ANNUAL SHORT REPORT. Henderson Institutional Overseas Bond Fund. For the year ended 31 October 2015

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1 ANNUAL SHORT REPORT For the year ended 31 October 2015 Henderson Institutional Overseas Bond Fund

2 Henderson Institutional Overseas Bond Fund Short Report For the year ended 31 October 2015 Investment Fund Managers Andrew Mulliner and James McAlevey Investment objective and policy To aim to provide a return by investing in fixed and floating rate securities in any area of the world, except the United Kingdom. The fund will invest primarily in bonds issued by Governments, public authorities and international organisations. Risk and reward profile The fund currently has 6 types of share class in issue; A income, I accumulation, I income, 3 gross accumulation, I gross accumulation and Z gross accumulation. Each share class has the same risk and reward profile which is as follows: Typically Lower potential risk/reward Lower Risk Typically Higher potential risk/reward Higher Risk The Synthetic Risk and Reward Indicator (SRRI) is calculated based on historical volatility over a rolling 5 year period, it is reviewed monthly and updated if volatility has changed materially to cause a movement in the SRRI level. The SRRI is an indicator and may not accurately reflect future volatility and market conditions. The value of an investment in the fund can go up or down. When you sell your shares they may be worth less than you paid for them. The risk/reward rating above is based on mediumterm volatility. In the future, the fund s actual volatility could be higher or lower and its rated risk/reward level could change.the lowest category does not mean risk free. The fund s risk level reflects the following: As a category shares are, in general, more volatile than either bonds or money market instruments. Fluctuations in exchange rates may cause the value of your investment to rise or fall. The rating does not reflect the possible effects of unusual market conditions or large unpredictable events. Under normal market conditions the following risks may apply: Counterparty risk The fund could lose money if a counterparty with which it transacts becomes unwilling or unable to meet its obligations to the fund. Default risk The issuers of certain bonds could become unable to make payments on their bonds. The risk of default may be higher where the fund invests in sub-investment grade bonds. Liquidity risk Certain securities could become hard to value or sell at a desired time and price. Management risk Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times. The full list of the fund s risks are contained in the Risk Warnings section of the fund s prospectus. There have been no changes to the risk rating in the year. The SRRI conforms to the ESMA guidelines for the calculation of the SRRI. Investment review The fund underperformed its benchmark, JP Morgan Global Bond Traded ex UK Index, over the year. Positive contributions came from being long peripheral European countries versus the core markets; being long the US dollar versus the Australian dollar and the euro, and from being long short-dated New Zealand bonds. However, these gains were offset by our overall underweight duration (interest rate sensitivity) positions in the 2 Henderson Institutional Overseas Bond Fund

3 US and Europe in the earlier part of the year. The absolute return of the fund was depressed by the appreciation of sterling during the year. In Europe, we started the year positioned for peripheral European bonds, primarily those of Italy, to outperform core European bonds. This strategy performed well, as investor demand for relatively higher yielding European bonds continued due to the anticipation and delivery of monetary stimulus from the region s central bank. However, our overall underweight duration position in Europe resulted in some underperformance. While maintaining the underweight to German bunds, we closed our European underweight by increasing the position in the periphery. This was due to seeing scope for the region to outperform, as impediments to growth and sources of uncertainty (such as the Catalan elections) diminished. After being impacted by a subdued inflationary environment early on, we subsequently lightened our position in Italian inflation-linked bonds in the first quarter as profit targets approached. We then used the broader European sell-off as an opportunity to increase this position once more. In the US, we held a duration underweight for the entire year, which over the course of the year detracted from performance. Despite domestic data picking up during the year, particularly on the labour market front, external developments led the wider market to push out their forecasts regarding when the Federal Reserve would start raising interest rates, as well as the pace at which they will proceed once tightening commences. However, with the labour market healing at this pace, we believe that underlying inflationary pressures will keep building, and that as the base effects of last year s energy price declines drop out, headline inflation will quickly return to target levels. As a result, we maintained our duration underweight, as well as the steepening bias, since we expect the pace of interest rate increases to exceed what the market currently expects. Given our view on inflation, we also continued to hold overweight exposure to inflation-linked bonds versus nominal bonds, which was a slight detractor this year. Outside of the US and Europe, we positioned for Mexican bonds to outperform. This strategy underperformed somewhat on a spread basis; however, the steeper curve in that market provided some cushion. In contrast to the US, we believe that the Mexican yield curve is pricing in too much monetary policy tightening. This is in response to worries about inflation effects from a declining currency, as well as a concern about bond outflows once the US does eventually begin hiking rates. We believe that these fears are exaggerated, and that these bonds can perform well. Shortdated bonds in New Zealand also contributed to performance in the early part of the year. Despite some further easing being delivered in that market. We took profit on our position as the market looked very well priced for the anticipated cuts. In currencies, we held long positions in US dollars and Mexican pesos, with the former reduced after an extended period of strong appreciation. These positions were held against the euro and the Australian dollar. Later in the year, we added a long position in the Japanese yen versus the euro based on the belief that negative rates in Europe could drive further reserve manager flight from that region, with Japan a potential beneficiary due to its regional safe haven status. Henderson Institutional Overseas Bond Fund 3

4 Performance summary 31 Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 11 Henderson Insititutional Overseas Bond Fund (1.2) (2.2) (5.1) JP Morgan Global Bond Traded ex UK Index 0.7 (0.8) (3.4) Source: Morningstar, bid to bid and net of fees, as at valuation point, based on performance of Class A income. Benchmark values are as at close of business. Figures in brackets are negative. Please remember that past performance is not a guide to future performance. The value of an investment and the revenue from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Summary of fund performance Share class Net asset value * Net asset value * Net asset value change p p Class A income (1.67) Class I accumulation (0.80) Class I income (1.47) Class 3 gross accumulation (0.51) Class I gross accumulation (0.83) Class Z gross accumulation (0.33) * The net asset value is calculated as at close of business on the last business day of the accounting period. The investments are valued at fair value which is generally deemed to be the bid market price. 4 Henderson Institutional Overseas Bond Fund

5 Net revenue distribution Share class 2015 p 2014 p Class A income Class I accumulation Class I income Class 3 gross accumulation Class I gross accumulation Class Z gross accumulation Total interest distributions for the year ended 31 October 2015, comparison is for the same period last year. Fund facts Accounting dates Payment dates 30 April, 31 October 31 March, 30 June, 30 September, 31 December Ongoing charge figure Class Class A Class I Class Z The annualised ongoing charge figure (OCF) of the fund is calculated as the ratio of the total ongoing charges to the average net asset value for twelve months. The OCF is calculated in accordance with guidelines issued by the European Securities and Markets Authority (ESMA) Henderson Institutional Overseas Bond Fund 5

6 Performance record Calendar year Net revenue (pence per share) Highest price (pence per share) Lowest price (pence per share) Class A income * Class I accumulation * Class I income * Class X accumulation Class 3 gross accumulation * Class I gross accumulation * Henderson Institutional Overseas Bond Fund

7 Performance record (continued) Calendar year Net revenue (pence per share) Highest price (pence per share) Lowest price (pence per share) Class Z gross accumulation * * to 31 December + to 31 October 1 Class X accumulation merged with Class A accumulation on 11 January Class 3 gross accumulation launched 26 August 2012 Past performance is not a guide to future performance Henderson Institutional Overseas Bond Fund 7

8 Major holdings Major holdings as at 2015 as at 2014 Italy (Republic of) /09/ France (Government of) /10/ US Treasury /02/ Italy (Republic of) /09/ US Treasury /11/ Japan (Government of) /12/ US Treasury /02/ New Zealand (Government of) 6 15/12/ US Treasury /02/ Germany (Federal Republic of) /07/ Mexico Bonos Desarr 10 05/12/ US Treasury /11/ Japan (Government of) (10 Year Issue) /06/ Mexico Bonos Desarr 10 05/12/ Italy Buoni Poliennali Del Tesoro /09/ US Treasury /02/ US Treasury /11/ Japan (Government of) /12/ Japan (Government of) /12/ Italy (Republic of) /05/ Asset allocation Asset allocation as at 2015 as at 2014 United States Japan Italy Italy Japan United States France 5.53 France Mexico 4.62 New Zealand 7.22 Spain 3.53 Germany 7.12 Belgium 2.11 Mexico 4.49 Netherlands 0.97 Belgium 0.92 Denmark 0.76 Netherlands 0.81 Sweden 0.73 Denmark 0.80 Canada 0.56 Sweden 0.78 Derivatives (0.19) Canada 0.57 Other net assets Derivatives 0.82 Total net assets Other net assets 9.02 Total net assets Henderson Institutional Overseas Bond Fund

9 Report and accounts This document is a short report of the Henderson Institutional Overseas Bond Fund for the year ended 31 October Copies of the annual and half yearly long form report and financial statements of this fund are available on our website or contact client services on the telephone number provided. Other information The information in this report is designed to enable you to make an informed judgement on the activities of the fund during the year it covers and the results of those activities at the end of the year. Risk warning Please remember that past performance is not a guide to future performance. The value of an investment and the revenue from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Issued by: Henderson Investment Funds Limited Registered office: 201 Bishopsgate London EC2M 3AE Member of The Investment Association (formerly Investment Management Association) and authorised and regulated by the Financial Conduct Authority. Registered in England No Depositary National Westminster Bank Plc 135 Bishopsgate London EC2M 3UR Auditor PricewaterhouseCoopers LLP 141 Bothwell Street Glasgow G2 7EQ Shareholder Administrator International Financial Data Services (UK) Limited IFDS House St Nicholas Lane Basildon Essex SS15 5FS Henderson Institutional Overseas Bond Fund 9

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12 Contact us Client Services Head Office address: Bishopsgate, London EC2M 3AE Changes of address - regulatory requirements FCA regulation requires us to send this report mailing to the address held on file on the accounting date of 31 October If you have confirmed a change of address with us since that date we will ensure all future correspondence will be sent to your new address. Online valuations You can value your Henderson Institutional Overseas Bond Fund at any time by logging on to Select Personal Investor and then access Valuations from the Tools Menu. Simply select the fund you hold and enter the appropriate number of shares. Any questions? Further information about the activities and performance of the fund for this and previous periods can be obtained from the Investment Manager. If you have any questions please call our Client Services Team on or support@henderson.com. Important Information Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no ), Henderson Fund Management Limited (reg. no ), Henderson Investment Funds Limited (reg. no ), Henderson Investment Management Limited (reg. no ), AlphaGen Capital Limited (reg. no ), Henderson Equity Partners Limited (reg. no ), Gartmore Investment Limited (reg. no ), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ref: 34V Unless otherwise stated, all data is sourced by Henderson Global Investors. H019602/1115