Strategy Profile

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STRATEGY PROFILE

Global Diversified Credit Overview

Investment Management

The objective of the Global Diversified Credit strategy is to deliver a positive total return through a combination of income and capital gains delivered through asset allocation and security selection. The strategy invests across global credit markets, primarily focusing on the following areas:

The Global Diversified Credit Strategy is managed by the Fixed Income Investment Strategy Group (ISG) which harnesses the experience and ideas of Janus Henderson’s most senior fixed income managers. The ISG approach brings together top-down asset allocation and risk management with bottom-up ideas managed by Janus Henderson’s specialist credit teams. The ISG determines the risk budget and allocates capital to the areas of the market that it believes will be best rewarded, while the underlying specialist teams are responsible for bottom-up idea generation. Stephen Thariyan (Global Head of Credit) and Colin Fleury (Head of Secured Credit) are responsible for the implementation and oversight of allocations to their respective specialist teams.

• Asset-backed securities (ABS) • Secured loans • High yield corporate bonds • Emerging market corporate bonds • Investment grade corporate bonds

Asset allocation

ISG

Risk budgeting

Diversified Credit (Colin Fleury & Stephen Thariyan)

ABS

Secured loans

High yield

Emerging markets

Investment grade

Security selection by specialist teams

Stephen Thariyan is Global Head of Credit, in charge of the 30-strong credit team of portfolio managers and analysts at Janus Henderson. Prior to joining Janus Henderson in 2007, Stephen was a portfolio manager at Rogge Global Stephen Thariyan Partners responsible for investing in corporate bonds Global Head and credit derivatives globally. of Credit Stephen graduated from the University of Newcastle-Upon-Tyne with a BA (Hons) in Accountancy and Financial Analysis. Colin Fleury joined Janus Henderson in July 2007. He has over 28 years of banking, corporate finance and advisory experience specializing in asset-based financing and investing since 1995. Prior to Janus Henderson, Colin held Colin Fleury secured credit portfolio Head of management roles at Deutsche Secured Credit Bank and Abbey National Treasury Services. Colin’s experience spans multiple jurisdictions in Europe and worldwide. He is an Associate of the Chartered Institute of Bankers.

Global Diversified Credit Investment Process and Portfolio Construction

Security selection

Overview

At Janus Henderson we take a bottom-up approach to assessing the likelihood of credit deterioration or a default event for specific securities. We have a team of global credit analysts (both corporate credit and secured credit), responsible for analyzing the issuers in specific industry sectors across the full capital structure and ratings spectrum. This way, our analysts become experts in their respective sectors. In addition we have developed bespoke investment processes specific to each credit asset class to optimize flexibility, fundamental analysis and knowledge sharing. These are summarized in the table below.

The strategy seeks to generate returns through a combination of: • Top-down asset allocation: favoring the most attractive areas of global credit markets • Security selection: expert fundamental analysis, picking the right bonds With a mandate of this nature, asset allocation and security selection are both of paramount importance, and we provide a summary of each process below.

Top-down asset allocation The ISG are responsible for overall asset allocation, seeking to ensure an efficient conversion of risk into return. The framework used combines quantitative analysis with qualitative judgement and has been utilized by the ISG to build portfolios since its inception in 2005. For this portfolio, the group will form their asset allocation decisions by assessing the expected returns, volatility and correlations between different areas of the credit markets. This analysis defines the total amount of risk taken at the portfolio level, which can then be adjusted to take into account shorter-term considerations. We use quantitative models to inform our decisions, not to make them for us. The aim of the asset allocation process is to weight the portfolio towards those areas of the credit markets which offer value or that offer attractive diversification benefits when combined with other elements of the portfolio. Our assessment of the macro environment and outlook for markets, across the ratings spectrum, determines the optimum portfolio positioning and the degree to which we allocate between the different areas of the credit markets. A change in asset allocation can be driven by any one of three factors: i) expected return ii) volatility and iii) correlation with other risk factors in the portfolio. For any change in asset allocation, we can estimate the impact on total portfolio return and volatility and we use this methodology to assist us when investing in different areas of the market. The chart below shows an example of this process in practice. We can assess the risk and return impact, at a total portfolio level, of introducing a new asset class to an existing portfolio and how much to allocate to this asset. The further to the left we move on the chart represents a reduction in overall portfolio risk (the benefits of diversification) and the further up we move on the chart represents an increase in overall expected return (the benefits of allocating to a higher yielding asset, however with more risk). Heat-map of broad market returns

Expected return

Base case

Risk case 1

Risk case 2

Investment-grade corporate High yield corporate

Volatility

EM credit Loans

Asset correlation

ABS

Chart shows 1 year return estimates in each scenario for each sector: <0 red; 0-3 Amber; 3-5 light green; 5+ dark green. Note: the above is a hypothetical illustration.

Corporate credit

Secured loans

Asset-backed securities

Each credit analyst responsible for specific industry sectors across ratings spectrum

Bottom-up selection, using filters on size, term, and jurisdiction applied before credit review

Lead analyst allocated to present risk-return profile of potential investment to the team

Bottom-up approach using both fundamental and technical techniques utilizing extensive research materials and company visits/meetings

Detailed credit review undertaken on industry, business, and company fundamentals, alongside liquidity, debt structure, risk-return and relative value assessments

In-depth fundamental and technical analysis undertaken. Historical collateral performance data, structural and legal elements, and timing of cash flows examined

Quarterly cross industry sector performance review meetings. Daily and weekly meetings to share ideas and topical issues

Written report and financial models presented to the team, followed by in-depth Q&A on the opportunity

Discussions can be held at short notice to react to market opportunities and events

Individual trade recommendations with decisions and research views stored electronically

Unanimous decision required before any investment is made

A minimum ‘four eyes’ policy is adopted prior to execution of purchases and sales

Implementation Combining the views of our experienced credit analysts with the top down asset-allocation of the ISG is crucial to the success our diversified fixed income portfolios. Stephen Thariyan and Colin Fleury (as heads of Credit and Secured Credit respectively) are responsible for overseeing the implementation across the allocations to corporate and secured credit assets. Day-to-day, the allocation to each asset class is implemented by one of the portfolio managers from that area. For example, if the ISG makes an allocation to secured loans as part of the asset allocation decision, responsibility for security selection is delegated to David Millward (Head of Loans) and his team of secured loans specialists to manage that portion of the assets. As a result, investors gain access to a number of our underlying specialisms under the oversight of the ISG, a team of our most experience investors. It is important to note that this is not a fund of funds approach, just the most efficient way for us to access the ideas generated by our analysts in each sector.

Portfolio Characteristics

Risk Management Typical characteristics High yield 0%-50% Secured loans 0%-50%

Indicative operating ranges*

EM credit 0%-50% ABS 0%-50% Investment grade 0%-50% Other 0%-20%

Cash/Liquids*

0%-20%

Duration*

1-3 years

Individual position size*

5%

Typical number of securities*

>150 bonds

*Indicative expected operating ranges, not hard limits

Sell Discipline There are two layers of buy and sell decisions. The ISG is responsible for overall asset allocation, seeking to ensure an efficient conversion of risk into return. This process results in the ISG making a buy or sell decision on which sectors of the market it would like to be exposed to. Day-to-day, the allocation to each asset class is implemented by one of the portfolio managers from that area. The team does not impose hard stop-losses when deciding on which bonds are included in the portfolio. Across the fixed income department, there is a rigorous sell discipline in place. If the analyst responsible for a bond feels that the risk of a materially adverse credit event increases and is not appropriately priced in by the markets, the portfolio/fund will exit its position. Conversely, bonds will be sold if there are more attractive alternatives available. Analysts can deviate from this sell discipline if exaggerated price movements might be caused by technical factors, with no fundamental justification. These price movements might be seen as buying opportunities.

Strategy level risk management In monitoring and managing portfolio risk, the Investment Strategy Group (ISG) use a variety of techniques and systems. From a top-down perspective, all positions can be monitored daily through the Imagine attribution system, which calculates P&L (the profit or loss on each position) and risk (interest rate and spread durations, net/gross exposures) on a daily basis. This complements the bottom-up analysis and monitoring of trade ideas by the sponsoring analyst. Credit positions are primarily sized with reference to downside risk – what is the maximum loss we would be willing to accept, e.g. in a jump-todefault scenario? This tends to lead to well-diversified portfolios. Analyst conviction is also important. The Henderson process strongly encourages analyst involvement in stock picking across portfolios because this aids alignment between analysts and portfolio performance. All things being equal, we take larger positions in higher conviction names. Liquidity of the bond is also considered when sizing positions – we want to be able to sell the bond if necessary. Finally, our portfolio management systems allow us to monitor the impact on the portfolio’s expected risk/return using traditional metrics including Value at Risk. We believe these measures are a useful complement to the skill, experience and common sense of our portfolio managers. The strategy holds a high number of lowly correlated positions from across the global fixed income opportunity set. This diversification is designed to lower the overall portfolio risk and has helped the strategy to deliver attractive risk-adjusted returns to clients. We use a range of quantitative methods from proprietary models to measure portfolio risk, and supplement this with qualitative judgement and prudent exposure limits.

Global Diversified Credit

For more information visit janushenderson.com. Henderson Global Investors (North America) Inc. is a subsidiary of Janus Henderson Group plc and provides certain advisory services together with its advisory affiliates. Janus Henderson is a trademark of Janus Henderson Investors. © Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. Important information This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. Janus Henderson Investors is the name under which the investment advisory subsidiaries of Janus Henderson Group plc are authorized and regulated by the Financial Conduct Authority to provide investment products and services.  The information in this document is for general information purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security or to make any investment. Past performance is no guarantee of future results. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. International investing involves certain risks and increased volatility not associated with investing solely in the US. These risks included currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments. The Global Diversified Credit strategy may invest in illiquid securities and is subject to currency risk, interest rate risk, credit/default risk and high yield securities risk. Investments in high yield securities may offer more attractive returns than higher-rated securities, but the potentially higher yield is a function of the greater risk that a particular security may default. The strategy may borrow money which may adversely affect the return to investors, also known as leverage risk. Loans or securities that are part of highly leveraged transactions involve a greater risk (including default and bankruptcy) than other investments. The strategy may invest in the following derivatives: FX forward contracts, credit default swaps (index and single name), interest rate swaps and interest rate futures. The strategy may also invest in asset-backed securities which are at greater risk during periods of rising interest rates than during periods of stable or falling rates. Impact of prepayments on the value of asset-backed securities may be difficult to predict. The market value of fixed income securities may decline as a result of a number of factors. The risk monitoring performed does not guarantee any particular performance or protect against loss of any investment. The information provided in this report is for the sole use of those to whom it has been sent. This document may not be reproduced in any form without the express permission of HGINA and to the extent that it is passed on care must be taken to ensure that this reproduction is in a form which accurately reflects the information presented here. All investments involve risk, including loss of principal. Past performance is no guarantee of future results. Not all strategies are available to all investors, platforms or jurisdictions. Strategies subject to investment minimums. For institutional use only. INST-GDC-PROFILE C-0517-10176 07-30-17 399-15-410176 05-17