Annual Short Report 30 April 2018 Fund Manager s Report Ilan Furman Performance of Class 1 Accumulation shares* Over the twelve months to 30 April 2018, the published share price of Class 1 accumulation shares in the Threadneedle Global Emerging Markets Equity Fund has risen from 105.14p to 113.85p. For comparison, using noon prices, the performance of the Class 1 share class was +8.28% and +8.91% for the Class 2 share class compared to a return of +11.90% for the Morningstar UK Unit Trusts/OEICS (IA) Global Emerging Markets 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 Emerging Markets Index was +14.73%. Market Overview and Portfolio Activity Emerging Market (EM) equities performed strongly over the period, with the MSCI Emerging Markets index rising 14.7% in sterling terms, outperforming developed markets. This was despite a bout of volatility in early February, when global investors were unsettled by stronger-than-expected wage growth in the US, which fuelled fears of higher inflation and a steeper trajectory for US interest-rate hikes. EM equities continued strong performance demonstrated the resilience of the emerging market macro environment, given factors such as domestic fund flows, foreign exchange buffers and the aggregate current account surplus. More importantly, throughout the period, expectations for earnings-per-share (EPS) growth in Asia have risen significantly across countries and sectors, with further upward revisions in February. This has been a clear divergence from their developed market counterparts. China continued its strong run off the back of robust earnings, positive economic releases and higher-than-expected GDP growth. In 2018, US-China trade tensions began to emerge. However, with proposed sanctions impacting China s exports by just 0.65% and its GDP by 0.01%, the overall impact of tariffs at this stage is certainly not alarming. Taiwan also performed well, driven by Apple supply-chain names, mirroring the global trend of strong performance in the technology sector. Finally, Indian equities hit an all-time high during the period and shrugged off concerns over the implementation of the goods and services (GST) tax bill. Latin American equities rose over the period, as positive political news, improving commodity prices and favourable currency movements helped propel markets higher. In the second half, however, the fall in commodity prices weighed on market performance. In Brazil, investors grew concerned when corruption allegations were raised against President Michel Temer, *In pound Sterling and against UK peer group. but the subsequent dismissal of charges reinvigorated the prospects for further reform measures. Indeed, the senate approved labour reform legislation; the first major overhaul of labour rules in seven decades. Mexican equities continued their recovery on the back of a softening of US protectionist rhetoric towards the nation. GDP data remained strong, buoyed by a tight labour market and strong trade data. Over the period, the fund initiated a position in SK Hynix, given the consolidation within the market and the less cyclical nature of memory pricing. We are optimistic that the company is well positioned to benefit from strong demand as a result of cloud customers. A new position was initiated in Itau Unibanco, on the back of a positive macro backdrop for continued strength in the bank s earnings. We also expect continued strength in asset growth, while interest rate increases are likely to lead to an expansion in net interest margins. In this backdrop, valuations remain attractive. The fund also increased its exposure to Brazil by initiating a new position in Brazilian airline Azul, which has a unique business model, an attractive valuation and strong growth opportunities and by participating in the initial public offering of payment processor PagSeguro Digital. The company possesses a branded, self-serve, digital distribution channel, offering exposure to the development of Brazil s electronic payments economy. To fund these purchases, the fund sold out of Far Eastone, Akbank, Anglo American Platinum and FEMSA, among others. Our outlook on the asset class remains positive, underpinned by improvements to return on equity, earnings and cashflows, which are outpacing improvements in developed market counterparts. The last quarter clearly demonstrated the improvement in the domestic macro environment given the resilience of the asset class over a turbulent period, especially relative to developed markets. Structural progress is ongoing, with reforms and favourable demographics providing a compelling investment case. EM economies are better positioned to withstand a US tightening cycle, given factors such as the aggregate EM current account surplus, reduced dependence on external financing, foreign exchange buffers, benign inflation and positive real interest rates. Geopolitical risk is another important consideration, with trade relations between China and the US at the forefront of discussions. Current tariff announcements are containable, with the real risk coming from the threat of an escalation to the trade war. Valuations remain relatively attractive, with the added benefit of healthy yield support in many cases due to strong free cashflow generation. 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. Share class 30 April 2018 30 April 2017 Class 1 Accumulation shares 1.67% 1.66% Class 2 Accumulation shares 1.10% 1.09% Class X Income shares 0.06% 0.05% Class X Accumulation shares 0.10% 0.10% Class Z Accumulation shares 0.92% 0.91% Summary of Fund Performance Performance History (%) Share class 2018 1 2017 2016 2015 2014 2013 Class 1 Accumulation shares -2.52 +20.08 +25.94-11.92 +2.80 +1.31 Class 2 Accumulation shares -2.32 +20.76 +26.66-11.41 +3.39 +1.89 Class X Income shares 2-1.98 +21.94 +27.95-10.49-1.01 Class X Accumulation shares -2.00 +21.92 +27.89-10.52 +4.44 +2.92 Class Z Accumulation shares -2.27 +20.96 +26.88-11.26 +3.58 +2.06 1 To 30 April 2018. 2 Commenced 28 July 2014. 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) NAV pence per share Number of shares in issue As at Share class NAV ( ) 30 April 2018 Class 1 Accumulation shares 81,432,347 113.76 71,581,656 30 April 2017 Class 1 Accumulation shares 83,186,959 105.03 79,200,870 30 April 2016 Class 1 Accumulation shares 70,691,839 84.26 83,901,872 30 April 2018 Class 2 Accumulation shares 101,038,683 122.25 82,652,196 30 April 2017 Class 2 Accumulation shares 132,690,140 112.22 118,241,653 30 April 2016 Class 2 Accumulation shares 110,847,138 89.51 123,843,226 30 April 2018 Class X Income shares 3,748 124.94 3,000 30 April 2017 Class X Income shares 3,470 115.68 3,000 30 April 2016 Class X Income shares 2,788 92.93 3,000 30 April 2018 Class X Accumulation shares 115,966,029 108.67 106,715,868 30 April 2017 Class X Accumulation shares 72,417,738 98.77 73,320,963 30 April 2016 Class X Accumulation shares 29,584,105 78.02 37,916,932 30 April 2018 Class Z Accumulation shares 30,543,171 145.03 21,059,232 30 April 2017 Class Z Accumulation shares 31,031,986 132.91 23,348,073 30 April 2016 Class Z Accumulation shares 35,777,717 105.83 33,806,826
Distribution History/Share Price Range Threadneedle Global Emerging Markets Equity Fund Pence per share Highest share price (pence) Lowest share price (pence) Year to Share class 30 April 2018 Class 1 Accumulation shares 0.3310 121.08 105.14 30 April 2017 Class 1 Accumulation shares 0.2812 107.76 80.61 30 April 2016 Class 1 Accumulation shares 0.6380 97.13 72.32 30 April 2018 Class 2 Accumulation shares 1.0549 129.92 112.34 30 April 2017 Class 2 Accumulation shares 0.8987 114.79 85.66 30 April 2016 Class 2 Accumulation shares 1.0473 102.60 76.53 30 April 2018 Class X Income shares 2.3893 135.13 115.82 30 April 2017 Class X Income shares 2.0053 120.07 89.00 30 April 2016 Class X Income shares 2.0200 107.79 80.65 30 April 2018 Class X Accumulation shares 2.0045 115.33 98.89 30 April 2017 Class X Accumulation shares 1.6637 100.78 74.73 30 April 2016 Class X Accumulation shares 1.7060 88.59 66.27 30 April 2018 Class Z Accumulation shares 1.5013 154.10 133.06 30 April 2017 Class Z Accumulation shares 1.2711 135.84 101.29 30 April 2016 Class Z Accumulation shares 1.2150 121.11 90.38 Past performance is not a guide to future performance. Classification of Investments 30 April 2018 vs 30 April 2017 20% 18% 16% 30 April 2018 30 April 2017 14% 12% 10% 8% 6% 4% 2% 0% Cayman Islands South Korea India Other China South Africa Brazil Taiwan Hong Kong Thailand Luxembourg Russia Mexico Indonesia Netherlands Net other assets Portfolio Information Top Five Holdings as at 30 April 2018 % of Fund Samsung Electronics 6.80 Alibaba Group ADR 6.03 Tencent Holdings 5.90 Naspers 3.80 Taiwan Semiconductor Manufacturing ADR 3.40 Top Five Holdings as at 30 April 2017 % of Fund Samsung Electronics 5.46 Tencent Holdings 4.54 Alibaba Group ADR 3.50 Taiwan Semiconductor Manufacturing ADR 3.34 Naspers 2.88
Investment Objective and Policy The investment objective of the Global Emerging Markets Equity Fund is to achieve long-term capital growth. The ACD s investment policy is to invest the assets of the Fund primarily in equities of Emerging Markets companies. These are defined as companies domiciled in and/or whose significant activities are in Emerging Market countries. Emerging Market countries are those characterised as developing or emerging by the World Bank, the United Nations or the MSCI Emerging Markets Free Index. From 14 May 2018, the Fund may invest up to 30% of its Net Asset Value in China A-Shares through the China-Hong Kong Stock Connect Programme. If the ACD considers it desirable, it may further invest up to one third of the total assets of the Fund in other securities (including fixed interest securities, other equities and money market securities). In addition, the ACD may use derivatives and forward transactions for purposes that are limited to 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 management of the ACD Appointment of Michelle Scrimgeour on 14 August 2017; Resignation of Mr Don Jordison on 1 May 2018. Changes to the Prospectus During the period from 1 May 2017 to 30 April 2018 the following changes were made to the Prospectus of Threadneedle Specialist Investment Funds ICVC (the Company): Updates to include disclosures required as a result of implementation of the Securities Financing Transaction Regulation (SFTR) in relation to funds investing in total return swaps Updates to reflect changes being made to UK tax on distributions so that all payments are paid gross of UK tax Updates to the list of funds managed by the ACD and the directors of the ACD Addition of W Shares available to investors in the Global Equity Income Fund Update to list of countries where the funds are available Updates require for MiFID II Introduction of compulsory conversion clause Inclusion of the Global Focus Fund Removal of the Target Return Fund following its closure Inclusion of information about the use of Hong Kong Stock Connect by certain funds Addition of a new share class for the Global Extended Alpha Fund (Class A, a, retail share class with no performance fee) Updated privacy statement for GDPR General updates (taxation, dilution adjustments, performance, available share classes) Changes to the Instrument of Incorporation The Instrument of Incorporation of the Company was amended on 22 December 2017 to introduce a compulsory conversion clause and 4 April 2018 to remove the Target Return Fund following its closure and add the Global Focus Fund. 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 Fund 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. China-Hong Kong Stock Connect Risk: The Fund may invest through the China-Hong Kong Stock Connect programmes which have significant operational constraints including quota limits and are subject to regulatory change and increased counterparty risk. Further risks applicable to the fund can be found in the Prospectus. Risk and Reward Profile As at 30 April 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 Annual 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 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 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): +852 3667 7111* 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 CACEIS Belgium S.A. avenue du Port 86 C b 320 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 ENUK 234005