business desk

Global growth in capital and income

Foreign & Colonial Investment Trust 15 March 2016 Update

Foreign & Colonial Investment Trust

Global growth in capital and income

Investment trusts

15 March 2016

Price

427.8p

Market cap

£2,378m

AUM

£2,914m

NAV*

471.9p

Discount to NAV

9.3%

NAV**

474.9p

Discount to NAV

9.9%

*Excluding income. **Including income as at 11 March 2016.

Yield

2.2%

Ordinary shares in issue

555.8m

Code

FRCL

Primary exchange

LSE

AIC sector

Global

Share price/discount performance

Three-year cumulative perf. graph

52-week high/low

465.0p

391.2p

508.5p

430.8p

**Including income.

Gearing

Gross*

10.0%

Net*

10.0%

*As at 31 January 2016.

Analysts

Mel Jenner

+44 (0)20 3077 5700

Sarah Godfrey

+44 (0)20 3681 2519

Foreign & Colonial Investment Trust is a research client of Edison Investment Research Limited

Foreign & Colonial Investment Trust (FRCL) is a large, globally diversified fund investing directly and through funds in listed and private equity; external managers are used for some strategies. Performance in 2015 was strong and to the end of February 2016, NAV total returns were ahead of the benchmark over one, three, five and 10 years. A narrowing of the discount in 2015 added to share price total returns. The announced 2015 dividend of 9.6p represents the 45th consecutive annual increase.

12 months ending

Total share price return (%)

Total NAV return (%)

Blended benchmark (%)

FTSE All-World (%)

FTSE All-Share (%)

FTSE World ex-UK (%)

29/02/12

1.9

1.4

1.0

0.7

1.5

0.5

28/02/13

17.4

17.3

16.6

15.7

14.1

16.5

28/02/14

10.6

8.5

7.4

7.4

13.3

8.4

28/02/15

22.4

16.7

17.5

17.5

5.6

18.2

29/02/16

(3.5)

(0.9)

(2.1)

(2.1)

(7.3)

(0.9)

Note: Twelve-month rolling discrete total return performance. FRCL’s benchmark prior to 1 January 2013 was a composite of 40% FTSE All-Share index and 60% FTSE World ex-UK index and thereafter is the FTSE All-World index.

Investment strategy: Focus on growth assets

Manager Paul Niven’s views on asset allocation, risk and the use of gearing form the basis of FRCL’s portfolio, informed by the wider views of BMO Group managers. Sector and geographic exposure is not driven by benchmark index allocations. Although at the end of February 2016 the portfolio had more than 520 holdings, there is exposure to thousands of companies via fund and private equity investments. Historically, private equity has been managed by two external managers, HarbourVest and Pantheon, but these investments are maturing and in future investments in this asset class are more likely to be sourced internally.

Market outlook: Attractive equity yield premium

Despite the Datastream world index 12-month forward P/E valuation being above the 10-year average, other valuation measures are looking more attractive. Comparing the yield of UK equities to 10-year government bond yields also highlights the relative attractiveness of equities. Global growth estimates, while reduced, do not indicate a recession and central bank monetary policies remain accommodative. Given the volatile stock market performance to date in 2016, despite macroeconomic uncertainties, there is the potential for an improvement in investor sentiment.

Valuation: Active discount control strategy

The board aspires that the shares trade at or close to NAV. As part of the strategy to narrow the discount, in May 2015 the discount ceiling above which shares are repurchased was lowered from 10.0% to 7.5%. The current share price discount to cum income NAV is narrower than the averages of the last three and five years. FRCL has a longstanding history of dividend increases; the current yield of 2.2% is above the average of the selected peer group of investment trusts with a market cap of more than £100m and less than 25% of assets invested in the UK.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

FRCL’s investment objective is to secure long-term growth in capital and income through investing primarily in an internationally diversified portfolio of listed equities, as well as unlisted securities and private equity, with the use of gearing. FRCL’s benchmark index is the FTSE All-World Index.

8 March 2016: Annual results for the year ended 31 December 2015. NAV TR +7.5% vs 4.0% for the FTSE All-World index. Share price TR +9.0%.

8 March 2016: Announcement that senior independent director Christopher Keljik will retire following the next AGM.

9 December 2015: Third interim dividend of 2.3p declared. Total annual dividend expected to be 9.6p.

Forthcoming

Capital structure

Fund details

AGM

April 2016

Ongoing charges

0.80% (at 31 December 2015)

Group

BMO Global Asset Mgmt (BMO)

Interim results

July 2016

Gearing

10.0%

Manager

Paul Niven

Year end

31 December

Annual mgmt fee

0.365%

Address

Exchange House, Primrose Street,
London EC2A 2NY

Dividend paid

Feb, May, Aug, Nov

Performance fee

None

Launch date

1868

Trust life

Indefinite

Phone

+44 (0)800 136 420

Continuation vote

None

Loan facilities

Various – see page 7

Website

www.foreignandcolonial.com

Dividend policy and history

Share buyback policy and history

FRCL pays dividends quarterly. Note: *The 2015 total dividend of 9.6p represents the 45th consecutive annual increase.

Renewed annually, the trust has authority to purchase up to 14.99%, and allot up to 5% of issued share capital.

Shareholder base (as at 2 March 2016)

Strategy allocation (as at 31 December 2015)

Top 10 holdings (as at 31 January 2016)

Portfolio weighting (%)

Company

Country/region

Industry

31 January 2016

31 January 2015*

Pantheon Europe Fund V

UK/Europe

Private equity

1.5

1.7

Alphabet

US

Technology

1.1

N/A

UnitedHealth

US

Healthcare

1.1

N/A

Microsoft

US

Technology

1.1

N/A

Amazon

US

Online retail

1.1

N/A

Roche

Europe

Healthcare

0.9

N/A

Novartis

Europe

Healthcare

0.9

1.0

HarbourVest Partners Ventures VIII Fund

US

Private equity

0.9

1.0

HarbourVest Partners VIII Buyout Fund

US

Private equity

0.9

N/A

Utilico Emerging Markets

UK

Utilities

0.9

0.9

Top 10

10.4

N/A

Source: Foreign & Colonial Investment Trust, Edison Investment Research, Morningstar, Thomson. Note: *N/A = were not in January 2015’s top 10.

Market outlook: Equities look relatively attractive

Looking at Exhibit 2 (left-hand side) the valuations of the Datastream world index vs history, equities do not look immediately compelling. The forward P/E multiple at 14.2x is below the 10-year high of 16.0x, but is 9% above its 10-year average. However, the price-to-book multiple, which can be viewed as a more stable valuation measure, is in line with the 10-year average. In addition, the dividend yield is attractive vs history and returns on equity are improving from the low levels seen in the depth of the global financial crisis. Exhibit 2 (right-hand side) illustrates the relative attractiveness of equities vs bonds from a yield perspective. In the UK, the dividend yield is currently 250bp higher than the 10-year government bond yield.

Exhibit 2: Market valuation and performance

Datastream world index 10-year valuation metrics

Yield premium of UK equities to 10-year government bonds (DS indices)

 

Last

High

Low

10-year average

Last % of average

P/E 12-months fwd (x)

14.2

16.0

8.8

13.0

109

Price to book (x)

1.8

2.5

1.1

1.8

100

Dividend yield (%)

2.8

4.6

2.0

2.6

106

Return on equity (%)

9.8

16.8

4.6

12.0

82

Source: Thomson Datastream, Edison Investment Research. Note: As at 1 March 2016.

Notwithstanding the volatile to start to 2016 in global financial markets due to investor concerns about slowing global growth and macroeconomic issues, forecasts are for continuing economic improvement. In the IMF’s latest World Economic Outlook, despite reducing forecasts for world output in both 2016 and 2017 by 0.2%, estimates are for 2.1% GDP growth for both years in advanced economies vs 1.9% in 2015. GDP growth in emerging markets and developing economies is forecast to accelerate to 4.3% year-on-year in 2016 and 4.7% in 2017 vs 4.0% growth in 2015. Global monetary policy remains accommodative; the ECB and Bank of Japan are continuing to ease and following a period of softer economic data in the US, expectations for a further interest rate hike have been delayed. In this period of low, but moderately improving economic growth and low interest rates, a diversified portfolio focused on both capital return and income may be viewed as attractive by investors.

Fund profile: Focus on capital return and rising income

Foreign & Colonial Investment Trust (FRCL) is the oldest investment trust in the UK, launched in 1868. It aims to provide both capital and income growth from a diversified equity portfolio that includes investment in private equity. Dividends have increased annually for the last 45 years. FRCL typically remains fully invested. There are no geography or industry sector exposure limits for publicly listed securities; up to 10% of the portfolio can be invested in private equity and a maximum 5% (excluding private equity) can be invested in unquoted securities. No single investment may exceed 10% and there is a 5% limit on the combined value of investment funds managed by the F&C Group. Derivatives may be used to enhance income or for efficient portfolio management.

Since 1 January 2013, FRCL’s benchmark has been the FTSE All-World index, reflecting a reduction in exposure to the UK and portfolio allocation more in line with the global index. Prior to this the benchmark was a composite of 40% FTSE All-Share index and 60% FTSE World ex-UK index. The portfolio has undergone significant repositioning since the change in investment manager in July 2014, when Paul Niven (BMO’s head of multi-asset investment) took over from Jeremy Tigue, who retired having managed the trust for 17 years. FRCL has a broad shareholder base, including more than 100,000 private investors.

The fund manager: Paul Niven

The manager’s view: Stock market rotation expected

Manager Paul Niven highlighted the FY15 outperformance of FRCL vs its benchmark. Most of the underlying strategies added to performance, such as North America, where the US T Rowe Price growth strategy returned 10%, outperforming the S&P 500 Index and growth indices. Allocations were increased to Japan and Europe, contributing to performance. Private equity was a strong contributor, returning 13.9% in 2015 and generating more than £129m of cash. The weighting has fallen to 9.4% of the portfolio and the manager suggests future exposure is likely to range between 5% and 15% depending on the relative attractiveness of the asset class. When private equity valuations are high and prospective returns are lower than historically, a lower allocation would be desirable. Third-party funds-of-funds were previously invested via HarbourVest and Pantheon (who were paid £4.6m in fees in 2015), but the manager says future private equity investment is likely to be managed internally via primary and secondary investment as well as possible co-investment. This will result in a smaller number of underlying investments and will afford FRCL greater control and lower costs. The manager will have control over the geography and type of investment and will work with the internal team to source them.

Gearing was increased to gain equity exposure in August 2015 during a period of market stress, and decreased in December. The manager is relatively cautious on the economic outlook and notes that gearing has not been significantly increased during the stock market volatility in 2016 as he views the environment as less benign compared to six to eight months ago. He explains that stock markets are driven by corporate cash flows/earnings/dividends and investor risk appetite. Earnings are declining, which is less supportive for equities; negative earnings revisions are not limited to the resource sectors. Profit margins in the US have peaked and are starting to decline from elevated levels. The manager expects pressure from wage gains and higher interest rates. He believes that other regions of the world will outperform the US this year despite elevated macroeconomic risks and that 2016 will be a more difficult year for investors. There has already been rotation in the market, as emerging markets are starting to perform better, along with resource stocks. The manager is looking for the growth/value trade in the US to reverse; in the last three years growth stocks have outperformed value names (measured by the Russell 2000 and S&P 500 growth and value indices).

Asset allocation

Investment process: Diversified global investment strategies

FRCL’s portfolio is large and diversified and is structured based on the manager’s views on asset allocation, risk and the use of gearing. The objective is long-term growth in capital and income. Investments are primarily in public and private equity given the belief that equities provide the best returns over the longer term. The trust aims to provide market exposure rather than focusing on absolute returns and tactical allocations may be made to address short-term opportunities or threats. The manager is benchmark aware, but the portfolio is not required to follow benchmark allocations; an obvious example is FRCL’s exposure to private equity.

Allocations are made across five regional and three global (including private equity) strategies, with in-house or external manager selection driven by balancing expected return with cost. However, since the acquisition by BMO in 2014, in-house resources are increasingly being used. US small-cap exposure was historically via the Jupiter US Smaller Companies IT (previously a BMO trust), but is now managed internally as part of a global small-cap strategy. There is a Global Equity Income portfolio run by BMO’s Erik Rubingh and a Global Multi-Manager portfolio run by BMO’s Rob Burdett and Gary Potter. Exposure to externally managed funds via a ‘global funds’ portfolio has been reduced; the remaining holdings have been re-allocated into the relevant geographical portfolios.

Current portfolio positioning

At the end of February 2016, FRCL had 523 holdings, with the top 10 representing c 10% of the portfolio. Within this there are private equity holdings and fund exposure, so the actual number of companies invested in runs into the thousands. Looking at the sector exposure (excluding private equity), the largest changes in 2015 were an increase in consumer goods and a reduction in oil & gas. The highest overweight position is in consumer services.

Exhibit 3: Portfolio sector exposure (excluding private equity)

Portfolio end-December 2015 (%)

Portfolio end-December 2014 (%)

Change
(%)

Index weight (%)

Active weight vs index

Trust weight/ index weight

Financials

21.6

23.0

-1.4

22.4

-0.8

1.0

Consumer services

15.3

14.8

0.5

11.3

4.0

1.4

Consumer goods

13.8

10.8

3.0

13.9

-0.1

1.0

Healthcare

13.5

12.4

1.1

11.7

1.8

1.2

Industrials

13.0

14.2

-1.2

12.1

0.9

1.1

Technology

10.7

10.9

-0.2

11.4

-0.7

0.9

Basic materials

5.0

4.3

0.7

4.2

0.8

1.2

Oil & gas

3.3

5.4

-2.1

6.2

-2.9

0.5

Telecommunications

2.5

2.6

-0.1

3.6

-1.1

0.7

Utilities

1.3

1.6

-0.3

3.2

-1.9

0.4

100.0

100.0

100.0

Source: Foreign & Colonial IT, Edison Investment Research, FTSE.

As shown in Exhibit 4, on a look-through basis, over the last 12 months the largest geographic changes have been increased exposure to Japan and decreased exposure to North America. The largest overweight exposure is to Europe ex-UK. Following a prolonged period of outperformance, exposure to the US T Rowe Price growth strategy has recently been reduced.

Exhibit 4: Geographical weightings (including private equity) vs benchmark

Portfolio end-
January 2016 (%)

Portfolio end-
January 2015 (%)

Change
(%)

Index weight (%)

Active weight vs index

Trust weight/ index weight

North America

42.3

44.9

-2.6

55.2

-12.9

0.8

Europe ex-UK

22.6

21.9

0.7

15.6

7.0

1.4

Japan

10.0

6.3

3.7

8.6

1.4

1.2

Emerging markets

10.2

10.5

-0.3

8.1

2.1

1.3

UK

10.3

11.3

-1.0

6.9

3.4

1.5

Developed Pacific

3.0

4.3

-1.3

5.6

-2.6

0.5

Cash

1.6

0.8

0.8

0.0

1.6

N/A

100.0

100.0

100.0

Source: Foreign & Colonial IT, Edison Investment Research, FTSE. Note: Look-through exposure.

Performance: Outperformance vs the benchmark

As shown in Exhibit 5, FRCL has outperformed its benchmark over one, three, five and 10 years. The narrowing discount has resulted in outperformance of the share price vs the NAV over three, five and 10 years. The trust has also outperformed the FTSE All-Share index over all periods shown excluding the last month. For the year ended 31 December 2015, FRCL’s NAV total return was 7.5%, which was 350bp higher than the 4.0% returned by the benchmark FTSE All-World index. The share price rose by 9.0%, narrowing the discount. The outperformance was primarily a result of stock selection, although asset allocation also contributed to performance. There were modest share repurchases, which had a small positive contribution and the effect of gearing was positive (shown in Exhibit 7).

Exhibit 5: Investment trust performance to 29 February 2016

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

Exhibit 6: Share price and NAV total return performance, vs indices (percentage points)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to blended benchmark

0.6

(1.6)

(3.1)

(1.4)

5.8

7.5

10.4

NAV relative to blended benchmark

(0.6)

(1.1)

(0.9)

1.3

1.6

2.7

2.7

Price relative to FTSE All-World

0.6

(1.6)

(3.1)

(1.4)

5.8

8.5

8.3

NAV relative to FTSE All-World

(0.6)

(1.1)

(0.9)

1.3

1.6

3.6

0.8

Price relative to FTSE All-Share

0.9

1.1

2.5

4.1

17.9

21.8

28.2

NAV relative to FTSE All-Share

(0.3)

1.6

4.8

6.9

13.2

16.3

19.4

Price relative to FTSE World ex-UK

0.5

(2.0)

(3.8)

(2.6)

2.9

5.1

5.9

NAV relative to FTSE World ex-UK

(0.7)

(1.5)

(1.6)

0.1

(1.1)

0.4

(1.4)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-February 2016. Geometric calculation.

Exhibit 7: Performance attribution in 2015

Exhibit 8: NAV performance relative to benchmark*

Source: Foreign & Colonial Investment Trust, Edison Investment Research. Note: *Debt at market value, ** dividends reinvested.

Source: Thomson Datastream, Edison Investment Research. Note: Total return performance over five years. *Benchmark prior to 1 January 2013 was a composite of 40% FTSE All-Share index and 60% FTSE World. It is now the FTSE All World index.

Discount: Narrower average discount over last year

FRCL has an active policy to manage the share price discount to net asset value by purchasing shares. In May 2015 the discount ceiling above which shares are repurchased was lowered from 10.0% to 7.5%. This is a step towards the board’s aspiration of the shares trading at or close to NAV. FRCL also has the ability to issue shares when there is a premium. The year 2015 saw the lowest level of repurchases since the policy was introduced in 1999. The current share price discount of 9.9% to cum-income NAV is above the average 7.9% over the last 12 months (range of 5.0% to 11.4%). The change in the discount policy has helped to reduce the average discount; over the last three and five years the discount has averaged 9.2% and 9.7%, respectively.

Exhibit 9: Share price premium/discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research. Note: Negative values indicate a discount.

Capital structure and fees

FRCL is a conventional investment trust with 555.8m shares in issue with a further 6.0m shares held in treasury. The trust uses gearing to enhance returns, which currently stands at 10%. Over the last 10 years, gearing has been in a range of 5% to 19%; it was 8.6% at the end of 2015. Short or long-term borrowings can be taken out in sterling or foreign currencies up to a total of 20% of shareholder’s funds. Borrowing costs have been reduced following the maturity of the long-standing debenture at the end of 2014. A £50m, equivalent seven-year euro loan was taken out in July 2015 at a rate of 1.69% to take advantage of the low interest rate environment. At the end of 2015, around half of total borrowings were short dated with current interest rates between 0.27% and 0.70%. Shorter-term borrowings will be used more actively in terms of currency views, while the currency of structural borrowings will be more closely related to the underlying asset mix. The current blended cost of borrowing is c 1.6%.

FRCL pays a management fee of 0.365% of its market cap to BMO with direct fees also paid to external managers. The manager suggests that the fee structure is competitive, especially for a trust where some of the management is outsourced. In 2015, the ongoing charge was reduced from 0.87% to 0.80%.

Dividend policy and record

Dividends form an important part of shareholder returns and have been increased every year since 1970; they have more than doubled in each of the last four decades. The board recognises the importance of a rising income stream in real terms and has committed to another rise in the dividend in 2016. Since the beginning of 2013 dividends are paid quarterly, previously twice a year. The board has stated that it would like the dividend to be fully covered by revenue income (0.9x in 2015), which rose by 25% year-on-year; however, there is no fixed timeline for full coverage. At the end of December 2015, the revenue reserve was nearly 1.5x the dividends paid in the year. The 9.6p dividend proposed for 2015 is a 3.2% year-on-year increase and the current dividend yield is 2.2%.

Peer group comparison

The selected peer group shown in Exhibit 8 are members of the AIC’s Global sector with a market cap of more than £100m and less than 25% of their assets invested in the UK. FRCL’s NAV total return performance is ahead of the peer-group average over one, three, five and 10 years; ranking first over one year and second over both three and five years. In terms of risk-adjusted returns, it is in line with the peer-group average over one year and modestly above over three years. The discount is moderately wider and the ongoing charge is slightly above the peer average. There is no performance fee. Gearing is above the group average and the dividend yield is also higher.

Exhibit 10: Selected peer group as at 14 March 2016

Percentage unless stated

Market cap (£m)

NAV TR 1 Year

NAV TR 3 Year

NAV TR 5 Year

NAV TR 10 Year

Sharpe 1y (NAV)

Sharpe 3y (NAV)

Discount (ex-par)

Ongoing charge

Perf.fee

Net gearing

Dividend yield (%)

Foreign & Colonial Invest. Trust

2,377.9

(0.9)

25.5

49.2

92.4

(1.0)

0.6

(9.9)

0.8

 No

109.0

2.2

Alliance Trust Ord

2,573.5

(1.5)

18.8

38.9

67.1

(0.9)

0.3

(10.9)

0.7

No

112.0

2.9

EP Global Opportunities Ord

111.6

(5.2)

19.8

34.1

63.9

(1.3)

0.4

(3.7)

1.1

No

100.0

1.5

Henderson Global Trust Ord

137.7

(6.5)

12.9

27.1

92.8

(1.4)

0.2

(10.0)

0.9

No

97.0

2.7

JPMorgan Overseas Ord

257.1

(6.7)

20.9

33.5

96.7

(1.1)

0.4

(8.6)

0.7

Yes

108.0

1.6

Martin Currie Global Portfolio Ord

179.7

(2.0)

23.0

47.9

92.8

(0.9)

0.5

0.1

0.7

Yes

100.0

2.3

Monks Ord

872.8

(5.4)

14.1

18.3

56.6

(1.1)

0.2

(12.1)

0.6

No

108.0

1.0

Scottish Mortgage Ord

3,209.6

(2.3)

46.5

69.5

151.6

(0.7)

0.8

(5.6)

0.5

No

112.0

1.2

Simple average

(3.8)

22.7

39.8

89.2

(1.0)

0.4

(7.6)

0.7

105.8

1.9

Rank

3

1

2

2

5

4

2

4

3

3

4

Source: Morningstar, Edison Investment Research. Note: Performance data to 29 February 2016. TR = total return. Sharpe ratio is a measure of risk-adjusted return. The ratios shown are calculated by Morningstar for the past 12- and 36-month periods by dividing a fund’s annualised excess returns over the risk-free rate by its annualised standard deviation. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are eight members of the board, all are independent non-executive directors. Chairman Simon Fraser became a director in 2009 and was appointed chairman in 2010. Senior independent director Christopher Keljik was appointed in 2005. The other six directors with their year of appointment are: Sir Roger Bone and Stephen Burley (2008), Jeffrey Hewitt (2010), Sarah Arkle and Nicholas Moakes (2011) and Francesca Ecsery (2013). The board is very diverse; the directors have backgrounds in asset management and a range of industries.

On 8 March 2016, it was announced that Christopher Keljik will be retiring from the board following the next AGM. The search for his replacement is currently being undertaken via an online resource, leading to a broader selection of candidates. Sir Roger Bone will become senior independent director.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Foreign& Colonial Investment Trust and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Share this with friends and colleagues