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

Jenna BarnardCo-Head of Strategic Fixed Income

John PattulloCo-Head of Strategic Fixed Income

Nicholas WareDirector of Strategic Fixed Income

The outlook for credit and government bond markets in 2018: groundhog day?

1

Learning outcomes

• Understand the current backdrop for bond investing in 2018

• Identify appropriate strategies for income-seeking clients

• Gain a better understanding of how to manage duration, in a market that looks increasingly Japanese

2

Agenda

• The persistent misforecasting of bond yields

• Macro outlook• Debt trauma• Demographics• Disruption

• Investment philosophy

• Providing for Margaret

3

Negative bond sentiment has been pervasive

Bond market turmoil yet to materialise despite repeated warnings over the past five years

Source: Financial Times

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1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Amid a persistent misforecasting of Treasury yields

10-year US Treasury rate and historical economist forecasts

Source: Philadelphia Fed Survey of Professional Forecasters, as at June 2017

Forecasters have called for lower bond yields in only two of the last 26 years

%

5

Lots of theories – same secular trends persist

Low growth, Low inflation

Technology

Productivity

Debt

Peak globalisation

Demographics

Richard Koo’s balance sheet

recession

Secular stagnation

Politicaluncertainty

6

Technology outperformance driven by superior earnings growth

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MSCI AC World IT - earnings

MSCI AC World non IT - earnings

Technology sector earnings vs non-technology

Source: Bernstein, as at 30 September 2017Note: Based on trailing earnings. Rebased to 100 at 30 September 2007.

+6%

+107%

Nearly all of the growth in the last decade has come from IT

High yieldmarkets

7

Global value has underperformed growth in equity markets

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

85

90

95

100

105

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Value/growth relative index (left)Government bond yield (right)

Source: Janus Henderson Investors and Thomson Reuters DataStream, as at December 2017Note: MSCI World Value & Growth indices, rebased as of 2009

JP Morgan Global Government Bond Index, redemption yield

Global value/growth strategy index and global government bond yield

Live in growth, holiday in value?

8

Stay away from HY secularly challenged sectors

Source: ICE-BAML US High Yield Index, S&P Capital IQ LCD, iBoxx, Goldman Sachs Global Investment Research, as at 30 November 2017Note: HY = High yield; OAS = option-adjusted spread

OAS (bp) OAS (bp) Sector % weight

Retail 5.3%

Telecom (wireline) 4.9%

Car rental 1.0%

Health facilities 5.1%

US high yield index spread in 2017

9

Debt trauma: the Japanese experienceDiscovering Japanese economist Richard Koo was instrumental in informing the way we approached bond investing post GFC

A link to a short 10 minute video explaining “Balance Sheet Recession” theoryhttps://goo.gl/GkkWik

Source: YouTube and Amazon, as at December 2017

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Debt trauma: US consumers scarred for life?

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US Household debt growthPre-crisis averagePost-crisis average

%US household debt growth pre and post-crisis

Source: St Louis Fed, as at December 2017

11

Debt trauma: balance sheet recessions

BEFORE (China/Australia)

AFTER(Japan)

Source: Reuters, CNN, as at December 2017

12

Demographics: turning Japanese?

0

500

1,000

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0

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Japanese populationProjected populationBirth rate (rhs)Death rate (rhs)

Japan population trends

Source: Ministry of Health, Labour & Welfare, Japan Times, Financial Times, as at December 2017Note: * TFR = Total Fertility Rate. Number of children per woman based on current fertility schedules.

Japan’s TFR* stands at approximately 1.44; far short of the required replacement rate of 2.1

An estimated 20m additional houses to become empty by 2030 from current 8m

Population to shrink by over 20% in next 35 years

Over 40% of 18-34 year olds are virgins

There were over 68,000 centenarians in 2017

Over 33% of population 60+ years old

‘000s ‘000s

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0%

5%

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20%

25%

1950

1960

1970

1980

1990

2000

2010

2020

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2100

Under 5Over 65

50%

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80%

1950

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2010

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UK % Japan %China % US %Europe %

Demographics: peak youth, peak stuff

Global population age trends; the crossing

Share of working-age population in total for G5 countries

“We have probably hit “peak stuff” in the West” - Steve Howard, Chief Sustainability Officer

(Ikea)

Since 1987, US consumer spending on live experiences and events relative to total spend has increased by 70%

By about 2033 working-age Americans will support more people over 64 than under 18 - US census bureau

Source: UN, Financial Times, BAML, as at 2017

14

Millennials will make up 75% of the workforce

by 2025

Millennials drive less; number of vehicle miles travelled fell 23% in US

from 01 to 09

Account for over $1 trillion in global

spending

Demographics: age of the millennial

Source: exploringmarkets, BAML, as at 2017

Special, sheltered, confident, team-orientated, law abiding “snowflakes”!

15

Disruption: technology driving down costs

0.0

0.5

1.0

1.5

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2.5

3.0

3.5

Taxi Uber Ownership Autonomous

Cos

t per

mile

, $

Source: Janus Henderson Investors, Google, CLSA, as at November 2017

4% The time an average car is in use

95%US passenger miles forecasted to be made by autonomous, electric, on-demand vehicle fleets within 10 years of regulatory approval

247m to 44m

Reduction in the number of passenger vehicles on American roads by 2030

Cost of car travel using different platforms

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0

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US

$ bi

llion

Amazon quarterly revenueE-commerce sales as a % of all retailChange in price of e-commerce goods (start = 2009)

Disruption: Amazon-isation of retail

Source: Bureau of Economic Analysis, Bloomberg, as at December 2017

Amazon quarterly revenue and the effect on e-commerce

(rhs)

17

Investment style: “sensible income”

• Focused on investment grade bonds, non-cyclical high yield bonds, subordinated financial bonds in the UK, Europe & US

Blend of income assets

• It corrupts the investment process Ignore the index

• Offers superior risk-adjusted returnsLarge-cap, non-cyclical bias

• What you don’t own is more important than what you do for bond funds Aggressive sell discipline

• Be wary of late-cycle behaviour and don’t be herded into these trades Working with the cycle

18

Overheard on the Strategic Fixed Income desk

Pull the trigger

Positive Free Cash Flow yieldGet paid for illiquidity

Steer clear of the 3 R’s Mature vs sunset

Positioning, technicals then fundamentals

Some businesses don’t suit leverage

Avoid sole-led deals

Covenants don’t make a bad credit good

Don’t ski off piste in the afternoon

“Di-worse-ification”

Avoid if it rolls, floats or flies

We define our style by what we don’t do

19

Who is Margaret?

• The ‘average‘ investor in theFixed Interest Monthly Income Fund

• Female (55% of investors in fund), seventy-six years old and lives in Bournemouth

• She holds approximately £10,000 in the fund

Based on underlying analysis of the direct shareholder register of the fund; as at November 2017

0%

10%

20%

30%

40%

19-28 29-38 39-48 49-58 59-68 69-78 79-88 89-98Age

Age distribution of Fixed Interest Monthly Income Fund

£900m AUM 4.7% distribution yield 4.1% underlying yield Monthly payments

Source: Janus Henderson Investors, as at November 2017Note: Yield may vary and is not guaranteed. Past performance is not a guide to future performance.

20

What does Margaret expect?

• Delivering an output: providing a sensible, monthly, consistent income

• Ignore the index

• Means saying “No” most of the time

• Important to manage downside risk, the income will take care of itself

• Understandable investments with predictable outcomes

Antithesis of the over-engineered bond fund

21

Fixed Interest Monthly Income Fund

Over 25% of the fund is invested into ‘new world’ or ‘global titan’ businesses

12.6 % of the fund is invested in names involved in the modern economy such as Apple, Dell, Equinix, McAfee and Verizon

18.6% of the fund is invested in names we would consider global titans (with a market cap exceeding £50bn) such as Apple, AT&T, HSBC, PepsiCo and UBS

Investing in resilient names for the future

Source: Janus Henderson Investors, as at 30 November 2017Note: Examples are intended for illustrative purposes only and is not indicative of the historical or future performance of the security. Janus Henderson Investors, one of its

affiliated advisors, or its employees, may have a position in the securities mentioned in the report. References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. Past performance is not indicative of future results. 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.

22

Summary

• Forecasters calling for higher yields have been proven wrong over the course of what has been a 25-year bull market

• Low growth and low inflation has persisted post-crisis, despite global coordinated quantitative easing programmes

• Record dispersion of corporate returns is the hallmark of an unusual business cycle

• We continue to focus on sensible income for Margaret

23

Janus Henderson Fixed Interest Monthly Income Fund

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May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17

Tota

l ret

urn

inde

x (re

base

d)

IA OE £ Strategic Bond 32.2%Janus Henderson Fixed Intr Mth Inc X Inc 45.1%Janus Henderson Fixed Intr Mth Inc I Inc 49.6%

Source: Morningstar, Janus Henderson Investors, as at 30 November 2017Note: I Inc share Class, as at 30 November 2017. All performance presented net of fees. Based on cumulative GBP midday pricing, nav-nav, net income reinvested.

* The Henderson Extra Monthly Income Fund and High Yield Monthly Income Fund merged into the Henderson Fixed Interest Monthly Income Fund on 4 May 2012Yield may vary and is not guaranteed. Past performance is not a guide to future performance.

Janus Henderson Fixed Interest Monthly Income Fund performance since fund mergers*

4.6% distribution yield, as at 30 November 2017

Fixed Interest Monthly Income Fund

IA £ Strategic Bond Sector

Quartile

YTD 9.24% 4.62% 1st

1 year 10.55% 5.87% 1st

3 years 19.63% 11.68% 1st

5 years 37.77% 22.71% 1st

24

Janus Henderson Investors201 Bishopsgate, London EC2M 3AETel: 020 7818 1818 Fax: 020 7818 1819

This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general publicdistribution.

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 getback the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if thosecircumstances 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 differmaterially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase anyinvestment. 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 coveringdocuments), which will contain investment restrictions. This document is intended as a summary only and potential investors must read theprospectus, and where relevant, the key investor information document before investing. We may record telephone calls for our mutual protection, toimprove customer service and for regulatory record keeping purposes.

Important informationIssued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Janus Capital International Limited (reg. no. 3594615),Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), 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.

© 2017, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarland Janus International Holding LLC.

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