Threadneedle investments


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  • Source:DocNet / Performance / Retail Summary Reports / UK IMA / Fund Reports / Current Month / GBP / OS_Perf_UK_IMA_1_UK_Equity_1201.xls
  • From: James Ferguson <>or []
  • Source:DocNet / Performance / Retail Summary Reports / UK IMA / Fund Reports / Current Month / GBP / OS_Perf_UK_IMA_1_UK_Equity_1201.xlsTabs: T2UKEI and T6UKEAData: YTD and 1 & 3 Year Cumulative and Since Fund Manager Inception Cumulative F / J / HOr better from Performance Dept as DocNet doesn’t have since inception figure
  • Threadneedle investments

    1. 1. Threadneedle UK Equity IncomeNew Model Adviser Retreat, Brighton 2012Richard Colwell – Fund Manager 13th – 14th September 2012
    2. 2. Agenda / Contents1. Threadneedle UK Equities2. UK equity market3. Threadneedle UK equity incomeAP. Appendix 1
    3. 3. 1Threadneedle UK Equities
    4. 4. Threadneedle UK Equities team Leigh Harrison Simon Brazier Head of Equities Head of UK Equities 29 years‟ experience 14 years‟ experience Richard Colwell Jonathan Barber Dan Vaughan Stephen Thornber1 Healthcare, Media Utilities, Property, Chemicals Small Caps Global Oil 21 years‟ experience 21 years‟ experience 18 years‟ experience 25 years‟ experience James Thorne Chris Kinder Aamod Mishra Daniel Belchers2 Small Caps Banks, Oil Services, Aerospace Tobacco Mining 13 years‟ experience 11 years‟ experience 1 year‟s experience 9 years‟ experience Mark Westwood Simon Haines Blake Hutchins Stacey Cassidy Travel & Leisure, Telecoms and Construction, Other Financials, Insurance, Consumer Staples, Mid Cap Oil, General Retailers, Food Retailers Housebuilders, Industrials Media Technology 13 years‟ experience 13 years‟ experience 4 years‟ experience 3 years‟ experience Neil Finlay Iain Richards Cathrine de Coninck-Smith Fionnuala O‟Grady Investment Specialist Head of Governance & SRI Governance & SRI Analyst Governance & SRI Analyst 10 years‟ experience 18 years‟ experience 3 years‟ experience Benjamin Malone Christopher Fox Jenny Fedele Dedicated UK Trader Dedicated UK Trader Team Assistant 20 years‟ experience 15 years‟ experience Experienced and resourcedSource: Threadneedle as of 30 June 2012.1 Stephen is attached to the Global Equity Team.2 Daniel is attached to the Commodities Team.Support services and Industrials are split between fund managers. 3
    5. 5. UK Equities team – performance Quartile performance1 Asset class and IMA sector Fund name 1 year 3 years 5 years Since FM start Threadneedle UK Fund 1 1 1 1 30.04.10 Threadneedle UK Extended Alpha 1 – – 1 30.11.10 UK All Companies Threadneedle UK Select Fund 1 2 2 1 31.10.06 Threadneedle UK Mid 250 Fund 1 1 1 1 31.01.05 Threadneedle UK Growth & Income 1 1 1 1 31.12.09 UK Smaller Companies Threadneedle UK Smaller Companies Fund 2 2 2 2 30.04.10 Threadneedle UK Equity Alpha Income Fund 1 1 1 1 31.05.06 UK Equity Income Threadneedle UK Equity Income Fund 1 1 1 1 28.02.06 Threadneedle UK Monthly Income Fund 2 1 2 2 30.06.02 UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 1 1 1 1 31.12.09 Absolute Returns Threadneedle UK Absolute Alpha Fund 1 – – 1 31.10.10 Strong performance across a full range of productsSource: Morningstar as at 31 July 2012. Fund data is bid to bid and net of basic rate tax. All fund returns are based in £.1 Quartile ranks of all funds are shown within their respective peer group sector from within the UK Unit Trust / OEICs Universe. 4
    6. 6. Threadneedle UK Equity Income Best selling UK equity income fund in 2012 (YTD) (Cofunds, June 2012) Top 3 fund on Principal Investment Management‟s White List (July 2012)  “One of the best teams in the sector” ISA 2012: Top-rated Income fund (Bestinvest, April 2012)  “One of our favourites among the many UK equity income funds” Positive press coverage – Bestinvest and Investment Quorum Citywire Star Pick (July 2012)  “Leigh Harrison & Richard Colwell have been consistently among the best in their peer group for many years” Leigh Harrison named in Citywire‟s “10 best fund managers over the last decade” (July 2012) Richard Colwell Citywire rated for 27 consecutive months  Richard has 21 years‟ experience, having previously worked at the Bank of England and some of the UK‟s leading fund management organisationsPT/12/01119 5
    7. 7. 2UK equity market
    8. 8. QE money printingQE designed to avoid deflation whilst banks and consumers de-leverMonopoly: “If the Bank runs out of money, the Banker may digitally create the necessary money”Parker BrothersSource: “Wait and Hope” Value Investment Congress, 3 May 2011, Steven Romick, Managing Partner, First Pacific Advisors, LLC.PT/12/01371 7
    9. 9. Where are the banks in their healing process?US banks starting to function normally after 3 years of shrinking balance sheets… Europe US UKBut European banks only just started deleveraging!Source: Westhouse Securities, August 2012. 8
    10. 10. 12 years into equity bear market…US secular bear & bull markets Trend in commodity indices Falling Rising Falling Rising Falling Rising 2560 1280 640 Commodity Commodity Commodity Commodity super cycle super cycle super cycle super cycle S&P 500 index 320 160 Secular Secular Secular equity bull equity bull equity bull 80 40 20 10 5 3 1905 1920 1935 1950 1965 1980 1995 2010Source: Reuters EcoWin and Longview Economics, August 2012PT/12/01371 9
    11. 11. How much further to go!? UK long term secular bull and bear cycles (1870 to present) 25 Real terms FTSE actuaries all share price index UK equities have fallen considerably (in real terms) from their 2000 20 1999/2000 highs. „07 The LONG cycles have also (reasonably) 15 1900 closely followed the US peak Long Cycles (e.g. with „96 a most recent secular „69 peak bull market peak in 1999/2000); a prior 10 secular bull from 1982 – albeit the ultimate low Sustained was in 1975); a secular uptrend bear in the 1970s and a 5 prior secular bull run begins in „82 from 1952-1969. „75 0 1870 1882 1894 1907 1919 1931 1944 1956 1968 1981 1993 2005Source: Reuters EcoWin and Longview Economics, August 2012PT/12/01371 10
    12. 12. What has happened to the cult of the equity?UK dividend yield to bond yield ratio 1919 to 2012 2.2 1.8 Pre-1959 Average 1.4 1.0 Yield Gap Reverses 0.6 Post-1959 Average 0.2 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009Source: Citi, 7 June 2012PT/12/01208 11
    13. 13. Gilts: return free risk?!Starting year gilt yield and 10-year average annualreal returns UK 10-year gilt yield (%)10 24 8 20 6 16 4 12 2 8 0-2 4-4 0 < 3% ≥ 3% ≥ 4% ≥ 5% ≥ 6% ≥ 7% ≥ 8% ≥ 9% ≥ 10% 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015 < 4% < 5% < 6% < 7% < 8% < 9% < 10%Source: Global Financial Data, Oriel Securities and Barclays Capital.PT/12/01371 12
    14. 14. UK equities: Valuations at more attractive starting pointStarting year PER and 10-year average annual UK price/earnings ratio (×)real returns 3512 3010 Average P/E post 25 1985 is 16.2x FTSE All Share P/E 8 20 Average P/E pre 6 1985 is 10.3x 15 4 10 2 5 0 0 < 8x ≥ 8x ≥ 10x ≥ 12x ≥ 14x ≥ 16x 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97 02 07 12 < 10x < 12x < 14x < 16x But valuations were 60% lower before debt supercycleSource: Global Financial Data, Oriel Securities and Barclays Capital.PT/12/01371 13
    15. 15. Corporates are in better shape than many sovereignsThe average cost of debt has fallen from nearly 8% in late 2008 to around 4% nowSterling Corporate Non-Financial Index 8.0 7.5 7.0 6.5 Yield % 6.0 5.5 5.0 4.5 4.0 May-02 May-04 May-06 May-08 May-10 May-12For example: In September 2008 Imperial Tobacco borrowed with a coupon of 8.12%, these bonds now yield 4.4% GlaxoSmithKline recently raised $5bn via 3 tranches (these are yields not spreads). 3yr 0.75%, 5yr 1.5%, 10yr 2.83%Source: Bloomberg as at 31 May 2012PT/12/01371 14
    16. 16. Dividends matter! Dividend growth will be the main driver of returns in the end; shut out the noise!Return Composition – MSCI UK 25 20 15 10 5 0 -5 -10 1970s 1980s 1990s 2000s 2010s All Periods Dividend Re-Rating Dividend Growth Total Return In a lower growth world, dividends and their reinvestment could account for an even greater percentage of real returns than the historic 80% High dividend cover underpins quality of yieldsSource: Citigroup.PT/12/01396 15
    17. 17. 3Threadneedle UK equity income
    18. 18. Threadneedle UK Equity Income team Leigh Harrison  29 years‟ experience Richard Colwell  21 years‟ experience Jonathan Barber  21 years‟ experience Threadneedle UK Equity Income Threadneedle UK Equity Alpha Income Experienced, resourced and ratedSource: Threadneedle as at 31 July 2012. 17
    19. 19. Performance overviewThreadneedle UK equity income fundsUK Equity Income Fund UK Equity Alpha Income Fund UK Growth & Income Fund 20 Threadneedle UK Equity Income Fund 20 Threadneedle UK Equity Alpha Income Fund 20 Threadneedle UK Growth & Income Fund Peer group median Peer group median Peer group median FTSE All Share Index FTSE All Share Index FTSE All Share Index 15 14.6 13.7 15 15 13.4 11.5 11.3 11.5 11.0 11.3 10.5 11.3 10 10 10 % % % 6.4 6.6 7.4 5.4 5.9 5 3.9 5 5 2.8 2.8 3.5 0.9 1.3 0.9 1.3 0.4 0.4 0.4 0 0 0 -0.2 -5 -5 -5 1 year 3 years 5 years 1 year 3 years 5 years 1 year 2 years 3 yearsSharpe 0.97 0.92 0.98Ratio1Source: Morningstar as at 31 July 2012. Peer group is IMA UK Equity Income for the UK Equity Income and UK Equity Alpha Income funds, and IMA UK AllCompanies for the UK Growth & Income fund. Fund data in £ and quoted on a bid to bid basis with net income reinvested at bid. Fund data net of fees.1 Sharpe ratio based on net of fees performance over three years.PT/12/01396 18
    20. 20. PerformanceAttractive risk return characteristicsRelative return vs. tracking error – 30 June 2007 to 30 June 2012 8% 6% Annualised Relative Returns (%) 4% 2% 0% -2% -4% -6% -8% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Tracking Error Annualised (%) UK IMA - UK Equity Income Threadneedle UK Monthly Income Threadneedle UK Equity Alpha Income Threadneedle UK Equity Income High information ratiosSource: Morningstar. Fund data quoted on a bid to bid basis with net income reinvested at bid, UK Basic Tax. Fund data is net of fees. Excludes one outlying datapoint with tracking error of 19.1% and return of -7.0%.PT/12/01396 19
    21. 21. UK Income investment approach  Yield greater than 110% of FTSE All Share yield Objective  Steadily growing distribution  Capital growth  Plain vanilla  Manage for total return Philosophy  Construct yield at portfolio level  Diversification to manage risk  Focus on effective combination of top down and bottom up  Search for durable investment themes Characteristics  Fundamentally based stock views  Invest with conviction, not index constrainedPT/12/01396 20
    22. 22. UK Income stock selection We like: We avoid:  Hidden gems – unloved stocks or  Stock envy! businesses that have been overlooked  Short term earnings momentum plays  Medium to long term potential – use short term volatility to build positions in long  Speculative or bubble stocks term opportunities  „Comfort‟ stocks  Value, not just optically cheap stocks  Over reliance on macro bets Focus on picking stocks:  Not dependent on a buoyant market for returns  Always look for businesses where ability to grow dividend on a sustainable base is not reflected in valuationPT/12/01396 21
    23. 23. Undervalued high yielding large capsStock performance versus index5-year relative performance 120 180 180 110 170 170 160 160 100 Rebased to 100 150 150 Rebased to 100Rebased to 100 90 140 140 80 130 130 70 120 120 110 110 60 100 100 50 90 90 40 80 80 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul Jul Jul Jul Jul Jul BT relative to FTSE All Share Index 07 08 09 10 11 12 AstraZeneca relative to FTSE All Share Index Unilever relative to FTSE All Share IndexSource: Datastream as at 31 July 2012, in local currency. 22
    24. 24. Hidden gems, attractively valued with self-help opportunitiesStock performance versus index3-year relative performance Initial Initial 110 Initial 170% 105 purchase purchase purchase here here here 160% 100 100 150% 90 95 Rebased to 100 Rebased to 100 140% Rebased to 100 90 80 130% 85 70 120% 80 60 110% 100% 75 50 90% 70 40 Jul 09 Jul 10 Jul 11 Jul 12 Jul 09 Jul 10 Jul 11 Jul 12 Jul 09 Jul 10 Jul 11 Jul 12 ITV relative to FTSE All Share Index Marks & Spencer relative to FTSE 3i relative to FTSE All Share Index All Share IndexSource: Datastream as at 31 July 2012, in local currency. 23
    25. 25. UK Equity Income – differentiated! Biggest exposure to free cash flow compounders  14% in Consumer Staples (e.g. Unilever, Imperial Tobacco); 11% in Pharmaceuticals (e.g. GlaxoSmithKline, AstraZeneca); 13% in Consumer Discretionary (e.g. Compass, Reed, Pearson) Balanced market cap exposure  Approx. 75% FTSE 100, 25% FTSE 250 Zero weight in 12 of the top 20 biggest stocks in the market  (e.g. no BP, HSBC, Tesco, Vodafone) Zero weight in Banks for 2 years Zero weight in Mining c.20% in Industrials  Includes exposure to structural growth (e.g. Rolls-Royce); Defence (e.g. BAe Systems, Cobham). Other holdings include IMI, GKN, Wolseley, W.S. Atkins and D.S. Smith c.8% of the fund in Consumer Cyclicals (e.g. M&S, ITV)PT/12/01119 24
    26. 26. Lessons from football transfer market!Source: Soccernomics, Simon Kuper and Stefan Szymanski, 2009PT/11/00788 25
    27. 27. Lessons from football transfer market!Buy players with personal problems at a discount Unilever Eric Cantona Reed Elsevier Wolseley Paulo Di CanioPT/12/01396 26
    28. 28. Lessons from football transfer market!Abandon „sight-based prejudices‟ BT Chris Waddle L&G Marks & Spencer Peter Crouch He‟ll never go anywhere because he doesn‟t look like a league ball player” Michael Lewis, „Moneyball‟PT/12/01396 27
    29. 29. 100 Year Anniversary of birth of Behavioural Finance1! Resist impulse Everyone‟s been making great to buy returns, I‟d It‟s ok I‟m in it better get for the long involved term Euphoria Excitement Anxiety Denial Optimism   I‟d better get out of this Desperation now Scepticism   Panic Scepticism Fear Resist impulse Capitulation to sell Relief Despondency Hope Depression1 G.C. Selden „Psychology of the Stock Market‟ 1912PT/12/01396 28
    30. 30. Think active; act lazy!…like a goalkeeper facing a penalty.. often better off standing still!Paul Cooper was renowned for his ability to save penalties. In 1979-80 he saved 8 out of 10. Keepers were not allowed tomove their feet in those days, so he used to stand there swinging his arms and leaning to one side to put people off.“Many investors seem to suffer from „action bias‟ – a desire to do something. However, when there is nothing to do, the bestplan is usually to do nothing. Stand at the plate and wait for the fat pitch.”James Montier, GMOPT/11/00788 29
    31. 31. Conclusion Alive to macro risks, that never went away! Equities good value Income is cheap! We play to our strengths!PT/12/01396 30
    32. 32. APAppendix
    33. 33. Significant purchases Stock Rationale ■ Dividend yield: 6.6% ■ Large cap global pharmaceutical which experienced a massive de-rating in 2010. Like because of visibility of risks, valuation and scope to transform business ■ Sentiment poor because of high exposure to patent expiries and scepticism of late stage pipeline ■ Market undervaluing resilience of cash flow generation, new products (e.g. Brilinta) and EM potential, however ■ Also, scope to do bolt on acquisitions of late stage or on market products. Eg collaboration deal with BMS to buy Amylin. ■ Stock trading on biggest discount ever to its peer group ■ Current share rating credits minimal terminal value on a cash flow model, and ignores an M&A solution ■ Dividend yield: 4.0% ■ Global FMCG company with significant and expanding presence in emerging markets (55% of group) ■ Strong balance sheet, with net debt / EBITDA circa 1x. ■ The supertanker has turned! Operationally outperforming rivals. World class HPC business undervalued ■ Ability to pass through food price inflation to consumers. Getting the balance right ■ Growth in emerging markets business to drive revenues. Grown 10% p.a. over 10 years ■ Signs that P&G will start to act more rationally helpful ■ Dividend yield: 6.2% ■ UK business (60% of group) has very attractive growth opportunities. Whether the government decides to replace the UK‟s ageing generation capacity with renewables, nuclear, gas or a mixture, there will need to be significant investment in transmission ■ Political and regulatory risk should be lower than for other European utilities – given the need for investment and because transmission is a small part of customers final bill ■ The scale of the UK investment pipeline (£30bn over 8 years) has to be weighed against the group‟s high debt position (c. £20bn) and the impact on the dividend paying capacity. Bears fret about the risk of a dividend cut but we think this is largely in the price now ■ Post the poorly received £3bn rights issue, the company have a new FD and new Chairman – which probably means the „status quo‟ is not going to prevail. We think the management have options, before any potential dividend adjustment to mitigate any financial risk, including potential asset sales ■ The underperforming US division has been a source of disappointment for some time, but the risk profile from here has improved. US returns have started to riseSource: Company information, 30 June 2012.PT/12/01371 32
    34. 34. Significant purchases Stock Rationale ■ Dividend yield: 5.4% ■ Self-help story, with opportunities to improve competitive position and win back market share. The company is not reliant upon attracting younger shoppers ■ New management executing on new initiatives – market concerns over returns on investment spend overdone ■ M&S demographic will be more resilient, as it was in early 90s recession ■ Food like for like sales gradually improving, with scope for greater penetration of existing customer base ■ Operationally geared – a small conversion of shoppers from occasional to regular will lead to a significant increase in profits ■ Sustainable dividend, despite consumer outlook and investment plans ■ Will have double digit free cash flow yield in few years post revamps ■ Dividend yield: 4.3% ■ Current trading tough. Not helped by the Tesco headwind. But we think correct not to go unprofitably „tit-for-tat‟ with Tesco‟s aggressive coupons ■ Morrisons is focused on „profitable‟ growth. Market share is not an issue, in our view ■ New space plans will not cannibalise existing stores , unlike a lot of the sectors expansion, and they are demonstrating greater returns discipline. 12% share nationally but less than 7% in south = opportunity ■ Beyond near term trading, Morrisons remains a very profitable, increasingly well run grocer with c. 90% property ownership, with EPS progression underpinned by the buyback (4% EBIT growth goes to 11% EPS growth) ■ Longer term question will be whether Fresh Formats being trialled justify a full roll out ■ Shares are too lowly rated (c. 10x PE) and we think its wrong that share price has just tracked quarterly like for likes in the last year ■ Dividend yield: 4.7% ■ Company has set out a strategy to be the leading supplier of recycled packaging for consumer goods in Europe ■ Very clear financial targets of growth returns and cash conversion ■ After recent disposals, now net short of paper, which has historically been a highly cyclical and volatile revenue stream ■ Consolidation taking place in European corrugated packaging industry, with 3 players now controlling 40% of the market ■ Reverse takeover, rights issue funded, acquisition of SCA has the potential to materially add value ■ Size of deal and European exposure mean there are risks but execution on previous acquisitions and disposals been very good ■ Paid attractive price (buying tangible assets of €2bn for €1.6bn), and on stress tests of 08/09 rerun can still cover cost on capitalSource: Company information, 30 June 2012.PT/12/01371 33
    35. 35. Significant purchases Stock Rationale ■ Dividend yield: 6.0% ■ Following the market turmoil of 2009, the company is delivering on its plan to maintain strong cash flow and be more selective in new business underwriting ■ The capital position of the company continues to strengthen; and this is further supported by recent positive news flow on Solvency II ■ L&G has virtually no exposure to sovereign debt in the most worrisome countries ■ L&G Investment Management is an under appreciated part of the valuation ■ 35% increase in 2011 dividend announced, taking it back above the level at which it was cut in 2008 ■ Dividend yield: 3.4% ■ A very cash generative business . Stagecoach have returned over £1bn to shareholders since Souter came back in business versus current market cap of £1.3bn. Further special dividends are likely in a few years time ■ Averaged annual TSR of 18% over the last decade, demonstrates the discipline with which the company is run ■ Our interests completely aligned with the owner given Souter‟s c20% stake e.g. last year opportunistically bought back a London bus business for £52m, having sold it for £26m 2 years earlier ■ Operationally Stagecoach has outperformed its peers for years. Read through from the First Group warning on UK business are misplaced. Management have reiterated they expect at least flat UK business profits in 2013, despite economic headwinds ■ There is also uncertainty over the Rail franchises to be allocated over the next three years. These will be longer than the old style 5 year contracts and should allow better returns. Rail only 10% of Stagecoach profits and no franchise wins are factored into valuation. However, very likely to win some given operational record. Will have news on West Coast and Great Western franchises in H2 2012 ■ Megabus in US is also a self-funded exciting growth opportunity ■ Dividend yield: 4.3% ■ Highly regarded new CEO implemented far reaching review. Taking out 25% of costs by 2014 (37% of headcount) is brutal but shows how bloated it had got. Also, rapidly reducing expensive gross debt ■ With shares on mid 30s discount to NAV post write downs, there is significant scope for a re-rating. Requires evidence of realisations above book cost to come through ■ Applying industry best practice not rocket science but should make real difference to credit control and ensure don‟t get a repeat of “boom/bust” from reckless investing in 06/07 and 99/00 peaksSource: Company information, 30 June 2012.PT/12/01371 34
    36. 36. BiographyRICHARD COLWELLFund Manager Richard Colwell joined Threadneedle in 2010 as a fund manager in the UK Equity Income team. He manages the Threadneedle UK Growth & Income, UK Overseas Earnings and Monthly Extra Income funds and is the co-manager of the Threadneedle UK Equity Income and UK Equity Alpha Income funds. Prior to joining Threadneedle, Richard ran high alpha UK equity portfolios at Aviva Investors. He has also held fund management roles at Credit Suisse and Schroders and worked at the Bank of England. Richard has a degree in Banking, Insurance & Finance from the University of Bangor. He is also a member of UKSIP and the Chartered Institute of Bankers. Threadneedle start date: 2010 Industry start date: 1990 35
    37. 37. Important informationFor Investment Professionals use only, not to be relied upon by private investors.Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document or Simplified Prospectus, as well as the latestannual or interim reports, which can be obtained free of charge on request and the applicable Terms & Conditions. Please refer to the „Risk Factors‟ section of the Prospectusfor all risks applicable to investing in any fund and specifically this Fund.Past performance is not a guide to future performance. The value of investments can fluctuate. The dealing price may include a dilution adjustment where the fundexperiences large inflows and outflows of investment. Further details are available in the Prospectus.Index returns assume reinvestment of dividends and capital gains and unlike fund returns do not reflect fees or expenses. The index is unmanaged and cannot be invested indirectly.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 topublication and is made available here incidentally. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot beguaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice.The Threadneedle UK Equity Alpha Income Fund may deduct the annual management charge from capital rather than from income. This may erode capital or reduce thepotential for capital growth over time. The Fund has a concentrated portfolio (holds a limited number of investments) and if one or more of those investments declines or isotherwise adversely affected, it may have a pronounced effect on the Fund‟s value. As such, it is aimed at the more experienced investor.The Threadneedle Monthly Extra Income Fund, Threadneedle UK Equity Income Fund, Threadneedle UK Monthly Income Fund, Threadneedle UK Growth & Income Fundand Threadneedle Managed Income Fund may deduct the annual management charge from capital rather than from income. This may erode capital or reduce the potential forcapital growth over time.The Threadneedle UK Select Fund has a concentrated portfolio (holds a limited number of investments) and if one or more of those investments declines or is otherwiseadversely affected, it may have a pronounced effect on the Fund‟s value. As such, it is aimed at the more experienced investor.The Threadneedle UK Smaller Companies Fund and Threadneedle UK Mid 250 Fund invest in smaller companies. Smaller companies can be more volatile and less liquidthan their larger counterparts.The mention of any specific shares or bonds should not be taken as a recommendation to deal.The information provided in this presentation is for the sole use of those intermediaries attending the presentation. It may not be reproduced in any form without the expresspermission of Threadneedle and to the extent that it is passed on, care must be taken to ensure that this is in a form that accurately reflects the information presented here.Threadneedle Investment Services Limited,60 St Mary Axe,London EC3A 8JQ,Registered no. 3701768. For Investment Professional Use Only (Not for onward distribution to,Authorised and regulated in the UK by the Financial Services Authority. Threadneedle is a brand name, and both the or to be relied upon by,Threadneedle name and logo are trademarks or registered trademarks of the Threadneedle group of companies. private investors)PT/12/01074 36