Fund & Asset Manager Rating Group Fixed Income Funds / Luxembourg

Henderson Horizon Euro Corporate Bond Fund Managed by Henderson Global Investors Full Rating Report Key Rating Drivers Flagship, IG Credit Fund: Henderson Horizon Euro Corporate Bond Fund is one of the largest cross-border funds focused on European investment-grade (IG) corporate debt. Its tracking error target of 2%-3% is consistent with its aim to outperform the benchmark by 1% net of fees. Active Management Style: Bond and sector selection typically contribute to 50% of returns. Active use of off-benchmark positions (through high-yield and US dollar/UK pound corporates to a maximum 20% of portfolio) and credit derivatives provide additional sources of return (single-name exposure and beta management). Duration risk is a marginal contributor. Disciplined but Flexible Process: Macro house views, formalised at monthly strategy meetings, inform risk budgets and top-down allocations, while allowing portfolio managers (PMs) sufficient flexibility in portfolio construction and security selection.

Lipper Leaders: Consistent Return Rating 3-Year

5-Year

10-Year

For more information, see www.lipperleaders.com Figure 1

Fund Features Portfolio managers Inception date Size Lipper category Strategy Reference index Share classes

Legal form

C. Bullock, S. Thariyan Dec 2009 EUR1.6bn at Dec 2013 Bond EUR Corporates Euro IG Corporate iBoxx Euro Corporates Index Primary share class : LU0451950314 Other share classes in EUR and GBP Luxembourg Sicav – UCITS compliant

Well-Resourced Credit Team: The European credit team of 16 investment professionals includes four PMs, seven analysts and three dedicated traders. Research recommendations are clearly communicated to PMs through concise memos and effective dialogue. Strong Risk Management Framework: An independent investment risk team provides effective oversight of (and challenge to) the PMs‟ risk taking. Risk modelling, stress tests and comprehensive, centralised risk reporting from UBS Delta, Risk Metrics and other risk analytics facilitate the process. Established Asset Manager: Henderson is a listed, global asset manager with GBP70.8bn assets under management (AUM), including EUR15bn in credit at end-September 2013. The operational and IT environment is built around standard third-party systems, providing wellcontrolled and efficient workflows. Appropriate Operational Framework: The operational set-up passes Fitch Ratings‟ operational assessment as detailed on page 5. The operational framework is appropriate, with standard terms and third parties. Superior Track Record: The fund had outperformed its Lipper category by close to 10% over three years at end-December 2013. Its higher volatility and beta than peers is not structural. The fund has shown ability to preserve alpha in the longer term, as illustrated by the swift recovery after the June 2013 drawdown. Figure 2

Fund Performance and Assets Assets (RHS)

www.fitchratings.com

1000

Markit iBoxx Euro Corporates TR

500 250

Oct 13

Dec 13

Aug 13

Apr 13

Jun 13

Feb 13

Oct 12

Dec 12

Aug 12

Apr 12

Jun 12

Feb 12

Oct 11

0

Dec 11

90

Aug 11

Source: Lipper

100

Apr 11

Lipper Category (LHS)

750

Jun 11

Richard Woodrow, CFA +44 20 3530 1388 [email protected]

1250

Henderson HF Euro Corporate Bond Fund (LHS) 110

Feb 11

Manuel Arrivé, CFA +33 1 44 29 91 77 [email protected]

1500 120

Dec 10

Analysts

(EURm)

130

27 January 2014

Fund & Asset Manager Rating Group Qualitative Assessment

Figure 3

Fund Statistics

Investment Process Investment Philosophy

At end-October 2013 Year

Ref. indexa

Fund

Lipper category

Calendar returns (%)

2013 2012 2011 2010

2.77 17.38 3.52 11.27

2.23 13.57 1.76 4.70

2.46 12.28 0.35 3.84

Statistics (1 year)

Tracking error (%) Information ratio Max drawdown(%)

1.12 0.47 -2.46

The fund‟s investment philosophy focuses on active benchmark management through asset allocation, sector and security selection. The process-driven, research-intensive, well-adheredto investment approach is based on a balanced blend of bottom-up and top-down inputs. Investment edge resides in the fund‟s ability to exploit opportunities in core credit selection and flexible allocations to high-yield (HY) and non-euro IG credits. It also actively uses credit derivatives (mainly single name but also index CDS) to manage beta, express negative views and manage liquidity.

a

Reference index is Markit iBoxx Euro Corporates TR Source: Lipper

The fund intends to beat the benchmark (iBoxx Euro Corporates) by 1%, consistent with a limited target annual tracking error of 2%-3%, investing a minimum of 80% in IG bonds issued in euros. PMs therefore have limited leeway to deviate from the benchmark. The granularity of the portfolio (125-200 issuers) is consistent with its size and objective. Annual turnover is around 100%, reflecting active management. The fund uses a diversity of sources of return, ranging from primarily active benchmark management (50% target contribution to returns), off-benchmark management (20%) credit derivatives (20%) and duration (10%). The fund does not take currency risk (non-euro positions are hedged).

Figure 4

Performance Contribution

Active BM CDS

(bps)

Off-BM Duration

700 600 500 400 300 200 100 0 -100 2010

2011

2012

2013

Source: Henderson

The fund has adhered to its investment philosophy (see Figures 3 and 4), making full use of its flexibility in credit selection and allocation, and derivatives positions. It has delivered consistent outperformance through incremental gains in most market conditions (monthly outperformance over 80% of the time in up markets and 50% in down markets). Since launch, the high beta of the fund relative to its category (1.13 over three years) and to a lesser extent its benchmark (1.06) has supported outperformance. The fund recovered well after a drawdown in June 2013 (see Figure 3), which was more than peers. The large size of the fund may make it more vulnerable in periods of high redemptions (which may distort portfolio composition) or during volatility spikes (which may increase tracking error).

Research Henderson‟s credit research is proprietary, both fundamental and quantitative. Analysts specialise in seven different sectors, covering over 450 issuers (300 IG and 150 HY), representing over 90% of the universe by market weight. Outputs of credit research are documented in different forms depending on the depth of the analysis and the sector covered. Analysts are free to use the research format that best suits their needs. Henderson does not use a grading system to formalise views but recommendations always need to provide an investment rationale and horizon, fair valuation (price target and stop loss) and risk level. Credit research interacts closely with the PM through formal meetings (daily, weekly and quarterly) and active informal dialogue. The team actively engages in credit picking and trades ideas with PMs. Consensual top-down views are formed and agreed at the monthly Investment Strategy Group (ISG) meeting. Four critical dimensions (macro-environment, corporate health, market dynamics and valuation) are scored individually as a key input to risk budgeting, asset allocation and overall portfolio positioning. However, Henderson does not use model portfolios.

Related Criteria Fund Quality Ratings Criteria (September 2011)

Henderson Horizon Euro Corporate Bond Fund January 2014

2

Fund & Asset Manager Rating Group Decision-Making and Portfolio Construction The PM and the head of credit implement in the portfolio the asset allocation views formalised by the ISG, agreeing on beta, sectors, countries, yield curve, duration and spread positioning. Investment decisions are implemented through cash bonds, but the fund actively uses derivatives (29 positions at end-September 2013, gross exposure has rarely been above 30% historically). It uses single-name CDS for individual name exposure, index derivatives for beta and liquidity management, and bond futures for duration management. The lead PM is fully accountable for the fund‟s performance and therefore is the ultimate investment decision-maker on asset selection, position sizing and market timing. Nevertheless, there is limited leeway for deviating from the benchmark and the collectively agreed tactical portfolio positioning. Portfolio sizing is at the discretion of the PMs based on their levels of conviction, liquidity, issue size and correlation with other portfolio positions or themes. Contribution to tracking error and duration are also analysed before investing. Sell discipline is based on relative value considerations in a portfolio context but also incorporates price target and stop losses provided by research. Internal limits have been set for issuer concentration at each rating level (eg +/−3% for „BBB‟ names). There is no strict limit on country or sector concentrations. Main deviations from the benchmark are expressed in terms of exposure and tracking error consumption. Historically, off-benchmark positions have fluctuated between 6% and 17% of the portfolio (limit of 20%) and duration stayed close to the index (maximum underweight relative to benchmark was 0.9 years since launch for a maximum leeway of +/−2 years).

Figure 5

Sector Weightings Relative to benchmark, as at end September 2013 IT Materials

Portfolio Monitoring

Cons. Staples

PMs monitor the portfolio using UBS Delta, an industry-standard risk analysis tool, among other risk analytics. Key metrics monitored live include tracking error breakdowns, curve positioning, sector exposure and top contributors to profit and loss, interest rates and spread durations.

Industrials Cons. Discr. Telecom -10

-5

0

5

10

(%) Source: Henderson

Henderson‟s risk-management team provides a second, independent level of investment risk control over the fund. For example, it runs risk modelling, value-at-risk calculations and stress tests, including on liquidity. Risk reports are produced daily, weekly and monthly, depending on the depth of analysis required. The risk review process intends to ensure that the portfolio is not exposed to excessive or unintended risk. Regular dialogue between the investment risk team and PMs helps embed of risk management in the investment process. Liquidity is closely monitored. The PM and risk management filter bonds based on their liquidity features before investing, and for monitoring purposes. They also adjust allocation to cash and government bonds in anticipation of redemption requests or liquidity stress. The fund‟s increased diversification and its use of derivatives also help mitigate liquidity/redemption risk.

Operational Front-Office Workflows The PM is directly in charge of the operational management of the fund. The Charles River system supports the straight-through processing of orders, which are executed by dedicated fixed-income traders. Pre-trade compliance checks are automated in Charles River. Procedures allow for swift implementation of investment decisions and best execution.

Resources Staffing The European credit team consists of 16 investment professionals, including four PMs, seven analysts and three dedicated traders. It is headed by S. Thariyan (22-year investment experience, six-year company tenure), the fund‟s back-up PM. The team hired a US credit team of six in 2013. The credit team also benefits from its integration into the wider Henderson fixed-income division (60 investment professionals), comprising three teams: credit, rates and secured credit.

Henderson Horizon Euro Corporate Bond Fund January 2014

3

Fund & Asset Manager Rating Group C. Bullock has over 11 years‟ credit experience, all acquired at Henderson. He has managed the fund since its launch in 2009. The level of focus on the fund is high as it represents close to 30% of the IG corporate assets managed by the team. C. Bullock also manages European absolute return funds, which can be a useful additional skill for this fund too. The credit research team is organised by sector and consists of seven European analysts. The fund also benefits from the depth of Henderson resources in operational support and controls (including a 15-strong performance attribution team).

Technology Charles River is Henderson‟s integrated “front to back” system. Pre-trade controls, trade transmission, cash management, net asset value validation and subscriptions/redemptions are handled by this tool. Fixed-income risk and analytics systems include UBS Delta (investment risk analysis), Factset AXIOM (performance attribution) and Risk Metrics (value at risk and stress tests). All risk data and analytics are centralised in an internally developed website, facilitating reporting production.

Asset Manager Ownership and Financial Conditions Henderson was founded in 1934. The company has stock exchanges since December 2003. The top Perpetual Limited (11%), Henderson staff (10%) employed 1,001 people worldwide at the same professionals.

been listed on the London and Sydney shareholders at end-June 2013 were and AustraliaSuper (6%). Henderson date, of which 282 were investment

Henderson‟s financial condition is sound overall. The acquisition of Gartmore early in 2011 has had a positive impact on profitability. Operating margins steadily improved from 35.4% at end2012 to 38.8% in H113, up from 34.7% at the end of 2011. Leverage has diminished since endDecember. Henderson had a net cash position at end-December 2012, compared with a net debt position at end-December 2011.

Client Base

Figure 6

Company AuM Breakdown by Asset Class As of September 2013 Property 18%

Institutional Experience and Market Presence

Private equity 1%

Fixed income 26%

Henderson‟s clients are a good blend of institutional (51% at end-June 2013) and retail (49%). The UK represented around 75% of fee revenue in 2012 and H113, and around 68% of AUM at end-H113. Institutional outflows continued in January-September 2013, and totalled GBP2.1bn. However, retail flows turned positive, totalling GBP1.9bn. The client base of the Euro Corporate Bond fund is retail money and therefore is diversified.

Equity 55%

Henderson managed GBP70.8bn at end-September 2013. In 2009 it reshuffled and developed its credit fund range, building a solid franchise over the past five years. Of the EUR15bn credit AUM, EUR4.5bn are managed under an actively managed benchmark strategy similar to that of the Euro Corporate Bond fund. Henderson Euro Corporate Bond is Henderson‟s flagship fund for the asset class, one of the largest cross-border funds dedicated to European IG corporate debt.

Stability Source: Henderson

Henderson Horizon Euro Corporate Bond Fund January 2014

In 2009 Henderson merged with New Star and in 2011 with Gartmore. In 2013 it expanded its credit platform, acquiring a US credit team of six. The European credit team has been stable overall, with six joiners and four leavers since 2009.

4

Fund & Asset Manager Rating Group Figure 7

Operational Assessment  Pass

 Attention required

Service providers & asset segregation  BNP Paribas Securities Services (A+/Stable/F1) Custodian  Assets are segregated and held by the Segregation of assets custodian.  BNP Paribas Securities Services (A+/Stable/F1) Administrator  KPMG Luxembourg Auditors  Stable since inception of fund. Stability in service providers  SAS70 controls report produced for BNP Others Paribas annually. Regulation & governance  UCITS IV (Sophisticated Fund), Regulated vehicle Luxembourg SICAV  Five-member board of directors, including Governance one independent.  Compliance: 18 people; investment risk: Control framework seven; credit risk: one; operational risk: four; derivative risk: three; internal audit: six. Valuation & pricing  Undertaken by BNP Paribas. Pricing responsibility  Underlying assets listed on stock markets in Pricing policy each relevant country; illiquid investments priced via fair-value committee. Daily valuation, swing pricing,  Holdings and cash are reconciled daily, Back-office reconciliations automatically between the manager and the administrator.

x Fail

Fund terms Liquidity management



Daily pricing with T+4 settlement. Liquidity stress tests and scenario analysis performed by risk management.

Fee structure



Annual management fee of 0.75%, 10% performance fee (high watermark).

Conflicts of interest Management of conflicts  of interest Alignment of interests



Independent asset manager – no other activities than third-party investment management. Short- and long-term incentive schemes, with performance-related fees and employee share schemes.

Disclosure & transparency  Eligible instruments and investment strategy Clear strategy representation clearly described in prospectus.  Good level of transparency: monthly Level of disclosure factsheets with top holdings and performance. Fund and market-specific commentary available regularly.

Source: Fitch

Important Notice A report providing a Fitch Rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the fund advisor and its agents in connection with the distribution of the fund. Investors should review the prospectus and/or legal information, which Fitch understands includes, inter alia, the jurisdictions in which the fund is registered for sale.

Henderson Horizon Euro Corporate Bond Fund January 2014

5

Fund & Asset Manager Rating Group

The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2014 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch‟s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdi ction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third-party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch‟s ratings should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offeri ng documents and other reports. In issuing its ratings Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guaran tor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

Henderson Horizon Euro Corporate Bond Fund January 2014

6