Annual Short Report 7 March 2018 Fund Manager s Report Vanessa Donegan Performance of Class 1 Accumulation shares* Over the twelve months to 7 March 2018, the published share price of Class 1 Accumulation shares in the Threadneedle Asia Fund has risen from 192.42p to 224.08p. Looking at the sterling performance within its peer group, the total return on the fund for the twelve months ending 28 February 2018, including net reinvested income, is +20.82% as compared to a sector median return of +14.07% over the same period. (For information the MSCI AC Asia Pacific Ex Japan Index returned +15.22% over the same period). Market Overview and Portfolio Activity The MSCI AC Asia Pacific ex Japan index performed strongly over the reporting period, with Asian equity markets outperforming developed markets. This was despite a bout of volatility in early February, when investors were unsettled by stronger-than-expected wage growth in the US, which fuelled fears of higher inflation and a steeper trajectory for US interestrate hikes. Throughout the year, expectations for earnings-per-share (EPS) growth in Asia have risen significantly, and the improvement has been broad based in terms of both countries and sectors. In addition, US dollar weakness has improved the outlook for riskier assets. Furthermore, the rally in commodities proved supportive to commodity exporters within the Asian region. China continued its strong run off the back of robust earnings, positive economic releases and a GDP growth of 6.9%, exceeding market estimates. The Chinese authorities have steered the economy towards a stable, more sustainable pace of expansion, with a clear focus on better-quality economic growth. Sentiment towards China s banking sector also improved, on the back of deleveraging measures and improvements in asset quality. The Korean market has been able to shrug off geopolitical tensions in the peninsula, assisted by strong EPS growth estimates, and supported by the potential passage of chaebol reforms, which are expected to provide future tailwinds. Taiwan also performed well, with its large weighting in the technology sector driving the index, with Apple supply-chain names the key outperformers. Finally, Indian equities came close to an all-time high during the period and shrugged off concerns over the implementation of the goods and services (GST) tax bill. Questions arose on how GST could be effectively instituted across the country s 29 states, and on how long this would take. During the period, the Reserve Bank of India introduced a 25 basis-point (bps) rate cut, reiterated its neutral stance and remained relatively cautious on the inflation outlook. The country s economic recovery has also continued *In pound Sterling and against UK peer group. to strengthen, with GDP growth for Q4 2017 accelerating to 7.2% year-on-year. In terms of trading activity, the fund raised its exposure to financials, adding to China Merchants Bank, which released better-than-expected results, and establishing a holding in Singapore s United Overseas Bank, which looks attractively valued relative to its improving earnings outlook. In South Korea, the fund switched out of Shinhan Financial and into KB Financial, with the latter benefiting from growth in both its net- and non-interest income following the consolidation of two non-bank subsidiaries. The growth of Chinese domestic consumption remains an important theme within the portfolio. A new holding was established in Li Ning, a leading domestic sportswear company, which is benefiting from new product launches and increased e-commerce sales. On the same theme, the fund purchased holdings in Midea Group, a leading mainland Chinese homeappliance manufacturer, and in Brilliance China Automotive, whose joint venture with BMW should generate higher margins. The fund also established several new holdings in India, including Mahindra & Mahindra, Adani Ports and Godrej Consumer Products, in light of the improved outlook for the Indian economy. To fund this activity, we reduced our exposure to the materials and energy sectors, selling our positions in Formosa and Lotte in the former, and exiting PetroChina in the latter. The fund also sold out of Guangdong Investment and Doosan Bobcat, as the earnings outlook became relatively less attractive. The position in China Mobile was exited, due to concerns over free cashflow, as was the position in Hon Hai Precision, where margins could come under pressure. In Australia, the fund sold off James Hardie after a strong re-rating, and Domino s Pizza, on the risk to earnings growth from new wage agreements. The fund also sold out of Commonwealth Bank of Australia, where a governance crisis caused its premium rating (or valuation) to contract. Corporate earnings growth in Asia is accelerating on the back of resilient domestic demand and a recovery in global trade. Structural progress is ongoing, with favourable demographics and reforms providing an appealing environment in which to invest. Asian economies are better positioned to withstand a US monetary tightening cycle, given factors such as their aggregate current-account surplus, reduced dependence on external financing, foreign exchange buffers, benign inflation and positive real interest rates. The recovery in corporate earnings is expected to continue during 2018. Current economic momentum in China has surpassed expectations but it will be important to monitor the scale of policy tightening and its impact on the real economy, which has remained resilient thus far and has been supported by the strength of consumption. Valuations in Asia remain relatively attractive, with the added attraction of healthy yield support in many cases, due to strong free cashflow generation. Fund Facts Fund Accounting and Distribution Dates Accounting Dates Payment Dates 7 March 7 May
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 Accumulation shares 1.72% 1.72% Class 2 Accumulation shares 1.11% 1.12% Class X Income shares 1 0.08% Class X Accumulation shares 0.10% 0.10% Class X2 Accumulation shares 2 0.11% Class Z Accumulation shares 0.93% 0.94% The Ongoing Charges Figure is annualised based on the fees incurred since commencement date. 1 Closed 16 November 2017. 2 Commenced 12 May 2017. Summary of Fund Performance Performance History (%) Share class 2018 1 2017 2016 2015 2014 2013 Class 1 Accumulation shares -0.52 +30.29 +25.76-4.68 +11.32 +2.73 Class 2 Accumulation shares -0.41 +31.09 +26.53-4.09 +12.02 +3.38 Class L Accumulation shares 2 +16.85 Class X Income shares 3 +31.82 +27.74-3.11 +4.04 Class X Accumulation shares 4-0.25 +32.40 +27.69-0.16 Class X2 Accumulation shares 5-0.25 +17.72 Class Z Accumulation shares -0.39 +31.33 +26.75-3.92 +12.21 +3.54 1 To 28 February 2018. 2 Commenced 12 May 2017 and closed 16 November 2017. 3 Commenced 4 August 2014 and closed 16 November 2017. 4 Commenced 2 December 2015. 5 Commenced 12 May 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) As at Share class NAV ( ) NAV pence per share Number of shares in issue 7 March 2018 Class 1 Accumulation shares 148,097,968 223.94 66,133,496 7 March 2017 Class 1 Accumulation shares 147,495,795 192.05 76,802,345 7 March 2016 Class 1 Accumulation shares 135,831,030 141.62 95,909,523 7 March 2018 Class 2 Accumulation shares 289,301,501 250.48 115,499,365 7 March 2017 Class 2 Accumulation shares 331,771,959 213.50 155,396,261 7 March 2016 Class 2 Accumulation shares 293,366,156 156.48 187,476,391 7 March 2017 Class X Income shares 3,989 132.92 3,001 7 March 2016 Class X Income shares 2,966 98.83 3,001 7 March 2018 Class X Accumulation shares 66,298,110 165.70 40,011,829 7 March 2017 Class X Accumulation shares 53,686,887 139.83 38,393,835 7 March 2016 Class X Accumulation shares 3,047 101.57 3,000 7 March 2018 Class X2 Accumulation shares 87,516,165 642.14 13,628,740 7 March 2018 Class Z Accumulation shares 33,780,760 195.92 17,241,993 7 March 2017 Class Z Accumulation shares 24,088,253 166.70 14,450,322 7 March 2016 Class Z Accumulation shares 18,327,947 121.97 15,027,129 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 Accumulation shares 0.6450 237.58 186.44 7 March 2017 Class 1 Accumulation shares 1.9514 192.42 136.47 7 March 2016 Class 1 Accumulation shares 1.3541 173.54 124.37 7 March 2018 Class 2 Accumulation shares 2.1711 265.55 207.41 7 March 2017 Class 2 Accumulation shares 3.3026 213.92 150.97 7 March 2016 Class 2 Accumulation shares 2.2293 190.70 136.98 7 March 2018 Class X Income shares 1 161.69 129.29 7 March 2017 Class X Income shares 3.2205 136.41 95.55 7 March 2016 Class X Income shares 2.5584 122.43 88.27 7 March 2018 Class X Accumulation shares 2.9923 175.46 136.00 7 March 2017 Class X Accumulation shares 3.2604 140.10 98.18 7 March 2016 Class X Accumulation shares 2 0.4163 101.72 89.22 7 March 2018 Class X2 Accumulation shares 3 9.7728 680.02 547.25 7 March 2018 Class Z Accumulation shares 2.0207 207.66 161.98 7 March 2017 Class Z Accumulation shares 2.8287 167.02 117.71 7 March 2016 Class Z Accumulation shares 2.9176 148.39 106.65 1 Closed 16 November 2017. 2 Commenced 2 December 2015. 3 Commenced 12 May 2017. Past performance is not a guide to future performance.
Classification of Investments 7 March 2018 2017 vs 7 March 2017 2016 20% 7 March 2018 7 March 2017 15% 10% 5% 0% Cayman Islands South Korea Australia Hong Kong India China Taiwan Singapore Luxembourg United Kingdom Philippines Indonesia Thailand Pakistan Republic of Ireland Malaysia Derivatives Net other assets Portfolio Information Top Five Holdings as at 7 March 2018 % of Fund Tencent Holdings 6.60 Samsung Electronics 5.52 Alibaba Group ADR 4.95 Threadneedle China Opportunities Fund 4.82 Taiwan Semiconductor Manufacturing 4.70 Top Five Holdings as at 7 March 2017 % of Fund Samsung Electronics 6.69 Tencent Holdings 4.75 Taiwan Semiconductor Manufacturing 4.52 Threadneedle China Opportunities Fund 4.49 AIA Group 3.60
Investment Objective and Policy To achieve capital growth. The ACD s investment policy is to invest the assets of the Fund primarily in the equity of companies domiciled in Asia (with the exclusion of Japan) or with significant Asian (excluding Japan) operations. It may further invest in other securities including fixed interest securities, other equities and money market securities. 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. 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. 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. 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. High Volatility Risk: The fund typically carries a risk of high volatility due to its portfolio composition or the portfolio management techniques used. This means that the fund s value is likely to fall and rise more frequently and this could be more pronounced than with other funds. 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 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 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 227385