2020
Assessment of Value Report
VALUE SUMMARY
QUALITY OF SERVICE
PERFORMANCE
COST & FEES
REMEDIES
FUND VALUE SCORES
Value Assessment Report
Welcome to the 2020 Value Assessment Report
We thank you for your continued investment with Columbia Threadneedle. Your Success. Our Priority
57
Funds
440
Share Classes
£34bn
Assets Under Management
Meet Our Board
The Board of Threadneedle Investment Services Limited (TISL) is tasked with carrying out the Value Assessment. So who are the board members?
140+
years
43+
+
Laura Weatherup
Co-Head of Global Operations Head of EMEA Operations Columbia Threadneedle Investments
24 years’ industry experience Joined the company in 2004 Member of the Board since July 2016
Julie Griffiths
Chief Risk Officer, EMEA and APAC Columbia Threadneedle Investments
Over 30 years’ industry experience Joined the company in 2010 Member of the Board since September 2019
Richard Vincent
Head of Product, EMEA Columbia Threadneedle Investments
26 years’ industry experience Joined the company in 2013 Member of the Board since August 2019
Ann Roughead
Non-Executive Director
Over 30 years’ industry experience Appointed to the Board in July 2014
Kath Cates
Over 30 years’ industry experience Appointed to the Board in March 2016
What is a 'Value Assessment'?
Watch the video to see how we have created our Value Assessment.
Value Summary – across the range
This Value Assessment carried out by the Board is based on seven criteria, as prescribed by the FCA.
© 2021 THREADNEEDLE ASSET MANAGEMENT HOLDINGS LIMITED Threadneedle Investment Services Limited. Threadneedle Asset Management Limited. Authorised and Regulated in the UK by the Financial Conduct Authority (FCA). Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
Quality of Service
Performance
Authorised Fund Manager Costs
Comparable Market Rates
Comparable Internal Services
Class of Units
Economies of Scale
We have used the following “star” rating across all seven criteria. A value score of Outstanding is deliberately set as a stretch target and these scores will therefore be rare.
One star represents “Poor” value
Three stars represent “Good” value
Two stars represent “Moderate” value
Four stars represent “Outstanding” value
How do the Share Classes break down?
We have reviewed the seven criteria and overall we find that the funds and share classes on offer represent good value for customers. The diagram below summarises our evaluation for each of the seven criteria. In the report, each criterion is explored in more detail. Each criterion has its own score and verdict – you can see a summary here by clicking on the diagram below.
Quality of service
‘Good’ Value
Our review again noted that customers do benefit from the scale of the firm. For example, in greater negotiation power with suppliers. However, despite successful implementation of a number of remedies identified in last year’s Value Assessment, the Registrar Fee still scales in favour of the Authorised Fund Manager when funds and share classes become larger. Some further remedies are proposed this year. See the remedies tab for further information. TISL is committed to a full review of its fees and charges model with a view to announcing improvements in this area that will deliver better value to investors, based on economies of scale. In the meantime, we regard this to be an area of moderate value for investors.
We have reviewed the costs of each share class in each fund and are comfortable that the classes are marketed to ensure that investors can access the right class at the right price point. There is no suggestion that more expensive share classes within the same fund are subsidising lower-cost share classes. We are pleased to note the remedies applied in 2020 to convert direct investors to cheaper share classes, and the ongoing initiative to move customers of execution-only broker adviser firms, who invest directly with Columbia Threadneedle, to a cheaper price point before the end of July 2021.
We have once again reviewed the costs of the funds and share classes relative to other pooled and institutional funds managed by Columbia Threadneedle. We remain comfortable that the differences in the Ongoing Charges Figure do not reflect detrimental pricing between investors in different funds and pricing represent good value overall.
We have reviewed the costs and charges of our funds and share classes relative to competitor funds in their peer groups. Overall, the fees across the range remain good value. However, we have identified relatively poor value on seven of the 440 Share Classes. Remedies in the form of reductions to annual management charges and/or registrar fees are being implemented. See the Remedies tab for further information.
We have reviewed the individual costs of services provided to and associated with the AFM; Investment Management, Distribution, internal Servicing, and direct Fund Expenses (including outsourced services). The costs have also been considered in context of the revenue and overall profitability of the Authorised Corporate Director. We consider them to be reasonable and a representation of good value.
We have reviewed the investment performance and risk of all funds and share classes and are pleased to report that the improving trend we identified in 2019 continued into 2020. This trend is reflected in improved three-year risk-adjusted performance records of many funds and share classes against their stated objectives. We have identified some areas of poor value on a small proportion of share classes in 2020 and are escalating this to Threadneedle Asset Management Ltd (TAML). We have impressed on TAML that improvements in performance are expected for these share classes. We were able to conclude, overall, that Performance represents good value for investors. Individual fund and share class performance scores can be seen in the tables on the Fund Value Scores tab.
We reviewed the quality of service provided by Columbia Threadneedle and its outsourced partners to individuals, intermediaries, and institutions in 2020. We were very pleased with overall service levels especially considering the pandemic and the move to a ‘work from home’ environment. We are satisfied that this ‘quality of service’ represents good value for customers.
Overall Value Score
1%
32%
57%
10%
Important information: Past performance is not a guide to future performance. 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. It is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. It is not intended as and should not be taken to be investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating an investment with Columbia Threadneedle Investments. The research and analysis included in this document have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London, EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com
Published: April 2021
All data as at 31st Dec 2020 unless otherwise stated.
Combined industry experience
Combined firm experience
Threadneedle Investment Funds ICVC Threadneedle Opportunity Investment Funds ICVC Threadneedle Specialist Investment Funds ICVC Threadneedle Managed Funds Threadneedle UK Property Authorised Investment Fund Threadneedle UK Property Authorised Trust
Prepared by Threadneedle Investment Services Limited. Covering the following ranges of funds and unit trusts:
In addition to the service provided to customers across the customer experience, the Board also reviewed a large number of services provided, that may not be immediately obvious to customers. Click below to find out more about some of these services:
In addition to Asset Management there are…
...services we provide that may not be obvious.
TISL manages £34 billion of assets, across 57 funds, 440 share classes and with over 60,000 direct customers.From meeting companies on the ground and around the world, to gaining an understanding of the economic, social and political trends that shape our future, the continuous exchange of insights across asset classes and sectors is ingrained in our process.With a global team of 2,000 people working together, Columbia Threadneedle Investments is intentionally built to deliver our customers success.Our expertise is diverse with more than 450 investment professionals sharing global perspectives across all major asset classes and markets, and our customers have access to a broad array of investment strategies and solutions.
Asset Management
During 2020 the independent Risk Team was the ‘eyes and the ears’ of our customers, monitoring more than 20 different risk measures every day for each fund. As financial markets became more volatile due to the pandemic, they modelled possible scenarios and helped portfolio managers navigate the crisis, whilst continuing to critically analyse portfolios and address areas for improvement.
Risk Management
During 2020, the Transfer Agent (Contact Centre) placed 712,034 deals, answered 24,871 calls, handled 14,291 written enquiries and completed 22,223 registration activities. In 2020, the Fund Accountant produced 71,000 Net Asset Value prices across 57 funds and carried out over 44,000 custody transactions.
Operational Oversight
During 2020, we dealt with 308 complaints (of which four are subject to further investigation by the Financial Ombudsman Service). Our aim is to address any themes or trends that emerge from complaints and improve any processes to enhance future client experience.
Complaints handling
Our stewardship activities intensify our understanding of our exposure to risks and opportunities that bear on our ability to deliver sustainable long-term value creation for customers. We comply with several stewardship codes around the globe, including the UK Stewardship Code, where we are a “Tier 1” asset manager signatory and the Investor Stewardship Group (ISG) Principles.
Stewardship
Combining fund management expertise with communication skills, we create content for our customers ranging from educational material and product brochures, to market commentary and strategic outlooks. Our thought leadership pieces provide timely, thought-provoking insights. In 2020 we substantially increased the volume of thought leadership content: producing 255 pieces (47 aimed at retail investors); increased the frequency of distribution and also produced webinars, podcasts and fund manager-at-home videos for our website. Our UK website traffic has increased substantially; our Insight articles received over 69,000-page views, an increase of over 100% from 2019, and total web visits increased 116%, gaining 325,000 new users, an increase of 190% from 2019. Our engagement on social media also remains high at 4.95%.
Marketing & Thought leadership
Our teams remained vigilant throughout 2020, not least during the volatile market conditions associated with Covid-19 pandemic. Our compliance team actively monitor trades and market movements in the funds to ensure that the Funds remain within their investment parameters, including reviewing 13,358 (8.9%) of all pre-trades.
Compliance & Monitoring
Over 100 different fund price files are sent to over 1,500 recipients each business day. This covers the 440 share classes in this Value Assessment. We send over two million data items to third parties on a monthly basis, ensuring we can keep customers up to date with our funds.
Data Dissemination
Cyber security controls are designed to identify, detect, prevent, and respond to threats. We leverage industry standards to develop the control frameworks and establish thresholds. Threats are varied and ever changing and require a broad spectrum of controls that include people, process, and technology. We utilise the broad capabilities of our parent company, Ameriprise, to provide a strong set of controls appropriate to the threats that we face. Our cyber security programme is dynamic and we are constantly upgrading our tools and capabilities.
Cyber Security
In carrying out the Value Assessment, the Board have considered the services offered to customers across the client lifecycle journey.
Breadth and Depth of Services
Awareness
RESEARCH, SELECTION & PURCHASE
EXPERIENCE
REDEMPTION
Become aware of and filter potential Asset Managers & their products
Qualitative and quantitative data to support the buying decision. The experience of purchasing and client onboarding
The experience of being a customer of Columbia Threadneedle. Quality of information and service received
The experience of redeeming assets
The Board has reviewed the services offered across the Client Journey, and where possible benchmarked this experience against industry peers. In addition, where possible, we have asked customers for their feedback during our interactions. Select the type of customer that best describes you and then see how we considered the value offered.
I am a customer investing directly
I am a customer investing through a platform and/or adviser
I am an institutional customer
In 2020 we are pleased to note that our content and investor education around the Covid-19 crisis was well received. In addition, we relaunched our Market Monitor, detailing our approach to and views of the market. We have also improved the process for new investors through the www.mythreadneedle.com website, the online journey giving a much better experience than using traditional paper applications. The number of existing customers using this service to track their investments has also risen. We have communicated with customers a number of times regarding specific changes to their funds. Service levels from our outsourced providers continue to be high. When clients have needed to access their investments, the experience in general remains a positive one.
We have seen increasing engagement in this space through the use of social media channels. Our ‘Eye of the Needle’ podcast – which demystifies the world of investing and showcases the investment approach of our fund managers – continues to be well received, with over 5,000 downloads to date. We have communicated with shareholders a number of times regarding specific changes to their funds. The service experience remains strong, with our dedicated team supporting advisers and platforms. Service levels from our outsourced providers continue to be high.
Institutional investors investing through pooled fund vehicles engage with dedicated teams both at SS&C and Columbia Threadneedle. Our client-facing teams provide information and service at every stage of the client journey. This includes Know Your Client (KYC) and Anti-Money Laundering (AML) processes and communication at the start, and the completion of clients’ due diligence questionnaires later on, ensuring a high level of service throughout.
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Equity Funds
Three-year net performance relative to the benchmark
+10%
+5%
Benchmark
-5%
Select a fund
Fixed Income & Multi-Asset Funds
+4%
+2%
-2%
Income Funds
Our Income funds have dual objectives, that is, an aim of providing an income yield higher than that of a benchmark over a three-year period, combined with prospects of capital growth over the long term. Therefore, it makes sense to consider the income objective separately, rather than just examining performance on a total return (income and growth) basis.
Responsible Investing
The rationale for responsible investment is clear: companies with sustainable business models that look to the future have more potential to deliver value to all stakeholders, including shareholders. As a founding signatory of the United Nations’ Principles for Responsible Investment (PRI), responsible investment has been an established pillar of our business for well over a decade.
Fund managers view
Hear from Richard Colwell, Head of UK Equities, on what’s happening with Income Funds.
In operation since 2018, our proprietary ratings equip our investment team with a robust Environmental, Social and Governance (ESG) framework and enhanced analysis of over 8,000 companies around the world.
We have reviewed the investment performance and risk of all funds and share classes and are pleased to report that the improving trend we identified in 2019 continued into 2020. This trend is reflected in improved three-year risk-adjusted performance records of many funds and share classes against their stated objectives. We have identified some areas of poor value on a small proportion of share classes in 2020 and are escalating this to Threadneedle Asset Management Ltd (TAML). We have impressed on TAML that improvements in performance are expected for these share classes. We were able to conclude, overall, that Performance represents good value for customers. Individual fund and share class performance scores can be seen by clicking on a particular fund in the Fund Values Score tab.
Risk & Value Verdict
As well as considering the performance of the fund, we believe it is important to consider the risk the fund has taken versus their stated benchmark. We have considered a number of risk measures that consider not just the volatility of returns but also the maximum loss (or drawdown) of the fund versus the benchmark. In effect, whilst the performance outcome is extremely important, we also think the way of getting there (the bumpiness of the journey) is also important to investors.
Cost & Fees
This chart shows the performance of our Threadneedle Equity Funds. The length of each line on the ‘performance fan’ shows a fund’s annualised performance over three years relative to their stated benchmark (the white dotted line). Three years typically aligns to the fund’s objective. The circle at the end of each line indicates the quartile position versus the relevant peer group for that fund. The three year relative return is shown against each fund. By hovering over a fund, you can see the annualised three-year return of the fund, versus the benchmark and peer group. We have also added the relative performance versus cash although this is for information only and not one of the fund’s official comparators.
Source: Columbia Threadneedle RADAR / MSCI – Data as at 31st March 2021. Certain information ©2021 MSCI ESG Research LLC. Reproduced by permission; no further distribution.
Important Information
This chart shows both the five-year annualised total return performance (after fees) and the three-year yield (income) versus the benchmark. The relative yield has been indexed to enable comparison of the different funds on the same chart. This means that for each fund, 100 represents the benchmark yield (income). Funds in the top right-hand quadrant both have a positive total return over five-years and a three-year relative yield (income) greater than their benchmark.
Source: 31st Dec 2020. Morningstar/Factset. Performance data is shown after fees (net return) based on primary share classes.
Click for more information
Relative Income (3yr Annualised) vs Total Return (5yr Annualised)
5yr Annualised Total Return
£4bn
£3bn
£2bn
£1bn
UK Equity Income Fund
UK Equity Alpha Income Fund
UK Monthly Income Fund
US Equity Income Fund
Global Equity Income Fund
Threadneedle Property Authorised Investment Fund*
5yr Ann Performance
3yr Ann Yield
5.08%
4.07%
4.12%
4.43%
UK Equity Alpha Income
1.75%
4.86%
1yr Ann Yield
-0.04%
Threadneedle Property Authorised Trust
Threadneedle Property Authorised Investment Fund
-0.05%
13.86%
2.48%
8.75%
3.40%
Global Equity Income
3yr Annualised Relative Yield versus the Benchmark
MSCI Responsible Investment Ratings Score (Indexed)
MSCI Carbon Intensity - CO2/$1m Revenue (Indexed)
90
92
94
98
100
102
106
108
110
150
140
130
120
70
60
50
40
30
20
10
80
160
170
180
Average
Our Philosophy
Proprietary RI Ratings
Environmental
Social
At Columbia Threadneedle Investments we strive to be responsible stewards of our customers’ assets, allocating their capital within our framework of robust research and good governance.
We consider climate in both our research and our stewardship – including engagement and voting. We prioritise climate change issues that are material to our investments. For example, climate issues are financially material to the utility, fossil fuel and chemical sectors, so we appraise climate change in particular detail in these cases.
The “S” in ESG. We analyse social risks and how these are managed. This includes a company’s treatment of its employees and its human rights record for other people outside the company (e.g. in the supply chain). It also refers to a company’s commercial opportunities in responding to changing consumer demands, policy changes or technology and innovation (e.g housing, education or healthcare).
This chart shows the performance of our Fixed Income and Multi-Asset Funds. The length of the line on the performance fan shows the annualised performance over three years relative to the benchmark (the white dotted line). Three years typically aligns to the fund’s objective. The circle at the end of each line indicates the quartile position versus the relevant peer group for that fund. The three-year relative return is shown against each fund. By hovering over a fund, you can see the annualised three-year return of the fund, versus the benchmark and peer group. We have also added the relative performance versus cash although this is for information only and not one of the fund’s official comparators.
The chart shows each of our Equity funds plotted against two measures, the first the MSCI Responsible Investment score. The second measure shows the carbon intensity score (tonnes per $1m of revenue) for each fund, again based upon data from MSCI. This considers the carbon output for all of the firms held within each fund. Each fund is measured relative to its individual benchmark, which is indexed to 100, in order to allow a comparison across all of our funds. The colour of each fund represents its current Columbia Threadneedle RI Category – from RI Informed Strategies to RI Outcomes Strategies. Funds with less than 75% security coverage of these RI measures have been excluded.
Source Columbia Threadneedle RADAR / MSCI – Data as at 31st March 2021
327 share classes
Better than benchmark
Active management adding value through risk reduction
54
84
89
63
273
257
The chart shows the number of share classes in each of our value scores. On the left hand side we consider only the performance, with 70 of 327 share classes scoring 1 star for performance. This means that the share class in question has underperformed its benchmark in at least one of the three time periods in question (i.e. 1, 3 and 5 years). When adding in the risk measures, this reduces to 54 share classes. This shows that active management is adding value by reducing the amount of relative risk our clients experience.
Source: Columbia Threadneedle Investments. As at 31st Dec 2020
The Board has considered how well the funds are performing and if they are meeting customers reasonable expectations, as set out in the Fund’s Objective and Policy. Most funds have an objective to outperform a benchmark over a rolling three-year period and hence we have shown a three-year time period below. Following feedback from last year’s Value Assessment, we have also included the relative return against Cash (meaning having money in the bank) separately in the callout box for each fund. Cash isn’t a comparator for our funds (as listed in our Prospectuses) and shouldn’t be used to make investment decisions. When you invest with us your money is at risk of loss -unlike a bank, so typically you would expect a better long term return as a reward for taking this risk. This means you should not compare the two types of return like for like. However, we feel this metric is a clear benefit to our existing customers and so have included it for information purposes only.
As at 31/12/2020. All data annualised (after fees).
Governance
100%
95%
90%
105%
110%
115%
120%
125%
130%
135%
140%
145%
150%
155%
160%
165%
0%
2%
3%
4%
5%
6%
7%
8%
9%
11%
12%
13%
14%
Threadneedle Property Authorised Trust*
*Yields are 1yr Fund Historic Yield vs 1yr Sector Yield
Performance Score
Performance Score including Risk
4.09%
Benchmark Yield
3.20%
2.17%
1.78%
3.60%
The ratings help identify and assess potentially material risks and opportunities beyond what can be captured by conventional analysis – making them a crucial part of our fundamental research toolkit.
Watch our RI philosophy video
Standard
RI Informed
Dedicated
RI Promotion
Outcome
Sustainability
A note about Property
Dealing in the Threadneedle Property Authorised Investment Fund (Threadneedle PAIF) and Threadneedle Property Authorised Trust was temporarily suspended on 18 March 2020, following the deployment of a ‘material uncertainty clause’ (MUC) by our independent property valuer. This meant that the valuer was unable to provide an appropriate level of certainty regarding the valuation of the Funds’ assets, due to the uncertainty on markets and economies resulting from the Covid-19 pandemic. The suspension of dealing was consistent with the approach being taken across the broader industry. Following notification from the valuer that the Funds’ property assets were no longer subject to material uncertainty, we promptly reopened the Funds on 17 September 2020 giving investors the opportunity to resume buying and selling of shares. We appreciate that suspending dealing in the Funds may have caused some inconvenience for our clients. However, the decision to suspend dealing until such time that a more certain valuation could be ascertained was taken with the aim of ensuring the fair treatment of all our investors whether they are transacting in the short term or investing for the longer term. A dealing suspension is an important and effective measure that enables us to ensure investors in the Funds are not disadvantaged during times of exceptional market uncertainty.
96
104
116
*
*Whilst data for this fund is contained in this report, the fund closed on 15th January 2021.
Integrated
RI Tilt
112
114
MSCI Responsible Investment Score (Indexed)
MSCI RI Score & Carbon Intensity vs Benchmark (Indexed)
Fixed Income and Managed Funds
MSCI RI Score vs Benchmark (Indexed)
The chart shows each of our Fixed Income and Managed funds plotted against the MSCI Responsible Investment score. Each fund is measured relative to its individual benchmark, which is indexed to 100, in order to allow a comparison across all of our funds. The colour of each fund represents its current Columbia Threadneedle RI Category – from RI Informed Strategies to RI Outcomes Strategies.
Source: Columbia Threadneedle RADAR / MSCI – Data as at 31st March 2021
Responsible Investment has long been integral to our investment research and decisions.
Important Chart Information
What are the costs?
In carrying out the management of the fund, the fund manager will incur Transaction Costs, through the buying and selling (trading) of securities. After these costs the fund will generate a gross performance return for the period. The Ongoing Charges Figure (OCF) is then subtracted from the gross return to give the net return received by the customer.
Authorised Fund Manager (AFM) Costs
We have considered whether the Ongoing Charges Figure (OCF) paid by customers in each fund, offers good value in relation to the costs incurred to provide fund management and associated services. We have considered the cost associated with: We have reviewed these costs in relation to both the revenue and profit of TISL, which can be viewed in the Company Report and Accounts. We have also considered, where practical, the market rates for these types of service as a comparison or guide.
The Transaction Costs plus the Ongoing Charges Figure (OCF) combine to give the Total Investment Cost.
Fund Fees versus competitors
In this section we consider if the Ongoing Charges Figure (OCF) is reasonable when compared to what customers would pay elsewhere for a similar product and service. By understanding the Ongoing Charges Figure in the context of like-for-like competitor products, we are able to consider how each share class compares to the market.
We have reviewed the individual costs of services provided to and associated with the AFM; Investment Management, Distribution, Internal Servicing, and Direct Fund Expenses (including outsourced services). The costs have also been considered in context of the revenue and overall profitability of the ACD. We consider them to be reasonable and a representation of good value.
Authorised Fund Manager Costs (AFM) Costs
Read more +
Primarily investment management costs: fund manager research and expertise; fund accounting; fund governance; risk management and compliance. A fixed charge, at share class level, being a percentage of the value of your investment.
The chart below shows the assets under management (AUM) for each type of share class we offer. Through market dynamics and the remedies that we put in place last year, the number of clients and assets in the more expensive Retail share class has reduced, whilst those in the Z or ‘Clean’ share class have increased. We expect this trend to continue.
In reaching this conclusion, we noted the positive impact that the programme of share class conversions, ie, moving all UK direct retail customers to the cheapest available retail class (typically Z) over the course of 2020-21, is having in terms of better value forall of our direct registered customers.
Average Weighted Transaction Costs
Average Weighted OCF
Total Investment Cost
0.21%*
£2.10 for every £1,000 invested
Transaction Costs
(Costs incurred in buying and selling securities for the fund)
Gross Performance Return
(before fees)
Ongoing Charges Figure
(AMC + Registrar Fee + Direct Costs)
0.88%*
£8.80 for every £1,000 invested
Net Return
(after all fees)
Annual Management Charge (AMC)
Registrar Fee
Direct Costs
* Typical/Average costs incurred in an Equity Fund (Z class)
Primarily fund administration: maintaining the fund’s shareholder register; customer requests to buy and sell units in a fund; shareholder communications and statements. A fixed charge, at share class level, being a percentage of the value of your investment.
Covers the cost of auditing the fund each year. Depository and custody fees – oversight and safekeeping of the fund’s investments. Regulatory fees. A variable charge, at share class level, being a percentage of the value of your investment.
The total sum of the Annual Management Charge, Registrar Fee and Direct Costs. Shown at share class level, being a percentage of the value of your investment on an annualised basis.
Distribution, provided by TISL itself Internal Servicing, including those services outlined in the ‘Quality of Service’ section Direct Fund Costs, provided by external outsourced providers
Revenue
Profit
Investment Management
Distribution
Direct Fund Expenses
Internal Servicing
Minus expenses
Equals
This chart shows the average weighted fees charged by the Top 60 Asset Management firms (measured by Assets under Management) in the UK Market. For each asset management firm, the chart shows the split between the Ongoing Charges Figure and the Transaction costs – combining to give the Total Investment Cost. Whilst it important to understand that these numbers may be skewed by firms specialising in particular asset classes (e.g. Fixed Interest Funds being cheaper than Equities) or investment approaches (e.g. Low-cost passive funds which only aim to deliver returns close to an index), we believe this is a useful representation of the market with which we can benchmark our fees.
Source: Morningstar. As at 31st Dec 2020.
Comparable Internal Services, Economies of Scale and Class of Units
36.0%
46.5%
17.5%
38.2%
47.3%
14.5%
+3.3%
-0.8%
-19.1%
Class Z
Class 2
Class 1 / Class A
This chart shows the assets under management for each type of share class we offer. Through market dynamics and the remedies that we put in place last year, the number of clients and assets in the more expensive Retail share class has reduced, whilst those in the Z or ‘Clean’ share class have increased. We expect this trend to continue, and assets remaining in the more expensive Retail Class should be subject to AMC rebates or commission where appropriate.
Source Columbia Threadneedle Investments. As at 31st Dec 2020.
Share Class types and Assets under Management
Our fund range has developed over decades. It has evolved to meet the needs and goals of our diverse range of customers, in response to significant regulatory, industry and technological change. The same can be said about the development of different share classes over the years.
Traditionally, these classes were the home of individual customers who invested directly with us either with or without a financial adviser. Many customers held their investments in an ISA wrapper. In 2020, we began a process of converting individual investors, who had invested with us directly, in to lower-cost share classes (typically the Z class). This process continues in 2021 with the conversion of individuals who had invested directly with us via an Execution-only broker or a financial adviser. Further details can be found the Remedies section. Many institutions, such as insurers, have remained invested in this type of share class. Where they have invested a large amount in the fund, they are typically in receipt of a rebate or refund of part of the annual management charge from Columbia Threadneedle. If they wish, they are eligible to convert their investment to a lower-cost share class (usually with no rebate or refund on the annual management charge).
The “Z” class was originally developed in response to UK regulatory change (The “Retail Distribution Review - RDR”) in 2012. From 2013, UK financial advisers were required to charge customers fees for new financial advice, instead of receiving commission or rebates from asset managers. By 2013, the majority of financial advisers were directing their customers to use fund platforms which, over time, have made “Z” classes (also known in the industry as ‘clean’; ‘platform’ or ‘unbundled’) the most popular class for new investments into funds. As well as those customers converting to it (referred to above), the Z share class is now available to all individual investors in the UK should they choose to invest directly with Columbia Threadneedle.
Most of Columbia Threadneedle’s Class 2 (‘Institutional’) share classes pre-date the RDR (referred to previously). They have an OCF that is lower than Class 1 Retail but higher than Z. These classes have a mix of institutional and retail customers (investing through a platform). As such, some commission or rebate arrangements may apply. In effect, the majority of these share classes are a ‘hybrid’ between Class 1 Retail and Class Z. If they wish, these investors may be eligible to convert their investment to a lower cost Z class (with no rebate or refund on the annual management charge), where available. A minority of Class 2 share classes represent the lowest cost share class available on a fund (i.e. cheaper than a ‘Z’) making them more on a par with many of our competitors’ institutional share classes.
Remedies
Broad Investor Type
AUM
£1.5bn
£0.5bn
OCF
The Annual Management Charge is a fixed charge (expressed as a percentage of the value of the assets in the share class) at share class level, payable directly to TISL, which covers the following tasks and services: TISL may choose to delegate or outsource any of the above tasks and services at its own expense.
Investment management costs – the fund manager’s skill, expertise and research, fund governance, compliance and risk management Fund accounting including calculating the net asset value (price) of the share class, over the counter (OTC) derivative valuation and investor tax calculations – every business day of the year Middle office costs – investment accounting, trade management, client reporting, corporate actions and other daily, weekly and monthly administration The calculation and payment of any distributor trail commissions, rebates or discounts Translation costs – relevant to funds sold outside the UK
The Registrar Fee is a fixed charge (expressed as a percentage of the value of the assets in the share class) at share class level, payable to TISL, which covers the following: TISL may choose to delegate or outsource any of the above tasks and services at its own expense.
Maintaining the shareholder register and transfer accounting – receiving and processing customer requests to buy and sell shares in the fund; administering changes such as names and addresses as required Distributing any income to shareholders/unitholders – applicable to income share classes/units Circulating and publishing the net asset values (fund share prices) on each dealing day Tax, legal and other professional fees Convening and holding general shareholder meetings Printing and distributing fund reports, accounts and prospectuses
The Direct Costs are a variable charge at share class level and cover the following: These direct costs are paid out of the fund (at share class level) to the service providers.
Regulatory fees Audit costs – Each fund is a UK incorporated entity with an independent auditor Depository and custody fees – oversight and safekeeping of the fund’s assets on behalf of share/unit holders
These are dealing costs and taxes, incurred when fund managers trade (buy and sell) investments on behalf of the fund. A variable charge, at fund level, being a percentage of the value of your investment.
We have considered the charges we provide for other comparable services for different funds and share classes within our product range and against institutional segregated accounts managed to a similar objective. In addition, we have assessed whether there are potential savings and benefits from economies of scale due to the size of the fund. Finally, we have considered whether it is justified that customers in different share/unit classes of the same fund, pay different charges.
We have once again reviewed the costs of the funds and share classes relative to other pooled and institutional funds managed by Columbia Threadneedle. We remain comfortable that the differences in OCF do not reflect detrimental pricing between customers in different funds and pricing represent good value overall.
Our review again noted that customers do benefit from the scale of the firm. For example, in greater negotiation power with suppliers. However, despite successful implementation of a number of remedies identified in last year’s Value Assessment, the Registrar Fee still scales in favour of the Authorised Fund Manager when funds and share classes become larger. Some further remedies are proposed this year. See the remedies tab for further information. TISL is committed to a full review of its fees and charges model with a view to announcing improvements in this area that will deliver better value to customers, based on economies of scale. In the meantime, we regard this to be an area of moderate value for customers.
We have reviewed the costs of each share class in each fund and are comfortable that the classes are marketed to ensure that investors can access the right class at the right price point. There is no suggestion that more expensive share classes within the same fund are subsidising lower-costs share classes. We are pleased to note the remedies applied in 2020 to convert direct customers to cheaper share classes, and the on-going initiative to move customers of execution only broker adviser firms, who invest directly with Columbia Threadneedle, to a cheaper price point before the end of July 2021.
‘Moderate’ Value
Economies of scale
Equity
Fixed Income
Managed
Multi Asset, Property and Treasury
Source Columbia Threadneedle Investments. As at 31st Dec 2020
This chart shows each fund in the UK Columbia Threadneedle Investments range. It shows the Ongoing Charges Figure (OCF) for each share class type in the Fund (excluding the impact of any discounts or rebates). It therefore shows the differential between the share classes within each fund, as well as the size of each share class (the size of the circle). Different share classes apply to different investor types and have been introduced and amended over time. We expect assets in older share classes (purple and green) to reduce over time, and assets in Z or ‘clean’ share classes (blue) to increase.
Following a review of all of the Value Assessment criteria, we will implement the following remedies, in order to improve value for our investors.
Remedy Type
Fund/Share Class
Comment/Impact
Conversion of Clients to cheaper share classes
Various
In 2021, we will move c29,000 clients (c. £980m of AUM) of Execution Only Broker/Adviser firms from the retail share class to the clean share class, in the process switching off ‘trail commission’ to these brokers/advisers. We converted 3,300 Execution-only clients with c.£260m AUM in January 2021. The final population of c.26,000 advised clients will be converted in July 2021. AUM for that group is c.£720m
UK Absolute Alpha
Informed by last year’s Value Assessment, the Board took the decision to close this fund. Whilst data for this fund is contained in this report, the fund closed on 15 January 2021.
Fund Closure
Annual Management Charge reductions
Managed Equity Income Fund
5bp (0.05%) cut to AMC on Class 1 Retail Income GBP
UK Index Linked Fund
5bp (0.05%) cut to AMC on Class D Accumulation GBP
Registrar Fee reductions
American Fund
2bp (0.02%) Fee cut on Class 1 Retail Accumulation GBP
2bp (0.02%) Fee cut on Class 1 Retail Income GBP
3bp (0.03%) Fee cut on Class 1 Retail Accumulation GBP
American Select Fund
3bp (0.03%) Fee cut on Class 1 Retail Income GBP
Subsidies in 2020-21
Various share classes of the following funds benefitted from a subsidy/expense cap in 2020:
Threadneedle China Opportunities Fund Threadneedle Global Focus Fund Threadneedle UK Sustainable Equity Fund Threadneedle Dollar Bond Fund
Threadneedle Emerging Market Local Fund Threadneedle Dynamic Real Return Fund Threadneedle Multi Asset Income Fund
New Benchmarks and Targets
Since 7 May 2020, investors in five of our Managed Funds have benefitted from clearer Investment objectives, performance benchmarks and targets. Similar changes are effective from 9 April 2021 on the Managed Equity Income Fund.
Fund Value Scores
UK Sustainable Equity Fund’
40bp (0.40%) cut to AMC on Class T
The remedies shown on this page are measured in basis points (bps), which refer to fractions of a percentage. For example, one basis point is 0.01%.
Fund value scores
Click the link below to view the fund value scores. You can click on any fund to view a fund value scorecard for each fund and its share classes.
The fund value table at the bottom of the scorecard shows the following:
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OVERALL VALUE VERDICT for each share class:
This column shows the Overall Value Verdict, which combines the Performance Value Score (50%), the Cost and Charges Value Score (30%) and the Services Value Score (20%) into an overall Value Score, where four stars represent outstanding overall value and one star represents poor value.
N.B. Where no Overall Value Verdict is provided this is because the share class has not existed for more than five years and therefore a Performance Value Score is unable to be calculated.
Share class name
ISIN NUMBER:
The unique identifier for each share class.
SHARE CLASS/BENCHMARK PERFORMANCE:
These columns show the performance of both the fund’s share class and its benchmark over a three-year period (to 31 December 2020). The numbers are annualised. Performance is shown after fees have been deducted. This is because fees are removed from fund and benchmark.
PERFORMANCE RELATIVE TO BENCHMARK:
This column shows the difference between the fund share class performance and the benchmark. Once again, the data is annualised and represents a three-year period to 31 December 2020.
PERFORMANCE VALUE SCORE:
This score combines data on the performance of the share class over one, three and five years, together with risk measures such as volatility and upside/downside risk, as well as the maximum drawdown suffered by the share class. It also takes into account how active the fund manager has been relative to the benchmark. These measures combined detail – not just what was achieved, but also how bumpy a journey it was in terms of returns.
ONGOING CHARGES FIGURE:
These columns show the Ongoing Charges Figure (OCF) in % terms and in £ per £1,000 invested.
TOTAL INVESTMENT COST:
These columns show the Total Investment Cost, which combines the Ongoing Charges Cost and the Transaction Costs. This is shown in both % and £ per £1,000 invested.
COST & CHARGES VALUE SCORE:
This column shows the Cost & Charges Value Score, comprised of the comparison against peers of both the Ongoing Charges Figure and the Transaction Costs. Each measure is weighted according to the % split of each charge.
SERVICE VALUE SCORE:
This column shows the Service Value Score assigned to each fund share class by the board. On the whole, the service score remains the same since service attributes apply equally across all funds.