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Threadneedle European Corporate Bond Fund
Alasdair Ross
For Professional Investors
November 2016
Contents
Section 1
ColumbiaThreadneedle Investments Overview
Section 2
Strategy and Team
Section 3
Philosophyand Process
S...
Section 1
Columbia Threadneedle Investments Overview
Ameriprise Financial Inc.
Overview of business lines
4
Key facts
 Group AUM of €700 billion1
 A Fortune 500 company
 S&...
Columbia Threadneedle Investments
5
All data is for the Columbia and Threadneedle group of companies as at 30 June 2016.
1...
Our fixed income credentials
6
Fixed income sectors
Source: Columbia Threadneedle Investments, as at 30 June 2016, include...
Investment philosophy
We believe that we can deliver strong
risk-adjusted returns forour clients through:
 An active appr...
Columbia Threadneedle Investments
‘Best performing fund group over the last decade’1
8
Key findings
 Columbia Threadneedl...
Section 2
Strategy and Team
Investment philosophy
10
There is no guarantee that an investment objective w illbe achieved or that return expectations w...
Why Columbia Threadneedle Investments for
European Corporate?
11
Source: Columbia Threadneedle Investments, 30 September 2...
Investment Grade Credit Team
12
Source: Columbia Threadneedle Investments, as at 30 September 2016.
Investment Grade
Portf...
Global fixed income resources
Investment Grade U.S. High Yield Emerging Markets U.S. Investment Grade U.S. High Yield Rate...
A consistent framework for idea sharing, debate and
research delivery
14
For illustrative purposes only. The mention of an...
Section 3
Philosophy and Process
Investment grade credit investment process
Entire investment floor contributes to idea generation
16
Source: Columbia Thre...
Credit
Research
Process
Credit analysts
Management
Regulation
Capital
structure
Covenant
analysis
Credit
opinion
Credit
an...
Fundamental credit research process – Issuer level
Proprietary risk rating system
18
 Proprietary internal risk rating sy...
Credit investment process
Credit grids: Industry and quality inputs
19
Source: Columbia Threadneedle Investments, as at 1 ...
Credit investment process
Credit grids: Industry and quality output
20
Source: Columbia Threadneedle Investments, as at Ma...
Asset allocation process
What we consider at asset allocation level
21
Asset
allocation
process
Micro
fundamentals
Money
f...
Asset Allocation Fundamental Structural Valuation
Overall
Score
Overall Fixed
Income
Spread Risk
+1 -0 +0 +1
Investment Gr...
Fixed income process
Formulating macro decisions
23
The GovernmentScorecard
 A framework to develop ideas in
a consistent...
Portfolio construction process
24
 Monthly meeting attended by
InvestmentGrade Portfolio
Managers to ensure portfolio
pos...
Risk management philosophy
25
 We believe that risk assessmentshould focus on the probability of losing money
 We monito...
Portfolio construction
26
Sizing risk positions
 Risk positions in any source of opportunity will be sized in relation to...
Position size management
27
0.15 – 0.25
0.05 – 0.15
0.00 – 0.05
Relative Contribution to
Spread Duration (CTSD)
High retur...
Section 4
Positioning and Performance
Threadneedle European Corporate Bond Fund
29
Source: Columbia Threadneedle Investments, as at 30 September 2016. Character...
Threadneedle European Corporate Bond Fund
Portfolio positioning
30
Source: Columbia Threadneedle Investments, as at 30 Sep...
Threadneedle European Corporate Bond Fund
Portfolio sector and credit rating breakdown
31
Source: Columbia Threadneedle In...
Threadneedle European Corporate Bond Fund
Gross performance in EUR
32
Source: Columbia Threadneedle Investments, as at 30 ...
Threadneedle European Corporate Bond Fund
Performance attribution
33
Source: Columbia Threadneedle Investments, as at 30 S...
Threadneedle European Corporate Bond Fund
Performance attribution by sector
34
Source: Columbia Threadneedle Investments, ...
Threadneedle European Corporate Bond Fund
Performance attribution
35
Source: Columbia Threadneedle Investments, as at 30 S...
Appendix
Key Indicators Flag Trend
1. Tight policy
conditions Flat
2. A deteriorating
economic backdrop
Marginal
Deterioration
3. E...
What is driving European credit markets?
Very low base rates result in search for yield
38
Source: Columbia Threadneedle I...
Investment grade corporate bond spreads (US 5-10y)
IG spreads are wider than many previous crises
39
Source: Bloomberg, C6...
Investment Grade opportunities
Cross-currency market and curve point selection
40
0
50
100
150
200
250
300
3y 5y 7.5y 10y ...
Investment Grade opportunities
Cross-currency issuer selection – example of USD preference
41
Source: (left) Bloomberg, Co...
Investment Grade opportunities
Cross-currency issuer selection – example of Euro preference
42
Source: (left) Bloomberg, C...
Global Investment Grade opportunities
Utility and Midstream sector spreads
43
0.60x
0.80x
1.00x
1.20x
1.40x
1.60x
1.80x
2....
Investment grade opportunities
Spread widening has also run concurrent with the return of some
idiosyncratic risk
44
.
Vol...
Relative credit quality
BB High Yield flat to BBB IG. Idiosyncratic rising star stories exist
45
Source: Bloomberg, Merril...
Industry: Banks: Senior vs Sub
Opportunities remain across bank capital structure
46
Source: Columbia Threadneedle Investm...
Industry: Banks: TLAC
47
Source: Barclays, Morgan Stanley, January 2015.
TLAC
 Equity + Hybrids + loss absorbing debt
 2...
Industry: Banks: TLAC – supply implications
48
Source: Bloomberg, CreditSights, ECB, Company Reports, Columbia Threadneedl...
Contribution to Duration (CTD) figures explained
49
Duration is a sensitivity measure widely used in Fixed Income investme...
Biography
ALASDAIR ROSS
Head of Investment Grade Portfolio Management, EMEA
Alasdair Ross joined the company in 2003 and i...
Threadneedle European Corporate Bond Fund
Key Risks and Objective
51
InvestmentRisk:The value of investments can fall as w...
Important Information
52
For internal use and for Professionaland/or Qualified Investors only (not to be used w ith or pas...
Important Information (cont.)
53
- in Finland: Eufex Bank Plc, Keilaranta 19, 02150 Espoo, Finland
- in Germany: JP Morgan...
Important Information (cont.)
54
These materials may only be used in one-on-one presentations w ith institutionalinvestors...
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Presentacion Threadneedle: Funds Experience 2016

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Presentacion Threadneedle: Funds Experience 2016

  1. 1. Threadneedle European Corporate Bond Fund Alasdair Ross For Professional Investors November 2016
  2. 2. Contents Section 1 ColumbiaThreadneedle Investments Overview Section 2 Strategy and Team Section 3 Philosophyand Process Section 4 2 Positioning and Performance Appendix
  3. 3. Section 1 Columbia Threadneedle Investments Overview
  4. 4. Ameriprise Financial Inc. Overview of business lines 4 Key facts  Group AUM of €700 billion1  A Fortune 500 company  S&P rating of A; Moody’s A3  No.31 largest global asset manager2  No.13 largest manager of long- term U.S. mutual funds3  No.4 largest retail manager in the UK4 Financial AdvisoryInsurance & AnnuitiesAsset Management Source: Ameriprise Financial Inc. as of 30 June 2016, unless otherw ise stated. 1 Group AUM represents totalassets under management and administration for all Ameriprise companies combined. 2 Source: IPE ‘The Top 400 Asset Managers’2016 listing, based on Columbia and Threadneedle assets as at 31 December 2015. 3 Source: Investment Company Institute (ICI). Based on Columbia Funds assets excluding money market funds as at 31 May 2016. 4 Source: UK Investment Association Ranking. Based on Threadneedle Funds assets as at 31 January 2016.
  5. 5. Columbia Threadneedle Investments 5 All data is for the Columbia and Threadneedle group of companies as at 30 June 2016. 1 AUM includes externally managed funds under administration as w ellas all assets managed on a discretionary or non-discretionarybasis by the entities in the Columbia and Threadneedle group of companies.  An established globalasset managementgroup  AUM of €415.2 billion  Offices in 19 countries  Over 450 investment professionals and over 2,000 people  Focus is active management of client assets  Offersa broad spectrum of capabilities  Equities  Fixed Income  Alternatives  Asset Allocation  Investment Solutions  Part of Ameriprise Financial, Inc. Assets under management1 AUM – institutionalvs.wholesale Alternatives 7% Equities 51% Fixed Income 42% Wholesale 59% Institutional 41%
  6. 6. Our fixed income credentials 6 Fixed income sectors Source: Columbia Threadneedle Investments, as at 30 June 2016, includes externally managed funds under administration.  A leaderin fixed income  €174.3 billion across all portfolios  Product development focused on innovation and client solutions  Deep resource  Team has complementary strengths covering all major fixed income markets  Supported by dedicated risk management team and substantial operational resources  Culture of collaborationand communication  Entire team participates in idea generation, discussion and debate to produce sharper insights and trade ideas  180 dedicated fixed income professionals working closely together across the globe Inv estment Grade Corporates 18.5% Core/ Core Plus 19.7% High Yield 9.4%Bank Loans 4.1% Municipal 12.5% Short Duration/ Stable Value 6.1% Liquidity / Money Market 4.7% Emerging Markets 0.8% Liability Driv en 2.7% Absolute Return 0.9% Strategic Bonds 2.0% Mortgages/ Structured Assets 9.5% Gov ernment 8.0% Other Owned Assets 1.1%
  7. 7. Investment philosophy We believe that we can deliver strong risk-adjusted returns forour clients through:  An active approachthat takes advantage of market inefficiencies  Our global perspective advantage – the combinationof macro and micro insights  The appropriate allocation of risk 7 There is no guarantee that the investment objective w illbe achieved or that return expectations w illbe met.
  8. 8. Columbia Threadneedle Investments ‘Best performing fund group over the last decade’1 8 Key findings  Columbia Threadneedle Investments was the best performing fund group in a recent study by FE Trustnet1  Columbia Threadneedle Investments has the highest proportion of outperforming active funds over 10 years  Demonstrates the benefits of our truly active and team- based approach  Testifies to the skill of our investment professionals across a wide range of market conditions 1 Source: Alex Paget, FE Trustnet, as at 13 November 2015. Past performance is not a guide to future returns. To read the full article, visit www.columbiathreadneedle.com/trustnet The research conducted by FE Trustnet focused on actively managed funds w ithin the Investment Association (IA) universe w ith a 10-year performance trackrecord and measured outperformance of the funds compared to their stated benchmark or an appropriate comparator. Where funds did not have a stated benchmark, the most comparable index w as used for equity funds and the relevant IA sector average used for bond funds and funds w ithin the IA Mixed Investment Shares and IA Flexible sectors. Funds w ithin the IA Specialist and IA Unclassified sectors that do not have a benchmark or an easily comparable index w ere excluded fromthe study, along w ith all funds in the IA Targeted Absolute Return sector and direct commercial property funds. ‘We fundamentally believe that markets are inefficient and an active approach can benefit investors over the long term both in terms of risk and return, and our track record attests to this… … in today’s low-growth, low-return world a truly active approach will be required to search out the opportunities that can generate strong future performance.’ Mark Burgess, Chief Investment Officer, EMEA Name % outperformers No. of funds Columbia Threadneedle 79.06% 42 Jupiter 75.00% 24 Invesco Perpetual 71.42% 35 L&G 66.67% 18 Newton 66.67% 18 Schroder 64.51% 62 Baillie Gifford 63.16% 19 Fidelity 57.78% 45 M&G 54.83% 31 Aviva 50.00% 16 Henderson 50.00% 42 Source: FE Analytics, as at 13 November 2015.
  9. 9. Section 2 Strategy and Team
  10. 10. Investment philosophy 10 There is no guarantee that an investment objective w illbe achieved or that return expectations w illbe met. Diversification does not assure a profit or protect against loss. Given solid fundamentalcreditinsights,a reasonable time horizon,and the ability to withstand short-term volatility,we believe creditopportunitiesin the investmentgrade corporate bondmarketcan be exploitedto achieveattractiverisk-adjusted returns. Key tenets High quality independent credit research We employ a bottom-up approach to investment grade credit research. A highly experienced staff of credit research professionals utilizes a proprietary process which results in a deep understanding of issuer and industry dynamics Team based culture We foster a collaborative and interactive environment that allows the Team’s best investment ideas to emerge. Portfolio managers and credit analysts work together on investment decision-making and portfolio construction, and are evaluated as a team based on client portfolio requirements Downside risk management A framework of quantitative risk controls and qualitative risk assessments seeks to minimize portfolio relative volatility. Strict issuer concentration limits minimize potential credit losses. Additionally, well- diversified portfolios generate multiple sources of potential alpha granting us the confidence and patience to allow credit ideas to come to fruition
  11. 11. Why Columbia Threadneedle Investments for European Corporate? 11 Source: Columbia Threadneedle Investments, 30 September 2016. Past performance is not a guide to future performance. There is no guarantee that an investment objective w illbe achieved or that return expectations w illbe met. Diversification does not assure a profit or protect against loss. A deep and stable team of experiencedprofessionalsresponsible for over €32 billion equivalentin investmentgradecorporate bond assets asof June 2016.  Rigorous,independent,bottom-up fundamental credit research and a constant focus on downside risk management  Returns profile dominated by Issuerand Security selection  Disciplined and repeatable scorecard based investment process  Risk positions sized to scorecard conviction  Excellent long term track record
  12. 12. Investment Grade Credit Team 12 Source: Columbia Threadneedle Investments, as at 30 September 2016. Investment Grade Portfolio Management Team Investment Grade Research Team Alasdair Ross, CFA, Head of IG, EMEA Simon Bond, Senior Portfolio Manager Tammie Chan, Senior Portfolio Manager John Hampton, Senior Portfolio Manager Ryan Staszewski, CFA, Portfolio Manager Sarah Kendrick, Senior Trader James Phillips, Senior Portfolio Manager Assistant …………………………………………………………. David Oliphant, Executive Director Fixed Income Ben Myrtle, Client Portfolio Analyst Jonathan Pitkanen, Head of Investment Grade Credit Research, EMEA & Asia Industrials, Insurance Arabella Duckworth, Senior Analyst Retail, Consumer Guillaume Langellier, CFA, Senior Analyst ABS & Property Paul Smillie, Senior Analyst Banks Sharon Vieten, Senior Analyst Utilities & Infrastructures Yi Ming Oh, Analyst Asian IG Corporates Todd Czachor, CFA, Senior Analyst Head of U.S. Investment Grade Research Energy Dori Aleksandrowicz, Senior Analyst Financials Ben Bassett, CFA, Senior Analyst Metals and Mining, Chemicals Jeff Cicirelli, CFA, Senior Analyst Insurance, Healthcare/Pharmaceuticals John Dawson, CFA, Senior Analyst Retail, Consumer Nate Liddle, Senior Analyst Media, Technology, Cable, Telecom David Morgan, CFA, Senior Analyst Conglomerates, Transportation, Aerospace/Defense Willow Piersol, CFA, Senior Analyst Financials Mary Titler, CFA, Senior Analyst Utilities 18 years average experience 16 years average experience 9 Professionals 15 Research Professionals
  13. 13. Global fixed income resources Investment Grade U.S. High Yield Emerging Markets U.S. Investment Grade U.S. High Yield Rates & Currency Core/Core Plus U.S. Investment Grade Todd Czachor, CFA Brett Kaufman, CFA Corporates Tom Murphy, CFA Jennifer Ponce de Leon Matt Cobon Carl Pappo, CFA Kevin Lema Dori Aleksandrow icz Matthew Corbett, CFA Ryan Burke, CAIA Tim Doubek, CFA Brian Lavin, CFA Alex Batten, CFA Alan Erickson, CFA Gregory Meisenger Ben Bassett, CFA Daniel DeYoung Patti McConachie Royce Wilson, CFA Mark Van Holland, CFA Dave Chappell Mary Werler, CFA Dylan Minert Jeffrey Cicirelli, CFA Julie Grey, CFA, CPA Xiong Wei Poh Gregg Syverson, CFA, CPA Jason Sittko, CFA Adrian Hilton Stephen Sheehan, CFA William Peishoff John Daw son, CFA Rich Gross, CFA Shannon Rinehart, CFA David Janssen Andrew Donnelly Nathaniel Liddle Kris Keller, CFA Rates & Currency Matt Steiger European High Yield Matthew Rees, CFA Elena Rozina U.S. High Yield David Morgan, CFA Jim MacMiller Ed Al-Hussainy Barrie Whitman Alessandro Tarello, CFA Liability Driven Investing David Greavu Willow Piersol, CFA Brian New man, CFA, CPA Alexandre Christensen European Investment Michael Poole Frank Salem, CFA Michael Roberts, CFA Mary Titler, CFA Spencer Sutcliffe Mindaugas Lepeska Grade David Backhouse Emerging Markets Karl Chang, CFA Andrea First Jonathan Pitkanen Jason Weinberg, CFA Sabrina Wong Alasdair Ross, CFA Jim Carlen, CFA Timothy Brannon Arabella Duckw orth Brandon Jankow ski Simon Bond Leveraged Debt Henry Stipp Jason Thinh Le U.S. Rates Guillaume Langellier, CFA Ted Nerison, CFA Tammie Chan Lynn Hopton Clifford Lau, CFA Tom Egan William Finan Sharon Vieten Tony Pederson U.S. Structured Assets Ryan Staszew ski, CFA Yvonne Stevens Chris Cooke Paul Smillie Ryan Osborn, CFA Steve Staver, CPA Farid Kamarudin Inflation-Linked U.S. Structured Products European High Yield Garritt Conover, CFA, CAIA U.S. Structured Assets Jerry How ard, CFA Zara Kazaryan Orhan Imer, Ph.D., CFA Luke Hagopian, CFA Municipal Bonds Gianluca Consoli, CFA Mitch Helle-Morrissey, CFA Jason Callan Andrew Gruet Daniel Ruether Chad Farrington, CFA* Harry Lister Michael Milosch, CFA Tom Heuer, CFA Municipal Bonds Short Duration & Dan Belcher Gareth Simmons Shaw n Pierce, CFA Bill Lee, CFA James Dearborn Stable Value Strategic Income New Issues Jeff Kovala Tom Southon Clinton Vilks Chad Farrington, CFA* Leonard Aplet, CFA Gene Tannuzzo, CFA Peter Apostolicas Danielle Messler Jenny Wong, CFA Real Estate Loans Kimberly Campbell Jason Delanty Gordon Bow ers, CFA Michael Roye John Dittrich Commodities Paul Fuchs, CFA John Dempsey, CFA Derivatives Ty Schoback Leveraged Debt Brian Hennen David Donora Brian McGreevy Greg Liechty Client Portfolio Braj Agraw al Matthew Stephan Steve Columbaro, CFA Jonathan Jablonsky William Amzand Catherine Stienstra John McColley Management Philip McKernan Elizabeth Ware Angela Jarasunas John McCarthy Nicolas Robin Anders Myhran, CFA Jim McKay, CFA Chris Jorel, CFA Ben Woo Ashraf Jilani, CFA Mark McMullen Julie Oman David Kennedy Global Eric Johnson Julene Melquist Ron Stahl, CFA Kris Moreton, CFA Emma Photis Ron Launsbach, CFA Ryan Krieg Ben Myrtle Mandy Coatsw orth Matt Pielert Jeffrey Hibbeler, CFA Pamela Hunter Linda Solarek David Oliphant Gabriel Heskin Mary Schaifer Adam Shakoor Michael Conerly, CFA James Waters Sarah Kendrick Vessa Tontti, CFA Alexis Addrisi European Money Market Cindy Larke Carri Dolin Paul Witchalls James Lavey John Hayes III Mandy Coatsw orth Ian Neville Allyson McCann Bill Tong Kim Michalski Nathan Raduns Brock Mumford Khang Wei Tai Wendy Norman Paul Witchalls Deb Vargo Jennifer Wacker, CFA Municipals Bruce Warren, CFA Anthony Purcell Holly Withers, CFA Travis Bates Philip Carty Peter Fleming Margaret Saltalamacchia Ralph Vezina Courtney Walsh Colin Moore Global Chief Investment Officer Research Portfolio Management Global Head of Fixed Income Trading Jim Cielinski, CFA Steve Harasimow icz Global Head of TradingColin Lundgren, CFA Head of U.S. Fixed Income Kirk Moore, CFA Head of Global Fixed-Income Research Information as of 8 August 2016. Leaders indicated in bold. Certain team members may be employees of affiliates. * Dual portfolio manager/analyst role. 68 Research Professionals 98 Professionals 32 Professionals Private Portfolios – Taxable Private Portfolios – Municipal
  14. 14. A consistent framework for idea sharing, debate and research delivery 14 For illustrative purposes only. The mention of any specific shares or bonds should not be taken as a recommendation to deal.  Personto personcontact lies at the core of our researchsharing, via video conferencing,phone and face to face meetings  Weeklyglobal analyst video conference  Twice monthly industry sectorreviews  Recommendations are captured through the global creditgrids  More detailed researchis disseminated through our Bloomberg research-sharing portal (right) as well as through direct correspondencewith the firm’s global investment professionals  For every issuer, users have access to a concise thesis statement
  15. 15. Section 3 Philosophy and Process
  16. 16. Investment grade credit investment process Entire investment floor contributes to idea generation 16 Source: Columbia Threadneedle Investments, as at June 2016. The fund characteristics described above are internalguidelines (rather than limits and controls). They do not formpart of the fund’s objective and policy and are subject to change w ithout notice in the future. Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency Idea generation ImplementationResearch / debate Portfolio Construction & Risk Management Credit Market Risk Issuer & Security Selection Duration, Curve & Currency Asset Class Allocation Team Investment Grade Team Macro Team Industry & Quality Selection 70% Approximate % Risk for EUR IG Credit 10% minimal 20% Investment Grade Team
  17. 17. Credit Research Process Credit analysts Management Regulation Capital structure Covenant analysis Credit opinion Credit analysis Fundamental credit research process – Issuer level What our analysts consider at company level research 17 Source: Columbia Threadneedle Investments, as at June 2016.  Financial tests  Covenants  Management Intent  Subordination  Collateral  HoldCo vs. OpCo  Currency  History, experience  Incentives  Track record  Shareholder activism  Analyst conviction  Credit thesis  Pricing  Liquidity  Relative Value  Legal protection  Legal burden  Potential changes  Model  Transparency  Industry  Country  Event risk  ESG performance Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency
  18. 18. Fundamental credit research process – Issuer level Proprietary risk rating system 18  Proprietary internal risk rating system allows analysts to efficientlycommunicate an issuer’s risk profile  Ratings facilitate cross-industryrelative value discussions and help determine portfolio positionsizes Source: Columbia Threadneedle Investments, as at January 2015. Risk and relative value ratings reflect the Team's internal, proprietary ratings system. There is no guarantee that an investment objective w illbe achieved or that return expectations w illbe met. Risk rating High-level interpretation Possible credit characteristics Risk 1  Solid credit quality  Minimal risk of credit deterioration  Stable free cash flow  Industry leader  Defendable niche player  Ample cash flow relative to leverage  Stable regulatory or industry environment Risk 2  Good credit quality  Moderate risk of credit deterioration  Adequate free cash flow  Defendable market position  Expectation of adequate free cash flow to leverage  Stable regulatory or industry environment Risk 3  Transitory credit quality  Deterioration or improvement likely  Quality of free cash flow uncertain  Free cash flow to leverage currently not appropriate  Significant possibility of negative event risks  Uncertain market position  Uncertain regulatory or industry environment Risk 4  Weak credit quality  Having or highly likely to achieve credit quality characteristics consistent with a below investment grade credit profile (stable or deteriorating)  Poor quality or lack of free cash flow  High leverage relative to free cash flow  Extraordinary measures needed to maintain credit quality  Limited or uncertain liquidity  Difficult regulatory or industry environment Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency
  19. 19. Credit investment process Credit grids: Industry and quality inputs 19 Source: Columbia Threadneedle Investments, as at 1 January 2012. Scale: -2 (max underw eight) to +2 (max overweight). Credit Research Grid Structural issues Valuation assessment Fundamentals and event risk  Quantitative  Counter-balance to analyst inputs  Beta-adjusted score  Macro economic background  Industry environment  Competitive position  Management and strategy  Financial analysis  Mergers and acquisitions  Supply of bonds  Bond buybacks  Refinancing existing and / or bank debt  Covenants  Liquidity Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency  Tangible link between creditresearch and portfolio constructionresulting in a repeatable process  Comprehensive referencetoolfor analysts’ views on Issuerand Industry fundamentals and relative value  Visual dashboard of Issuerand industry rankings  Efficacycheckof current portfolio positioning relative to analysts views of fundamentals and valuations
  20. 20. Credit investment process Credit grids: Industry and quality output 20 Source: Columbia Threadneedle Investments, as at March 2015. For illustrative purposes. This is Columbia Threadneedle Investments ow n internalresearch and should not be taken as investment advice. Scale: -2 (max underw eight) to +2 (max overweight). Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency Q1 Q2 Q3 Q4 Q5 Total Banks 0 0 0 0 1 1 Financial services -1 0 0 0 1 0 Insurance -2 0 0 0 0 0 Total Financials -1 0 0 0 1 1 Basic Materials -2 -1 -1 2 0 0 Consumer Goods -2 -2 0 0 2 0 Consumer Services -2 0 0 0 -1 0 Health Care -2 -2 0 0 1 0 Industrials -1 -2 0 1 2 0 Oil & Gas -2 1 -1 0 -1 -2 Technology -2 0 0 2 1 -2 Telecommunications 0 -1 0 0 2 0 Utilities -1 -1 0 0 2 0 Total Corporate -1 -1 0 0 1 0
  21. 21. Asset allocation process What we consider at asset allocation level 21 Asset allocation process Micro fundamentals Money flows PositioningValuation Asset allocation opinion Macro fundamentals  Spreads vs. GDP forecasts  Long term spread history  Implied defaults  Spreads vs other markets  Liquidity premia  Cross asset class valuations  Street positioning  Investor positioning  New issue hedging / effect on secondary  Spread reaction to institutional news  Micro fundamentals  Balance sheet leverage  Spread trend  Credit cycle  Fundamental asset classes  Spread beta ranges  Net supply balance  Official sector, institutional, retail  Macro data surprises  PMI new orders  Business confidence  Credit creation / money supply  Consumer confidence  Macro event risk Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency
  22. 22. Asset Allocation Fundamental Structural Valuation Overall Score Overall Fixed Income Spread Risk +1 -0 +0 +1 Investment Grade Credit +1 0 -0 +1 High Yield Credit +1 -1 0 +1 Agency MBS +0 -1 -1 0 Non Agency MBS & CMBS +2 +1 +1 0 Emerging Markets – Hard Currency -0 0 +1 -1 Emerging Markets – Local Currency -1 0 +2 -1 Fixed income asset allocation process Example output from the IG asset allocation decision 22 Apply common scenarioframework  Informs overall spread beta  Identifyindividual assets  Formulate scenarios (e.g. Eurozone crisis, Middle East, globalQE tapering)  Stress test widely varying assets to similar scenarios  Score assets by risk-adjusted returns Source: Columbia Threadneedle Investments, as at December 2014. Scale: -2 (max underw eight) to +2 (max overweight). Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency
  23. 23. Fixed income process Formulating macro decisions 23 The GovernmentScorecard  A framework to develop ideas in a consistentand robustmanner  Takes into account fundamental, market structure and valuation aspects  Covering duration, preferenceby curve and preference by currency Source: Columbia Threadneedle Investments, as at December 2014. Scores range from+2 to -2 depending on scale of conviction, zero=neutral, +1 / -1 implies range trade, i.e. -1 = sell strength. For illustrative purposes. This is Columbia Threadneedle Investments ow n internalresearch and should not be taken as investment advice. Issuer & Security Selection Industry & Quality Selection Asset Allocation Duration, Curve & Currency Example GovernmentBond Desk Global Summary USD AUD Germany GBP Nordic JPY Fundamentals Scorecard (3 months+) Currency 2 -1 -1 -1 0 -1 STIRS 0 0 1 -1 1 -2 5Y -1 0 -1 -1 1 -2 10Y 0 1 -1 -1 1 -2 30Y 1 1 -1 -1 1 -2 Inflation-Linked -1 - -1 -1 - 0 Structural Scorecard (< 3 months) Currency 1 0 0 0 0 2 STIRS -1 0 -1 1 -1 -1 5Y 1 -1 1 0 -1 -1 10Y 0 -1 1 0 -1 -1 30Y -1 -1 0 1 -1 -1 Inflation-Linked 0 - 0 1 - 0 Valuation Scorecard (1 – 4 weeks) Currency -2 0 0 0 0 1 STIRS 1 0 -1 0 1 -1 5Y -1 1 -2 -1 1 -1 10Y 0 1 -2 -1 1 -1 30Y 1 1 1 -2 1 -1 Inflation-Linked 1 - 1 -1 - 0 Total Scorecard Currency 1 -1 -1 -1 0 2 STIRS 0 0 -1 0 1 -4 5Y -1 0 -2 -2 1 -4 10Y 0 1 -2 -2 1 -4 30Y 1 1 0 -2 1 -4 Inflation-Linked 0 - 0 -1 - 0
  24. 24. Portfolio construction process 24  Monthly meeting attended by InvestmentGrade Portfolio Managers to ensure portfolio positions aligned with investment views across eachAlpha Source, and to ensure consistency across IG deskportfolios  Takes output/scorecard views of key processmeetings, Government,AssetAllocation and ResearchScorecards meeting  Build portfoliosto reflectthe best views of these processeswhilst reflecting risk considerations and client guidelines Source: Columbia Threadneedle Investments, December 2013. For illustrative purposes. This is Columbia Threadneedle Investments ow n internalresearch and should not be taken as investment advice. Alpha source Primary input Example strategy Issuer and Security Selection Credit Research Scorecard Overweights: top picks from each ‘box’ on the Credit Scorecard Industry sector Credit Research Scorecard Overweight: Insurance, Consumers, Basic Materials Underweight: Telcos, Utilities and Healthcare Credit quality Credit Research Scorecard Overweight: singleA Underweight AA and BBB Asset allocation Asset class allocation scorecard Modest overweight in credit beta (DTS), modest allocation to HY Fund duration Government scorecard Neutral duration relative to benchmark Yield curve Government scorecard Bullet position (overweight middle of yield curve) Currency No active currency risk No active currency risk
  25. 25. Risk management philosophy 25  We believe that risk assessmentshould focus on the probability of losing money  We monitor a variety of risk measures which include tracking error, VAR and beta as well as duration, curve and sectorallocation measured by percentage contribution to duration  Stress testing and scenario analysis are key tools as risk cannot be defined by a single figure  Our proprietary system (IRIS)enable the portfolio manager to review funds against each of the sourcesof opportunity  Monthly portfolio constructionmeeting to ensure directional risk against each source of opportunity is aligned with fixed income team views and to ensure the size of directional views is reasonable given portfolio objective  The team leadermeets,on a quarterly basis, with the risk department and the head of fixed income to ensure the risks taken with in portfolios are appropriate for the funds being managed and their guidelines
  26. 26. Portfolio construction 26 Sizing risk positions  Risk positions in any source of opportunity will be sized in relation to scorecardconviction  Issuer and Industry ranges move with conviction of Sectorand Issuerview from Credit Strategy Grids  Managed on both a relative % CTD and relative % DTS (duration * spread) measure  Typically strongest outperform / lowest risk / highest liquidity Issuer ideas approximately +3-5% relative  Typically Industry overlay ±20% range  Overall portfolio spread beta moves with conviction of asset allocation view from asset allocation scorecard  Managed on a relative portfolio DTS measure  Range dependent on performance objective of fund and spread duration of the benchmark, for example between 0.70x and 1.40x Managing risk positions  Correlations betweensources ofopportunitymust be managed  Aim to build appropriate marketbeta positions without exposure to tail risk instruments  Simple % weights (absolute and relative) supplementabove methodology
  27. 27. Position size management 27 0.15 – 0.25 0.05 – 0.15 0.00 – 0.05 Relative Contribution to Spread Duration (CTSD) High return potential with modestrisk  Minimal event risk  High liquidity  Shorter time horizon to realize upside Underlying portfolio Highestreturn potential with greatestrisk  Difficulty adjusting position,so smaller portfolio impact  Higher event risk  Lower confidence in outcome  More subjectto macro risks Lower return potential with modestrisk  “Fair value” issuers typicallyreside here  Facilitates overall portfolio management,liquidityneeds and diversification requirements High return potential with greater risk  Lower liquidity  Longer time horizon to realize upside Fundamentals Valuation Market dynamics  Risk assessment(risk ratings 1-4)  Confidence in creditthesis  Catalysts for improvement  Deterioration risk (execution,operations)  Tail risk,surprise potential  Ability to adjustposition size/exit  Liquidity  Number ofdealers involved  Market familiarityof issuer  Frequency of issuance  Spread volatility  Relative valuation  Expected tightening potential  Downside ifwrong
  28. 28. Section 4 Positioning and Performance
  29. 29. Threadneedle European Corporate Bond Fund 29 Source: Columbia Threadneedle Investments, as at 30 September 2016. Characteristics shown above such as ‘Effective Duration’and ‘Yield to maturity’ are indicative of the fund as at the time of w riting and are not fixed. These can change w ith prevailing market conditions and the management of the fund. Figures in brackets correspond to the Reference Index. Strategies  Fundamental, bottom-up, research driven approach  Returns expected to come primarily from issuer and security selection. Incremental contribution from actively controlling portfolio credit spread beta  Seek to exploit relative pricing inconsistencies across markets Portfolio construction  Scorecard based approach  Positions sized relative to risk and conviction  IG Strategy Grids provide tangible link between analysts and PMs on sector/security selection Risk management  Variety of risk measures utilised  In combination with stress testing and scenario analysis  Focus on identifying risk that precedes volatility and weakness Lead Fund Manager Alasdair Ross (Since October 2007) Reference index iBoxx European Corporate Peer group GIFS Offshore – EUR Corporate Bond Fund size €215 million Launch date November 2002 Effective duration 4.91 years (5.27 years) Yield to maturity 1.05% (0.71%) Average credit rating BBB+ (A-) Portfolio issuers 167 (490) Distinguishingfeatures
  30. 30. Threadneedle European Corporate Bond Fund Portfolio positioning 30 Source: Columbia Threadneedle Investments, as at 30 September 2016. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Top 10 issuer underweights % CTDTop 10 issuer overweights% CTD Fund (%) Active (%) Germany 6.9 6.9 Tennet 3.3 2.9 National Grid 2.2 2.1 Kinder Morgan 2.0 1.8 Eurogrid 2.0 1.8 Wellcome Trust 1.8 1.8 Liberty Mutual 1.8 1.8 Ab-InBev 3.9 1.8 Grand City Properties 1.6 1.6 NV Luchthaven Schiphol 1.4 1.4 Fund (%) Active (%) BNP Paribas - -1.9 EDF - -1.9 Rabobank - -1.9 Volkswagen - -1.3 GE Capital - -1.1 Credit Agricole 0.2 -1.1 Deutsche Telekom - -0.9 Daimler - -0.9 Deutsche Bank - -0.9 Eni - -0.9
  31. 31. Threadneedle European Corporate Bond Fund Portfolio sector and credit rating breakdown 31 Source: Columbia Threadneedle Investments, as at 30 September 2016. Figures are relative to iBoxx European Corporate Bond Index. For illustrative purposes only and should not be taken as investment advice. Relative % CTD by sector Relative % CTD by creditrating -10% -5% 0% 5% 10% 15% AAA AA A BBB BB & Below Not Rated %CTD -15% -10% -5% 0% 5% 10% 15% Sovereign&Sub-Sovereign Utilities(Non-Collateralised) OtherFinancials Industrials SecuritisedAndCollateralised BasicMaterials Insurance Telecommunications Unclassified Oil&Gas HealthCare ConsumerServices Technology ConsumerGoods <Unassigned> Banks %CTD
  32. 32. Threadneedle European Corporate Bond Fund Gross performance in EUR 32 Source: Columbia Threadneedle Investments, as at 30 September 2016. Past performance is not a guide to future performance. 7.39 8.18 6.01 7.73 4.97 6.05 7.36 4.78 6.05 4.65 YTD 1 Year annualised 3 Years annualised 5 Years annualised 10 Years annualised European Corporate Bond Fund (Gross, EUR), % iBoxx Euro Corporate, % Performance % YTD 1 Year annualised 3 Years annualised 5 Years annualised 10 Years Annualised European Corporate Bond Fund (Gross, EUR) 7.39 8.18 6.01 7.73 4.97 iBoxx Euro Corporate 6.05 7.36 4.78 6.05 4.65 Excess Return 1.27 0.77 1.17 1.58 0.30 Information Ratio - 1.04 2.04 2.48 0.13
  33. 33. Threadneedle European Corporate Bond Fund Performance attribution 33 Source: Columbia Threadneedle Investments, as at 30 September 2016. Past performance is not a guide to future performance. 1 year annualised (%) 2 years annualised (%) 3 years annualised (%) 4 years annualised (%) 5 years annualised (%) Interest rates 0.17 0.30 0.17 0.01 0.14 Currency 0.12 0.03 0.05 0.04 0.02 Asset class allocation -0.14 -0.14 -0.04 0.06 0.31 Industry selection 0.39 0.16 0.06 -0.01 0.01 Security selection 0.23 0.84 0.94 1.12 1.09 Total 0.77 1.19 1.17 1.22 1.58 Representativeaccount – Gross relative returns Contribution to performanceattribution(relative to Index) 0.77% 1.19% 1.17% 1.22% 1.58% 0.0% 0.5% 1.0% 1.5% 2.0% 1 year 2 years (annualised) 3 years (annualised) 4 years (annualised) 5 years (annualised)
  34. 34. Threadneedle European Corporate Bond Fund Performance attribution by sector 34 Source: Columbia Threadneedle Investments, as at 30 September 2016, Figures are relative to iBoxx European Corporate Bond Index, Past performance is not a guide to futureperformance. 2016 YTD performance attribution byindustry sector -1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 Cash Government Guaranteed Telecommunications Media Covered Bonds Consumer Non-Cyclical Technology & Electronics Asset Backed Consumer Cyclical Derivative Leisure Automotive Commercial MortgageBacked Financial Services Foreign Sovereign Agency Healthcare Retail CapitalGoods Services Consumer Goods Transportation Real Estate CDS BasicIndustry Insurance Sovereign Energy Utility Banking
  35. 35. Threadneedle European Corporate Bond Fund Performance attribution 35 Source: Columbia Threadneedle Investments, as at 30 September 2016, Figures are relative to iBoxx European Corporate Bond Index. Past performance is not a guide to futureperformance. European Corporate Bond Fundvs iBoxx Euro Corporatesin EUR (%) 3 yr (ann) 5 yr (ann) 2011 2012 2013 2014 2015 YTD 2016 Portfolio 6.01 7.73 2.22 16.67 3.72 9.01 0.30 7.39 Benchmark 4.78 6.05 1.73 13.57 2.24 8.24 -0.66 6.05 Excess return 1.17 1.58 0.48 2.72 1.45 0.72 0.97 1.27 Interestrates 0.17 0.14 0.44 0.67 -0.60 0.32 0.20 0.06 Currency 0.05 0.02 0.07 -0.04 -0.01 0.06 0.01 0.08 Assetallocation -0.04 0.31 -1.58 1.15 0.64 -0.27 0.08 -0.20 Sector allocation 0.06 0.01 0.09 -0.11 -0.13 -0.15 -0.33 0.75 Security selection 0.94 1.09 1.46 1.05 1.55 0.75 1.01 0.57 Excess return 1.17 1.58 0.48 2.72 1.45 0.72 0.97 1.27
  36. 36. Appendix
  37. 37. Key Indicators Flag Trend 1. Tight policy conditions Flat 2. A deteriorating economic backdrop Marginal Deterioration 3. Expensive valuations Worsening 4. Worsening corporate health Worsening 5. Abnormally low but rising volatility Flat Investment Grade outlook Key corporate market triggers review 37 Left Source: Columbia Threadneedle Investments, September 2016. Right Source: Bloomberg, Merrill Lynch, September 2016. FOR INVESTMENT PROFESSIONALS ONLY Spreads are pricing in pain but not a recession EUR & GlobalCorporateBond Spreads Avg Global 0 50 100 150 200 250 300 350 400 450 500 1996 1998 2000 2001 2003 2004 2006 2008 2009 2011 2012 2014 2015 Spread(bps) EUR IG (ER00) Global IG (G0BC) Avg Europe
  38. 38. What is driving European credit markets? Very low base rates result in search for yield 38 Source: Columbia Threadneedle Investments, Bank of America Merrill Lynch, Bloomberg, September 2016. 0 1 2 3 4 5 6 7 8 Dec 96 Dec 99 Dec 02 Dec 05 Dec 08 Dec 11 Dec 14 Yield(%) Corporate yield ECB refinancing rate Average Ave +1 SD Ave +2 SD Ave - 1 SD 0 50 100 150 200 250 300 350 400 450 500 Dec 96 Dec 99 Dec 02 Dec 05 Dec 08 Dec 11 Dec 14 OASspread(bps) Corporate spread Average 2007 2016 Rating A+ A- Sub 24% 13% Europe:ECB refinancingrate and IG yield Europe:InvestmentGrade OAS spread to bunds
  39. 39. Investment grade corporate bond spreads (US 5-10y) IG spreads are wider than many previous crises 39 Source: Bloomberg, C6A0 index, September 2016. 0 5 10 15 20 25 0 100 200 300 400 500 600 700 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 US IG spread (LHS, bps) Average +1 Stdev +2 Stdev +3 Stdev -1 Stdev Fed funds rate (RHS, %) Eurozone Sovereign debt crisis Recession / Bank Failure Recession (Double-dip) Corporate Raiders Recession / RTC Russia / LTCM Fraud / Corp Governance Credit Crisis IG bond spreads (5-10y,bps)
  40. 40. Investment Grade opportunities Cross-currency market and curve point selection 40 0 50 100 150 200 250 300 3y 5y 7.5y 10y 15y 25y IG ML Index ASW (unswapped) - 30 Sep 2016 USD Index EUR Index GBP Index 50 100 150 200 250 3y 5y 7.5y 10y 15y 25y IG ML Index OAS (vs Govt) – 30 Sep 2016 USD Index EUR Index GBP Index USD spread curves steep compared to history and compared to Euro and Sterling Source: Bloomberg, Columbia Threadneedle Investments, September 2016.
  41. 41. Investment Grade opportunities Cross-currency issuer selection – example of USD preference 41 Source: (left) Bloomberg, Columbia Threadneedle Investments, September 2016. Source: (right) Bloomberg, Columbia Threadneedle Investments, September 2016. The positions discussed here are merely for commentary purposes and should not be view ed as investment advice, nor as a recommendation to trade. AB InBev (Euro vs USD/Sterling) AT&T (Euro vs USD/Sterling) 0 50 100 150 200 250 300 0 5 10 15 20 25 30 Zspread(bps) Years to Maturity $ € £ Log. ($) Log. (€) Log. (£) 0 50 100 150 200 250 300 0 5 10 15 20 25 30 Zspread(bps) Years to Maturity $ € £ Log. ($) Log. (€)
  42. 42. Investment Grade opportunities Cross-currency issuer selection – example of Euro preference 42 Source: (left) Bloomberg, Columbia Threadneedle Investments, September 2016. Source: (right) Bloomberg, Columbia Threadneedle Investments, September 2016. The positions discussed here are merely for commentary purposes and should not be view ed as investment advice, nor as a recommendation to trade. BerkshireHathaway(Euro vs USD) Liberty Mutual(Euro vs USD) 0 40 80 120 160 200 0 5 10 15 20 25 30 Zspread(bps) Years to Maturity $ € Log. ($) Log. (€) 0 50 100 150 200 250 300 0 5 10 15 20 25 30 Zspread(bps) Years to Maturity $ € Log. (€)
  43. 43. Global Investment Grade opportunities Utility and Midstream sector spreads 43 0.60x 0.80x 1.00x 1.20x 1.40x 1.60x 1.80x 2.00x 2.20x 2.40x 2.60x Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11 Dec-14 Midstreamspread/utilitiesspread Spread Average +1 STDEV -1 STDEV Source: Bank of America ML; Bloomberg, Columbia Threadneedle Investments; September 2016. Security Analyst Rec % fee based Spread Yield EPD 4.9% 46 BBB+/R2/Mkt 85% +282 4.5% PAA 4.9% 45 BBB/R2/Out 75% +373 5.4% CPGX 5.8% 45 BBB-/R2/Out 95% +283 4.6% KMI 5.55% 45 BBB-/R2/Out 82% +359 5.3% WPZ 4.9% 45 BBB/R2/Mkt 80% +347 5.2% 1.5 stdev cheap to history UTILITY & MIDSTREAM SECTORCHARACTERISTICS Stable CF driven by regulation or fee-based contracts Minimal direct commodity price exposure Capital intensive industries require debt market access State Utility regulators & creditor goals are closely aligned: reliability, affordability and IG ratings to finance growth Midstream regulation is lighter: FERC regulation more focussed on quality/safety than financial strength Commodity price falls and corporate restructurings have weighed on midstream pipeline spreads
  44. 44. Investment grade opportunities Spread widening has also run concurrent with the return of some idiosyncratic risk 44 . Volkswagen: Emissions scandalGlencore: Commodities price slump Deutsche Bank: Business model & litigation RWE: Corporate restructuring Source: Bloomberg, September 2016. 0 200 400 600 800 1000 1200 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 ITRX Main Glencore CDS 0 50 100 150 200 250 300 350 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 ITRX Main VW CDS 0 50 100 150 200 250 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 ITRX Main DB CDS 0 50 100 150 200 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 ITRX Main RWE CDS
  45. 45. Relative credit quality BB High Yield flat to BBB IG. Idiosyncratic rising star stories exist 45 Source: Bloomberg, Merrill Lynch, September 2016. Past performance is not a guide to future performance. European Corporate Credit BB / BBB Spreadper unit of Duration 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 0 20 40 60 80 100 120 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 OAS/EffDurMultiple OAS/EffDur Euro Corp OAS / Eff Dur BB/BBB OAS / Eff Dur (RHS) BB/BBB OAS / Eff Dur Average (RHS) BBs cheap vs. BBBs BBs rich vs. BBBs
  46. 46. Industry: Banks: Senior vs Sub Opportunities remain across bank capital structure 46 Source: Columbia Threadneedle Investments as at September 2016. This is Columbia Threadneedle Investments’ ow n internalresearch and should not be taken as investment advice.
  47. 47. Industry: Banks: TLAC 47 Source: Barclays, Morgan Stanley, January 2015. TLAC  Equity + Hybrids + loss absorbing debt  21-25% of rwa’s for large banks  Enough debt to convert to equity so that the bank can restart over the weekend  Assumes most or all of the equity and hybrids absorb losses  The TLAC bondholders end up owning the company (like HY bondholders) What qualifies?  Senior debt from a holding company (currently rare in European context)  Opco senior debt with explicit TLAC language (current stock gets replaced)  Current style opco senior with no TLAC language (but only up to 2.5% of rwa)  Tier 1 and Tier 2 (old instruments too)  Equity (unlikely due to WACC implications)
  48. 48. Industry: Banks: TLAC – supply implications 48 Source: Bloomberg, CreditSights, ECB, Company Reports, Columbia Threadneedle Investments, January 2015.  There is already a large enough stock of debt so there is no need for net issuance  Most banks have enough TLAC already (deposit funded banks penalised – HSBC)  Roughly €300bn rolling off over next 2 years (total stock c.2.5tr)  Euro market has a 4.3yr average life, sterling is 8.3yrs  Transition from current opco senior to holdco or TLAC senior can be made within 5 years
  49. 49. Contribution to Duration (CTD) figures explained 49 Duration is a sensitivity measure widely used in Fixed Income investment products. It indicates how sensitive a portfolio is to changes in yields. Generally speaking, a bond with a larger duration measure implies a greater interest rate risk or reward for the price of the bond. Contribution to Duration is a way of splitting out the amount of duration each asset in the portfolio carries, to assess which investments are adding or reducing to the interest rate sensitivity/risk of the portfolio. Complex calculations and formulae are involved to calculate the sensitivities, but our risk systems produce CTD reports, similar to the below. In a very simplified example, imagine with have a portfolio with 2 holdings: Asset 1: Contribution to duration = 3 years Asset 2: Contribution to duration = 5 years Portfolio duration = 8 years You will notice these sum nicely. From this we could extrapolate that if we were to reduce exposure to Asset 2, we would be reducing the duration of the fund and thus reducing the interest rate risk of the fund. % Contribution to Duration is then simply the proportion of the assets’ contribution to duration to the total amount of duration in the portfolio. So back to the example above, we would have: Asset 1: Contribution to duration = 3 years %CTD = 3/8 = 37.5% Asset 2: Contribution to duration = 5 years %CTD = 5/8 = 62.5% Portfolio duration = 8 years (and of course, these sum to 100%)
  50. 50. Biography ALASDAIR ROSS Head of Investment Grade Portfolio Management, EMEA Alasdair Ross joined the company in 2003 and is currently Head of Investment Grade Portfolio Management, EMEA, with responsibility for our UK and European investment grade corporate credit teams in London. He is also lead portfolio manager for UK, Euro and Global credit portfolios which include the Threadneedle European Corporate Bond Fund, the Threadneedle (Lux) Global Corporate Bond Fund and the Threadneedle Pensions Corporate Bond Fund. Alasdair’s investment background is as a relative value focused, bottom-up investment grade credit analyst. Between joining the company in 2003 and becoming a portfolio manager in 2007, he had responsibility for covering the TMT, utility and energy sectors, as well as the sterling whole business securitisation sector. Prior to joining the company, Alasdair worked at BP plc in a rotation of commercial roles. Alasdair has a first class honours degree in Politics, Philosophy and Economics from the University of Oxford. He also holds the Chartered Financial Analyst designation. Company start date: 2003 Industry start date: 2003 50
  51. 51. Threadneedle European Corporate Bond Fund Key Risks and Objective 51 InvestmentRisk:The value of investments can fall as well as rise and investors mightnotget back the sum originallyinvested. Currency Risk:Where investments are made in assets thatare denominated in multiple currencies,changes in exchange rates mayaffect the value of the investments. Derivatives for EPM / Hedging:The investmentpolicy of the fund allows itto invest in derivatives for the purposes ofreducing risk or minimising the costoftransactions. Issuer Risk:The fund invests in securities whose value would be significantlyaffected if the issuer either refused to pay o r was unable to pay or perceived to be unable to pay. LiquidityRisk:The fund may hold assets thatare not always readily saleable withoutsuffering a discountto fair value. The fund may have to lower the selling price,sell other investments or forego another,more appealing investmentopportunity. Inflation Risk:Most bond and cash funds offer limited capital growth potential and an income thatis not linked to inflation .Inflation is likely to affect the value of capital and income over time. InterestRate Risk:Changes in interestrates are likelyto affect the fund’s value. In general,as interestrates rise,the price of a fixed rate bond will fall, and vice versa. Objective: The Fund aims to achieve total return. The ACD’s investmentpolicy is to invest the assets ofthe Fund in a managed portfolio offixed interestsecurities which are primarilyEuro denominated.The portfolio will consist primarilyof a broad range of investmentgrade corporate fixed interestinvestments in companies domiciled in Europe or which have significantEuropean operations.From time to time,it may also investin securities issued byinvestmentgrade sovereign and supranational borrowers.However,it is intended that the portfolio will not be more than 25% invested in securities rated AAA (Standard & Poor’s) or equivalentrating by another leading rating agency.A maximum of10% of the portfolio can be invested in below investment grade securities.Where securities are non-Euro denominated itis intended thatthey will typically be hedged into Euro.
  52. 52. Important Information 52 For internal use and for Professionaland/or Qualified Investors only (not to be used w ith or passed on to retail clients). Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go dow n as w ellas up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Threadneedle Investment Funds ICVC (“TIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a UCITS scheme. TIF is registered for public offer in Austria, Belgium, Finland, France, Germany, Hong Kong, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sw itzerland (some sub-funds only) and the UK. Shares in the Funds may not be offered to the public in any other country and this document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation. TIF is registered w ith Danish Financial Services Authority for marketing to professionalinvestors only. The Funds may not be offered or sold to retail investors in Denmark. TIF is authorised in Spain by the Comisión Nacional del Mercado de Valores (CNMV) and registered w ith the relevant CNMV's Registered w ith number 482. Het compartiment is op grond van artikel 1:107 van de Wet op het financieeltoezicht opgenomen in het register dat w ordt gehouden door de Autoriteit Financiële Markten. / Pursuant to article 1:107 of the Act of Financial Supervision, the subfund is included in the register that is kept by the AFM. Income may fluctuate in accordance with market conditions and taxation arrangements. The difference at any one time betw een the sale and repurchase price of units in the scheme means that the investment should be view ed as a medium to long term investment. Investments may be subject to sudden and large falls in value, and the investor could lose the total value of the initial investment. Shares in the Funds may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financialinstruments, or to provide investment advice or services. Please read the Prospectus before investing. Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as w ellas the latest annual or interim reports and the applicable terms & conditions. Please refer to the ‘Risk Factors’section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English, French, German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus), Sw edish (forthe Key Investor Information Document only) and can be obtained free of charge on request from: - in Austria: Raiffeisen ZentralbankÖsterreich AG, AmStadtpark 9, 1030 Wien; - in Belgium: J.P. Morgan Chase Bank Brussels, 1, Boulevard du Roi Albert II, 1210 Brussels; - in France: BNP Paribas Securities Services, 66 rue de la Victoire, 75009 Paris;
  53. 53. Important Information (cont.) 53 - in Finland: Eufex Bank Plc, Keilaranta 19, 02150 Espoo, Finland - in Germany: JP Morgan AG, Junghofstr. 14, 60311 Frankfurt, - in Ireland: J.P. Morgan Bank Administration Services (Ireland) Limited, J.P. Morgan House International Financial Services Centre, Dublin 1 - in Italy: State Street Bank S.p.A., via Col Moschin 16, 20136 Milano. - in Luxembourg: State Street Bank Luxembourg S.A., 49 Avenue J. F. Kennedy, 1855 Luxembourg; - in Spain: any appointed distributor listed on the Spanish Financial Regulator’s w ebsite(www.cnmv.es); - In Sw eden fromSkandiaviska Enskilda Banken AB, Kungsträdgårdsgatan, SE– 10640, Stockholm, Sw eden; - in UK; Columbia Threadneedle Investments’ Client Services department PO Box 10033, Chelmsford, Essex CM99 2AL. For Sw iss Investors: Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Inf ormation Document, as w ellas the latest annual or interim reports, w hich can be obtained free of charge on request, and the applicable terms & conditions. Please refer to the ‘Risk Factors’section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents and the instrument of incorporation are available on request fromour representative and Paying Agent in Sw itzerland, BNP Paribas Securities Services, Paris, Zurich branch, Selnaustrasse 16,CH-8002 Zurich. This presentation is not investment, legal, tax, or accounting advice. Investors should consult w ith their ow n professional advisors foradvice on any investment, legal, tax, or accounting issues relating to an investment w ith Columbia Threadneedle Investments. The mention of any specific shares or bonds should not be taken as a recommendation to deal. This document is a marketing communication. The research and analysis included in this document have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Columbia Threadneedle Investments for its ow n investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change w ithout notice and should not be seen as investment advice. Information obtained from externalsources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This presentation and its contents are confidentialand proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any formor passed on to any third party w ithout the express written permission of Columbia Threadneedle Investments. This presentation is the property of Columbia Threadneedle Investments and must be returned upon request. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street London EC4N6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
  54. 54. Important Information (cont.) 54 These materials may only be used in one-on-one presentations w ith institutionalinvestors. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go dow n as wellas up and may be affected by exchange rate fluctuations. This means that an investor may not get backthe amount invested. Where references are made to portfolio guidelines and features, these are at the discretion of the portfolio manager and may be subject to change over time and prevailing market conditions. Actual investment parameters w illbe agreed and set out in the prospectus or formalinvestment management agreement. Please note that the performance target may not be attained. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its ow n investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change w ithout notice and should not be seen as investment advice. Information obtained fromexternalsources is believed to be reliable but its accuracy or completeness cannot be guaranteed. The mention of any specific shares or bonds should not be taken as a recommendation to deal. This presentation and its contents are confidentialand proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproduced in any formor passed on to any third party w ithout the express written permission of Columbia Threadneedle Investments. This presentation is the property of Columbia Threadneedle Investments and must be returned upon request. This presentation is not investment, legal, tax, or accounting advice. Investors should consult w ith their ow n professional advisors foradvice on any investment, legal, tax, or accounting issues relating to an investment w ith Columbia Threadneedle Investments. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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