OverviewRun by highly experienced managers, supported by a large team of fixed income and equity market specialists, the fund is designed to give investors access to a ready-made cautious balanced strategy. The portfolio consists of a blend of assets, providing exposure to equities, bonds and cash, with the aim of providing income and long-term capital growth. The fund can invest up to 60% of its value in equities.

PhilosophyThe managers believe that making the right asset allocation decisions at the right time can put investors on the path to achieving their long-term financial objectives. Different asset classes tend to outperform at different points in the economic cycle. Through active allocation between equities, bonds and cash, the fund managers believe it is possible to generate smoother returns with lower volatility than a pure equity fund, with an emphasis on limiting risk and keeping costs low.

The managers believe that each asset class must play an important role in portfolio construction, as highlighted here:

Fund management teamThe Henderson Cautious Managed Fund is managed by Chris Burvill, Stephen Payne, Jenna Barnard and John Pattullo, who between them have more than 90 years’ industry experience.

Chris is one of the most experienced managers in the IA Mixed Investment 20-60% Shares sector and has specialised in cautious managed investment strategies since 1993. Chris oversees strategic asset allocation and remains ultimately responsible for investment decisions.

Citywire-rated equity income specialist Stephen Payne joined the team in May 2016.

John and Jenna lead the Henderson Strategic Fixed Income team and co-manage a number of Henderson’s fixed income funds.

The fund managers make use of the combined expertise of Henderson’s equities and fixed income divisions, which provide a broad platform to help generate investment ideas.

• Potential core holding for investors: A traditional defensively managed fund focused on exploiting opportunities, limiting risk and keeping costs low.

• Straightforward investment process: A simple, easily understood approach to investing in equities, bonds and cash.

• Adaptability: A flexible value-biased strategy that adjusts to changing market conditions by altering the level of exposure to different asset classes.

• Investment expertise: Lead manager Chris Burvill, who launched the fund in 2003*, has over 23 years’ experience of running cautious managed strategies.

Key features

Henderson Cautious Managed FundINVES

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SFor professional investors only

*Formerly the Gartmore Cautious Managed Fund. The fund was renamed following Henderson’s acquisition of the Gartmore Group in 2011.

EquitiesEquities offer long-term growth potential, combined with potentially attractive income generation across industries and sectors. This fund has a focus on undervalued opportunities

Bonds

Cash

Bonds provide income stability and act as a counter to the natural volatility of equities, with key calls on duration and inflation risk

Holding cash helps to dampen volatility, improving the fund’s defensive diversification and providing liquidity in both up- and down-market cycles

Investment processFund managers often describe their process as though picking winning stocks can be achieved through production-line efficiency. We believe differently. This is not a manufacturing business; each investment needs

different analysis, poses different questions and requires a different judgement.

Our asset allocation is the result of two primary decisions: the ‘top-down’ call, which relies on ratio analysis, macro views and a gauge of sentiment indicators; together with the ‘bottom-up’ call – effectively what stocks are able to justify their inclusion in the portfolio. From there, we make an assessment of how big a commitment we are willing to make.”

Portfolio constructionThe fund utilises a balanced strategy that combines the long-term capital growth prospects of equities with the greater stability offered by bonds and cash. The fund managers employ an active investment style on both the equity and bond portions of the portfolio. The managers have the flexibility to adjust the balance between asset classes over time to reflect changing market conditions, while applying a ‘cautious’ investment approach.

The fund managers recognise the important ‘elastic’ relationship between bonds and equities and assess both macro and micro factors affecting both markets, such as:

Macro - yield gaps and ratios

Micro - signals from debt to equity markets - signals from equities

Portfolio construction is designed to translate the team’s best ideas into holdings in a risk-managed way. This is achieved through active, top-down and bottom-up stock and bond selection, driven by team discussion and skilled risk management.

Equity research processThe team applies a value-oriented style which combines both quantitative and qualitative methods to help generate investment ideas, identified via a range of primary and secondary sources:

Primary Secondary

Investment screens Broker contacts

Company meetings Analyst meetings

Macroeconomic factors Team colleagues

From a quantitative perspective, the team considers a number of common investment metrics. These are used to assess the quality of assets and the underlying business, searching for unrecognised value and ‘anchor points’ (a company’s characteristic that is less exposed to earnings volatility), which can be relied on even if earnings disappoint.

The strategy focuses on value, but includes the pragmatic recognition of other important factors. The investment metrics considered include, but are not limited to:

• Earnings and cash/earnings-based multiples

• Price/earnings ratio (P/E)

• Price-to-book value (P/B)

• Return on equity (ROE)

• Dividend yield (ability to sustain and grow)

• Enterprise value/sales

• Balance sheet metrics

From a qualitative perspective, the investment team focuses on companies that the market may have overlooked and are capable of providing either goods or services, where either profits or the stock rating have scope to improve. It is not easy to predict earnings and so it is important to avoid over-reliance on earnings upgrades and downgrades.

The team regularly meets companies and draws on in-house industry expertise when required. This analysis is augmented with more general macroeconomic and valuation research, using systems such as Bloomberg and Thomson Reuters DataStream.

Internal expertise from the diverse equity and fixed income teams at Henderson help to formulate the managers’ view on potential stocks. This broader resource base allows them to maintain a wider general perspective on the market.

As useful as P/E ratios can be, can we rely on the future earnings outlook? If a company has strong cashflow characteristics, are we certain that the business is not being starved of investment? Are asset values on the balance sheet reasonable, or are they worth more on the open market? We believe that it is only by utilising a bespoke process for each investment decision that we can come to a fair assessment of a company’s investment potential.”

Henderson Cautious Managed FundFor professional investors only

Fixed income research process The selection of bond holdings within the fund reflects the current and anticipated economic and market environment, in particular the direction for inflation and interest rates as well as the supply and demand for different types of bonds.

While bonds can offer the potential for capital gains, their primary function within the portfolio is to provide an attractive and sustainable income while offering risk reduction through asset diversification. For government bond holdings this means ensuring the yield is competitive, given the economic outlook, whereas for corporate debt greater attention is paid to company fundamentals and the quality (creditworthiness) of an issuer, given the importance of avoiding defaults. Positive corporate fundamentals include strong cash generation, improving balance sheets and bondholder-friendly company management.

The focus is to identify relative value within the capital structure, seeking the most attractive risk-adjusted returns. This will involve determining whether to hold senior or junior debt, fixed or floating rate or index-linked bonds. It is not uncommon to hold both the equity and debt of a favoured company. In these instances, any single name concentration is maintained within fund limits.

Portfolio parametersThe managers adhered to the following internally imposed guidelines, as at 28 February 2017:

Equities• Maximum 3.5% exposure to any single FTSE 100 stock

• Maximum 1.5% exposure to any FTSE 250/FTSE Smaller Companies stock

• The sum of sector divergences must not exceed 25% of the FTSE All-Share Index

Bonds• Weighting normally limited to 1% per holding

• Duration normally between 5–8 years

• Holdings in sub-investment grade bonds limited to 10% of total assets

Cash• Up to 20% of the fund can be held in cash

Typical portfolio characteristics

Equities can comprise up to 60% of the portfolio. These are primarily blue chip stocks

Sector divergence parameters to control diversification

Average bond rating maintained as investment grade

High yield bonds can comprise up to 10% of the total portfolio

Duration rarely moves outside + or – 2 years from the Merrill Lynch 5–15 Year Non Gilt Index

The fund uses currency hedging to ensure that there is no (net) overseas currency exposure. Derivatives are used for this purpose to help reduce exchange rate risk on overseas investments.

Sell disciplineInvestments are sold when they have reached levels where the managers judge further upside potential to be limited. For all holdings we continually review the fundamentals to ensure that the investment case holds.

Equity and fixed income expertiseThe managers are supported by the joint capabilities of Henderson’s equity and fixed income divisions, which provide a deep and broad pool of research and specialisation to help generate ideas and identify risks. Formal and informal meetings across teams provide a platform for sharing investment ideas and themes, and to discuss top-down views.

Henderson’s equity divisionThe structure of Henderson’s equity investment teams allows talented and experienced fund managers to maximise their potential. There is no overarching house style, with each team responsible for its investment process, stock selection and portfolio construction, which is subject to challenge and debate. Research analysts are embedded within teams as required, depending on the individual investment processes. Analysts are encouraged to share and challenge each other’s views across the entire division to ensure there is cross-fertilisation of ideas, allowing individual investment teams to leverage the expertise of Henderson’s wider investment platform.

Henderson’s fixed income divisionThe fund managers are able to leverage the knowledge and proficiency of Henderson’s fixed income division, which comprises over 70 specialists who manage a total of £28.1bn*. The teams, comprising both fund managers and analysts, are tasked with generating as many bottom-up investment ideas as possible within their area of expertise. The views formed in the idea generation process are then utilised by the portfolio managers, taking into account the benchmark against which the portfolio is managed, tracking error and investment constraints. Position sizes reflect factors such as conviction of view, liquidity/deal size, benchmark and correlation with other views in the portfolio.

Source: Henderson Global Investors, as at 31 December 2016

Henderson Cautious Managed FundFor professional investors only

Fund managersChris BurvillDirector of UK Equities, Lead Fund ManagerChris joined Henderson in 2011 as Director of UK Equities as part of the merger with Gartmore, where he was Head of UK Equity Income. Prior to joining Gartmore, Chris spent a decade at Investec Asset

Management, managing a number of successful funds, including the Temple Bar Investment Trust. He also launched the Investec Cautious Managed Fund in 1993. Prior to this, Chris was with Commercial Union (CU), initially as a UK Equities Investment Analyst and then manager of the CU Income Fund from 1987 to 1990. Chris graduated in Economics from University College, Cardiff in 1981, before becoming a management trainee with National Mutual of Australia.

Stephen Payne Co-Fund Manager Stephen Payne joined Henderson in 2016 from Santander Asset Management where he was responsible for the firm’s Enhanced, Dividend and Equity Income funds. Prior to joining Santander, he worked for

Blue Oar Securities as a sell-side analyst, specialising in UK high yield equities. Stephen joined Blue Oar Securities from Teachers Investment Management where he managed the UK mid and small-cap equity funds and the Sovereign Income Unit Trust. He has also worked at Framlington Investments and Hill Samuel Asset Management, managing their UK Equity Income fund ranges. Stephen started his career at Abbey Life. He has a BSc (Hons) in Economics from the University of Southampton and is an Associate of the CFA Society of the UK.

John PattulloCo-Head of Strategic Fixed Income, Co-Fund Manager John Pattullo is Co-Head of Strategic Fixed Income at Henderson. With around 20 years of experience investing in the credit markets, John co-manages a number of funds, including Preference & Bond, Fixed

Interest Monthly Income and Strategic Bond, with Jenna Barnard. Prior to joining Henderson in 1997, John spent four years as a chartered accountant at PricewaterhouseCoopers.

John has an MA (Hons) in Economics from the University of St Andrews. He is a member of the Institute of Chartered Accountants of Scotland and an Associate Member of the Society of Investment Professionals.

Jenna BarnardCo-Head of Strategic Fixed Income, Co-Fund ManagerJenna Barnard is Co-Head of Strategic Fixed Income, co-managing a number of funds, including Preference & Bond, Fixed Interest Monthly Income and Strategic Bond, alongside John Pattullo. Jenna

joined Henderson in 2002 as a credit analyst and progressed to Credit Portfolio Manager in 2004. Prior to joining Henderson, Jenna worked as an investment analyst with Orbitex Investments.

Jenna holds a first class BA (Hons) degree in Politics, Philosophy & Economics from Oxford University. She is a CFA charterholder, and an affiliate member of UKSIP. Jenna is a Member of the Society of Technical Analysts having passed the STA Diploma exam. 

The Investment Risk Team at Henderson is independent from the portfolio managers. The team works closely together with fund managers and senior management to ensure all risks taken in the portfolios accurately reflect the manager’s core views and is in line with client expectations.

The investment risk team monitors portfolio positioning to check that the key contributors are aligned with client expectations and the fund manager’s convictions. The risk team measures exposures and key risk levels across key representative funds on a daily basis. Different risk models, including multi-factor risk models (for example UBS Delta and Barra for equities), are employed.

Liquidity and scenario analysis are conducted on a daily basis. Style research is used on a monthly basis in order to compare the fund to the benchmark or market for style exposures (value and/or growth biases, momentum tilts, size exposures, etc), and to create a longer term risk model.

Independent risk monitoring

Important InformationThis document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (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: 34S

H024695/0816

Contact usGeneral enquiries: 0800 832 832Email: support@henderson.comWebsite: henderson.com

Henderson Cautious Managed FundFor professional investors only