these improved prospects. However, although indicators of leverage, unemployment and capacity utilisation suggest that the business cycle is well advanced, sustainable price growth is absent. While developed economies enter 2018 in good shape, it is not clear whether the drivers of recent growth can be sustained beyond the next few quarters. A key uncertainty is whether the US tax cuts can deliver a meaningful boost to investment and productivity. Nevertheless, central banks are in the process of moderating the degree of monetary stimulus they provide to the global economy. The Fed s balance sheet normalisation is underway. Over 2018, we expect two, possibly three, further rate hikes. The ECB has reduced its monthly bond purchases, while the BoE has delivered its first rate hike in ten years. While central banks are withdrawing their previously accommodative policies, weak underlying inflation ought to limit the extent of any further sell-off in fixed income. Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 7 March 7 May 7 September 7 November Ongoing Charges Figure The Ongoing Charges Figure (OCF) is the European standard method of disclosing the charges of a share 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). Where published, the Key Investor Information Document (KIID) contains the current OCF. For a more detailed breakdown please visit columbiathreadneedle.com/fees. Share class 7 March 2018 7 March 2017 Class 1 Income shares 1.19% 1.19% Class 1 Gross accumulation shares 1.19% 1.19% Class 2 Gross accumulation shares 0.65% 0.56% Class Z Income shares 0.65% 0.65%
Summary of Fund Performance Performance History (%) Share class 2018 1 2017 2016 2015 2014 2013 Class 1 Income shares -0.77-1.68 +2.49 +0.31 +12.91-0.16 Class 1 Gross accumulation shares -0.52-1.09 +1.81 +1.22 +12.63 +0.72 Class 2 Gross accumulation shares -0.67-1.08 +3.31 +1.84 +13.39 +1.35 Class Z Income shares 2-0.68-1.15 +3.05 +0.83 +13.51 +1.48 1 To 28 February 2018. 2 Commenced 15 February 2013. Source: Morningstar and Threadneedle. Bid to bid prices are quoted (i.e. not including any initial charge) with gross income reinvested. Performance data is quoted in Euros. You should not view past performance as an indication of performance in the future. Please remember that the value of investments and any income from them may fall as well as rise. The real value of that income may fall over time. Net Asset Value (NAV) As at Share class NAV ( ) NAV pence per share Number of shares in issue 7 March 2018 Class 1 Income shares 17,872,072 78.88 22,657,687 7 March 2017 Class 1 Income shares 27,814,364 77.17 36,044,002 7 March 2016 Class 1 Income shares 38,169,157 69.40 55,002,053 7 March 2018 Class 1 Gross accumulation shares 66,997,247 155.38 43,117,742 7 March 2017 Class 1 Gross accumulation shares 109,378,819 151.44 72,226,456 7 March 2016 Class 1 Gross accumulation shares 97,093,232 134.93 71,959,103 7 March 2018 Class 2 Gross accumulation shares 281,257 143.04 196,630 7 March 2017 Class 2 Gross accumulation shares 375,166 138.57 270,733 7 March 2016 Class 2 Gross accumulation shares 1,899,649 122.70 1,548,216 7 March 2018 Class Z Income shares 4,720,368 114.54 4,121,096 7 March 2017 Class Z Income shares 4,595,544 111.50 4,121,693 7 March 2016 Class Z Income shares 5,640,836 99.77 5,654,070 Only available to eligible investors. Distribution History/Share Price Range Highest share price (pence) Lowest share price (pence) Year to Share class Pence per share 7 March 2018 Class 1 Income shares 0.3033 82.47 75.05 7 March 2017 Class 1 Income shares 0.6404 82.08 69.20 7 March 2016 Class 1 Income shares 0.7783 71.18 63.04 7 March 2018 Class 1 Gross accumulation shares 0.5958 161.85 147.29 7 March 2017 Class 1 Gross accumulation shares 1.4143 160.50 134.64 7 March 2016 Class 1 Gross accumulation shares 1.8718 137.63 120.97 7 March 2018 Class 2 Gross accumulation shares 0.7040 148.54 134.92 7 March 2017 Class 2 Gross accumulation shares 1.4451 146.50 122.60 7 March 2016 Class 2 Gross accumulation shares 1.8297 125.13 109.56 7 March 2018 Class Z Income shares 0.4803 119.47 108.54 7 March 2017 Class Z Income shares 0.9681 118.36 99.60 7 March 2016 Class Z Income shares 1.1463 102.33 90.35 Past performance is not a guide to future performance.
Classification of Investments 7 March 2018 2017 vs 7 March 2017 2016 25% 20% 7 March 2018 7 March 2017 15% 10% 5% 0% -5% Germany United Kingdom Netherlands Italy Hungary United States of America Portfolio Information France Norway Indonesia Chile Australia Supranational Luxembourg Belgium Sweden Jersey Republic of Ireland Top Five Holdings as at 7 March 2018 % of Fund Bundesrepublik Deutschland 1.75% 15/02/2024 8.75 Netherlands 0% 15/01/2022 7.00 Italy Government Bond 4.75% 01/09/28 6.96 Bundesrepublik Deutschland 2.5% 15/08/2046 5.56 Hungary Government International Bond 3.875% 24/02/2020 4.03 Finland Spain Mexico Iceland New Zealand Bermuda Switzerland Denmark Singapore Austria Portugal Other Derivatives Net other assets Top Five Holdings as at 7 March 2017 % of Fund United Kingdom Gilt 0.5% 22/07/2022 9.32 France Government Bond OAT 3% 25/04/2022 8.94 France Government Bond OAT 3.5% 25/04/2026 6.65 Bundesrepublik Deutschland 0% 15/08/2026 5.83 United Kingdom Gilt 4.75% 07/12/2030 3.65
Investment Objective and Policy To achieve total return primarily by way of income with some capital growth. The ACD s investment policy is to invest the assets of the Fund in European public sector sovereign bonds and corporate bonds, issued by companies domiciled in Europe or with significant European operations, denominated in a range of European currencies or other Euro denominated public sector sovereign bonds and corporate bonds. The Fund has the flexibility to invest in bonds issued by Eastern European issuers. 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 management of the ACD The following changes have been made to the directors of the ACD: Resignation of Mr Tim Gillbanks on 31 March 2017; Resignation of Mr Don Jordison on 1 May 2018; Appointment of Michelle Scrimgeour on 14 August 2017. Changes to the Prospectus During the period from 8 March 2017 to 7 March 2018 the following changes were made to the Prospectus of the Threadneedle Investment Funds ICVC (the Company): Introduction of co-management for the Japan Fund, and changes to the investment policy of the fund, effective from 1 November 2017; Introduction of a compulsory conversion clause effective from 1 February 2018; Change of the name of the transfer agent and the legal advisors for the Company; Reduction of fees for certain share classes from 1 February 2018; Inclusion of a definition of near cash ; Disclosures required as a result of changes to COLL as a result of the Markets in Financial Instruments Directive (MiFID II), including amendment to the description of Class 2 Shares and Class Z Shares; Disclosures relating to the UK s decision to leave the European Union ( Brexit ); Updates to include changes to the COLL rules (including PRN, changes regarding short reports, eligible markets); Updates to reflect changes being made to UK tax on distributions (gross vs net shares, as well as tax changes more generally); Updates to the list of funds managed by the ACD and the directors of the ACD; Enhanced disclosures regarding hedged share classes and performance fee calculations; Updates to performance, dilution adjustments and available share classes; Miscellaneous changes including address of the Financial Services Ombudsman, clarification on privacy statement, clarification of dividend payment dates, addresses of paying agents. Changes to the Instrument of Incorporation During the period from 8 March 2017 to 7 March 2018, the instrument of incorporation of the Company has been updated to include a compulsory conversion clause effective 1 February 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. 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. Liquidity Risk: The fund holds assets which could prove difficult to sell. The fund 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 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. Further risks applicable to the fund can be found in the Prospectus. Risk and Reward Profile As at 7 March 2018 the figure for the risk and reward profile disclosed in the most recent KIID representing this fund is 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). 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 shareholders to make an informed judgement on the activities of the fund 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 ACD and on our website. For more information about the activities and performance of the Company during the period and previous periods, please contact the ACD at the administration address noted below, or visit our website at columbiathreadneedle.com. Contacts: Registered Office Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director (ACD) Threadneedle Investment Services Limited Cannon Place 78 Cannon Street London EC4N 6AG Registrar Threadneedle Investment Services Limited Delegated to: DST Financial Services Europe Limited** Authorised and regulated by the Financial Conduct Authority (FCA) St Nicholas Lane Basildon Essex SS15 5FS Investment Manager Threadneedle Asset Management Limited Cannon Place 78 Cannon Street London EC4N 6AG Authorised Corporate Director Client Services Details UK Investors Address: Threadneedle Investment Services Limited PO Box 10033 Chelmsford Essex CM99 2AL Telephone (dealing & customer enquiries): 0800 953 0134* Fax (dealing): 0845 113 0274 Email (enquiries): questions@service.columbiathreadneedle.co.uk Asian Investors Address: Threadneedle Investment Services Limited International Financial Data Services 47, avenue JF Kennedy L-1855 Luxembourg Telephone (dealing & customer enquiries): +352 2452 9817* Fax (dealing): +352 2452 9807 Email (enquiries): threadneedleenquiries@statestreet.com All Other Investors Address: Threadneedle Investment Services Limited International Financial Data Services 47, avenue JF Kennedy L-1855 Luxembourg Telephone (dealing & customer enquiries): +352 464 010 7020* Fax (dealing): +352 2452 9807 Email (enquiries): questions@service.columbiathreadneedle.co.uk Website: columbiathreadneedle.com Depositary Citibank Europe plc, UK branch (Authorised by the Prudential Regulatory Authority (PRA) and regulated by the FCA and PRA) Citigroup Centre 33 Canada Square Canary Wharf London E14 5LB Legal Advisers Eversheds Sutherland (International) LLP One Wood Street London EC2V 7WS Baum Financial Services Law Team Grosser Burstah 42 20457 Hamburg Germany Independent Auditor PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX Paying and Information Agent in Belgium CACEIS Belgium S.A Avenue du Port 86C B320 1000 Brussels Belgium Representative and Paying Agent in Switzerland BNP Paribas Securities Services, Paris, Succursale de Zurich Selnaustrasse 16 8002 Zurich Switzerland * 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 225094