A long/short equity fund, designed to:· Target positive risk-adjusted returns, independent of market conditions

· Offer a structured, conviction-led process

· Bring diversification benefits to a portfolio

· Blend a ‘Core’ long-term book with ‘Tactical’ short-term trading positions

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Performance summary (Q4 2016)

Fund return (Q4 2016) -0.1%

Net market exposure 18.1%

Gross market exposure 65.8%

Max drawdown since inception -3.9%

FTSE All-Share max drawdown (since fund inception)

-14.5%

Market overview

·   UK equities rallied in the final quarter of the year, despite uncertainty surrounding the government’s strategy for – and potential EU response to – Brexit negotiations.

· Equity markets responded positively to the election of Donald Trump as US President, with his proposed growth stimulus and protectionist policies seen as likely to be inflationary.

· Continued sterling weakness provided a tailwind for those UK-listed equities with a high proportion of overseas earnings.

Performance overview ·   The fund returned -0.1% over Q4.

· Core long positions in insurers Aviva and Legal & General were the largest contributors to fund returns due to the steepening yield curve environment. Tactical long positions in UK, European and US-listed banks also provided good returns.

· A short position in a European insurer, initiated as a hedge against our long positions in UK-listed insurers, detracted from performance.

· Continued volatility due to political and central bank uncertainty worldwide, combined with falling stock correlations, provided opportunities for the Tactical book.

For professional investors onlyQuarterly review

GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year2010 0.69 -1.18 0.85 0.95 -1.94 0.74 0.31 -0.49 1.78 0.52 -0.97 2.47 3.712011 0.61 1.28 0.03 0.72 -0.03 0.10 -0.55 -2.55 -0.31 1.06 -0.61 -0.13 -0.442012 0.87 1.45 -0.39 -0.22 -2.54 0.14 0.74 0.69 0.45 0.83 1.01 1.06 4.092013 1.87 1.38 1.44 1.39 2.21 -0.80 3.26 0.62 1.15 1.74 0.07 1.04 16.442014 -0.44 2.29 -1.59 -0.15 1.25 -0.22 -0.36 1.53 0.14 -0.14 1.94 0.28 4.562015 1.41 0.21 0.90 0.21 1.71 -1.48 1.37 -0.81 -0.07 1.50 1.14 0.86 7.112016 -0.26 0.33 0.46 -0.98 1.32 -1.76 0.73 0.99 0.39 -0.58 0.26 0.20 1.05

Performance %

Source: Morningstar, at 31 December 2016. ‘A’ accumulation share class, net of fees in sterling terms, nav-nav, gross income reinvested. Annualised returns. ‘A’ accumulation launch date 29 April 2009.

Source: Morningstar, at 31 December 2016. ‘A’ accumulation share class, net of fees in sterling terms, nav-nav, gross income reinvested.

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.

Source: Morningstar, Barra, Henderson Global Investors at 31 December 2016. Quarterly return is for the ‘A’ accumulation share class, net of fees in sterling terms, nav-nav, gross income reinvested.

Key fund characteristics

Launch dateApril 2009 (fund)

December 2003 (strategy)

Fund size £1.9bn

Number of positionsTotal: 153 Long: 88 Short: 65

Fund managers Ben Wallace and Luke Newman

Source: Henderson Global Investors, at 31 December 2016.

UK ABSOLUTE RETURN FUND

Henderson

Performance analysis

Performance analysis over the quarter

Stock level analysis

Key contributors Sector Long/

shortTotal

effect Drivers

Aviva Financials Long +45bps + Steepening yield curve environment

Legal & General Financials Long +44bps + Steepening yield curve environment

Bellway Consumer Discretionary Long +12bps + Strong operating performance

Key detractors Sector Long/

shortTotal

effect Drivers

European insurer Financials Short -27bps - Hedge for Core long positions in insurers

GVC Consumer Discretionary Long -21bps - Technical weakness post index inclusion

Rolls-Royce Industrials Long -7bps - Profits hit by new accounting rules

Source: Factset/Henderson Global Investors, at 31 December 2016.

Drivers

· Long positions within the financial sector were – by a considerable margin – the largest contributor to returns, thanks to the steepening yield curve environment. Short hedged positions in European insurers detracted.

· Long positions within the IT sector overall detracted from performance.

· A pair trade within the energy sector produced flat returns for the fund during the quarter. Overall the sector produced positive returns due to the resurgent oil price.

Sector absolute performance contributions

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Portfolio activity through the quarterCore (long-term) book

· Weighting in high-yielding bond proxy equities was actively managed over the quarter. Investor focus has recently shifted to an inflationary environment, favouring more cyclical stocks. However, interest rates globally will be coming off very low bases, and quality businesses able to pay steady and growing streams of dividends to their investors should continue to offer value. Positions have been maintained accordingly.

· Short positions maintained in companies expected to be at a disadvantage from minimum wage legislation and financial leverage – two factors which are likely to be key themes for the fund in 2017.

Tactical (short-term/trading) book

· Long positions taken in UK, European and US-listed banks well-placed to profit from an improving interest rate environment.

· Initiated short positions in aggressively valued bond proxy/’defensive’ equities (see left) with deteriorating revenue and/or profits.

· A rising oil price and attractive dividend led to a long position being taken in oil giant BP.

· Use of index futures helped manage net exposure during periods of market weakness.

Source: Factset/Henderson Global Investors at 31 December 2016.

Positioning

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Source: JP Morgan, at 31 December 2016.

Source: Factset/Henderson Global Investors at 31 December 2016. Source: Barra/Henderson Global Investors at 31 December 2016.* The fund has the ability to invest up to 40% of its total assets in companies listed

outside of the UK, such as European and US equities and associated derivatives.

Investment rationale

· Net exposure remained broadly stable during the period.

· Gross exposure reduced in the run-up to the US election. Continued low stock correlations meant this was reversed towards the end of the quarter as stock opportunities were identified.

· Net exposure is driven by bottom-up stock decisions.

· Liquid futures can be used to manage exposures in response to macro events.

· The managers remain comfortable being net long or short, based on bottom-up views.

· Gross exposure is a function of the number of ideas, and market volatility

Drivers

· Chart shows severity and recovery period for negative performance periods for the fund and the FTSE All-Share Index.

· Being able to go both long and short, within two trading books (Core and Tactical) provides the potential to generate positive returns in varying market conditions.

Gross and net exposure

Sector allocation Market cap distribution

Portfolio analysis

Risk analysis

Volatility 3.5%

Beta 0.19

Correlation 0.54

Sharpe ratio 1.05

Sortino ratio 1.89

Up-market capture ratio 29.28

Down-market capture ratio 8.74

Source: Morningstar/Henderson Global Investors, at 31 December 2016. ‘A’ accumulation share class, 3-year realised annualised figures. Risk statistics are relative to FTSE All-Share Index.

Source: Henderson Global Investors, Datastream at 31 December 2016. ‘A’ accumulation share class, net of fees in sterling terms. ‘A’ accumulation launch date 29 April 2009. For illustrative purposes only. Past performance is not a guide to future performance.

Strong risk-adjusted returns since inception

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HendersonUK AbsoluteReturn Fund

Gilts

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Drawdown history

Source: Henderson Global Investors/Datastream, at 31 December 2016. ‘A’ accumulation share class, net of fees in sterling terms, nav-nav, gross income reinvested.Past performance is not a guide to future performance.

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Gross ExposureNet Exposure

The volatility seen in capital markets looks set to continue through 2017. On the political side, investors will have the after-effects of the Italian referendum to contend with, followed by the French and then German general elections later in the year, as well as the ongoing Brexit negotiations. Populist pressures – a feature of 2016’s elections and referendums across the developed world – are expected to continue.

From an economic point of view, inflationary pressures and the pace of normalising interest rates globally will prove crucial in the ultimate direction of capital markets. Accordingly, the managers have moved to a barbell strategy i.e. hedging the fund due to the uncertainty. On one side, long positions within banks and other financials have been increased – business models that should benefit from any inflationary pressures and acceleration of the interest rate cycle.

On the other side of the equation, the managers see it as too early to dispense with many of the higher quality ‘bond proxy’ and compounding yielding areas of the market. Even if investors see a gradual normalising of interest rates globally, this will be coming off a very low base, and the hunt for yield should continue to dominate financial markets.

Therefore, good quality businesses that can compound their cash flows and deliver a steady growing stream of dividends to their investors should continue to offer value. Publishers such as Informa and RELX, gaming company GVC and software provider Micro Focus fit into this category.

On the short side, the impacts of minimum wage legislation across the developed world also provide potential. While good news for vast swathes of the electorate, it is likely to be bad news for significant areas of the economy. Many companies within sectors such as leisure, government outsourcing and retail, may see their margins coming under pressure, and their share prices therefore look perilous at current levels. A number of profit warnings in 2016 can be attributed to this trend and with the managers expecting it to continue through 2017, the fund is positioned accordingly.

Financial leverage is another area of focus for new positions. The cost of refinancing existing debt is increasing and capitalised leases will be reported more visibly on balance sheets in future, which will compound the impact of any impairment cycle in consumer credit. Credit cards and car loans are a particular focus for future weakness.

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

H026885/0117 OEIC

Outlook

GlossaryPlease see HGi.co/glossary for a glossary of financial terms used in this document.

GuidePlease see HGi.co/AbsoluteReturnGuide for a guide to absolute return.

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Global stock-to-stock correlation (6m rolling average)

Stock correlations falling

Source: Bank of America Merrill Lynch, as at 31 December 2016. Indicates the 6 month rolling average of global stock-to-stock correlation.

Global stock-to-stock correlations revert to long-term average