ryan staszewski senior portfolio...

Threadneedle (Lux) European Strategic Bond

Fixed Income flexibility in a low-yield environment Ryan Staszewski– Senior Portfolio Manager

For Professional Investors

January 2020

Section 1

Fixed Income Outlook

Fixed Income

Current themes

Background

◼ Low but positive growth

◼ Since 2018 - especially in Europe

◼ Manufacturing versus services

◼ Inflation remains low

◼ Structural decline – (Demographics, Tech,

Deunionisation, Globalisation, ‘Gig’ economy etc)

◼ Pivotal relationship – unemployment/wages & inflation

◼ Central banks, easy policy – in perpetuity?

◼ Monetary policy largely exhausted?

◼ Replaced with the hope of additional fiscal stimulus

Markets

◼ Interest rates / yields are still very low

◼ Real and nominal terms

◼ Credit valuations - increasingly challenged

◼ Spreads have tightened (meaningfully) in 2019

◼ Through both short and long term averages

Macroeconomic Environment

Synchronised sinking?

4

◼ USA

◼ Manufacturing versus the consumer

◼ Trade issues, Brexit, China, Trump

stimulus

◼ Low unemployment, wages rising but

not inflation

◼ Euro / UK

◼ Manufacturing versus service sector

◼ Hard versus soft data

◼ External versus domestic economy

◼ ‘Brexit’ risks

◼ Fiscal Policy to the rescue?

Source: Macrobond and Columbia Threadneedle Investments as of 31th December 2019

2019 GDP forecast

Macroeconomic environment

Its not all bad news…..

5

Unemployment Rates Wages

Monetary Policy‘Lower for forever?’… Supportive (but little more expected / possible)

6

United States – Fed Funds Mid Rate Europe – ECB Deposit Facility Rate

Japan – BoJ Unsecured Overnight Call Rate United Kingdom – BoE Base Rate

Source: Bloomberg and Columbia Threadneedle Investments, December 2019.

Charts show one day Market Policy rate implied using forward curves

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

PolicyRate

1M 3M 6M 1Y 2Y 3YP

olicy R

ate

(%

)

1 Year ago 3 Mths ago Current Rate

-0.3

-0.2

-0.1

0.0

PolicyRate

1M 3M 6M 1Y 2Y 3Y

Po

licy R

ate

(%

)


1.0

1.3

1.6

1.9

2.2

2.5

PolicyRate

1M 3M 6M 1Y 2Y 3Y

Po

licy R

ate

(%

)


-0.9

-0.7

-0.5

-0.3

-0.1

0.1

PolicyRate

1M 3M 6M 1Y 2Y 3Y

Po

licy R

ate

(%

)


Indicator Trend Assessment Trend

Tight policy

conditions

Central banks have altered course

A more dovish / constructive bias◼ Easier

Deteriorating

economic

backdrop

Global growth slowed over the past

months

However… it remains (just) positive.

◼ Worsening

Expensive

valuations

Spreads are now around ½ standard

deviation through long run averages ◼ Becoming more expensive

Worsening

corporate health

Leverage too high, if there is a “profit” or

economic recession ◼ Flatlining – some improvement?

Abnormally low

but rising volatility

Volatility has reduced

Improvement in risk appetite◼ Flatlining

The outlook for corporate credit? ‘Peddling hard… to extend the cycle’

7

Source: Columbia Threadneedle Investments, December 2019.

Corporate credit – investment grade

After the selloff - spreads closer to the long run average

8

US Investment Grade bond spreads (5-10 year maturity, bps)

Recession / Bank Failure

0

5

10

15

20

25

0

100

200

300

400

500

600

700

800

Fed

Fu

nd

s R

ate

(%

)

Co

rpo

rate

Sp

read

5-1

0yr

Bo

nd

s (

bp

s)

Recession Periods US IG spread (LHS, bps) Average +1 Stdev

+2 Stdev +3 Stdev -1 Stdev Fed funds rate (RHS, %)

Eurozone Sovereign

debt crisis

Recession

(Double-dip)

Corporate

Raiders

Recession /

RTCRussia /

LTCM

Fraud / Corp

Governance

Credit Crisis

Energy Crisis

Source: Bloomberg, Merrill Lynch, C6A0 index, 31 December 2019

Where is the value to be found in credit markets?

Implied default compensation

9

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

0% 5% 10% 15% 20% 25% 30%

Euro IG

USA IG

Euro HY

USA HY

Multiple (Implied/Average)

5-year Cumulative default rate

Average default rate (1981-2017) 5 yr Implied default rate Multiple

Source S&P, Bloomberg, January 24th 2020

Section 2

Investment philosophy

What is Threadneedle (Lux) European Strategic Bond Fund?A flexible approach seeking to generate income

11

For illustrative purposes only. *Threadneedle (Lux) European Strategic Bond Fund.

◼ A flexible bond strategy designed to navigate

bond market volatility through a risk-balanced,

benchmark agnostic approach

◼ Built to provide greater income potential in all

phases of the economic cycle

◼ Opportunity set of:

◼ Government bonds

◼ Investment Grade

◼ High Yield

◼ Emerging Market (maximum 15%)

+ C

RE

DIT

RIS

K

INTEREST RATE RISK

High Yield

Investment

Grade

Government

European

Strategic*

Why European Strategic Bond?Seeking to deliver attractive income

Key Features

Flexibility

• Allows us to adapt to different market opportunities

• We meaningfully adapt risk positions depending on the opportunities

• Fund can go short through CDS for deteriorating companies

Downside risk management• Focused on minimising volatility through a strategic allocation

• Focus on delivering risk adjusted returns

Driven by global research• Research is at the core of our proposition

• We devote significant resources to developing fundamental insights

12

◼ European Strategic Bond seeks to deliver attractive income through the cycle through a diversified

allocation to different fixed income asset classes

Threadneedle (Lux) European Strategic BondRisk and return budget

13

We expect to source fund performance from

these areas:

◼ Asset Allocation

– Across the fixed income spectrum

◼ Issuer and security selection

◼ Macroeconomic and Interest rate decisions

Macro / Interest Rate

20%

Security selection

30%

Asset Allocation

50%

Sources of performance through the cycle

The Bond Market realityFixed income asset performance varies over time

Source: Bloomberg and BoA Merrill Lynch, as at 31 December 2019

Bond market total returns – through the cycle by area

14

-40

-20

0

20

40

60

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Ind

ex r

etu

rn %

Bund Index IG Corporate Bonds Euro High Yield Emerging Markets

Threadneedle (Lux) European Strategic BondA non-traditional approach

15

Overheating Recession Trough Recovery

Conditions

◼ Economy operates at

maximum production

◼ High income and

employment

◼ Rising interest rates and

inflation

◼ Steady decline in economic

activity and incomes

◼ Unemployment increases

◼ Interest rates fall and

inflationary pressures

subside

◼ Economic growth contracts

◼ Incomes decline and

unemployment accelerates

◼ Interest rates fall

◼ Deflation

◼ Economic slack decreases

◼ Steady rise in output,

incomes, and employment

◼ Interest rates and prices

grind higher

Duration Short Long Long Short

Credit Low quality High quality High quality Low quality

Threadneedle (Lux) European Strategic Bond Fund is designed to meaningfully adjust its risk profile

throughout market cycles.*

Source: Columbia Threadneedle Investments.

* Illustration only of optimal portfolio allocations in various market environments.

Bu

sin

ess C

ycle

Recovery Recovery

Trough

Recession

Overheating

Duration Corporate High Yield

Why European Strategic Bond?

◼ The opportunity set will change over

time. Strategic Bond aims to

change/adapt with change

◼ Strategic Bond aims:

– To generate strong income and total

returns, whilst…

– Minimising downside volatility and

drawdowns

◼ We adopt an active and flexible

approach

16

Fixed Income generates income and is “defensive”, BUTFixed Income asset classes can experience meaningful drawdowns…

-11.0%

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

Source: Bloomberg and Columbia Threadneedle Investments as of September 2019.

% Drawdown by FI Asset Class >3% (Previous 10 Years)

Threadneedle (Lux) European Strategic BondCumulative Performance and Drawdown

Source: Columbia Threadneedle Investments as of 31 December 2019, rebased, start = 100. The returns shown are net, with ongoing charges figure (OCF) (1.15%) from Institutional Income EUR

Shareclass (LU0096353940). Past Performance is not a guide to future performance

100

105

110

115

120

125

130

135

140

145

150

De

c-0

9

Aug-1

0

Apr-

11

De

c-1

1

Aug-1

2

Apr-

13

De

c-1

3

Aug-1

4

Apr-

15

De

c-1

5

Aug-1

6

Apr-

17

De

c-1

7

Aug-1

8

Apr-

19

De

c-1

9

Fund - NET Recovery

36 days to

recover

drawdown

120 days to

recover

drawdown

262 days to

recover

drawdown 93 days to

recover

drawdown

Global Growth Slowdown Fears

(Trade wars, Fed policy misstep?)Energy Crisis

Taper Tantrum

Eurozone

Sovereign Debt

Crisis

-2.2%

-1.8%

-2.6%

-2.6%

European Strategic bond team

18

The portfolio management team, with an average of 18 years investment experience, leverages the full

capabilities of our firm to create the portfolio. This reflects a diverse set of inputs and a global

perspective.

◼ Assisted by a team of 66 analysts

– Dedicated to Fixed Income

◼ With 18 years average industry experience

– Have experienced a number of market, credit and industry cycles

◼ Located around the globe

– USA, Europe and Asia

Portfolio management* Role on team LocationYear joined

firm

Year joined

industry

Ryan Staszewski Lead Manager, Credit risk London 2012 2002

Adrian Hilton Deputy Manager, Macro risk London 2016 2000

As at September 2019

Global fixed-income resources

Investment Grade U.S. High Yield Municipal Bonds Multi-Sector Fixed Income Investment Grade U.S. High Yield Municipal Bonds U.S. - Taxable

Todd Czachor, CFA Kris Keller, CFA Matthew Stephan Strategic Income Tom Murphy, CFA Brian Lavin, CFA Catherine Stienstra Andrew Quinet, CFA (IG)

Jonathan Pitkanen Matthew Corbett, CFA Dan Belcher Gene Tannuzzo, CFA Alasdair Ross, CFA Mark Van Holland, CFA Bill Callagy Nathan Raduns (IG)

Dori Aleksandrow icz, CFA Julie Grey, CFA, CPA Henry Henderson Jason Callan Tim Doubek, CFA Brett Kaufman, CFA Kimberly Campbell Travis Hulstein, CFA (HY)

John Daw son, CFA Rich Gross, CFA Jeff Kovala Colin Lundgren, CFA Royce Wilson, CFA Daniel DeYoung Carri Dolin Michael Roberts, CFA (HY)

Arabella Duckw orth Drew Kettw ick, CFA Anders Myhran, CFA Alexandre Christensen, CFA John Hampton Jason Sittko, CFA Paul Fuchs, CFA Andrea First (HY)

Nathaniel Liddle Brian New man, CFA, CPA Ty Schoback David Janssen, CFA Christopher Hult, CFA Jonathan Tripp, CIPM Anders Myhran, CFA William Finan (Rates)

David Morgan, CFA Spencer Sutclif fe Elizabeth Ware Core/Core Plus Ryan Staszew ski, CFA Wendy Norman Brian Dirgins, CFA (Structured)

Rosalie Pinkney, CFA Jason Weinberg, CFA Ben Woo Jason Callan Tammie Tang European High Yield Malcolm Ryerse Clinton Vilks (Structured)

Paul Smillie Brandon Jankow ski, CFA Michael Zonghetti, CFA Gene Tannuzzo, CFA Simon Bond Barrie Whitman Deb Vargo Peter Apostolicas (New Issues)

Mary Titler, CFA Ted Nerison, CFA Alan Erickson, CFA Shannon Rinehart, CFA Roman Gaiser Douglas White, CFA Braj Agraw al (Derivatives)

Guillaume Langellier, CFA Suyog Dahal Rates, Currency & Mary Werler, CFA Alisha Agraw al David Backhouse Philip McKernan (Derivatives)

Michael Laskin Sovereigns Alexandre Christensen, CFA James Phillips Gareth Simmons Client Portfolio Robert Gustafson, CFA (Multi-Sector)

Ben Myrtle, CFA European High Yield Ed Al-Hussainy, CFA Elena Rozina, CFA Marissa Huber Management Bill Tong (Multi-Sector)

Tony Pederson David Backhouse Gordon Bow ers, CFA Short Duration & LDI U.S. Bank Loan David Oliphant

Sharon Vieten Gareth Simmons Sarah Glendon Stable Value David Kennedy Jerry Howard, CFA Angelina Chueh U.S. - Municipal

Travis Flint, CFA Loic Cathenod Sabrina Wong Ron Stahl, CFA Tom Murphy, CFA Steve Columbaro, CFA Charlotte Edw ards, CPA Anthony Purcell

Tom Southon Greg Liechty Tom Egan, FSA, EA, CFP Ron Launsbach, CFA Chris Jorel, CFA Travis Bates

U.S. Structured Assets Harry Lister, CFA Emerging Markets Jim McKay, CFA Timothy Brannon Vesa Tontti, CFA Kris Moreton, CFA Philip Carty

Scott Kenney Kara Paslaw ska Corporates John Dempsey, CFA Adam Shakoor, CFA Ben Myrtle, CFA Normand Desrosiers

Mitch Helle-Morrissey, CFA Patti McConachie Ryan Krieg Elena Rozina, CFA Rates & Currency Douglas Rangel, CFA Kelsey McSw eeney

Michael Milosch, CFA U.S. Bank Loan Justin Ong Linda Solarek Diane Bordulis Adrian Hilton Katy Nuss, CFA

Shaw n Pierce, CFA Ashraf Jilani, CFA Catherine Stronach Alex Batten, CFA EMEA / APAC

Steve Columbaro, CFA U.S. Structured Assets Dave Chappell Emma Photis

Oscar Garcia Real Estate Loans Jason Callan David Janssen, CFA Gabriel Heskin (EM/HY)

Angela Jarasunas John Dittrich Tom Heuer, CFA Alessandro Tarello, CFA Sarah Kendrick (IG)

Eric Johnson Chris Cervenka Ryan Osborn, CFA James Lake (IG)

Mary Shaifer Dominic Berntson Philip Coonley, CFA Emerging Markets James Lavey (FX)

Evan Tich John McCarthy Tim Jagger Dickson Teo (Asia)

Vesa Tontti, CFA Inflation-Linked Chris Cooke Mandy Coatsw orth (MM)

David Kennedy Adrian Hilton Paul Witchalls (MM)

David Janssen, CFA

Cash and Money Market Eng Tat Low

John McColley

Julie Oman

Paul Witchalls

Mandy Coatsw orth

Information as of September 30, 2019. Leaders indicated in bold. Certain team members may be employees of affiliates.

Colin Moore

Global Chief Investment Officer

Research Portfolio Management Trading

Kirk Moore, CFA Colin Lundgren, CFA - Global Head of Fixed Income Steve Harasimowicz

Global Head of TradingGlobal Head of Research Gene Tannuzzo, CFA - Deputy Global Head of Fixed Income

Section 3

Fund positioning and performance


21

Source: Columbia Threadneedle Investments, as at 31 January 2020. Characteristics shown above such as ‘Effective Duration’ and ‘Yield to maturity’ are indicative of the fund as at the time of writing

and are not fixed. These can change with 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 from asset

allocation, security selection and macro /

interest rate strategies

◼ Seek to exploit relative pricing inconsistencies

across markets

Portfolio

construction

◼ Scorecard based approach

◼ Positions sized relative to risk and conviction

◼ Fixed income asset allocation committee

provide an input to portfolio construction

Risk

management

◼ Variety of risk measures utilised

◼ In combination with stress testing and

scenario analysis

◼ Focus on identifying risk that precedes

volatility and weakness

Fund ManagersRyan Staszewski

Adrian Hilton

Reference index20% ICE BofAML EUR Govt (1-7y)

40% ICE BofAML EMU Corp (1-10y)

40% ICE BofAML EUR High Yield

Fund size €180.4 million

Launch date April 1999

Effective duration 2.1 years (4.0 years)

Spread duration 3.4 years (3.9 years)

Yield to maturity 0.9% (1.4%)

Average credit rating BBB (BBB)

Portfolio issuers 210 (1,064)

Distinguishing features

2yr 8yr4yr 6yr

Approximate Range Fund Positioning and Range

Duration -1 to +6 years

Spread Duration (Credit Risk) 2 years to 8 years

Investible Universe (% cash investment)

Sovereign 0% to 100%

Investment Grade 0% to 100%

High Yield 0% to 100%

Emerging Market (Sovereigns & Corporates) 0% to 15%

Threadneedle (Lux) European Strategic BondFund guidelines

22

Source: Columbia Threadneedle Investments, as at 31 January 2020. The fund characteristics described above are internal guidelines (rather than limits and controls). They do not form part of the

fund’s objective and policy and are subject to change without notice in the future.

Currency Risk None, all hedged to EUR

Minimum European exposure (% NAV) 66.67%

Expected fund volatility (over the cycle) 3% annualised

Expected fund volatility range 1% to 5% annualised

Eligible InstrumentsGovernment bonds, Corporate bonds, Agency bonds, Inflation-linked bonds, CDS

(Indices and Single Name), Interest rate futures

2.1 yrs

3.4 yrs

4%

61%

20%

6%

Investment Grade

High Yield

EM

Sovereigns

Cash

European Strategic – Net invested cash%

Key positioning and themesAsset Allocation

23

Risk statistics

Source: Columbia Threadneedle Investments as at 31 January 2020. The mention of specific stocks or bonds is not a recommendation to deal.

Investment Grade (61%):

▪ Defensive in late cycle

▪ Primary beneficiary of ECB QE

▪ Valuations are at long-term average

High Yield (20%):

▪ High Yield is more growth

sensitive than Investment

Grade

▪ We are close to the end of

the credit cycle

Fund Duration 2.1 years

USD 1.1 years

EUR 1.0 years

GBP 0.0 years

Gross Yield to

Maturity0.9%

Average credit

ratingBBB

Number of Issuers 210

Sovereigns (4%)

▪ Duration reduces downside in

risk-off environment

▪ Some idiosyncratic opportunities

Emerging Markets (6%)

▪ Sensitive to evolution

in trade

▪ Tail-risk asset class

▪ Some idiosyncratic

opportunities

Key positioning and themesRisk statistics, sectors and issuers

24

Fund net sector composition (%) Top 10 corporate issuers

Source: Columbia Threadneedle Investments, as at 31 January 2020. The mention of any specific shares or bonds should not be taken as a recommendation to deal.

IssuerFund

Weighting (%)

Innogy 3.0

Becton Dickinson 2.1

Bacardi 2.0

Kraft Heinz 1.7

Bupa Finance 1.7

DNB Bank 1.6

SCA Hygiene 1.5

Tesco Property 1.5

Fidelity National 1.5

DS Smith 1.4

Banks13.7%

Utilities11.4%

Sovereigns & Sub-

Sovereigns…

Real Estate10.0%

Consumer Goods9.9%

Other Financials9.3%

Industrials6.7%

Telecommunications

5.9%

Health Care5.3%

Consumer Services

5.1%

Insurance3.6%

Technology3.2%

Oil & Gas2.3%

Basic Materials2.0%

Collateralized1.7%

Other0.8%

Threadneedle (Lux) European Strategic BondGeographical breakdown – % Notional

25

Source: Columbia Threadneedle Investments, as at 31 January 2020. The mention of any specific shares or bonds should not be taken as a recommendation to deal.

Excludes derivatives and forwards attributable to “European Union”.

Notional Market Value

United States 18.7%

United Kingdom 16.2%

Germany 11.2%

France 5.7%

Netherlands 3.8%

Spain 3.8%

Luxembourg 3.6%

Italy 2.9%

Sweden 2.3%

Ireland 2.2%

Norway 1.6%

Australia 1.5%

Switzerland 1.3%

India 1.0%

United States18.7%

United Kingdom16.2%

Germany 11.2%

France 5.7%

Netherlands 3.8%

Spain 3.8%

Luxembourg 3.6%

Italy 2.9%

Sweden 2.3%

Ireland 2.2%

Norway 1.6%

Australia 1.5%Switzerland 1.3%

India 1.0%

Other 8.7%

January 2020

Threadneedle (Lux) European Strategic BondContribution by Asset Class

26

Notional Market Value (%) by Asset Class Contribution by Asset Class –Duration x Spread (%)

Source: Columbia Threadneedle Investments as of 31 January 2020. The mention of any specific shares or bonds should not be taken as a recommendation to deal.

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec-1

7

Jan

-18

Fe

b-1

8

Ma

r-1

8

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-

18

Au

g-1

8

Se

p-1

8

Oct-

18

Nov-1

8

Dec-1

8

Jan

-19

Fe

b-1

9

Ma

r-1

9

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Cash Sovereign IG HY EM NR

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec-1

7

Jan

-18

Fe

b-1

8

Ma

r-1

8

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-

18

Au

g-1

8

Se

p-1

8

Oct-

18

Nov-1

8

Dec-1

8

Jan

-19

Fe

b-1

9

Ma

r-1

9

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Cash Sovereign IG HY EM NR

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

Dec-1

7

Jan

-18

Fe

b-1

8

Ma

r-1

8

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-

18

Au

g-1

8

Se

p-1

8

Oct-

18

Nov-1

8

Dec-1

8

Jan

-19

Fe

b-1

9

Ma

r-1

9

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Jan

-20

Sovereign IG HY EM NR

Threadneedle (Lux) European Strategic BondDuration and Spread Duration

27

Effective Duration Spread Duration by Asset Class

Source: (Left) Columbia Threadneedle Investments as of 31 January 2020.

(Right) Columbia Threadneedle Investments as of 31 January 2020. The mention of any specific shares or bonds should not be taken as a recommendation to deal.

Global Growth Slowdown Fears

(Trade wars, Fed policy

misstep?)

0

1

2

3

4

5

6

Dec-1

3

Ma

r-1

4

Jun

-14

Se

p-1

4

Dec-1

4

Ma

r-1

5

Jun

-15

Se

p-1

5

Dec-1

5

Ma

r-1

6

Jun

-16

Se

p-1

6

Dec-1

6

Ma

r-1

7

Jun

-17

Se

p-1

7

Dec-1

7

Ma

r-1

8

Jun

-18

Se

p-1

8

Dec-1

8

Ma

r-1

9

Jun

-19

Se

p-1

9

Dec-1

9

Energy Crisis

Threadneedle (Lux) European Strategic BondNet performance in EUR

28

Source: Columbia Threadneedle Investments, as at 31 December 2019.

Past performance is not a guide to future performance. The returns shown are net, with ongoing charges figure (OCF) (1.15%) from Institutional Income EUR Shareclass (LU0096353940). Peer group

is GIFS Offshore – EUR Flexible Bond.

0.45

6.73

1.801.44

3.19

0.09

4.59

0.851.30

1.67

3 Month 1 Year annualised 3 Years annualised 5 Years annualised 10 Years annualised

Threadneedle (Lux) European Strategic Bond (Net, EUR) Sector Median

Performance % 3 Month 1 Year annualised 3 Years annualised 5 Years annualised 10 Years annualised

Threadneedle (Lux) European

Strategic Bond (Net, EUR)0.45 6.73 1.80 1.44 3.19

Sector Median 0.09 4.59 0.85 1.30 1.67

Fund Net vs Sector Median +0.36 +2.05 +0.94 +0.14 +1.49

Percentile Rank 31 24 31 48 32

Sharpe Ratio Rank - 8 25 11 6

Fixed IncomeWhy do risk adjusted returns matter?

29

What is a risk adjusted return?

◼ Measures how much risk is involved in producing a return

◼ It incorporates the volatility of your return

◼ Measures:

◼ The skill of a Fund Manager

◼ The repeatability of their process

Why are risk adjusted measures important?

◼ If “maximising” total return is your only priority, why not invest 100% in equities?

◼ Benefits of Fixed Income:

– Generates stable income

– Lower volatility = higher capital protection

◼ Fixed income is asymmetrical & mean-reverting:

– Little upside, lots of downside

– Owning the riskiest, highest yielding bonds = outperformance vs. peers in most years…

– …Until the year that it doesn’t!

Source: Bloomberg and Columbia Threadneedle Investments as od January 2020. Standard deviation calculated based on monthly returns. Period is 31st Dec 1998 to 31st Jan 2020

Risk adjusted returns matter!

S&P 500

European High Yield

Global Investment Grade

European Investment Grade

Euro Government Bonds

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

Tota

l Ret

urn

(A

nn

ual

ized

)

Standard Deviation (Annualized)

Annualized Total Return and Standard Deviation (1998-now)

Appendix

Biography

RYAN STASZEWSKI

Senior Portfolio Manager, Credit

Ryan Staszewski is a portfolio manager at Columbia Threadneedle Investments. Mr. Staszewski is responsible for

European credit portfolios within the fixed income team in London.

Prior to joining one of the Columbia Threadneedle Investments firms in 2012, Mr. Staszewski held roles as a credit

analyst at JP Morgan and Aviva Investors.

Mr. Staszewski received a degree in economics and finance from Curtin University, Australia, and is also a CFA

Charterholder.

Company start date: 2012

Industry start date: 2002

31

32

Corporate Health - The BBB overhang?European Investment Grade Corporate

0

5

10

15

20

25

30

35

40

45

50

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

% C

ha

ng

e

AAA AA A BBB Subordinated

0

1

2

3

4

5

6

7

% C

hange

The growth in BBB Credit Focused on banks and utilities – 2005/19

Top 5 Dec 05 Dec 19 Change

Volkswagen 0.1 1.9 1.8

Orange 1.0 1.0

AB InBev 0.9 0.9

Deutsche Telekom 0.9 0.9

AT&T 0.9 0.9

Source: BAML, Bloomberg and Columbia Threadneedle Investments as of December 2019. Index used is European Corporate (ER00).

The mention of any specific shares or bonds should not be taken as a recommendation to deal.

Active Management

Potential for performance

◼ Corporate bonds & Equities

◼ An asymmetric risk / return asset class

◼ Most of the downside - when things go wrong

◼ Not much of the upside - when things go well

◼ Default & downgrade risk

◼ The chief focus for our analyst team

◼ Philosophical problems

◼ Benchmark composition

◼ The more you want to borrow

– the more I guarantee to lend you

◼ Until you get into trouble

– When I will be forced to sell

– And vice versa

0

5

10

15

20

25

30

35

40

45

50

Perc

en

tag

e o

fIn

dex

Credit Spread Bucket (bps)

2006 2019

Dispersion of risks

33

Source: Bloomberg, ICE BofML, Columbia Threadneedle as of 31 December 2019. Past performance is not a guide to future performance.

Threadneedle (Lux) European Strategic BondAbsolute Return Volatility

34

Source: Bloomberg and Columbia Threadneedle Investments, as at 31 December 2019. The returns shown are net, with ongoing charges figure (OCF) (1.15%) from Institutional Income EUR Shareclass (LU0096353940). Primary shareclass used is LU0096353940. Past performance is not a guide to future performance.

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Dec-0

9

Au

g-1

0

Ap

r-11

Dec-1

1

Au

g-1

2

Ap

r-13

Dec-1

3

Au

g-1

4

Ap

r-15

Dec-1

5

Au

g-1

6

Ap

r-17

Dec-1

7

Au

g-1

8

Ap

r-19

Dec-1

9

Absolute Return

Rolling 1 year returns (NET) Annualised 3 year returns (NET)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Dec-0

9

Au

g-1

0

Ap

r-11

Dec-1

1

Au

g-1

2

Ap

r-13

Dec-1

3

Au

g-1

4

Ap

r-15

Dec-1

5

Au

g-1

6

Ap

r-17

Dec-1

7

Au

g-1

8

Ap

r-19

Dec-1

9

Absolute Volatility

1 year Volatility (NET) Annualised 3 year Volatility (NET)

Typical Volatility Range Typical Volatility Range

Threadneedle (Lux) European Strategic BondMonthly net performance in EUR

35

Source: Columbia Threadneedle Investments, as at 31 December 2019. Past performance is not a guide to future performance. The returns shown are net, with ongoing charges figure (OCF) (1.15%)

from Institutional Income EUR Shareclass (LU0096353940). Peer group is GIFS Offshore – EUR Flexible Bond.

-0.11-0.21

-0.50

0.72

-0.50

0.97

-0.68

0.54

0.36

-0.39

0.57

0.14

-0.18

0.71

-0.11

-0.28

0.28

-0.35 -0.35

0.25

0.00

-0.21

0.35

-0.32

0.25

-0.99-1.11

-0.07

1.70

0.71

0.950.80

-0.10

1.17

0.80

0.27

-0.20

0.18

-0.05

0.33

-0.20

0.08

-0.86

0.71

0.06

0.49

-0.02

0.34

0.30

0.01

0.35

0.000.11

0.44

-0.05-0.09

0.19

-0.35-0.21

0.11

-1.22

-0.22

0.35

-0.53

0.10

-0.65-0.72

-0.11

0.81

0.38

0.63

0.39

-0.22

0.99

0.73

0.44

-0.10

-0.04-0.06

0.18

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Sep-1

6

Oct-

16

No

v-1

6

De

c-1

6

Jan-1

7

Feb

-17

Ma

r-1

7

Apr-

17

Ma

y-1

7

Jun-1

7

Jul-1

7

Aug-1

7

Sep-1

7

Oct-

17

No

v-1

7

De

c-1

7

Jan-1

8

Feb

-18

Ma

r-1

8

Apr-

18

Ma

y-1

8

Jun-1

8

Jul-1

8

Aug-1

8

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Sep-1

9

Oct-

19

No

v-1

9

De

c-1

9

Tota

l N

et

Retu

rn %

Net Return Sector Median

Threadneedle (Lux) European Strategic BondCurrent fund strategy summary

36

Interest rate risk / Macro themes

◼ Fund is defensively positioned – given very low level of yields

◼ Overall low duration, preference for US Treasuries versus Europe

◼ Flattening bias in Eurozone rates

Credit risk exposure – Reasonable exposure

◼ Valuations are less compelling

◼ Reasonable exposure to corporate bonds

◼ Favour = Investment Grade: Defensive in late cycle, major beneficiary of ECB QE

◼ Maintain modest exposure to = High Yield: More growth sensitive and Emerging Market: More trade sensitive

◼ Defensive sector orientation e.g. Utilities and Senior Preferred Banks & Opco Banks

◼ Increasingly take out cheap “insurance” protection via credit default swaps

◼ Issuer selection – best credit ideas

The mention of specific stocks or bonds is not a recommendation to deal. As at January 2020

Insurance protection is cheap vs. history

Key positioning and themesTaking out cheap insurance

37

The mention of specific stocks or bonds is not a recommendation to deal. As at December 2019

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0

50

100

150

200

250

300

350

CDS vs Cash

CDS MAIN Cash Euro IG 1-10y

Ratio Ratio Average

1(-) std dev ratio 1(+) std dev ratio

◼ European Strategic Bond’s flexibility allows us to

short through CDS

◼ Insurance is currently cheap relative to history

Trade Wars

◼ Trade wars appear to be here to stay…

◼ Asia iTraxx (Chinese Banks, Chinese Corporates and

Asia)

– Asia Investment Grade at cyclical tights to

European Investment Grade!!!

◼ Autos: Cyclical, exporters

◼ Australian Banks: Australian economy leverage to

China, housing market overstretched

Other shorts ideas

◼ Idiosyncratic shorts in Banks

– Italy: Where we have asset quality concerns

– Portugal: Where we have asset quality concerns

– Deutsche Bank: Running out of credible options?

◼ French Retail: Competition and margin pressure on

the rise

CHEAP

RICH

Threadneedle (Lux) European Strategic Bond Investment Example - Italian BTP flatteners

38

The mention of any securities is not a recommendation to deal Source: Bloomberg, Columbia Threadneedle Investments, as at December 2019

◼ The structure of the Italian curve presented a

valuation opportunity

◼ Italian curve looked too steep vs the German

counterpart

◼ The team view was that in the event of elevated

political uncertainty, the front end of the Italian

curve would be punished to a greater extent

relative to the long end

◼ The fund was positioned to take advantage of this

via short Italian 10-year BTPs and long 30-year

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

50

100

150

200

250

300

Jan

-18

Fe

b-1

8

Ma

r-1

8

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-

18

Au

g-1

8

Se

p-1

8

Oct-

18

Nov-1

8

Dec-1

8

Jan

-19

Fe

b-1

9

Ma

r-1

9

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oct-

19

Nov-1

9

Dec-1

9

Z-S

pre

ad

(b

ps)

BTPS 2.7% Jan 47 BTPS 2.0% Jan 28 Ratio 2047/2028 (RHS)

Investment grade opportunitiesIssuer outperform research example

39

Issuer Bacardi

Sector: Food & Beverage

Michael Laskin

Credit Analyst

Retail, Consumer

10 years experience

Investment Thesis

◼ Bacardi is the producer of premium spirits

brands in rum, whisky, vodka, tequila and

gin.

◼ The company acquired fast-growing Tequila

brand Patron in 2018. Patron acquisition

adds more high growth and premium

exposure to portfolio.

◼ Bacardi management are committed to

paying down debt to reduce leverage. The

company generates sizeable free cash flow

and therefore has the capability to do so.

◼ Stable EBITDA margins and cash flow

should drive predictable and steady

deleveraging on prescribed schedule.

◼ Valuations are attractive.

Source: Columbia Threadneedle Investments, December 2019. Past performance is not a guide to future performance. The mention of any specific shares or bonds should not be taken as a

recommendation to deal.

Source: (Chart) Bloomberg and Columbia Threadneedle Investments as of December 2019. The mention of any specific shares or bonds should not be taken as a recommendation to deal.

Independent credit rating

◼ BBB-/R2/Outperform

◼ Fund Position: 2.8%, 0.09 CTSD

BACARD 4.45 05/15/2025

BACARD 2.75 07/15/2026

BACARD 4.7 05/15/2028

BACARD 5.15 05/15/2038

75

95

115

135

155

175

195

215

235

3.0 5.0 7.0 9.0 11.0 13.0

GO

VT

OA

S

Maturity

Bacardi Credit Spreads vs Comparables

Consumer Goods

BBB Curve

BBB Curve EUR

iBoxx Eur Corporate

Senior Preferred PositionOverweight Senior Preferred, Underweight Senior Non-Preferred

40

Fundamental

◼ Regulation requires banks to build out a layer ‘bail-in senior’ debt (non-preferred or holding company senior)

◼ Senior preferred or opco debt is therefore protected by the new layer of junior debt

◼ Credit quality of senior preferred or opco improves over time as loss given default decreases

◼ Rating agencies upgrade at senior preferred or opco level

Structural

◼ Positive supply technical in senior preferred

◼ Negative supply technical in senior non preferred

◼ We expect T2 and AT1 net supply to be close to zero

◼ TLTRO further eases senior preferred funding requirements

Valuation

◼ Ratio of senior non-preferred/senior preferred should move higher as senior preferred outperforms

◼ Senior preferred spreads tend towards those of covered bonds (towards the swaps curve) over the medium term

Source: ICE indices, Columbia Threadneedle Investments, estimates for European banks (including UK) based on flat balance sheets, December 2019

1.00

1.10

1.20

1.30

1.40

1.50

1.60

40

50

60

70

80

90

100

110

120

130

140 EUR Senior Non-PreferredEUR Senior PreferredRatio

5 Calendar Year Fund Performance History

41

Source: Columbia Threadneedle Investments, as at 31 December 2019. Past performance is not a guide to future performance. Performance for Currency Forwards has been calculated using spot

exchange rates, and therefore the forward rate differential is not captured. The returns shown are net, with ongoing charges figure (OCF) (1.15%) from Institutional Income EUR Shareclass

(LU0096353940)

Fund2019 2018 2017 2016 2015 2014

Fund Fund Fund Fund Fund Fund

Threadneedle (Lux) European

Strategic Bond Fund (Net, EUR)6.73% -2.26% 1.14% 1.71% 0.11% 5.85%


Key Risks and Objective

42

InvestmentRisk:The value of investments can fall as well as rise and investors mightnotget back the sum originallyinvested.

CurrencyRisk:Where investments are made in assets thatare denominated in multiple currencies,changes in exchange rates mayaffect the value of the investments.

CounterpartyRisk:The fund may enter into financial transactions with selected counterparties.Any financial difficulties ar ising at these counterparties could significantlyaffect the

availability and the value of fund assets.

IssuerRisk:The fund invests in securities whose value would be significantlyaffected if the issuereither refused to pay o r was unable to pay or perceived to be unable to pay.

LiquidityRisk:The fund holds assets which could prove difficult to sell.The fund may have to lower the selling price,sell other investments or forego more appealing investment

opportunities.

Inflation Risk:Most bond and cash funds offer limited capital growth potential and an income that is not linked to inflation. Inflation is likely to affect the value of capital and income

over time.

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.

ValuationRisk:The fund’s assets maysometimes be difficultto value objectivelyand the actual value may not be recognised until assets are sold.

Short Selling Risk:Shortselling intends to make a profit from falling prices.However if the value of the underlying investmentincreases, the value of the shortpositionwill

decrease.The potential lossesare unlimited as the prices of the underlying investments can increase very significantlyin a shortspace of time.

Investment in Derivatives: The InvestmentPolicyof the fund allows it to invest materiallyin derivatives.

Leverage Risk:Leverage amplifies the effect that a change in the price of an investmenthas on the fund’s value.As such, leverage can enhance returns to investors butcan also

increase losses, including losses in excess of the amountinvested.

Volatility Risk: The fund may exhibit significant price volatility.

Objective: The European StrategicBond Portfolio seeks to achieve total return from income and capital appreciation byinvest ing principallyin short-to-medium term European

sovereign bonds and corporate bonds (including ContingentConvertible Bonds for up to 5% of the Portfolio's Net AssetValue), that are InvestmentGrade or non-Investment

Grade, primarilyissued bycompaniesdomiciled in Europe or with significantoperations in Europe.

The Porfolio may also use financial derivative instruments for investment purposes, hedging and efficient portfolio managemen t. These derivatives mayinclude, but are not limited

to, foreign currency exchange contracts, futures on transferable securities and interest rate swaps. The Portfolio seeks to a ctively manage currencyexposure and interest rate risk

through the use of such derivative instruments.

Important Information

43

For internal use and for Professional and/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. Your capital is at Risk. The value of investments and any income is not guaranteed and can go dow n as w ell as up and may be affected by

exchange rate f luctuations. This means that an investor may not get back the amount invested.

Threadneedle (Lux) is an investment company w ith variable capital (Société d’investissement à capital variable, or "SICAV") f ormed under the law s of the Grand Duchy of Luxembourg. The SICAV

issues, redeems and exchanges shares of dif ferent classes.The management company of the SICAV is Threadneedle Management Luxembourg S.A, w ho is advised by Threadneedle Asset Management Ltd. and/or selected sub-advisors.

Certain sub-funds of the SICAV are registered in Austria, Belgium, France, Finland, Germany, Ireland, Hong Kong, Italy, Luxembourg, Macau, the Netherlands, Portugal, Singapore, Spain, Sw eden,

Sw itzerland, Taiw an and the UK; how ever, this is subject to applicable jurisdictions and some sub-funds and/or share classesmay not be available in all jurisdictions. 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

w ith applicable local legislation.

Het compartiment is op grond van artikel 1:107 van de Wet op het f inancieel toezicht 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.

Threadneedle (Lux) 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 177.

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 def ined 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 securit ies or other f inancial instruments, 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 ell as 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 specif ically this Fund. The above documents are available in English, French,

German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus) and can be obtained free of charge on request by w riting to the SICAV ’s registered off ice at 31, Z.A. Bourmicht, L-8070

Bertrange, Grand Duchy of Luxembourg and/or from

in Austria: Erste Bank, Graben 21 A-1010 Wien;

in France fromCACEIS Bank, 1/3 Place Valhubert, 75013 Paris;

in Germany from JP Morgan AG, Junghofstr. 14, 60311 Frankfurt,

in Sw eden fromSkandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm;

in the UK fromJPMorgan Worldw ide Securities Services, 60 Victoria Embankment, London EC4Y 0JP.

Important Information (cont.)

44

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 ell as 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

specif ically this Fund. The above documents and the instrument of incorporation can be obtained fromour representative and Paying Agent in Sw itzerland, RBC Investor Services Bank S.A., Esch-sur-

Alzette, Zurich branch, Badenerstrasse 567, Case Postale 101, CH-8066 Zurich.

This presentation is not investment, legal, tax, or accounting advice. Investors should consult w ith their ow n professional advisors for advice on any investment, legal, tax, or accounting issues relating

to an investment w ith Columbia Threadneedle Investments.

The mention of any specif ic shares or bonds should not be taken as a recommendation to deal.

This document is a marketing communication. The 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 fromexternal sources is believed

to be reliable but its accuracy or completeness cannot be guaranteed.

This presentation and its contents are conf idential and 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.

Threadneedle Management Luxembourg S.A. Registered w ith the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue Vallée, L-2661 Luxembourg, Grand Duchy

of Luxembourg.

In the UK issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, 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.

ryan staszewski senior portfolio...

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