Annual Short Report 30 April 2017 Fund Managers Report Neil Robson Ashish Kochar Performance of Accumulation Class 1 Shares* Over the twelve months to 30 April 2017, the published of Class 1 shares in the has risen from 201.90p to 259.27p. For comparison, using noon prices, the performance of the Class 1 share class was +28.42% and +29.47% for the Class 2 share class compared to a return of +27.77% for the Morningstar UK Unit Trusts/OEICS (IA) Global Growth Peer Group (on a bid to bid basis, with income reinvested for a UK basic rate taxpayer). For information purposes, using global close prices, the total return of the MSCI AC World Index was +31.08%. Market Overview and Portfolio Activity Global equities made solid gains during the year under review. Political shocks generated much of the news throughout the period, with the UK s Brexit vote and Donald Trump s election victory confounding both pollsters and markets. However, both events were followed by strong rallies: fears about the global impact of Brexit subsided soon after the vote had taken place, while growing expectations that the Trump administration would implement fiscal stimulus, while paring back taxes and regulations, propelled US stocks to a series of record highs. In the US, robust employment data in the third and fourth quarters heightened expectations for a rate hike which was duly delivered in December, when the Federal Reserve raised interest rates by 25 basis points. The central bank also hiked rates in March 2017 by an equal amount. Markets consistently hit record highs in early 2017 on high hopes for Trumponomics, but the rally tapered off late in the period as the president s failure to pass signature healthcare reform cast doubt over his ability to implement his wider legislative programme. Central bank activity also came to the fore in the eurozone. After initially boosting stimulus, the European Central Bank held fire in the wake of the Brexit vote, before, late in the year, extending its bond-buying scheme until at least December 2017 albeit at a reduced pace. As the new year progressed, economic markers were increasingly encouraging while the heavier-than-expected defeat of a populist candidate in the Netherlands general election, and the victory of centrist Emmanuel Macron in the first round of France s presidential polls, assuaged fears concerning the future of the euro and the EU. In the UK, markets quickly bounced back as fears about the global impact of Brexit eased, while FTSE 100 companies benefited from higher foreign earnings as sterling came under sustained pressure. While data releases since the referendum suggested the economy had been far more resilient than expected, rising inflation later in the period appeared to be dampening consumer sentiment. Towards the end of the review period, the prime minister surprised everyone by calling a snap general election for 8 June. Sterling strengthened in response, as investors anticipated that an increased parliamentary majority could allow the government to pursue a soft Brexit. Japan battled to boost inflation and weaken the yen throughout the year, with mixed results. Emerging markets made strong gains over the year, despite the prospect, then reality, of rising interest rates in the US. Trump s rhetoric on trade prompted concern among some key US trading partners, notably Mexico and China. Key new positions during the period included Costco, Goldman Sachs, EOG Resources and Charles Schwab. Costco is the largest membership-only wholesale retailer in the US and second globally. The stock had sold off following a number of short-term headwinds, which we believe have now passed. Improving sales, margin expansion and continued international success should offer attractive upside, while the barriers to entry in its industry should enable Costco to deliver consistently high returns. For Goldman Sachs, we see strong potential for the investment bank s return on equity, as the Trump administration is likely to deliver a secular change for the industry, which could manifest in declining regulatory costs. Simultaneously, the bank stands to benefit from cyclical tailwinds including a steeper yield curve, better economic growth and reawakened risk appetite. Charles Schwab is a leading US investment-services business that stands to benefit from changing demographics and rising interest rates in the US. Finally, EOG Resources is a leader in shale production and is present in multiple basins across the US. By embracing technology, EOG is able to generate high returns on investment and, with low marginal costs of production, stands to benefit from a rising oil price. Among sales, the fund exited its position in Priceline following a strong run of performance that took it to our price target. We also sold Willis Towers Watson and added the proceeds to the position in Goldman Sachs. Other exits during the period included Bristol-Myers Squibb. The widely held belief that President Trump will pursue expansionary, pro-growth policies appears to be priced into markets, and current valuations suggest almost flawless execution of these policies. However, it is quite possible that they will not be fully enacted or may be imperfectly executed. Moreover, his protectionist pronouncements may dampen growth. Consequently, growth, while positive, could still disappoint. Against this backdrop, our focus on quality growth looks likely to be rewarded. Where appropriate, we have been adding to companies that stand to benefit from the shift in economic sentiment, particularly in the US, but without compromising the focus on quality. We also continue to like defensive and secular growth companies, which regularly demonstrate the ability to deliver consistent levels of growth despite the economic outlook. Election Update The commentary contains a market background with a snapshot of investor sentiment during the period under review. Although the UK election has since taken place, the result has no retroactive bearing on what investors were thinking prior to the vote. Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 30 April 30 June 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. *In pound Sterling and against UK peer group.
Share class 30 April 2017 30 April 2016 Class 1 Income shares 1 1.63% 1.65% Class 1 Accumulation shares 1.65% 1.65% Class 2 Accumulation shares 0.83% 0.82% Class X Accumulation shares 2 0.07% 0.04% Class Z Accumulation shares 0.91% 0.89% The Ongoing Charges Figure is annualised based on the fees incurred since commencement date. 1 Commenced 24 February 2016. 2 Commenced 16 March 2016. Summary of Fund Performance Performance History (%) Share class 2017 1 2016 2015 2014 2013 2012 Class 1 Income shares 2 +6.61 +17.09 Class 1 Accumulation shares +6.77 +3.01 +16.41 +17.13 +28.44 +11.49 Class 2 Accumulation shares +7.05 +3.86 +16.96 +18.12 +29.38 +12.45 Class X Accumulation shares 3 +7.00 +14.48 Class Z Accumulation shares 4 +6.89 +4.64-2.68 1 To 30 April 2017. 2 Commenced 24 February 2016. 3 Commenced 16 March 2016. 4 Commenced 22 April 2015. Source: Morningstar and Columbia Threadneedle. Bid to bid prices are quoted (i.e. not including any initial charge) with gross income reinvested. Performance data is quoted in Euros, unless otherwise stated. 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) NAV pence per share Number of shares in issue As at Share class NAV ( ) 30 April 2017 Class 1 Income shares 8,431 133.60 6,311 30 April 2016 Class 1 Income shares 3,122 104.07 3,000 30 April 2017 Class 1 Accumulation shares 101,649,033 259.10 39,231,252 30 April 2016 Class 1 Accumulation shares 99,435,524 201.74 49,289,441 30 April 2015 Class 1 Accumulation shares 58,399,357 198.35 29,443,212 30 April 2017 Class 2 Accumulation shares 86,415,452 276.96 31,201,424 30 April 2016 Class 2 Accumulation shares 65,885,264 213.87 30,805,568 30 April 2015 Class 2 Accumulation shares 27,879,474 209.29 13,320,878 30 April 2017 Class X Accumulation shares 13,138,203 131.16 10,017,162 30 April 2016 Class X Accumulation shares 3,021 100.70 3,000 30 April 2017 Class Z Accumulation shares 7,629,728 128.41 5,941,918 30 April 2016 Class Z Accumulation shares 167,239 99.24 168,525 30 April 2015 Class Z Accumulation shares 2,901 96.70 3,000 Distribution History/Share Price Range Pence per share Highest Lowest Year to Share class 30 April 2017 Class 1 Income shares 136.74 102.79 30 April 2016 Class 1 Income shares 1 0.0053 107.67 100.00 30 April 2017 Class 1 Accumulation shares 265.19 199.65 30 April 2016 Class 1 Accumulation shares 208.99 178.47 30 April 2015 Class 1 Accumulation shares 212.03 162.82 30 April 2017 Class 2 Accumulation shares 0.5746 283.16 211.75 30 April 2016 Class 2 Accumulation shares 0.3199 221.48 188.87 30 April 2015 Class 2 Accumulation shares 223.18 170.44
Pence per share Highest Lowest Year to Share class 30 April 2017 Class X Accumulation shares 1.2052 134.19 99.51 30 April 2016 Class X Accumulation shares 2 0.2046 104.09 98.55 30 April 2017 Class Z Accumulation shares 0.1810 131.30 98.25 30 April 2016 Class Z Accumulation shares 0.1518 102.77 87.65 30 April 2015 Class Z Accumulation shares 3 0.0020 100.52 96.35 1 Commenced 24 February 2016. 2 Commenced 16 March 2016. 3 Commenced 22 April 2015. Effective 20 February 2017, the names of share classes in the sub-fund have changed to remove the reference to net. Past performance is not a guide to future performance. Classification of Investments 30 April 2017 vs 30 April 2016 60% 50% 30 April 2017 30 April 2016 40% 30% 20% 10% 0% United States of America United Kingdom Japan Switzerland Cayman Islands China Republic of Ireland Indonesia India Belgium Bermuda Hong Kong Canada Netherlands Other France Mexico Spain Derivatives Net other assets Portfolio Information Top Five Holdings as at 30 April 2017 % of Fund Alphabet Class A 3.07 Costco Wholesale 2.99 Visa A Shares 2.89 Amazon.com 2.68 Bank Rakyat Indonesia 2.35 Top Five Holdings as at 30 April 2016 % of Fund Visa A Shares 2.62 Amazon.com 2.59 Anheuser-Busch InBev 2.45 Alphabet Class A 2.42 Pfizer 2.35
Investment Objective and Policy The investment objective of the Global Extended Alpha Fund is to achieve long term capital growth. The ACD s investment policy is to actively manage an exposure by investing directly or indirectly into equity securities worldwide, including companies located in developed and emerging markets. Exposure to these markets may be gained through both long and short positions. The ACD may invest in equities, derivatives, forward transactions and collective investment schemes. The ACD may also invest in other securities (including fixed interest securities and money market securities), deposits and cash. In order to gain short exposure the ACD will invest in derivatives. The ACD may also invest in derivatives to gain long exposure. 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: Appointment of Ms. Laura Weatherup on 11 July 2016; Appointment of Mr. Dominik Kremer on 22 July 2016; Resignation of Mr. Tim Gillbanks on 31 March 2017. Changes to the Prospectus During the period from 1 May 2016 to 30 April 2017 the following changes were made to the Prospectus of the Threadneedle Specialist Investment Funds ICVC (the Company): Inclusion of four new sub-funds launched to receive assets from funds of Threadneedle Investment Funds III ICVC; Increase to the depositary s fee effective from 1 October 2016 (from 0.008% per annum to 0.01% per annum); Updates to risk factors; Updated disclosures required in relation to the depositary and remuneration following implementation of the UCITS V Directive; Updates to disclosures on performance, taxation, eligible markets; Update to list of directors and funds managed by the ACD; Updates to taxation section to include description of changes to tax regime following April 2017 meaning that all payments from the funds will be gross of tax (including removal of the word net from share class names); Changes to the performance fee for UK Absolute Alpha Fund and UK Extended Alpha Fund, effective from 1 January 2017; Clarification to the description of the performance fee for the Global Extended Alpha Fund and American Extended Alpha Fund; Interim prospectus reflecting that the Target Return Fund has been closed and is no longer available; Fee reduction for Absolute Return Bond Fund; Introduction of new P Share Class (share class of Global Extended Alpha Fund without performance fee); Inclusion of Class Y Shares (to be available only to eligible shareholders); Changes required due to changes to the COLL Handbook (including, inclusion of FCA product reference numbers, updates to investment restrictions, availability of short-form reports); Clarification of minimum investment amounts; Removal of references to publication in Hong Kong; Update to list of funds managed by the ACD; Update to the list of countries where the funds are registered; Update to Appendix II (correction to investment and borrowing powers section for the UCITS funds to improve clarity and for consistency with the COLL rules); Update to Appendix III (issuers in which more than 35% of the funds may be invested) and Appendix VIII (delegates of the depositary); Updates to performance, dilution adjustments and available share classes; Update address of the auditor; Updates to addresses of certain paying agents. Changes to the Instrument of Incorporation The Instrument of Incorporation of the Company was amended on 3 May 2016 to introduce income equalisation for certain funds and 5 August 2016 to add four new Funds of the Company. Introduction of income equalisation for certain funds of the Company The ACD introducted income equalisation for certain funds of the Company with effect from 1 May 2016. Further information on income equalisation can be found at www.columbiathreadneedle.co.uk/ income-equalisation. Changes to the share class names With effect from 6 April 2017, all payments from the Funds are paid gross of UK tax, following changes to the way savings and investments are taxed in the UK. As a result of the change, the word net has been removed from the names of all the share classes that were previously net paying shares. 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. Counterparty Risk: The fund may enter into financial transactions with selected counterparties. Any financial difficulties arising at these counterparties could significantly affect the availability and the value of fund assets. Political and Financial Risk: The fund invests in markets where economic and regulatory risk can be significant. These factors can affect liquidity, settlement and asset values. Any such event can have a negative effect on the value of your investment. Valuation Risk: The fund s assets may sometimes be difficult to value objectively and the actual value may not be recognised until assets are sold.
Short Selling Risk: Short selling intends to make a profit from falling prices. However if the value of the underlying investment increases, the value of the short position will decrease. The potential losses are unlimited as the prices of the underlying investments can increase very significantly in a short space of time. Investment in Derivatives Risk: The Investment Policy of the fund allows it to invest materially in derivatives. Leverage Risk: Leverage amplifies the effect that a change in the price of an investment has on the fund s value. As such, leverage can enhance returns to investors but can also increase losses, including losses in excess of the amount invested. Volatility Risk: The fund may exhibit significant price volatility. Further risks applicable to the fund can be found in the Prospectus. Risk and Reward Profile As at 30 April 2017 the figure for the risk and reward profile disclosed in the most recent KIID representing these share classes are 5 & 6.The fund is in these specific categories 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) for level 5 (Class 1 - Income shares, Class 1 - Accumulation shares, Class 2 - Accumulation shares and Class X - Accumulation shares) and a high level of volatility for level 6 for all other share classes. 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: International Financial Data Services (UK) 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 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 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 *Calls will be recorded. 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 Paying and Information Agent in Belgium J.P. Morgan Chase Bank Brussels 1, Boulevard du Roi Albert II 1210 Brussels Belgium Representative and Paying Agent in Switzerland BNP Paribas Securities Services, Paris, Succursale de Zurich Selnaustrasse 16 8002 Zurich Switzerland 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 ENOS 189924