Threadneedle november 2011 v3


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Threadneedle november 2011 v3

  1. 1. Succeeding in a radically different Fixed Income environmentDavid Oliphant, Executive Director November 2011
  2. 2. The key issuesDictating current investment strategyRapidly decelerating economic growth & Eurozone crisis - the big issues facingfinancial markets The combination of low growth and excessive leverage is toxic Policy options (fiscal & monetary) are limited but not exhausted The game is over for Greece, Where does the eurozone go from here? Invest where credit quality is strong and policy mistakes can be tolerated  (eg. Non Financial Corporates and Emerging markets) Expect a long period of sub-trend growth in developed markets  (with bouts of panic around growth and solvency) ‘Risk free’ markets represent poor value, potential returns limitedPT/11/00506 2
  3. 3. The sovereign health checkCritical condition diagnosed for some, overblown concern for othersFiscal Balance & Debt as % of GDP Interest cover & reliance on external financing 6% 90% Ireland 4% Hungary 80% Austria Portugal 1 2% 70% Netherlands Fiscal balance (% of GDP) . Greece % of government debt held externally France 0% 60% Indonesia Belgium Russia Mexico Brazil -2% Germany US Germany China Turkey 50% Philippines Israel Spain -4% Romania Italy Malaysia Italy 40% South Africa Poland Portugal -6% UK Spain 30% Greece -8% India UK 20% -10% Japan US Ireland 10% -12% Japan 0% 50% 100% 150% 200% 250% 0% Governm ent debt (% of GDP) 2% 3% 0% 1% 4% 5% 6% 7% Developing economies Developed economies Interest paym ents as % of GDP2 Source: Threadneedle, IMF Fiscal Monitor April 2011 and Haver Analytics as at * Based on 2010 figures: Source: Eurostat and IMF Fiscal Monitor 30 April 2011 ** Based on 2011 Government Budget Balance Estimates: Source: IMFPT/11/00506 3
  4. 4. What is the cure? Pick your poisonSolving the problem of excessive debt Impact on Impact on Solution Does it work? Sovereign Bond Risky Asset Prices Prices Perhaps as an early policy response, but no Borrow more to boost growth! Lower Higher longer a viable option Default / Restructure debt NO, but might be the only option for some Lower Lower Probably, but is unproven for large economies Reduce debt load through with highly levered private and financial Higher Lower austerity programs sectors Renege on promises to local constituencies (pensions, social YES, and much more to come Higher Higher support programs) Re-finance debt through higher YES, but at the expense of slow growth and Higher Lower savings inefficient allocation of capital Print money & devalue currency YES, provided inflation is kept under control Uncertain Higher (in local currency) Inflate your way out of the NO, unless one can continuously surprise the Lower Lower problem marketsEstimates of likely impact assume other factors remain unchangedPT/11/00506 4
  5. 5. Interest rates are establishing record lows, but is there still room to rally?Long rates have caught up to ultra-low short rates Source: Capital Economics as at September 2011 Source: Capital Economics as at September 2011PT/11/00506 5
  6. 6. Emerging markets still appear attractiveRelative debt sustainability metrics are heavily tilted in EM’s favourUS – fiscal deterioration not priced in EM– fiscal improvement not priced in 10 50 6.5 110 6.0 100 8 45 5.5 90 5.0 6 4.5 80 40 4.0 4 70 3.5 60 35 2 3.0 50 2.5 0 30 2.0 40 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F Govt debt (% GDP, rhs) EMBIG Index spread (%, lhs) Govt debt (% GDP, rhs) US 10y yield (%, lhs) GBI-EM Global yield (%, lhs) Source: IMF, JPMorgan, Threadneedle , August 2011 Source: IMF, JPMorgan, Threadneedle , August 2011PT/11/00506 6
  7. 7. Corporate market fundamentalsCompanies are in relatively good shapeEuropean IG issuer leverage(based on ~170 credits)  Investment Grade deleveraging continues to remove bonds from the market  Corporates are in considerably better financial health than in credit crunch (2008-09)  Uncertainty (political, economic) seems to have made companies more cautious than otherwise  Very high marginal cost of funding for banks (unsecured) has made bank lending far less attractive Source: Morgan Stanley Research, Markit iBoxxHeader & Footer – update footer reference 7
  8. 8. The Debt - Equity cycleCorporate Leverage is low and not yet rising? Corporate Leverage falling REPAIR RECOVERY 2H08 onwards Balance sheet repair, rights issues to pay back debt, 2H 2009 - ? focus on cash generation and survival! Restructuring efforts boost cashflow. Margins rising, FCF growing, leverage falling 1 2 Credit better than equity Both equity and credit up The Lower Economic growth Higher Economic growth Debt- Equity Clock DOWNTURN EXPANSION 4 3 2H07, 1H08 2006-07 Recession. Attempts to delever foiled by falling asset Margins peak, leverage rising, FCF falling, volatility prices. Continued bear market for credit. Equities enter rising, M&A/LBOs more speculative. Credit bear bear market market starts, equities still in bull market Both Equity and Credit Down Equity better than Credit Source: Morgan Stanley, October 2011 Corporate Leverage risingPT/11/00506 8
  9. 9. Corporate bond valuationsCorporate market pessimism is very highImplied investment grade defaults  The € CDS credit market is implying a very high level of Investment Grade defaults in the Current iTraxx Main Index 170 coming years  At current spread of around 170, European Credit market is discounting 14% cumulative default probability (on a 40% recovery assumption).  Itraxx Main Index is a basket of 100 Corporate Assumed recovery rate 40% 20% and 25 Senior Financial issuers  Historic experience has been far less than this  Average 5-year default experience is 0.8%  Worst cohort exhibited 2.4% in last 40 years 5-year assumed default rate 13.7% 9.3%  ‘Great Depression’ estimated at around 5%Source: Bloomberg as at 4 November 2011PT/11/00506 9
  10. 10. Corporate bond valuationsHistorical experience is very different5-year cumulative default rate history 2.50% 2.00% Cumulative default rate 1.50% 1.00% 0.50% 0.00% 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Source: JP Morgan as at June 2010PT/11/00506 10
  11. 11. High yield market pessimismDefault rate vs. spread to worstDefault rate vs. high yield bond spread 16% 2,000 1,800 14% 1,600 12% 1,400 10% 1,200 8% 1,000 800 6% 600 4% 400 2% 200 0% 0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Default Rate (LHS) US Spread (RHS) Europe Spread (RHS) Source: Credit Suisse, JP Morgan August 2011PT/11/00506 11
  12. 12. Bond market outlookIs there any value left in Fixed Income markets?10-year Government Bond Yields Euro High Yield & Corporate Bond Spreads 30 2500 500 450 25 2000 400 350 20 1500 300 15 250 1000 200 10 150 500 100 5 50 0 0 0 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11Source Bloomberg – 4th JapanNovember 2011 Germany USA Italy Greece Euro high yield Euro IG (RHS) Source: Bloomberg 4 November 2011 Source: Merrill Lynch 4 November 2011PT/11/00506 12
  13. 13. Refine your risk frameworkRisk is about losing money, not statistics At which point is your money more at risk? At which point is there more opportunity?Eurozone Corporate Bond Spreads and Volatility 500 90 450 Here? 80 400 70 350 60 300 Volatility Yield Premium 50 250 40 200 150 Here? 30 20 100 50 10 0 0 03/07/97 03/20/1998 04/09/99 04/07/00 04/20/2001 04/26/2002 05/02/03 05/07/04 05/20/2005 05/26/2006 06/01/07 06/06/08 06/12/09 07/02/10 07/08/11 Spread (LHS) Standard Deviation (RHS) Source: Merrill Lynch 4 November 2011PT/11/00506 13
  14. 14. Threadneedle Global Opportunities Bond Fund
  15. 15. Our propositionThreadneedle (Lux) Global Opportunities Bond Fund An unconstrained, diversified, high conviction investment approach employing a wide variety of strategies Target return of 1 Month USD LIBOR + 4.5% (gross of fees) By investing in bonds, currency and derivatives Designed to adapt to different phases of the economic cycle Aims to deliver a positive return over any 12 month period irrespective of market conditions Invests in best ideas generated by Threadneedle’s highly experienced specialist fixed income team A ‘go anywhere’ fixed income portfolio aiming for positive returns in all marketsPT/11/00506 15
  16. 16. Implications for InvestorsBroaden the opportunity set, think across borders Benchmark – ‘Beta’ Opportunity Set – ‘Alpha’ Total return  Cash (Libor)  Duration  Designed to minimise exposure to interest rates  Yield Curve  Performance unconstrained by + =  Term (Libor) benchmark beta  Geography  Has interest rate risk but no  Product suitable for all market  Currency defined risk/sector exposures conditions  Asset Allocation  Traditional  Risk controlled to suit performance target  Security selection  Comprised of multiple securities with varying exposure to  (IG, HY, EM, Sovereign) interest ratesPT/11/00506 16
  17. 17. Threadneedle’s fixed income credentials Fixed income sectors £20.8 billionA leader in fixed income Focused on innovation and client solutions EMD in Treasury ABS Research led, using fundamental, structural and Hedge 8.9% 3.0% valuation analysis 6.2% Government 33.5% ARBDeep resource 4.3% Complementary strengths covering all major fixed income markets HY inc Credit Dedicated risk management team Opps 15.2%Culture of collaboration and communication Investment grade Entire team participates in idea generation, 28.1% discussion and debate Source: Threadneedle as at 30 June 2011Source: Threadneedle as at 30 June 2011AUM exclude externally managed funds under administrationTeam approach gives informationadvantagePT/11/00506 17
  18. 18. Threadneedle Global Opportunities Bond FundPortfolio Construction Team Government & FX £7.7bn AUM Quentin Fitzsimmons Strategy Head 20 years experience Investment Grade £6.4bn AUM David Oliphant Head of Fixed Income Asset Backed £2.1bn AUM Strategy Head 22 years experience James Cielinski Henry Cooke Lead portfolio manager Strategy Head 28 years experience 25 years experience High Yield £3.5bn AUM Emerging Market £1.4bn AUM Barrie Whitman Strategy Head 24 years experience Manages the allocation Richard House of the risk budget Strategy Head 17 years experience Manage individual strategies within the fundSource: Threadneedle as at 30 June 2011Drawing on the best ideas fromacross the groupPT/11/00506 18
  19. 19. Fixed Income TeamExperienced teams across all asset sectors Jim Cielinski Head of Fixed Income Credit Macro Securitised Liquidity Markets Investment Grade Government and FX Mortgage & Asset Backed Products Treasury & Dealing David Oliphant Quentin Fitzsimmons Henry Cooke Emma Photis Simon Bond Dave Chappell Ashley Burtenshaw Sarah Kendrick Alasdair Ross Martin Harvey Sergey Podzarov Cindy Larke David Morgan Richard Stevens Steven Fleming Paul Witchalls Paul Smillie Matt Rees Shane Stanton Gabriel Heskin Jonathan Pitkänen Matthew Cobon Michael Groom Mandy Coatsworth Arabella Duckworth Emerging Market Debt Mindaugas Lepeska Richard House High Yield Investment Specialists Henry Stipp Mark Baker Barrie Whitman Agnès Belaisch Alexander Batten Michael Poole Nicolas Jaquier David Backhouse Commodities Jeff Mueller Jenny Wong David Donora Gareth Simmons Daniel Belchers Craig Nicol Nicolas RobinSource: Threadneedle as at 31 August 2011PT/11/00506 19
  20. 20. Threadneedle’s approach to fixed income To deliver results we strive to be Idea Research outstanding in each of these key interlocking areas generation Portfolio Risk construction management Expertise must evolve with the marketsPT/11/00506 20
  21. 21. Threadneedle’s investment approach Short duration carry Currency strategies  Incorporates multiple sources of return Emerging Interest rate markets duration  Specialist fixed income teams generate best Global ideas Opportunity Bond Fund  Asset allocation across all asset types Country / High yield yield curve ABS / Investment Mortgages gradePT/11/00506 21
  22. 22. Fixed income research Asset Overall allocation Fundamental Structural Valuation score Apply common scenario framework Govt. +1 -1 0 -1 bond Investment 0 0 +1 +1  Identify individual assets gradeRelative to risk free  Formulate scenarios (eg. Eurozone crisis, High yield +1 0 +1 +1 Middle East, global QE) EM credit +2 +1 0 +2  Stress test widely varying assets to similar scenarios EM local currency +1 -2 +1 0  Score assets by risk-adjusted returns ABS -1 0 +2 +1 Source: Threadneedle as at 30 June 2011 Scale: -2 (max underweight) to +2 (max overweight) A diversified yet high conviction approach PT/11/00506 22
  23. 23. Portfolio construction  Achieving alpha through currency and derivatives Overlay portfolio  Arbitrage, Relative Value and Directional strategies  Hedging of unwanted portfolio risk Weightings Target – can vary 1-month USD significantly Deposit Rate plus 4.5% + reflecting market (gross of fees)  High quality securities of 0–3 years’ outlook duration  Cash, deposits, sovereign and quasi- Core portfolio sovereign debt, corporate bonds and AAA asset and mortgage backed securitiesPT/11/00506 23
  24. 24. Risk managementEstimated contribution to total portfolio risk* Security Asset class selection (HY, allocation IG, EM, 13% Sovereign, ABS)  Diversification of strategies is paramount to 34% the process Rates 20%  Attractiveness of strategies will vary over the cycle  No single strategy will overwhelm the other Carry (HQ portfolio risk balance short Currency duration) 13% 20%*over a full investment cycleDiversification is critical forour processPT/11/00506 24
  25. 25. Threadneedle Absolute Return Product Range Global Opportunities Bond Credit Opportunities Bond Absolute Emerging Markets Target Return Fund Fund Fund Macro FundBenchmark 1M $ LIBOR 3M Euribor 1M EURIBOR 3M $ LIBORPerformance BM +4.5% gross BM +3.0% gross BM +3.5% gross 7.5%–12.5% netobjective Emerging market sovereign, Macro, Developed Credit – Investment GradeAsset class focus Diversified global local and international Governments, Rates, FX and High Yield currency and FXLaunch date August 2011 April 2006 May 2009 September 2010Relative performance +0.59% +2.20% p.a. +5.97% p.a. -2.00% p.a.since inceptionSource: Threadneedle as at 30 September 2011PT/11/00506 25
  26. 26. Investment process in actionStrategy and positioning (relative to risk free rate) Threadneedle view Risks to our viewDuration (10-year)  Favour curve flatteners in US, UK & Core Europe  Short term Euro ‘bazooka’  Significant risks to global growth outlook remain  Internationally co-ordinated monetisation $   Short ¥ £ € Long Italy key & in focus with yields potentially heading to 7% and Berlusconi under pressure An upside surprise in economic data  Money printing causes curve to steepen -2 -1 0 +1 +2  BTP and DAX futures are barometers for risk on/off  International agreement to regulate FX markets and/or behaviour in marketsCurrency  Long USD vs. JPY,CHF,EUR,GBP,AUD  EM central bank diversification into £ and € inflates values  Long Asian FX vs. European FX on structural need for appreciation  Credible fiscal steps in Japan boosts JPY  CHF the most expensive currency in the world  Positioning unwinds in Asia  Long EUR vs. SEK  USD sell off following rating downgrade  Shirt USD vs. MXN, short AUD vs. Chilean PesoEmerging Markets Local  Received in selective short end rates  Short term bouts of risk aversion(rates and currency)  Neutral FX given macro uncertainty  Policy mistakesEmerging Markets  Attractive risk/return profile  Significant slowdown in external demandSovereign Credit(USD denominated)  Solid credit fundamentals  Spreads have widened creating a buying opportunityInvestment Grade Corp  Although tail risk remains elevated, spreads exhibiting considerable  Eurozone problems produce bank/financial contagion value against macro outlook and balance sheet fundamentals  Spreads already very tight if viewed against local government yields  Some evidence of retail and institutional inflows given low gilt yields rather than Bunds and volatility elsewhere.High Yield Corporate  Spreads wide vs. default rates, which will remain low  Developed market growth < 1.5% (recession fears)  Inherently low interest rate duration  Risk of forced selling on asset class outflows  Demand for income in a low growth worldABS / MBS  Outsized liquidity premiums persist  Sharp deterioration in property values  Will benefit from low rates and demand for income  Outperformed senior financials over past two months – expect that continue in near term  Attractive levels of credit enhancementCommodities  Continued negative macro forces slowing global industrial demand  Financial crisis  China now neutral but slowing  China credit crisis  European crisisPT/11/00506 26
  27. 27. SummaryWhy Threadneedle for unconstrained absolute return fixed income A global ‘go anywhere’ bond fund designed to succeed in a radically different fixed income environment Aims to achieve attractive returns while taking an acceptable level of risk - targets a return of 1 month USD LIBOR + 4.5% (gross of fees) Bringing together the best ideas from across Threadneedle’s extensive and experienced bond team Proven investment philosophy and process Extremely strong track record across the fixed income universeMeeting the challenges of today’sfixed income marketsPT/11/00506 27
  28. 28. Threadneedle Global Opportunities Bond Fund September Since September Since Cumulative performance (%) Cumulative performance (%) 2011 Inception 2011 Inception Threadneedle Global Threadneedle Global Opportunities Bond Fund 0.61 0.77 Opportunities Bond Fund 0.47 0.60 (Gross) (Net) GIFS Offshore Alternative USD Libor 3 Month 0.02 0.02 -6.77 -6.82 Long Short Debt Geometric relative return +0.59 +0.75 Geometric relative return +7.76 +7.97 Fund performance is based on official Global Close prices. All returns include gross Fund returns are calculated using official global close prices as calculated by the reinvested income and fund returns are gross of TER. All prices are calculated by funds administrator Dexia. All performance is quoted in USD Terms. Source the funds administrators Dexia. Inception date 24.08.11. Morningstar. Inception date 24.08.11.PT/11/00506 28
  29. 29. APAppendix
  30. 30. Threadneedle Global Opportunities Bond FundFund details Fund Manager Jim Cielinski (Lead Portfolio Manager) Launch date 24 August 2011 Objective The Fund seeks to achieve an absolute return over a 12 month time horizon 1 Target tracking error 500-600bps tracking error over a market cycle Performance benchmark 1 month USD LIBOR + 4.5% (gross of fees) Dealing Daily Legal structure SICAV (Luxembourg-domiciled) Fees 0.65%, 15% performance fee over the performance benchmark (with high water mark) No. of positions Typically 75 to 125 holdings (long and short) Gross exposure Typically between 175% and 400% (longs + shorts) Net exposure Typically between -50% and +175% (longs - shorts) Instruments Long / Short: Cash fixed income instruments, futures, swaps, options Currency USD, EUR-hedged, GBP-hedged, CHF-hedged,1 Investors should note that the fund does not offer any form of guarantee with respect to investment performance and no form of capital protection will apply2 Aggregate of management fee and shareholder servicing feePT/11/00506 30
  31. 31. Careful management of risk budget Risk budget ensures diversification and assist sizing of trades Attractiveness of sources of return will vary over time Fund is designed not to rely excessively on any one strategyRepresentative risk budget Target risk Expected returnStrategy (tracking error) (Above Libor)Interest rates Duration & yield curve 1.00% 0.30% Country selection 0.80% 0.32%Currency 0.90% 0.54%Asset class allocation Strategic (short duration) 1.70% 1.19% Cross-asset class 1.10% 0.39%Security selection OECD sovereign 0.60% 0.30% Emerging market 0.75% 0.45% High yield 0.75% 0.45% Investment grade corporate 0.60% 0.36% Securitised (ABS/MBS) 0.75% 0.45%Total 6.10% 4.75%PT/11/00506 31
  32. 32. Threadneedle (Lux) Global Opportunities Bond FundAn unconstrained fixed income solution to address investor concernsMarket concerns Global Opportunities Bond Fund  Policy risk is unpredictable and often  Avoids and/or hedges out unquantifiable impossible to analyse tail risk and helps lessen impact of shocks  Asset class labels no longer characterise risk-return  Offers a global approach to finding the best risk-reward across asset classes  When rates are low capital returns are threatened by rising yields  Has considerable flexibility in taking and managing interest rate exposure  Achieving attractive returns with an acceptable level of risk  Targets a return of 1 month USD LIBOR + 4.5% (gross of fees)Aims to deliver a positive returnover any 12 month periodPT/11/00506 32
  33. 33. Threadneedle (Lux) Global Opportunities Bond FundDesigned to minimise interest rate exposure Yield increase on 10 year bonds that would10 year Government Bond Yields generate a negative annual return 1.2 9 8 1.1 7 1.0 6 0.9 Yield 5 0.8 4 0.7 3 2 0.6 1 0.5 0 0.4 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 0.3 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Gilts Treasuries JGBs Bunds Source: Bloomberg, June 2011 Source: Bloomberg, June 2011 Interest rates are at multi decade lows Many traditional bond strategies offer poor protection from rising interest rates The Threadneedle (Lux) Global Opportunities Bond Fund is designed to deliver positive returns in both rising and falling rate environmentsPT/11/00506 33
  34. 34. Government bond fundamentalsLow Economic growth for sometime to comeUK GDP US GDP 6% 10% 4% Change (YoY) . Change (YoY) . 5% 2% 0% 0% -2% -4% -5% -6% -10% -8% 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2000 2001 2003 2004 2006 2007 2009 2010 GDP Average Threadneedle estimate GDP Average Threadneedle estimateEurozone GDP Japan GDP 6% 4% 2% Change (YoY) . Change (YoY) . 4% 0% 2% -2% 0% -4% -2% -6% -4% -8% -6% -10% -12% 1995 1996 1998 1999 2001 2002 2004 2005 2007 2008 2010 1997 1999 2000 2002 2003 2005 2006 2008 2009 2011 GDP Average Threadneedle estimate GDP Average Threadneedle estimateSource: Bloomberg as at 31 August 2011. All data is year on year. US, Euro and Japan is seasonally adjustedPT/11/00506 34
  35. 35. Government bond fundamentalsLow InflationUK CPI US CPI 10% 4% Change (YoY) . Change (YoY) . 8% 3% 6% 2% 4% 2% 1% 0% 0% 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 1995 1996 1998 1999 2001 2002 2004 2005 2007 2008 2010 2011 CPI Average Threadneedle estimate CPI Average Threadneedle estimateEurozone CPI Japan CPI 5% 6% Change (YoY) . 4% Change (YoY) . 4% 3% 2% 2% 0% 1% -2% 0% -4% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 CPI Average Threadneedle estimate CPI Average Threadneedle estimateSource: Bloomberg as at 31 August 2011. Japan CPI is year on year. Euro CPI is core year on year, ex food & energy. UK CPI is year onyear EU Harmonised. US CPI is core year on year ex food and energyPT/11/00506 35
  36. 36. Growth and Corporate Bond SpreadsEconomic pessimism is high  US Corporate bond spreads and economic US GDP Growth & Corporate Spreads growth seem to be reasonably correlated (see chart left)  US Corporate bond spreads seem to be discounting a severe US economic outlook.  Our regression model suggests economic growth of around zero is consistent with current spreads of 227bps (4/11/11) in the USA. This is much worse than our forecast.  Threadneedle Growth forecast is 1.5% for 2011 & 2012.  Consensus Forecast is 1.8% this year and 2.4% in Source Bloomberg/Merrill Lynch – November 2011 2012PT/11/00506 36
  37. 37. Threadneedle Investments Threadneedle total AUM – £67.7 billion An established global asset manager Property Cash 8.5%  Founded 1994 2.8%  AUM £67.7 billion  127 investment professionals & 615 employees Fixed income Equities 30.7% 58.0% Sole focus is active management of client assets Source: Threadneedle as at 30 June 2011  Equities  Fixed Income AUM – institutional vs. wholesale  Commodities Retail 33.0%  Multi-Asset  Property Owned by Ameriprise Financial Inc. Institutional 67.0% Source: Threadneedle as at 30 June 2011 AUM excludes externally managed funds under administration Source: Threadneedle as at 30 June 2011An established and activeglobal managerPT/11/00506 37
  38. 38. Investment philosophy – out-think, out-perform out-perform We are stronger collectively than as individuals Global Our investment process is structured to approach reflect this belief We have a global approach and cover all teamwork asset classes All asset classes out-thinkTeamwork defines usPT/11/00506 38
  39. 39. out-perform Global approachInvestment process – out-think, out-perform teamwork All asset classes out-think1. Out-think 2. Team work 3. Out-perform Idea generation Debate Execution / delivery Economic background Equity Asset and sector allocation models Sectors and themes Multi-asset Asset allocation + Themes / analysis and debate Bottom-up security selection + Fixed income across capital structure Absolute return Valuation frameworkCollectively we form a global investment view on The central case for economies This sets the agenda for our specialist teams The valuation of asset classesPT/11/00506 39
  40. 40. Outstanding fixed income performance Gross / 6 months 1 year 3 years (p.a.) 5 years (p.a.)Strategy type Fund Currency Net Fund Rel. Fund Rel. Fund Rel. Fund Rel. Threadneedle Sterling Bond Fund GBP Gross -3.29 +0.26 -6.51 -0.01 2.89 -0.01 0.27 +0.20 Govt. and rates Threadneedle European Bond Fund EUR Gross 0.10 +0.09 -0.20 +0.72 8.34 +2.89 5.27 +1.85 Threadneedle Global Bond Fund EUR Gross -3.16 -0.57 -8.34 -1.37 8.13 +1.42 4.53 +0.68 Threadneedle Emerging Market Bond Fund USD Gross -2.67 +0.09 -5.81 -0.22 13.98 +0.39 8.21 +1.25Single Emerging markets Threadneedle Emerging Market Local Fund USD Gross -1.88 -0.83 -0.09 -1.18 12.77 -1.07strategy Threadneedle High Yield Bond Fund GBP Net -1.68 -0.24 2.18 -0.47 6.68 +1.51 2.20 +2.06 High yield Threadneedle European High Yield Bond Fund EUR Net 3.70 +0.11 14.02 +1.37 11.23 +0.35 7.12 +0.62 Threadneedle UK Corporate Bond Fund GBP Net -1.98 +0.83 -3.65 +0.95 2.84 +0.80 -1.41 +0.36 Investment grade Threadneedle European Corporate Bond Fund EUR Gross 3.03 +1.49 5.76 +3.05 6.24 -0.07 3.48 -0.42 Credit / High Yield Threadneedle Strategic Bond Fund GBP Net -1.98 -0.02 -0.90 +1.25 4.22 -0.21 -0.22 +0.02Multi-strategy Credit / Gov’ts Threadneedle Dollar Bond Fund USD Net -4.89 +0.66 -11.57 +1.50 7.96 +0.17 1.85 -0.81 Threadneedle Absolute Return Bond Fund GBP Gross -6.88 -2.25 -10.82 -2.44 0.03 +2.74 -0.21 +1.83 Threadneedle Target Return Fund EUR Gross -1.96 -2.57 -1.68 -2.74 3.88 +2.20 4.34 +1.65 Govt. and rates T(Lux) Target Return USD Fund USD Gross -9.89 -2.75 -17.35 -2.47Alternative Threadneedle Target Return Core Fund EUR Gross -0.94 -1.37 -0.72 -1.40 2.10 +0.96 Credit / High Yield Threadneedle Credit Opportunities Fund EUR Gross 2.83 +2.37 7.66 +6.88 Emerging Markets T(Lux) Absolute Emerging Markets Macro Fund USD Gross -4.85 +2.68 Commodities T(Lux) Enhanced Commodities Fund USD Gross -4.15 +6.33 15.12 +8.23Source: Morningstar to 30 June 2011. Data shown in €. All fund data is based initially in £ share classes, and converted to different currencies using Global-Close FX rates. Fund Returnscalculated from 12 noon (UK Time) prices to 31 December 2007 and Global Close prices from 31 January 2008 onwards compared to Global Close Indices. Fund data is quoted on a bid-bidbasis with income re-invested at bid. Fund data is gross of tax and T.E.R to facilitate comparison with the indices. Performance for periods greater than one year is annualised. Index dataprovided by Thomson Financial DataStream, iBoxx, and Merrill Lynch.PT/11/00506 40
  41. 41. Biography DAVID OLIPHANT David began his career in 1989 with Eagle Star Investment Managers1 as a Sterling Bond analyst. He progressed to managing multi-currency portfolios for Eagle Star and then from 1994, for Threadneedle. David chairs the Fixed Income Themes meeting and is Head of Investment Grade Credit. He graduated in 1988 with an honours degree in economics from the University of St Andrews. He is an associate member of the UK Society of Investment Professionals. Threadneedle start date: 1994 Industry start date: 1989 1 Eagle Star Investment Managers became part of Threadneedle in May 1994PT/11/00506 41
  42. 42. Biography JAMES CIELINSKI James Cielinski joined Threadneedle in 2010 as Head of Fixed Income. In this role he is responsible for the overall management of the fixed income business, including investment process, product development and investment strategy. He is also a key participant in Threadneedle’s asset allocation process. Prior to joining Threadneedle James spent 12 years at Goldman Sachs, leaving as Head of Global Credit – Investment Grade. He has also held senior investment roles at Utah Retirement Systems and Brown Brothers Harriman. James graduated from the University of Utah in 1983 with a BSc in Finance and gained an MBA from New York University in 1988. He is also a Chartered Financial Analyst and a member of the UK Society of Securities Analysts. Threadneedle start date: 2010 Industry start date: 1983 BARRIE WHITMAN Barrie Whitman joined Threadneedle in 1999 as Head of High Yield. He manages the Threadneedle High Yield Bond, European High Yield Bond and Strategic Bond Funds as well as a number of institutional mandates. He is also Lead Manager of the Threadneedle Credit Opportunities Fund. Barrie began his investment career in 1987 at United Bank of Kuwait as a credit analyst specialising in high yield bond investment. In 1990 he became a high yield fund manager and, in 1996, CIO for High Yield Investments. He then moved to Standard Bank London in 1997 as Head of European High Yield and Distressed Debt. Barrie graduated in 1982 with a BSc in Economics and Accounting from Hull University and qualified as a Chartered Accountant in 1986. He is a member of the Institute of Chartered Accounts in England and Wales. Threadneedle start date: 1999 Industry start date: 1987PT/11/00506 42
  43. 43. Biography RICHARD HOUSE Richard House is Head of Emerging Market Debt at Threadneedle. He also manages a number of the company’s emerging market bond portfolios. Prior to joining Threadneedle in 2007, Richard worked for Wadhwani Asset Management as an emerging markets portfolio manager / trader. He has also worked for HSBC as a portfolio manager responsible for a listed emerging markets debt fund and at Lombard Odier as an emerging markets analyst/portfolio manager. Richard holds a BSc in economics and computer science from the University of Sunderland and an MSC in finance and investment from the University of York. Threadneedle start date: 2007 Industry start date: 1994 HENRY COOKE Henry Cooke joined Threadneedle in 2010 to run the company’s Asset-Backed Securities Desk in London. In addition to the day-to- day management of the team, he is responsible for raising ABS assets and managing asset-backed positions. Prior to joining Threadneedle Henry worked for five years at Barclays Capital, where he became a Managing Director. He has also held the role of Head of Enterprise Risk at Marsh & McLennan and worked for Nomura International and Goldman Sachs. Henry has an engineering degree from the University of Nottingham. Threadneedle start date: 2010 Industry start date: 1986PT/11/00506 43
  44. 44. Biography QUENTIN FITZSIMMONS Quentin Fitzsimmons is an Executive Director and Head of Government Bonds and Foreign Exchange at Threadneedle. He has significant experience and a strong track record in managing third party institutional fixed income client mandates for over 10 years, encompassing the full range of economic and market conditions. Quentin began his career in 1991 at Sun Life Assurance Company of Canada, where he progressed to Senior Investment Analyst before moving to the Equitable Life Assurance Society in 1994 as Senior Portfolio Manager. He then joined F&C (formerly Foreign & Colonial) Investment Management in 1999 and became Director of Fixed Interest (UK bonds) before joining Threadneedle in September 2003. Quentin graduated in 1989 from the University of Bristol with a first class honours degree in economics and economic history. He is also a Member of the Society of Business Economists and has gained professional investment qualifications via the IIMR. Threadneedle start date: 2003 Industry start date: 1991PT/11/00506 44
  45. 45. Important InformationAll data as at 30 June.2011 unless otherwise shown. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up.The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted upon prior to publication and is madeavailable here incidentally. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date ofpublication but are subject to change without notice.Threadneedle (Lux) is an investment company with variable capital (Société d’investissement à capital variable, or "SICAV") formed under the laws of the Grand Duchy of Luxembourg. The SICAV issues,redeems and exchanges shares of different classes, which are listed on the Luxembourg Stock Exchange. The management company of the SICAV is Threadneedle Management Luxembourg S.A, who isadvised by Threadneedle Asset Management Ltd. and/or selected sub-advisors.The SICAV is registered in Austria, France, Germany, Hong Kong, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan and the UK; however, this is subject to applicablejurisdictions and some sub-funds and/or share classes may 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 beissued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation. 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 purposes only and does not constitute an offer or solicitation to an order to buy or sell any securities or other financial instruments, or to provide investment advice or services.Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus and the latest annual or interim reports, which can be obtained free of charge on request, from theSICAVs registered office at 69, route dEsch, L-1470 Luxembourg, Grand Duchy of Luxembourg, or, for Sweden, the Swedish paying agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 10640 Stockholm, Sweden. Please read the prospectus before investing. Investors should note the “Risk Factors” section of the Prospectus in terms of the risk applicable to investing in this Fund.Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 74, rue Mühlenweg, L-2155 Luxembourg,Grand Duchy of Luxembourg.Issued in Hong Kong by Threadneedle Portfolio Services Hong Kong Limited ("TPSHKL"). Registered Office: 21F ICBC Tower, Citibank Plaza, Central, Hong Kong. Registered in Hong Kong under theCompanies Ordinance (Chapter 32), No. 173058. Authorised and regulated in Hong Kong by the Securities and Futures Commission. Please note that TPSHKL can only deal with professional investors inHong Kong within the meaning of the Securities and Futures Ordinance. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercisecaution in relation to the offer. If you are in any doubt about any of the contents of this document you should obtain independent professional advice.Issued in Singapore by Threadneedle Investments Singapore (Pte) Limited, 07-07 Winsland House 1, 3 Killiney Road, Singapore 239519. The Fund mentioned in this document is a restricted scheme andis available only to residents of Singapore who are Institutional Investors under Section 304 of the SFA, relevant persons pursuant to Section 305(1), or any person pursuant to Section 305(2) inaccordance with the conditions of, any other applicable provision of the SFA. The Fund is not authorised or recognised by the Monetary Authority of Singapore (the “MAS”) and Shares are not allowed to beoffered to the retail public. This document is not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply.In the UK issued by Threadneedle Asset Management Services Limited. Registered in England and Wales, Registered No. 573204, 60 St Mary Axe, London EC3A 8JQ, United Kingdom. Authorised andregulated in the UK by the Financial Services Authority.Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies. threadneedle.comInformation for Investment Professionals (not for onward distribution to, or to be relied upon by, private investors)PT/11/00506 45