Threadneedle Enhanced Commodities StrategyNicolas Robin                                May 2012
Agenda01      Commodity market overview – risk back on the agenda02      Commodities at Threadneedle – a strong fund manag...
3  01Commodity market overview – risk back on the agenda
Market outlook: mixed macro, energy fundamentals strongAsia    Prospects for Chinese growth weakening, with target now lo...
Market outlook: mixed macro, energy fundamentals strong    Geopolitical risk still high: Iran, Syria, Irak, Nigeria, Liby...
Market outlook: mixed macro, energy fundamentals strong    Environment continues to favour the energy sector and, within ...
US Natural Gas: it’s all about shale gas, still...                                                      Since 2000, U.S sh...
…and the mild weather this winter has exacerbated the glut                                                       Total Low...
Oil and the return of geopolitical risk    Libyan production has been recovering faster than anticipated but spare capaci...
Oil and the return of geopolitical risk    … demand continues to strengthen, driven by Asia / PacificGlobal oil demand – ...
Non-OECD: Demand by product    Non-OECD product demand continues to be strong, driven by transportation fuels (Motor Gaso...
Chinese Strategic Petroleum Reserve: more capacity coming on stream    According to the IEA, up to 79mb of new SPR capaci...
US Shale Oil: towards of remake of shale gas in oil?                            End Game                            27 Feb...
US Shale Oil: rising Canadian and US production choking logistics                                                    Simpl...
Refined products: driven by the East Coast physical markets    The structure of the US oil market is key to     understan...
Refining capacity in the US North East (PADD I): dangerously shrinking…                                                   ...
The Jones Act and international tankers: logistical nightmareJones Act and International Tankers, Year-End 2010 Vessels la...
however, additional movements into the Northeast are unlikely to exceed 100,000 bbl/d – well less than                    ...
PADD I Gasoline balances: tighter, considerablyNortheast Gasoline Supply-Demand Balance and Projections: Annual average 20...
Conclusion: energy remains our preferred sector    Energy fundamentals are strong and underpinned by geopolitical risk  ...
02Commodities at Threadneedle – a strong fund management team
Commodities at Threadneedle    An integral component of the Threadneedle Investment Platform    Building commodities as ...
An experienced team with genuine commodities expertise                                                 Head of Commoditie...
Commodities at Threadneedle – the investment teamA wealth of expertise covering all aspects of commodity trading    More ...
03Threadneedle Enhanced Commodities Strategy
Threadneedle Enhanced Commodities FundProduct highlights and features    Current target outperformance of 3–6%1 (benchmar...
Threadneedle Enhanced Commodities FundActive management of CommoditiesFundamentally driven investment process which aims t...
Bottom up – the engine room of idea generation                                                                            ...
Portfolio construction: emphasis on relative value    Focus on relative value opportunities within the commodity universe...
NY Harbour Gasoline v. Henry Hub Natural Gas     Natural Gas storage constraint                                          ...
Wheat – In an active strategy, it is possible to capture the volatility in theprotein spread and the difference in carry  ...
Threadneedle Enhanced Commodities FundPerformance to Date (in USD)2010                              Jul                   ...
Threadneedle Enhanced Commodities FundPerformance to Date (in USD)                                                        ...
Threadneedle Enhanced Commodities StrategyProduct update    Strong inflows since inception – more than $600 million in AU...
Risk control and monitoring    Multiple controls inside and outside the process ensure that risks are intended and approp...
Managing risk for investment return                                                                     IRIS, Threadneedle...
Threadneedle Enhanced Commodities FundApplicable UCITS limits                                                 Investment R...
APAppendix
Bridging the gap towards theoretical spot returns?                   Since inception, the strategy has tracked spot retur...
Gold vs. gasoline – is gold really your inflation hedge?    In spite of recent precious bull market, gold continues to un...
Commodity indices – roll return impacting performance    Roll return has historically eroded 50% of the returns of the sp...
Commodity indices – from ‘roll return’ to ‘roll drag’                                                       Hypothetical c...
Biography              NICOLAS ROBIN              Fund Manager              Nicolas Robin joined Threadneedle in 2010 and ...
Biography              CHRISTIAN TRIXL              Head of Swiss Distribution              Christian Trixl joined Threadn...
Important informationFor Investment Professionals use only, not to be relied upon by private investors.Past performance is...
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Threadneedle investments

  1. 1. Threadneedle Enhanced Commodities StrategyNicolas Robin May 2012
  2. 2. Agenda01 Commodity market overview – risk back on the agenda02 Commodities at Threadneedle – a strong fund management team03 Threadneedle Enhanced Commodities StrategyAP AppendixPT/12/01215 2
  3. 3. 3 01Commodity market overview – risk back on the agenda
  4. 4. Market outlook: mixed macro, energy fundamentals strongAsia Prospects for Chinese growth weakening, with target now looking to be closer to 7.5%Europe Continued uncertainty amid key election year (France, Greece) and renewed concerns around SpainUS Macro environment starting to improve but monetary policy to continue to be accomodative and benefit of an election yearPT/12/01215 4
  5. 5. Market outlook: mixed macro, energy fundamentals strong Geopolitical risk still high: Iran, Syria, Irak, Nigeria, Libya Wild card: Chavez’s health and the risk associated with political transition in Venezuela On the supply side, Saudi Arabia probably running much closer to full capacity than anticipated Mild weather in Northern hemisphere has put a lid on demand this winter Despite the mild weather, the Brent market still remains extremely well supported Japan’s continued problems with nuclear plants support demand for LNG and oil productsPT/12/01215 5
  6. 6. Market outlook: mixed macro, energy fundamentals strong Environment continues to favour the energy sector and, within it, refined products Downside risk in base metals and agricultural products Improving US economy could lead to a stronger dollar and therefore put more pressure on base and precious metals generallyPT/12/01215 6
  7. 7. US Natural Gas: it’s all about shale gas, still... Since 2000, U.S shale gas production has increased 17-fold and now comprises about 30% of total U.S. dry production Shale gas expansion continues to be the Annual shale gas production (dry) trillion cubic feet driving force behind US natural gas weakness The domestic nature of the US market and the difference in pricing mechanism with international LNG markets is the key to understand the current price dislocation The situation is likely to endure until US producer curtail production and/or export capacity comes online Source: Lippman Consulting, Inc. gross withdrawal estimates as of November 2011 and converted to dry production estimates with EIA-calculated average gross-to-dry shrinkage factors by state and/or shale play. Note: 2011 is annual for first 10 months.PT/12/01215 7
  8. 8. …and the mild weather this winter has exacerbated the glut Total Lower 42 Natural Gas Inventories 5,000 4,500 Mild temperatures in the US this winter are 4,000 to blame for the sharp decline recorded so 3,500 far this year 3,000 2,500 Inventories are now trending more than 2,000 50% above averages and may lead to 1,500 containment issues later this year 1,000 500 Average injections during the injection 0 season would take inventories to unknown 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week territory near 4.5Tcf Avg High Low 2010 1 2011 2012 2012E Source: IEA, Threadneedle 1 Estimated inventory trajectory assuming average injectionsPT/12/01215 8
  9. 9. Oil and the return of geopolitical risk Libyan production has been recovering faster than anticipated but spare capacity is shrinking fast…OPEC crude production (million barrels per day) Supply 3Q12 Average 3Q12 Average Sustainable Spare capacity vs. 1 Sustainable Sustainable 2Q12 Jan 2012 Feb 2012 Mach 2012 production capacitiy March 2012 supply Production Capacity Capacity Algeria 1.20 1.14 1.14 1.18 0.04 1.23 0.05 Angola 1.70 1.76 1.68 1.90 0.22 2.00 0.10 Ecuador 0.48 0.48 0.48 0.52 0.04 0.54 0.02 Iran 3.30 3.35 3.30 3.51 0.21 3.45 -0.07 Kuwait2 2.75 2.70 2.72 2.84 0.12 2.89 0.05 Libya 1.15 1.29 1.32 1.39 0.07 1.40 0.01 Nigeria3 2.04 2.10 2.05 2.55 0.50 2.59 0.04 Qatar 0.82 0.81 0.81 0.86 0.05 0.86 0.00 Saudi Arabia2 9.85 10.00 10.00 11.88 1.88 11.88 0.00 UAE 2.58 2.59 2.65 2.75 0.10 2.79 0.04 Venezuela4 2.47 2.46 2.44 2.53 0.09 2.53 0.00 OPEC-11 28.34 28.67 28.59 31.90 3.31 32.14 0.24 Iraq 2.65 2.62 2.84 3.01 0.17 3.13 0.12 Total OPEC 30.99 31.29 31.43 34.91 3.48 35.27 0.36 Excluding Iraq, Nigeria and Venezuela 2.54Source: International Energy Agency as at 12 April 20121 Capacity levels can be reached within 30 days and sustained for 90 days2 Includes half of Neutral Zone production3 Nigeria’s current capacity estimate excludes some 200kb/d of shut-in capacity4 Includes upgraded Orinoco extra-heavy oil assumed at 470kb/d in SeptemberPT/12/01215 9
  10. 10. Oil and the return of geopolitical risk … demand continues to strengthen, driven by Asia / PacificGlobal oil demand – 2010–2012 (million barrels per day) 2010 2011 2012 Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Africa 3.3 3.5 3.4 3.5 3.4 3.4 3.4 3.3 3.4 3.4 3.5 3.6 3.5 3.6 3.5 Americas 29.5 30.0 30.6 30.2 30.1 30.1 29.8 30.2 29.9 30.0 29.6 29.7 30.3 30.2 30.0 Asia / Pacific 27.2 27.0 26.7 28.3 27.3 28.6 27.3 27.4 28.9 28.0 29.4 28.1 28.0 29.4 28.7 Europe 15.0 14.9 15.6 15.5 15.3 14.9 14.8 15.4 14.8 15.0 14.4 14.3 15.1 14.7 14.6 FSU 4.4 4.3 4.5 4.6 4.4 4.4 4.6 4.8 4.8 4.7 4.6 4.7 4.9 4.9 4.8 Middle East 7.4 7.8 8.3 7.7 7.8 7.6 8.0 8.5 8.0 8.0 7.9 8.2 8.7 8.2 8.2 World 86.8 87.5 89.1 89.8 88.3 89.1 87.9 89.6 89.8 89.1 89.4 88.6 90.6 91.0 89.9 Annual change (%) 2.6 3.3 3.5 3.5 3.2 2.6 0.5 0.5 0.0 0.9 0.4 0.7 1.1 1.3 0.9 Annual change (mb/d) 2.2 2.8 3.0 3.1 2.8 2.3 0.4 0.5 0.0 0.8 0.3 0.6 1.0 1.2 0.8 Changes from last OMR (mb/d) 0.00 0.01 0.02 0.01 0.01 0.04 0.04 0.05 0.02 0.03 0.10 -0.14 0.10 -0.14 -0.02Source: International Energy Agency as at 12 April 2012PT/12/01215 10
  11. 11. Non-OECD: Demand by product Non-OECD product demand continues to be strong, driven by transportation fuels (Motor Gasoline and Diesel)Non-OECD: Demand by product (thousand barrels per day) Demand Annual Change (kb/d) Annual Change % Dec 2011 Jan 2012 Feb 2012 Jan 2012 Feb 2012 Jan 2012 Feb 2012 LPG & Ethane 5,111 4,990 5,071 83 66 1.7 1.3 Naphtha 2,589 2,725 2,729 -96 -129 -3.4 -4.5 Motor Gasoline 8,789 8,526 8,674 547 467 6.9 5.7 Jet Fuel & Kerosene 2,777 2,784 2,718 48 -37 1.8 -1.4 Gas/Diesel Oil 13,804 13,488 13,796 505 399 3.9 3.0 Residual Fuel Oil 5,657 5,409 5,730 -308 90 -5.4 1.6 Other Products 5,576 5,528 5,808 282 202 5.4 3.6 Total Products 44,302 43,450 44,527 1,061 1,057 2.5 2.4Source: International Energy Agency as at 12 April 2012PT/12/01215 11
  12. 12. Chinese Strategic Petroleum Reserve: more capacity coming on stream According to the IEA, up to 79mb of new SPR capacity would be ready to receive Crude Oil in 2012Chinese Strategic Petroleum Reserve Sites (million barrels) Operator Location Capacity Status Completion Sinopec Zhenhai, Zhejiang 32.7 Filled 3Q06 Sinochem Zhoushan, Zhejiang 31.4 Filled 4Q07 Sinopec Huangdao, Shandong 20.1 Filled 4Q07 CNPC Dalian, Liaoning 18.9 Filled 4Q08 Phase 1 103.2 2008 Completed and ready to CNPC Dushanzi, Xinjiang 18.9 3Q11 be filled Completed and ready to CNPC Lanzhou, Gansu 18.9 4Q11 be filled CNPC Jinzhou, Liaoning 18.9 Under construction 1Q12 Sinopec Tianjin 22.0 Unser construction 1Q12 Other 90.3 2013 Phase 2 169.0 2013 Phase 3 227.8 2016 Total SPR 500.0Source: IEAPT/12/01215 12
  13. 13. US Shale Oil: towards of remake of shale gas in oil? End Game 27 February 2012 US shale oil plays could add well over 2-m b/d of output over this decade Figure 11. US shale oil plays could add well over 2-m b/d of output over this decade Bakken Eagle Ford Granite Wash Permian Delaware Permian Midland Niobrara Uinta Barnett Utica Woodford/Anadarko Monterey Upside potential? Production growth in the unconventional US 4,000 Oil plays is projected to increase strongly 3,500 from 2013 onwards 3,000 Anadarko Shale Oil expansion is set to mimic the 2,500 Niobrara Permian Midland production growth in Natural Gas at the end 2,000 Permian Delaware Granite Wash of the last decade 1,500 Eagle Ford This production growth will put increasing 1,000 strain on oil logistics 500 Bakken 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis …and this is already happening while The surplus of crude production and imports over refinery needs is growing more refineries are running at full steam acute too. Although Cushing crude stocks were able to draw down in 2H11, this was only due to PADD II refiners running at blistering utilization rates as they madePT/12/01215 13 the most of favorable margins. These high rates, hitting 98% at times, have only just managed to keep stocks roughly flat, but will soon be unable to keep rising crude
  14. 14. US Shale Oil: rising Canadian and US production choking logistics Simplified schematic of the crude glut corridor with major production centres feeding Cushing and the broad direction of crude oil flows amongst the PADD regions The rapid growth in US unconventional Crude Oil production, couple with that of Western Canada, has created a crude corridor in the US Midwest While crude oil logistics are being upgraded (rail terminal, new pipelines, reversal of existing), such upgrades are not keeping pace with production growth Constraints surrounding US crude oil exports are likely to keep US physical market crude prices depressed Source: EIA, Citi Investment Research and AnalysisPT/12/01215 14
  15. 15. Refined products: driven by the East Coast physical markets The structure of the US oil market is key to understanding the dynamics of US oil products markets A disconnect between Oil and Oil Products US benchmarks (PADD 2 – Cushing for Oil vs PADD I – New York Harbour for Products) exists and helps explain recent dynamics The importance of this disconnect has become more acute last year with the dislocation of the Brent-WTI Arbitrage Source: IEAPT/12/01215 15
  16. 16. Refining capacity in the US North East (PADD I): dangerously shrinking… Operating Crude UnitOwner City State Percent of Region (%) Status capacity(bbl / calender day) Operating and Idled Refineries Conoco Phillips Linden NJ 238,000 17 Operating PBF Energy Co. LLC Delaware City DE 182,200 13 Operating PBF Energy Co. LLC Paulsboro NJ 160,000 12 Operating United Refining Co. Warren PA 65,000 5 Operating American Refining Bradford PA 10,000 1 Operating Ergon-West Virgina Newell / Congo WV 20,000 1 Operating Hess Corp. Port Reading NJ 01 0 Operating Sunoco Inc. Philadelphia PA 335,000 24 Operating, For Sale Sunoco Inc. Marcus Hook PA 178,000 13 Idled 12/2011, For Sale Conoco Phillips Trainer PA 185,000 13 Idled 9/2011, For Sale Total operating and idled 1,373,200 100 Recently shut refineries Western refining Yorktown VA 66,300 Shut 9/2010 Sunoco Inc. Eagle Pt / Westville NJ 145,000 Shut 2/2010Source: U.S. Energy Information Administration1 Hess Port Reading has a production capacity of 70,000 bbl / calendar day but no crude unit capacity.Notes: indicates operating refineries for sale and at risk of shutdown. indicates idled refineries for sale and at risk of shut down. indicates shut refineries. Total refinery capacityexcludes two refineries that primarily asphalt, as well as the Yorktown VA and Eagle Point refineries that were shut down in 2010. US North East refiners have traditionally used Brent and Brent related grade as feedstock The dislocation of the Brent WTI arbitrage has had devastating effects on PADD I margins and led to a string of closures Up to 50% of PADD I distillation capacity is set to close by July 2012PT/12/01215 16
  17. 17. The Jones Act and international tankers: logistical nightmareJones Act and International Tankers, Year-End 2010 Vessels larger than 10,000 Number of vessels Total capacity (million deadweight tons) deadweight tons Total World: All vessels 20,050 1,214 Total World: Tankers 5,794 478 Jones Act Tankers 56 4Source: MARAD, HTTP://WWW.marad.dot.gov/librarylanding_page/data_and_statistics/Data_and_statistics.htm. The Jones Act requires that all commercial shipping between U.S. ports, cabotage, must be performed by U.S. -flag ships constructed in the United States, wholly owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. Steep penalties result from noncompliance At the end of 2010, 56 tankers met the Jones Act requirements, accounting for less than 1% of both the total number and the total deadweight tonnage of tankers in the world. At any given time, 35 Jones Act tankers are engaged in trade in U.S. watersPT/12/01215 17
  18. 18. however, additional movements into the Northeast are unlikely to exceed 100,000 bbl/d – well less than the expected production shortfall if the Sunoco Philadelphia refinery is closed.PADD I Petroleum Product Assets: further (either is the foreign terminal and pipeline connections to move products from The larger logistical hurdle waterborne vessels lack of logisticalsupply sources or from the Gulf Coast) into the product from bottlenecks distribution system that currently supplies areas through Pennsylvania and into western New York (Figure 1). Ports serving Philadelphia-area refineries primarily handle crude oil and their docks and tanks are not equipped to offload waterborne products. Petroleum Product Assets in the Northeast Figure 1. Petroleum Product Assets in the Northeast Lack of ports and terminal capable of handling waterbone products in PADD I is the largest logistical hurdle Existing infrastructure handles crude oil deliveries and docks and tanks are not equipped to receive oil products The Colonial Pipeline delivers more than 500kbd into NY Harbour Additional capacity on the line could be up to 100kbd according to the DOE, far less than the lost output should Sunoco’s Philadelphia refinery be shut permanently Source: U.S. Energy Information Administration.PT/12/01215 U.S. Energy Information Administration | Potential Impacts of Reductions in Refinery Activity on Northeast Petroleum Product Markets 18
  19. 19. PADD I Gasoline balances: tighter, considerablyNortheast Gasoline Supply-Demand Balance and Projections: Annual average 2007-2013 2007 2008 2009 2010 20111 2012 outlook 2013 outlook Consumption 1,660 1,630 1,620 1,610 1,540 1,540 1,540 Supply 1,660 1,630 1,610 1,610 1,540 1,380 1,300 In-Region 750 710 640 560 580 420 350 Production (+) Ethanol Inputs (+) 100 120 140 150 150 150 150 Net Receipts from 120 120 200 270 270 250 250 other Regions (+) Imports (+) 720 700 630 -610 560 560 550 Exports (-) 20 20 - - - - - Stock Decrease (+) / - -10 - 10 - - - Increase (-) Surplus (+) / Gap (-) - - - - - -160 -2401 Data through November 2011Notes: Projected consumption is based on data from EIA’s Short-Term Energy Outlook. Projected production is based on assumed yields and the capacity of remaining refineries. SunocoPhiladelphia is assumed to close in July 2012. Projected imports are 3-year historical averages adjusted down by U.S. Virgin Islands contributions. Historical net receipts are estimated.Projected net receipts are 3-year historical averages. The Surplus / Gap indicates the under-or-over supply needed to meet consumption. The impact of refinery closures is even more severe in the PADD I Gasoline market The market is set to turn into a marked deficit this summer in the middle of the summer driving season making the supply response even more difficultPT/12/01215 19
  20. 20. Conclusion: energy remains our preferred sector Energy fundamentals are strong and underpinned by geopolitical risk Mixed macroeconomic environment negative for metals and to a lesser extent agricultural commodities Overweight Oil based energy: strong conviction overweight in Refined Products and Brent but underweight WTI and Natural Gas Underweight base metals sector: overweight Nickel, underweight Aluminium and Copper Underweight soft commodities: full underweight in Cotton and CoffeePT/12/01215 20
  21. 21. 02Commodities at Threadneedle – a strong fund management team
  22. 22. Commodities at Threadneedle An integral component of the Threadneedle Investment Platform Building commodities as the fourth asset class A team drawn from the Commodities MarketsLeveraging the resources of the Fixed Income Group … Making the most of the group’s trade-flow information Participating if formulation of the Macro and Fundamental views… and Threadneedle’s extensive strength in equities Sharing investment ideas and broadening our perspective on commodity markets Meeting with resources companies’ management teams provides unique insights into supply and demand and technological developments across commodity marketsPT/12/01215 22
  23. 23. An experienced team with genuine commodities expertise  Head of Commodities David Donora over 25 years’ experience  Co-Lead Manager of Threadneedle Enhanced Commodities Fund and Columbia 4 years at Threadneedle Commodity Strategy Fund  Fund Manager Nicolas Robin 11 years’ experience  Co-Lead Manager of Threadneedle Enhanced Commodities Fund and Columbia 2 years at Threadneedle Commodity Strategy Fund  Fund Manager Daniel Belchers  Responsible for Materials 10 years’ experience 4 years at Threadneedle  Analytics, bulk commodities, base and precious metals  Quantitative Specialist Ullaas Misra 7 years’ experience  Develop commodity analytics and models 6 months at Threadneedle Source: Threadneedle as at 31 March 2012PT/12/01215 23
  24. 24. Commodities at Threadneedle – the investment teamA wealth of expertise covering all aspects of commodity trading More than 40 years of combined investment and trading experience From physical and futures commodity trading to commodity related equities investment Strong expertise in macro, volatility, forward curve and relative value tradingProducts to capitalise on generating outperformance A strong track record in both absolute returns and long only  Threadneedle Enhanced Commodity Fund launched June 2010  Columbia Commodity Strategy launched July 2011PT/12/01215 24
  25. 25. 03Threadneedle Enhanced Commodities Strategy
  26. 26. Threadneedle Enhanced Commodities FundProduct highlights and features Current target outperformance of 3–6%1 (benchmark: DJ-UBS TR Commodity Index)  tracking error up to 6% Actively managed long-only fund investing in commodities  No leverage  No shorting  Fully invested  Daily liquidity  UCITS qualifying fund Exposure created through Commodity Index swaps margined daily, (futures and physical not permitted by regulator) Diversified exposure across the commodity futures spectrum Collateral invested in US T-Bills with maturities to 1 year Hedged Share Classes: Euro, Sterling, Swiss Franc and Singapore Dollar1 Gross of fees, per annumPT/12/01215 26
  27. 27. Threadneedle Enhanced Commodities FundActive management of CommoditiesFundamentally driven investment process which aims to generate outperformanceActive Weights Driven by investment process Active rebalancing of weightsProactive curve positioning Positioning of individual commodity weight along the term-structure Timing of moving allocations along the curve Seeking to capture curve volatility and uncorrelated alphaPT/12/01215 27
  28. 28. Bottom up – the engine room of idea generation  Investment flows  Supply/Demand  Speculative positioning Fundamentals Market Structure  Inventories and Technicals  Hedger Activity  Logistics  Algorithmic traders impact  Weather  Futures Exchange Rules Trade  Options activity and  Technological development Ideas Volatility Seasonality  Proprietary Database  Underlying markets  Sectors  IndicesSource: ThreadneedlePT/12/01215 28
  29. 29. Portfolio construction: emphasis on relative value Focus on relative value opportunities within the commodity universe  Intra sector  Across sectors Position size to reflect both conviction and underlying market liquidity Portfolio positions constructed with emphasis on:  Correlation  Volatility Maximise performance outcome within the tracking error budget constraint Deliver high risk adjusted relative returns with a portfolio volatility close benchmarkPT/12/01215 29
  30. 30. NY Harbour Gasoline v. Henry Hub Natural Gas  Natural Gas storage constraint 170  Robust supply +16,800 wells in ‘11  NG producers actively hedge 150 Rebased = 100  Little infrastructure to export affecting front of curve 130  NGL’s & wet gas increase margins 110 Strong seasonal  Gasoline tight with Middle East  US NG is a domestic market 90 supply disruption  RBOB inclined to backwardation 70  Logistics impaired / affects refining 50  US refiners reducing capacity Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Dow Jones – UBS Natural Gas Sub-Index Market S&P GSCI Unleaded Gasoline Official Close Index Structure and Fundamentals Technicals Lower 48 Inventory surplus (deficit) to other years Relative Value Seasonality  NG seasonality negative through summer  RBOB seasonal most positive ahead of US summer and winter changeover Source: EIA, Citi Investment Research and AnalysisPT/12/01215 30
  31. 31. Wheat – In an active strategy, it is possible to capture the volatility in theprotein spread and the difference in carry  Minneapolis, Kansas and Chicago MW in backwardation,  We allocated to MW wheat Feb 100 wheat all have different physical W in contango 2011 - fundamentals and structure delivery conditions 90  MW wheat has high protein content  Grown in different regions of NA  Chicago wheat most affected by Rebased = 100 80 VSR  La Nina effect severely impacted MW production in 2011  MW more inclined to 70  Logistics impaired shipment of backwardation/positive roll yield 2010 crop  Less speculative and index activity 60 50 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Market DJ-UBS Wheat Sub-Index S&P GSCI Kans as Wheat Index Structure and Fundamentals Citi Minneapolis F3 Cus tom Index Technicals Relative Value Seasonality  MW has stronger Spring and Summer seasonal performance Source: EIA, Citi Investment Research and AnalysisPT/12/01215 31
  32. 32. Threadneedle Enhanced Commodities FundPerformance to Date (in USD)2010 Jul Aug Sep Oct Nov Dec 2010Fund (gross) 7.3% -1.2% 6.4% 5.5% -0.1% 10.8% 31.5%Index2 6.8% -2.5% 7.3% 5.0% -0.4% 10.7% 29.2%Relative +0.5% +1.3% -0.9% +0.5% +0.3% +0.1% +1.8% Since2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 inception1Fund 1.9% 3.6% 2.4% 4.8% -5.5% -3.3% 3.8% 1.7% -14.0% 6.5% -1.4% -1.6% -2.8% 27.9%(gross)Index2 1.0% 1.3% 2.1% 3.5% -5.1% -5.0% 3.0% 1.0% -14.7% 6.6% -2.2% -3.7% -13.3% 12.0%Relative +0.9% +2.2% +0.3% +1.3% -0.4% +1.8% +0.8% +0.7% +0.9% -0.1% +0.9% +2.3% +12.2% +14.2% Since2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec inception1Fund 4.6% 3.4% -1.8% 35.9%(gross)Index2 2.5% 2.7% -4.1% 13.0%Relative +2.1% +0.7% +2.4% +20.2%Source: Threadneedle / FactSet as at 31 March 2012. Gross performance based on official global close prices adjusted by the TER. Performance figures for periods greater than 1 year arecumulative.1 Since inception at 30 June 2010 (cumulative)2 Index – Dow Jones-UBS Commodity IndexPast performance is not a guide to future performancePT/12/01215 32
  33. 33. Threadneedle Enhanced Commodities FundPerformance to Date (in USD) Historical Tracking Error3: 3.1% Correlation of alpha with index4: -0.06Performance vs. index 150 145 140 Rebased = 100 135 130 125 120 115 110 105 100 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 T-Lux Enhanced Commodities Fund DJ-UBS Commodity (TR) Index Since inception1 Since inception1 2012 YTD Historical Volatility (annualised) (cumulative)Fund (gross) 6.2% 19.1% 35.9% 18.5%Index2 0.9% 7.2% 13.0% 19.3%Relative +5.3% +11.1% +20.2%Source: Threadneedle / FactSet as at 31 March 2012. Gross performance based on official global close prices, Fund data is quoted on a bid to bid basis with gross income re-invested at bid.Fund returns calculated Gross of TER (and Tax) for comparison with index1 Since inception at 30 June 20102 Index – Dow Jones-UBS Commodity Index3 Threadneedle / FactSet as at 31 March 2012. Based on monthly observations since inception4 Backtesting using TECF’s daily realised relative performance vs DJUBSTRPast performance is not a guide to future performancePT/12/01215 33
  34. 34. Threadneedle Enhanced Commodities StrategyProduct update Strong inflows since inception – more than $600 million in AUM, highly diversified client base US clone fund (futures based) launched at the end of July 2011 by Columbia AM Long / short, market neutral product to launch in Q2PT/12/01215 34
  35. 35. Risk control and monitoring Multiple controls inside and outside the process ensure that risks are intended and appropriate Within the process  Adherence to risk budgeting discipline  Daily review of exposures  Weekly review of all trades vs. targets and market developments Robust external controls  Blend of proprietary and third-party analytics provide comprehensive view of portfolio risk (Threadneedle uses Advanced Portfolio Technologies, Inc. (APT) as a risk model provider)  Ongoing portfolio monitoring and challenge of fund managers by dedicated (and independent) investment risk team  Formal reviews by Head of Fixed Income and Head of Risk ManagementPT/12/01215 35
  36. 36. Managing risk for investment return IRIS, Threadneedle’s risk reporting system Investment risk: daily reports provide insight into portfolio exposures and risks  Positions, number of holdings, net and gross exposures  Tracking error, value-at-risk, breakdowns by commodity, sector and size  Scenario analysis/stress tests  Sensitivity analysis Operational risk: Safeguards and analysis  Dedicated unit within risk management team conducts on-going analysis of counterparty risk For illustrative purposes onlyPT/12/01215 36
  37. 37. Threadneedle Enhanced Commodities FundApplicable UCITS limits Investment Risk Guidelines1 Physical commodities and futures or options on a  The fund manager could be overweight or commodity are NOT permitted in UCITS funds. underweight +/-5% per commodity sector Derivatives on commodity indices are permitted  The fund manager could be overweight or 5/10/40% limit underweight +/-7% per specific commodity  Ensures diversity in the fund  The fund manager could be overweight 12 months  Not more than 40% of the fund can have holdings of future contract by 100% of the index weight in that between 5 and 10% commodity type  No holding can exceed 10% of the fund 20/35% correlated group limit  Ensures diversity in the fund  Applied to correlated commodities (80%)  Max 35% in one correlated commodity group 1 Investment risk guidelines are not limits. The guidelines are deliberately set at levels which will are likely to be exceeded on a reasonably regular basis. The guidelines are  Max 20% in the other correlated groups only used as management information for both. Risk and Fund Management regarding the level of risk being run in the funds. 10% Issuer limit 200% Gross ExposurePT/12/01215 37
  38. 38. APAppendix
  39. 39. Bridging the gap towards theoretical spot returns? Since inception, the strategy has tracked spot returns closer than a passive forward exposure Trading the curve actively allows to seek forward exposure to minimise contango while taking advantage of the curve volatility to generate outperformance 160 150 140 Rebased = 100 130 120 110 100 90 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 11 11 12 12 12 DJUBSSP Index DJUBSTR Index DJUBSF3T Index T-Lux Enchanced Commodities Fund Source: Threadneedle as at 30 March 2012PT/12/01215 39
  40. 40. Gold vs. gasoline – is gold really your inflation hedge? In spite of recent precious bull market, gold continues to underperform gasoline over the long-term 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 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 SPGCHUTR Index SPGCGCTR Index Source: Threadneedle as at 30 March 2012PT/12/01215 40
  41. 41. Commodity indices – roll return impacting performance Roll return has historically eroded 50% of the returns of the spot returns for S&P GSCI and 55% of the spot returns for DJ-UBSCIBackwardation, contango and roll yield Contango – negative roll return  The slope of the futures / forward curve indicates the state of available, deliverable inventory relative to market demand Price  Commodities with abundant supply are typically in contango – short-dated futures prices are lower than longer-dated ones. Precious metals are usually in contango because of the significant stocks available and Maturity therefore the low metal lease rates  Commodities with tight supply are typically backwardated – short-dated futures prices are higher than Backwardation – positive roll return longer-dated ones  Maintaining long positions in commodity futures necessitates replacing maturing futures contracts with longer dated futures. For a commodity market in contango Price the investor will suffer an erosion of return by replacing cheap futures with more expensive futures further along the curve. Conversely, for a market in backwardation the investor will benefit from improvement in the return MaturitySource: JP MorganPT/12/01215 41
  42. 42. Commodity indices – from ‘roll return’ to ‘roll drag’ Hypothetical cumulative roll return 30% 20% 10% Excess return = price return + roll return 0% -10% Price return – change in contracts’ prices -20% -30% The roll return is the incidental cost or -40% benefit of tracking the price index and is -50% inherent to commodity investing -60% -70% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 S&P GSCI S&P GSCI Light Energy DJ-UBSCIPT/12/01215 42
  43. 43. Biography NICOLAS ROBIN Fund Manager Nicolas Robin joined Threadneedle in 2010 and is the Co- Lead Manager of the Threadneedle (Lux) Enhanced Commodities Fund and Columbia Commodity Strategy Fund. Nicolas has more than 10 years experience at managing both long only and relative value strategies focusing on commodity markets and brings both hedge fund and commodity index trading experience to the team. He started his career at Barep Asset Management (SG Group) in 2002, helping to set up a Commodity Arbitrage hedge fund desk. He became Co-Manager in 2004 and Lead Manager in 2005, seeing assets rise to $200 million. The strategy was focused on relative value strategies in commodities and aimed to take advantage of short-term dislocations in commodity forward curves. In 2006 Nicolas joined JPMorgan Chase to run the bank’s commodity index trading book. During his tenure, index assets under management trebled making JPMorgan Chase a leading index dealer. In his time at JPMorgan Chase, Nicolas was responsible overhauling the bank’s commodity index trading platform and driving the bank’s effort into fully customisable commodity index solutions. He participated in the creation of the JPMorgan Commodity Curve Index (JPMCCI), the bank’s foray into second generation commodity indices launched in 2007. He also contributed to the development of the bank’s commodity customised indices and algorithmic strategies, looking at both momentum and curve based strategies. Alongside his commodity index trading responsibilities, Nicolas also ran a proprietary trading book across commodities, using both relative value and directional strategies with an emphasis on the energy complex. Nicolas holds a BSc in Government and Economics and a MSc in Political Theory from the London School of Economics. Threadneedle start date: 2010 Industry start date: 2001PT/12/01215 43
  44. 44. Biography CHRISTIAN TRIXL Head of Swiss Distribution Christian Trixl joined Threadneedle in 2005 as Head of Swiss Distribution. Prior to joining Threadneedle he spent eight years at Schroders, where he held a variety of senior institutional roles and was a Member of the Executive Board of Schroder Investment Management, Switzerland. WERNER KOLITSCH Head of German and Austrian Distribution Werner Kolitsch is Head of German and Austrian Distribution at Threadneedle Investments. Prior to his appointment to this role in 2009, he was the Regional Sales Director for the Austrian and Central European markets, and was responsible for establishing and retaining relationships with key semi-institutional and institutional investors. He holds a Masters in Business Studies from the University of Graz.PT/12/01215 44
  45. 45. Important informationFor Investment Professionals use only, not to be relied upon by private investors.Past performance is not a guide to future returns. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations.This means that an investor may not get back the amount invested.Where investments are made in assets that are denominated in foreign currency, changes in exchange rates may affect the value of the investments.The fund invests in markets where economic and political risk can be significant and where governance and regulation may not be well developed. These factors can affect liquidity, settlementand asset values. The fund invests in assets that are not always readily saleable without suffering a discount to fair value. The portfolio may have to lower the selling price, sell other investmentsor forego another, more appealing investment opportunity. The fund may exhibit significant price volatility. The fund invests in commodity derivatives rather than physical commodities.Therefore, changes in the prices of the underlying commodities will not be mirrored exactly in the fund price.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. TheSICAV issues, redeems and exchanges shares of different classes, which are listed on the Luxembourg Stock Exchange. The management company of the SICAV is ThreadneedleManagement Luxembourg S.A, who is advised 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 toapplicable jurisdictions 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 thisdocument 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.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 the1933 Act.Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports, which can beobtained 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 andspecifically this Fund. The above documents are available in English, French, German, Portuguese, Italian, Spanish and Dutch (no Dutch Prospectus) and free of charge on request by writing tothe SICAV’s registered office at 69, route D’Esch. L-1470 Luxembourg, Grand Duchy of Luxembourg.The research and analysis included in this document has been produced by Threadneedle Investments for its own investment management activities, may have been acted upon prior topublication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice. Information obtained from externalsources is believed to be reliable but its accuracy or completeness cannot be guaranteed.This presentation and its contents are confidential and proprietary. The information provided in this presentation is for the sole use of those attending the presentation. It may not be reproducedin any form or passed on to any third party without the express written permission of Threadneedle Investments. This presentation is the property of Threadneedle Investments and must bereturned upon request.Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, rue Mühlenweg, L-2155 Luxembourg, GrandDuchy of Luxembourg.In the UK issued by Threadneedle Asset Management 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.PT/12/01215 45

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