Columbia Emerging Markets Bond Fund

Transcription

1 CLASS A REBAX CLASS C REBCX CLASS R CMBRX CLASS R4 CEBSX CLASS R5 CEBRX CLASS Z CMBZX Col Overall Morningstar Rating TM Class A The Morningstar Rating is for the Fund indicated strategy share classes only as of 03/31/16; other classes may have different > performance Invests in good-quality characteristics. The Morningstar small- and mid-cap ratings stocks for the that overall, three-, five- and ten-year appear undervalued relative to their periods for Class A shares are 3 stars, growth 3 stars, potential 3 stars and 3 stars and for Class Z shares are 4 stars, 3 > Adheres to a time-tested stars, 4 stars and 3 stars among 279, 279, investment 141 and 50 Emerging process, which Markets relies Bond on funds, extensive respectively, research to and uncover are based opportunities on a Morningstar Risk- Adjusted Return measure. Run by an experienced management team, supported by a large analytical staff It s time for EM policymakers to go back to Expense ratio ratio 2 2 Class Z what worked in the prior decade, before the Chinafueled commodity boom. Fund strategy Invests opportunistically in the full spectrum of emerging market investment opportunities including U.S. dollar (both sovereign and agency), local currency sovereign and emerging market corporate debt Seeks to maximize risk-adjusted returns by setting allocations based on global risk analysis, country research and relative value comparisons This is a specialized fund. Please see risk disclosure for important information. Share Without waiver With waiver class (gross) (net) A A 1.14% 1.08% Z Z 0.89% 0.79% Columbia Management Investment Distributors, Inc. 225 Franklin Street, Boston, MA columbiathreadneedle.com/us Columbia Emerging Markets Bond Fund Performance Columbia Emerging Markets Bond Fund A shares rose 4.60% (excluding sales charge) for the first quarter. The fund s benchmark, the JP Morgan Emerging Markets Bond Index Global (EMBIG), rose 5.22% for the same period. For up to date performance information, please check online at columbiathreadneedle.com/us. Market overview The first quarter continued the rollercoaster ride seen in the sector in recent years, showing extreme volatility in the first half before ending with a strong rally in March. Issues of concern that have dogged the sector for over three years remained the same. This included soft global growth, commodity sector imbalances and recalibrating the emerging market (EM) growth model in the context of China restructuring its economy and developed markets (DM) lackluster growth not pulling in EM exports. During the quarter, oil and commodity prices were mixed, characterized primarily by significant price swings. The JPMorgan High Yield Index Global and the S&P 500 Index both posted volatile, but positive, returns. After hiking interest rates in December, the U.S. Federal Reserve (Fed) indicated it is taking a more wait-and-see approach to subsequent hikes, with global volatility and the drag from earlier U.S. dollar strength on U.S. industrial growth becoming concerns. By contrast, after disappointing the market in December, the European Central Bank (ECB) broadly met expectations with its March announcement of a potpourri of deposit rate cuts, lending facility expansion and greater asset purchases. These two developments highlight the divergence in policy direction between the Fed and ECB (and Bank of Japan) and Average annual total returns (%) for period ending March 31, 2016 Columbia Emerging Markets Bond Fund 3-mon. 1-year 3-year 5-year 10-year Class A w ithout sales charge Class A w ith 4.75% maximum sales charge Class Z JP Morgan Emerging Markets Bond Index Global Performance data shown represents past performance and is not a guarantee of future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data shown. Please visit columbiathreadneedle.com/us for performance data current to the most recent month end. Class Z shares are sold at net asset value and have limited eligibility. Columbia Management Investment Distributors, Inc. offers multiple share classes, not all necessarily available through all firms, and the share class ratings may vary. Contact us for details (04/16)

2 Columbia Emerging Markets Bond Fund Top holdings (% of net assets): as of March 31, 2016 Perusahaan Listrik Negara PT /22/ Petroleos de Venezuela SA /16/ Hungary (Republic Of) /29/ Gaz Capital SA /07/ Croatia (Republic Of) /26/ Brazil (Federative Republic Of) /07/ Gazprom Neft /19/ Petro Co Trinidad/Tobago Ltd /14/ Colombia (Republic Of) /18/ Dominican Republic /30/ Top holdings exclude short-term holdings and cash, if applicable. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. Current and future bond holdings are subject to risk. keeps alive the question of whether this drives another round of U.S. dollar strength this year, which could be an emerging markets foreign exchange headwind. The quarter did see some green shoots of optimism, both EM specific and within the broader global economy. Argentina finally moved to address its long-festering default saga under the new market-friendly Macri administration. Also, Brazil appeared to be closer to regime change and Indonesia continued its efforts to spur growth through mini-structural reforms intended to attract foreign investment. Finally, China s government moved to spur fiscal and monetary stimulus in order to keep growth above 6.5%, which reduced nearterm concerns about large swings in the renminbi and downward growth. This highlights the importance of interpreting these varying developments to fine tune emerging market debt (EMD) portfolio positioning. The vast EM landscape, which comprises more than 60 investible countries has become a country-by-country analysis puzzle. We are focused on country-specific investable themes in the EMD sector, seeking to pick winners and on-the-cusp improvers undertaking structural reforms, while avoiding the countries that refuse to make hard decisions and adjust to this more volatile, less predictable global economy. Some key economic data during the quarter included: Softer manufacturing activity, specifically global output as measured by the JPM Global Purchasing Manager (PMI) Index was 51.3 in March versus 52.7 in December. While softer than in the fourth quarter, this is broadly within the same range seen since mid Likewise, the DM All-Industry PMI was 51.7, while the EM index was 50.1, continuing the theme of underperforming EM growth. In its latest World Economic Outlook, the International Monetary Fund forecasted 3.4% global growth in 2016 (3.1% 2015), with DM growth moving from 1.9% in 2015 to 2.1% this year. U.S. growth is expected to remain at about mid-2%, and EM growth is expected to move from 4.0% to 4.3%. While modest, this growth pick-up would be the first sequential growth improvement in a few years (highlighting the low bar needed for growth to surprise). Among DMs, the U.S. remains one consistent area of relative strength, compared to the European Union and Japan. Similarly, the EM world shows significant growth dispersion, even within regions. The Association of Southeast Asian Nations (ASEAN) region shows solid growth even while China continues to modestly decelerate. The Commonwealth of Independent States and Africa are expected to modestly recover in 2016, while Latin American is expected to be stuck at zero. However, even within Latin America, there is much divergence between the reformers: Peru, Colombia and Mexico are growing at 2.5% to 3.5%, Argentina is undertaking price and fiscal adjustment and is expected to start growing by the second half of 2016, and others like Brazil and Venezuela are stuck in the mud waiting for regime change. Contributors and detractors During the period, the portfolio underperformed the benchmark. Key contributors and detractors included: An overweight in the Dominican Republic, Guatemala, Mexico and Ecuador supported performance. An overweight in Hungary and Indonesia also supported performance. 2

3 Security selection in Russia and Ghana supported performance. An underweight in U.S Treasuries detracted from performance, while long local rates contributed. An underweight in Venezuela, South Africa, China and the Philippines detracted from performance. Key country overweights and underweights: fund vs. benchmark as of March 31, 2016 Overweights United States Dominican Republic Argentina Guatemala Colombia Underweights Belize China Philippines Lebanon South Africa Outlook In our view, global growth is not going to be a big tailwind for EM economies in the near term. This means commodity prices are also unlikely to stage a large sustained recovery and can, at best, be expected to bounce a bit further from their still-depressed levels. Manufacturing exporters should benefit, as DM economies continue to modestly recover, but commodity exporters will continue to see a mixed bag at best. EM economies are going to have to engineer their own rescue if they want to start growing closer to their potential. This means structural reform, better public investment in infrastructure and a greater focus on orthodox macroeconomic policies. It s time for EM policymakers to go back to what worked in the prior decade, before the China-fueled commodity boom. Idiosyncratic risk in the EM universe has been growing over the years. Even dividing countries between commodity importers and exporters is not a successful strategy, as some counties are adjusting to lower commodity prices (Mexico), some are not (Venezuela) and some energy importers have their own issues that are clouding the picture (Turkey). As a result, comprehensive country credit research is especially critical, as policy reaction functions, differing economic strengths and the potential for political change matter more than ever. We remain confident that our patient, hybrid approach to EMD investing is well placed to sift through the winners and losers in this volatile environment. While a longer horizon focus and investing in out-of-benchmark bonds will lead to some periods of underperformance due to cycles of higher liquidity premiums, we believe that focusing on long-term value and the strength of country policies will generate medium- and long-term investment success for our clients. Positioning The portfolio is overweight Latin America and modestly overweight Africa, modestly underweight Europe, the Middle East and Africa (EMEA) and underweight low-beta EM 3

4 Asia. It remains invested primarily in the U.S. dollar, allocating to local currency equal to about 7.5% (which is up from last quarter). The fund s duration of 6.50 years is modestly shorter than the benchmark s 6.84 year duration although a portion of this duration comprises non-u.s. dollar exposure. The portfolio's largest country overweight positions relative to the benchmark include the Dominican Republic, Argentina, Guatemala, Indonesia and Colombia. Major currency and local rates positions include Mexico, the Dominican Republic and Indonesia. Commentaries now available via Stay informed about your investments by subscribing to receive commentaries and other fund updates by . Simply register with our subscription center and choose the publications you d like to receive. We ll take care of the rest. Subscribe 4

5 Investment Risks Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Foreign investments subject the fund to risks, including political, economic, market, social and others within a particular country, as well as to currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market and sovereign debt issuers. Fixed-income securities present issuer default risk. A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund s income and yield. These risks may be heightened for longer maturity and duration securities. Noninvestment-grade (high-yield or junk) securities present greater price volatility and more risk to principal and income than higher rated securities. Prepayment and extension risk exists because a loan, bond or other investment may be called, prepaid or redeemed before maturity and similar yielding investments may not be available for purchase. As a non-diversified fund, fewer investments could have a greater affect on performance. Market or other (e.g., interest rate) environments may adversely affect the liquidity of fund investments, negatively impacting their price. Generally, the less liquid the market at the time the fund sells a holding, the greater the risk of loss or decline of value to the fund. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. For a free prospectus or a summary prospectus, which contains this and other important information about the funds, visit columbiathreadneedle.com/us. Read the prospectus carefully before investing. Columbia funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA and managed by Columbia Management Investment Advisers, LLC. Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate. Additional performance information: 1The returns shown for periods prior to the share class inception date (including returns since inception, which are since fund inception) include the returns of the fund s oldest share class. These returns are adjusted to reflect any higher classrelated operating expenses of the newer share classes, as applicable. Please visit columbiathreadneedle.com/us/ investment-products/mutual-funds/appended-performance for more information. Current and future fund holdings are subject to risk. 2Expense ratios are generally based on the fund's most recently completed fiscal year and are not adjusted for current asset levels or other changes. In general, expense ratios increase as net assets decrease. See the fund's prospectus for additional details Morningstar, Inc. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating TM based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund s monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. The JPMorgan Emerging Markets Bond Index - Global tracks total returns for traded external debt instruments in the emerging markets and is an expanded version of the JPMorgan EMBI+. As with the EMBI+, the EMBI Global includes U.S. dollar-denominated Brady bonds, loans and Eurobonds with an outstanding face value of at least $500 million. The JP Morgan High Yield Index Global is an unmanaged index used to mirror the investable universe of the U.S. dollar global high yield corporate debt market of both developed and emerging markets. The securities used to create the index may not be representative of the bonds held in the Fund. The Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged list of common stocks which includes 500 large companies. The JPMorgan Manufacturing Global Purchasing Managers; Index (PMI) is based on the results of surveys carried out in the USA by ISM, in Japan, China, the UK, Germany, France, Spain, Italy, Russia, Ireland, Greece, Austria, the Netherlands, Poland, Czech Republic and Hong Kong by NTC Economics and in a number of other countries. These countries together account for an estimated 80% of global GDP. Roughly speaking, the PMI reflects the percentage of purchasing managers in a certain economic sector that reported better business conditions than in the previous month. The PMI is an indicator of the economic health of the manufacturing sector. PMI is based on five major indications: new orders, inventory levels, production, supplier deliveries and the employment environment. Indices shown are unmanaged and do not reflect the impact of fees. It is not possible to invest directly in an index. 5