Inflation — the dog that never barks

17/01/2018

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The biggest surprise last year was not only the persistent mis-forecasting of bond yields but also the persistent mis-forecasting of inflation. Jenna and I have written extensively about how a traditional economics training can be detrimental to a career in the bond markets!

Why? Because a lot of those traditional models, assumptions and relationships do not seem to hold in this rather dystopian world in which we live. The world’s major central banks seem to be having a crisis of confidence themselves as their models no longer seem to work. Janet Yellen, Chair of the US Federal Reserve (Fed), has acknowledged the puzzle of why inflation is not stronger. She has been dismissing the weakness of inflation as being transitory for many years now! Given that we have printed over $12 trillion through quantitative easing (QE) you would expect inflation to have reared its head by now. Having said that, in a normal cycle inflation does rise late in the cycle and is generally met by rising interest rates, tight labour markets, high oil prices and flattening yield curves.

As former Fed Governor Daniel Tarullo said in October of last year “…we do not, at present, have a theory of inflation dynamics that works sufficiently well to be of use for the business of real time monetary policymaking.”

The three ‘D’s and the macro outlook

We have been at pains to explain that this cycle is very different. We have written extensively about the three ‘D’s of: tech disruption (Amazonisation), ageing demographics1 (Harry Dent), and the debt trap2 (Richard Koo). These all chime with the now consensual view expressed by Larry Summer’s secular stagnation thesis3. We really struggle to see how economies can reach ‘escape velocity’. The US has basically plodded along at 2% economic growth for the last six years. We accept it may be nearer to 3% this year but that may be the exception, not the rule.

The good news is that we are experiencing a cyclical upturn in the world economy, driven by the Chinese credit impulse, weaker dollar/cheap emerging market (EM) funding, a bounce in energy capex and loose global financial conditions. We would suggest this cyclical uptick should not be confused with the long-term structural reasons impeding growth and inflation. However, if one was to make the case for a structural breakout in inflation (and inflation expectations) now is not a bad starting point: decent growth; tight labour markets; a high oil price; strong equity markets, and confident businesses and consumers!

Throw out the old economics books

We have had considerable success in dismissing conventional economics and instead focusing our thinking on the Japanese experience to determine the macroeconomic outlook. Hence we have been long duration (interest rate sensitivity) for much of the last five years — completely against consensual thinking. Much of our client base remain very short of duration and of bonds in general, and instead sit content and overweight in illiquid alternative assets. Unfortunately, they are probably working from the same economics books that we once used! We have already written about the broken Phillips curve (Broken curves: are misguided inflation measures leading to policy mistakes?). The lack of wage growth seems to be a global phenomenon. But let us first explain the conventional but potentially flawed model and then give you our take on the modern gig economy.

The stylised model is of an economy making one product, in one factory, with one homogenous workforce (realistic I hear you say). Anyway, assuming the economy is running too hot, the factory owner needs to pay the workers more to expand output (for example, run an extra shift or work overtime). Since labour costs have gone up (ie, input costs) he then passes this cost onto the customers by raising his selling price — thus goods price inflation increases. The workers see this and demand a wage rise and you get a goods/wages price spiral. 1970s here we come?

A little confusion in the markets

Now, do we live in this world? No! However, we do accept there is some evidence of rising wages at the lower end in the US and the UK, primarily due to minimum wage inflation, and at the top end, such as google programmers. Further, a number of states and indeed industries are reporting some wage pressure. But the key point is that we see virtually no evidence that rising input prices are being pushed through to top lines (the selling prices that contribute to a company’s sales revenue, the first line in an accounting income statement). Indeed, in this transparent world with plenty of capacity it is very hard to push up prices and get away with it! Sure there are a few isolated industries but nothing material in our opinion. Again, do not confuse a cyclical uptick with a structural breakout in inflation and growth. This cycle’s amplitude is much lower and longer than previous cycles as we have written about recently (Square root recovery).

Time for an illustration …

A good example of this lack of pass-through of increasing wage costs is Whitbread, the leisure group that owns Costa Coffee. Now the barista is getting a more reasonable wage due to minimum wage legislation but Whitbread’s response to this is a £150m cost saving programme to absorb this cost (and the extra cost of importing coffee due to the depreciation of sterling post the Brexit vote).

Again, some clients confuse imported inflation, which we see purely as a cost or a tax, with excess of demand inflation (demand pull). This is highly topical in the inflation debate as some of the inflation is in ‘non-discretionary’ costs, such as healthcare and housing. Walmart’s recent announcement that it is raising its starting wage to US$11 an hour is topical. Arguably, the US retail giant is sharing the windfall gain of the corporate tax reforms with its employees. Wage costs will rise, but will this cause Walmart to put up prices? I think not! The next day Walmart announced they were cutting thousands of store manager positions and adding new lower paid positions! In addition, they announced they were closing 63 (roughly 10%) of Sam’s club stores with 1000’s of redundancies. 12 of these clubs will be converted to e-commerce fulfilment centres — they are increasing their technology spend to compete with Amazon!

The nature of work is changing

Further, we read a lot about the hollowing out of middle and low incomes — real wage increases are hard to demand or find. Work is now more divisible, transparent and flexible. The Trump administration originally talked about a robot tax. Now they are discussing a capital allowance tax break to replace labour with capital. Robotics and artificial intelligence seem very deflationary to us. We also have part-time labour, zero hour contracts and a lack of trade union power. Indeed, we arguably have an underclass of job takers who live a very ‘precariat’4 existence; example: the Uber driver, being an hourly price taker!

The deceptive headline inflation

As always, the Fed’s reaction function to all this is key. They have raised rates five times with inflation below target. So, you have to argue they are more concerned about loose financial conditions and potential wage inflation than targeted personal consumption expenditures (PCE) inflation. They also target other core types of inflation ie, consumer prices index (CPI) and producer prices index (PPI). Even here we need to be super careful — core or underlying inflation has done remarkably little for a very long time. This excludes volatile items such as food and energy.

Some equity managers get overexcited when a rising oil price causes headline inflation to rise, whereas some parts of the bond community get overexcited when falling oil prices cause headline inflation to sink dramatically. Even core CPI has a few oddities in it — a major part is an implied rent cost for housing — recently this has been high but it is expected to fall. Second-hand car prices post the hurricane and aggressive mobile phone price deflation can cause these rates to oscillate around. Again, we do not expect a structural breakout in core underlying inflation! As the chart shows, core inflation in the G7 has been hovering closely around the 2% level for a number of years now.

G7 inflation and crude oil price history


Source: Bloomberg, Janus Henderson Investors, as at 31 December 2017.

A Trichet moment?

Some commentators argue the strength of the global economy has given other central banks the collective ‘cloud cover’ to raise rates. Certainly, after the Sintra BIS meeting, central banks do seem to be targeting financial conditions and arguably rightly so. So, it is not so much that we worry about inflation rearing its head, rather, people and markets will (or may) worry about it. The Trump fiscal reforms and potential infrastructure spending seem ill-timed given where we are in the cycle (surely keep your fire power for bad times?). This, combined with some evidence of rising wages (not necessary passed through to CPI) will give the Fed the opportunity and certainly justification to raise rates. Arguably, the problem is the narrow targeting of inflation rather than a much broader definition of financial conditions and asset price inflation. So, we could continue to see the Fed raise rates with conventional inflation below target — how extraordinary! We remember when Mr Trichet, President of the European Central Bank, rather famously and misguidedly raised rates twice in 2011 with the euro-dollar exchange rate at 1.4 and the oil price at US$110. Sure, the energy cycle dances to a different tune but hey, that was a legendary policy mistake.

Waiting for the dog to bark?

Rightly or wrongly, risk markets are experiencing a melt-up. Financial conditions remain very loose, the oil price is high and now we have an ill-timed fiscal expansion. We expect the market to discount higher rates and more growth than a few weeks ago. We also expect the market to focus on higher wage inflation and infer it gets passed to consumer inflation. So, we are not fighting this quite significant cyclical uptick. We expect it to fade in the second half but we need to get there first. We remain shorter duration than normal, expecting cyclical factors to outshine the long-term structural factors for a short time. From an equity manager’s perspective: “live in growth, but holiday in value!”  So, enjoy the holiday — but unfortunately, they never last that long! Or to put it another way, the dog may growl but we are not convinced that it will bark!

  1. Demographics Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019
  2. The Escape from Balance Sheet Recession and the QE Trap: A Hazardous Road for the World Economy
  3. U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound; Lawrence H. Summers; Keynote Address at the NABW Policy Conference, 24 February 2014
  4. Guy Standing’s book —  The precariat: the new dangerous class

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.

The information in this article does not qualify as an investment recommendation.

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Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Absolute Return Income Fund

For institutional/ sophisticated investors / accredited investors qualified distributors use only.

All content in this document is for information or general use only and is not specific to any individual client requirements. The information contained in this document is referential and may not be construed as an offer, invitation or recommendation or investment advice, nor should be taken as a basis to take (or stop taking) any decision.

Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying agents, it should be read carefully. An investment in the fund may not be suitable for all investors and is not available to all investors in all jurisdictions; it is not available to US persons.  Past performance is not indicative of future results. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements.  Shares, if redeemed, may be worth more or less than their original cost.

Janus Henderson Group plc and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part, or for information reconstructed from this document and do not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. As with all investments, there are inherent risks that each individual should address.

The distribution of this document or the information contained in it may be restricted by law and may not be used in any jurisdiction or any circumstances in which its use would be unlawful.

Issued in Europe by Janus Capital International Limited (“JCIL”), authorised and regulated by the U.K. Financial Conduct Authority. Janus Capital International Limited (“JCIL”) is an entity registered and operating under the laws of the United Kingdom and Janus Capital Funds plc. is registered under the legislation of Ireland.

The extract prospectus (edition for Switzerland), the articles of incorporation, the extract annual and semi-annual report, in German, can be obtained free of charge from the representative in Switzerland: First Independent Fund Services Ltd (“FIFS”), Klausstrasse 33, CH-8008 Zurich, Switzerland, tel: +41 44 206 16 40, fax: +41 44 206 16 41, web: http://www.fifs.ch. The Swiss paying agent is: Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The last share prices can be found on www.fundinfo.com. For Qualified investors, institutional, wholesale client use only. Outside of Switzerland, this document is for professional use only. Not for onward distribution.

This material is strictly private and confidential and may not be reproduced or used for any purpose other than evaluation of a potential investment in Janus Capital International Limited’s products or the procurement of its services by the recipient of this presentation or provided to any person or entity other than the recipient of this presentation.

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Janus Capital Management LLC serves as investment adviser. Janus, Intech and Perkins are registered trademarks of Janus International Holding LLC. © Janus International Holding LLC. For more information or to locate your country’s Janus representative contact information, please visit www.janushenderson.com.

Specific risks

  • The Fund may hold investments denominated in currencies other than the base currency of the Fund. Fluctuations in exchange rates may expose the Fund to losses independent of investment performance.
  • Investing in developing markets exposes the Fund to higher levels of possible risk and return. Developing markets are not always well regulated and may be subject to less developed custody and settlement procedures.
  • Debt securities in which the Fund invests may deteriorate in credit quality and may no longer be categorised as investment grade and be rated as below investment grade.
  • The Fund uses specialist financial derivative instruments (FDI) that can multiply gains and losses significantly in excess of the FDI's original cost, thus significantly increasing risk. We aim to reduce this risk by using a robust risk management process that will aim to limit the maximum potential loss. The use of these instruments involves other risks, in particular, counterparty risk, which is the risk to each party to a contract that the other party will not live up to its contractual obligations.
  • The Fund invests in debt securities which are below investment-grade but which pay a high rate of interest. High-yield debt securities are considered to be more speculative and are more sensitive to adverse changes in market conditions.
  • As the Fund may invest in debt securities rated below investment grade, one of the key risk factors for the Fund is risk that an issuer may not repay the debt and relevant interest payments to the Fund. The value of debt securities held in the Fund will fluctuate in response to changes in interest rates.
  • The value of investments held in the Fund and the income from them may rise or fall. The Fund may not achieve its investment objectives.
  • Some of the securities and currencies in which the Fund invests can be difficult to sell which may lead to fluctuation in the price and may mean that the Fund does not get the price it would like when selling such a security or currency.

Risk rating

Janus Henderson Fixed Interest Monthly Income Fund

This document is intended solely for the use of professionals 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. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (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. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

Janus Henderson Global Unconstrained Bond Fund

For institutional/ sophisticated investors / accredited investors qualified distributors use only.

All content in this document is for information or general use only and is not specific to any individual client requirements. The information contained in this document is referential and may not be construed as an offer, invitation or recommendation or investment advice, nor should be taken as a basis to take (or stop taking) any decision.

Janus Henderson Capital Funds Plc is a UCITS established under Irish law, with segregated liability between funds. Investors are warned that they should only make their investments based on the most recent Prospectus which contains information about fees, expenses and risks, which is available from all distributors and paying agents, it should be read carefully. An investment in the fund may not be suitable for all investors and is not available to all investors in all jurisdictions; it is not available to US persons.  Past performance is not indicative of future results. The rate of return may vary and the principal value of an investment will fluctuate due to market and foreign exchange movements.  Shares, if redeemed, may be worth more or less than their original cost.

Janus Henderson Group plc and its subsidiaries are not responsible for any unlawful distribution of this document to any third parties, in whole or in part, or for information reconstructed from this document and do not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regards to the results obtained from its use. As with all investments, there are inherent risks that each individual should address.

The distribution of this document or the information contained in it may be restricted by law and may not be used in any jurisdiction or any circumstances in which its use would be unlawful.

Issued in Europe by Janus Capital International Limited (“JCIL”), authorised and regulated by the U.K. Financial Conduct Authority. Janus Capital International Limited (“JCIL”) is an entity registered and operating under the laws of the United Kingdom and Janus Capital Funds plc. is registered under the legislation of Ireland.

The extract prospectus (edition for Switzerland), the articles of incorporation, the extract annual and semi-annual report, in German, can be obtained free of charge from the representative in Switzerland: First Independent Fund Services Ltd (“FIFS”), Klausstrasse 33, CH-8008 Zurich, Switzerland, tel: +41 44 206 16 40, fax: +41 44 206 16 41, web: http://www.fifs.ch. The Swiss paying agent is: Banque Cantonale de Genève, 17, quai de l’Ile, CH-1204 Geneva. The last share prices can be found on www.fundinfo.com. For Qualified investors, institutional, wholesale client use only. Outside of Switzerland, this document is for professional use only. Not for onward distribution.

This material is strictly private and confidential and may not be reproduced or used for any purpose other than evaluation of a potential investment in Janus Capital International Limited’s products or the procurement of its services by the recipient of this presentation or provided to any person or entity other than the recipient of this presentation.

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Janus Capital Management LLC serves as investment adviser. Janus, Intech and Perkins are registered trademarks of Janus International Holding LLC. © Janus International Holding LLC. For more information or to locate your country’s Janus representative contact information, please visit www.janushenderson.com.

Specific risks

  • The Fund may hold investments denominated in currencies other than the base currency of the Fund. Fluctuations in exchange rates may expose the Fund to losses independent of investment performance.
  • Investing in developing markets exposes the Fund to higher levels of possible risk and return. Developing markets are not always well regulated and may be subject to less developed custody and settlement procedures.
  • The Fund uses specialist financial derivative instruments (FDI) that can multiply gains and losses significantly in excess of the FDI's original cost, thus significantly increasing risk. We aim to reduce this risk by using a robust risk management process that will aim to limit the maximum potential loss. The use of these instruments involves other risks, in particular, counterparty risk, which is the risk to each party to a contract that the other party will not live up to its contractual obligations.
  • The Fund invests in debt securities which are below investment-grade but which pay a high rate of interest. High-yield debt securities are considered to be more speculative and are more sensitive to adverse changes in market conditions.
  • As the Fund may invest in debt securities rated below investment grade, one of the key risk factors for the Fund is risk that an issuer may not repay the debt and relevant interest payments to the Fund. The value of debt securities held in the Fund will fluctuate in response to changes in interest rates.
  • The value of investments held in the Fund and the income from them may rise or fall. The Fund may not achieve its investment objectives.
  • Some of the securities and currencies in which the Fund invests can be difficult to sell which may lead to fluctuation in the price and may mean that the Fund does not get the price it would like when selling such a security or currency.
  • Smaller or newer companies are subject to greater risk and reward potential. Investments may be volatile or difficult to buy or sell.

Risk rating

Janus Henderson Horizon Total Return Bond Fund

This document is intended solely for the use of professionals and is not for general public distribution.

The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. Any investment application will be made solely on the basis of the information contained in the Fund’s 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 Fund’s prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson Global Investors Limited in its capacity as Investment Manager and Distributor.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355) (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE and authorised and regulated by the Financial Conduct Authority) provide investment products and services. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of units. 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.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. Key Investor document is also available in Spanish. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street, #34-03 / 04 CapitaGreen Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent. RBC Investor Services Trust Hong Kong Limited, a subsidiary of the joint venture UK holding company RBC Investor Services Limited, 51/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, Tel: +852 2978 5656 is the Fund’s Representative in Hong Kong.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Emerging markets are less established and more prone to political events than developed markets. This can mean both higher volatility and a greater risk of loss to the Fund than investing in more developed markets.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.
  • Callable debt securities (securities whose issuers have the right to pay off the security’s principal before the maturity date), such as ABS or MBS, can be impacted from prepayment or extension of maturity. The value of your investment may fall as a result.

Risk rating

Janus Henderson Preference & Bond Fund

This document is intended solely for the use of professionals 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. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (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. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

Janus Henderson Strategic Bond Fund

This document is intended solely for the use of professionals 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. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (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. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Specific risks

  • Investment management techniques that have worked well in normal market conditions could prove ineffective or detrimental at other times.
  • Some or all of the annual management charge is taken from capital. This may constrain potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • Derivatives use exposes the Fund to risks different from, and potentially greater than, the risks associated with investing directly in securities and may therefore result in additional loss, which could be significantly greater than the cost of the derivative.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Leverage arises from entering into contracts or derivatives whose terms have the effect of magnifying an outcome, meaning profits and losses from investment can be greater.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

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Important message

Fund name changes

Please note that from the 15 December 2017 funds previously named Janus or Henderson have been renamed Janus Henderson. This change aligns our product names with our name, Janus Henderson Investors, following the merger of Janus Capital and Henderson Global Investors in May 2017.

This name change does not impact on the management of the underlying funds and investors and advisers are not required to take any action. This does not affect Janus Henderson’s range of investment trusts.