UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-03651
Touchstone Strategic Trust
(Exact name of registrant as specified in charter)
303 Broadway, Suite
1100
Cincinnati, Ohio 45202-4203
(Address of principal executive offices) (Zip code)
Jill T. McGruder
303 Broadway, Suite
1100
Cincinnati, Ohio 45202-4203
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-638-8194
Date of fiscal year end: March 31
Date of reporting period: March 31, 2019
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
March 31, 2019
Annual Report
Touchstone Strategic Trust
Touchstone Flexible Income Fund
Touchstone Focused Fund
Touchstone Growth Opportunities Fund
Touchstone Mid Cap Growth Fund
Touchstone Sands Capital Emerging Markets Growth Fund
Touchstone Sustainability and Impact Equity Fund
IMPORTANT NOTE: Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Touchstone Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the shareholder reports from Touchstone Funds or from your financial intermediary, such as a broker-dealer or bank. Instead, annual and semi-annual shareholder reports will be available on the Touchstone Funds’ website (TouchstoneInvestments.com/Resources), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
You may elect to receive all future annual and semi-annual shareholder reports in paper, free of charge. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive paper copies of shareholder reports through the mail or otherwise change your delivery method, contact your financial intermediary or, if you hold your shares directly through Touchstone Funds, visit TouchstoneInvestments.com/Resources/Edelivery or call Touchstone Funds toll-free at 1.800.543.0407. Your election to receive shareholder reports in paper will apply to all Touchstone Funds that you hold through the financial intermediary, or directly with Touchstone.
Table of Contents
This report identifies the Funds' investments on March 31, 2019. These holdings are subject to change. Not all investments in each Fund performed the same, nor is there any guarantee that these investments will perform as well in the future. Market forecasts provided in this report may not occur.
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Dear Shareholder:
We are pleased to provide you with the Touchstone Strategic Trust Annual Report. Inside you will find key financial information, as well as manager commentaries for the Funds, for the 12 months ended March 31, 2019.
Over the 12-month period, the post-crisis bull market faced one of its toughest challenges as optimism around 2017’s synchronized global growth environment faltered amid a shifting macroeconomic landscape. Investors used the changing data to build a wall of worry that came to include: the U.S. and China “trade war,” diverging monetary policy across the globe, geopolitical instability in Europe and softer economic fundamentals. U.S. economic data was generally strong until the end of 2018 when some indicators – including home and auto sales and consumer confidence – suggested a slowdown was emerging. Decelerating growth in major economies outside the U.S. became more evident as well, though none entered recessionary territory. Healthy domestic economic conditions encouraged the U.S. Federal Reserve (Fed) to continue normalizing monetary policy with three interest rate increases during the last three quarters of 2018, which in turn pressured risk assets. However, the Fed announced a “pause” to this monetary policy normalization path after the softening economic backdrop became apparent in 2018 and continued through the first quarter of 2019. This interlude was enough to inspire a sentiment shift to start 2019 and erase much of the drawdown experienced at the end of the year across most asset classes and geographies.
In the U.S., growth-oriented stocks led U.S. equity markets over their value-oriented counterparts, while large capitalization stocks outperformed small- and mid-capitalization stocks over the last 12 months. Outside the U.S., emerging market and developed market equities posted declines mostly due to weak 2018 currency performance against a strong U.S. dollar. Yet both developed and emerging market equites rallied nicely in the first quarter of 2019 off of their respective troughs reached at the end of 2018.
Rising interest rates and widening credit spreads buffeted the fixed income market for most of the period. The Fed’s rate hikes pushed short-term rates higher over 2018 compared with falling rates on longer maturities. The result was a significantly flatter yield curve, reaching its flattest level since 2007. This gave rise to fears throughout the year of a yield curve inversion1, which historically has been a leading indicator of recessions. In March, these concerns were nearly realized, despite the broader risk rally. Economic concerns also led to credit spreads widening during the latter part of 2018, but spreads narrowed quickly in concert with the aforementioned equity rally to start 2019. Tighter credit spreads during the first quarter of 2019 led to both investment grade and non-investment grade bonds posting strong results at the end of the 12-month period.
The volatility experienced by investors during most of 2018 was far from exceptional. In fact, it seems more likely to continue rather than to dissipate back to the historic lows of recent years. We are reminded in periods such as these of the importance of prudent financial decisions, confidence in your investment strategy and awareness of the risks of trying to time the market. Furthermore, we believe that more volatile environments create opportunity for active managers to add value.
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Letter from the President (Continued)
We greatly value your continued support. Thank you for including Touchstone as part of your investment plan.
Sincerely, |
![]() |
Jill T. McGruder |
President |
Touchstone Strategic Trust |
1A yield curve inversion is defined as when the yield on a 2-year Treasury Bill exceeds the yield on a 10-year Treasury Bond.
4 |
Management's Discussion of Fund Performance (Unaudited)
Touchstone Flexible Income Fund
Sub-Advised by Bramshill Investments, LLC
Investment Philosophy
The Touchstone Flexible Income Fund seeks total return through a combination of income and capital appreciation by investing primarily in income producing securities. The Fund’s sub-advisor, Bramshill Investments, LLC, implements a tactical fixed-income strategy, actively managing the portfolio by rotating among asset classes and tactically hedging during various interest rate and market environments. The sub-advisor seeks to identify relative value across asset classes and capture opportunities primarily within the corporate, U.S. Treasury, municipal and preferred security markets. The Fund focuses on liquid securities with transparent pricing and actively-traded capital structures.
Fund Performance
The Touchstone Flexible Income Fund (Class A Shares) underperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, for the 12 months ended March 31, 2019. The Fund’s total return was 3.59 percent (calculated excluding the maximum sales charge) while the total return of the benchmark was 4.48 percent.
Market Environment
Over the twelve-month period, the post-crisis bull market faced one of its toughest challenges as the optimism around 2017’s synchronized global growth environment faltered amid a shifting macroeconomic landscape. Investors used the changing data to build a wall of worry that came to include the U.S. and China “trade war,” diverging monetary policy across the globe, geopolitical instability in Europe, and softer economic fundamentals. U.S. economic data was generally strong until the end of 2018 when some indicators including home sales, auto sales, and consumer confidence suggested a slowdown was emerging. Decelerating growth in major economies outside the U.S. became more evident as well, though none entered recessionary territory. Healthy domestic economic conditions encouraged the U.S. Federal Reserve Board (Fed) to continue normalizing monetary policy with three interest rate increases during the last three quarters of 2018, which pressured risk assets. However, the Fed announced a pause to this monetary policy normalization path after the softening of the economic backdrop became apparent in 2018 and continued through the first quarter of 2019. This pause was enough to inspire a sentiment shift to start 2019 and erase much of the drawdown at the end of the year across most asset classes and geographies.
Rising interest rates and widening credit spreads buffeted the fixed income market for most of the period. The Fed’s rate hikes pushed short-term rates higher over 2018 compared with falling rates on longer maturities. The result was a significantly flatter yield curve, reaching its flattest level since 2007. This gave rise to fears throughout the year of a yield curve inversion1, which historically has been a leading indicator of recessions. In 2019, these concerns were realized as there was a brief inversion, despite the broader risk rally. Economic concerns also led to credit spread widening during the latter part of 2018, but spreads narrowed quickly in concert with the aforementioned equity rally to start 2019. Tighter credit spreads during the first quarter of 2019 led both investment grade and non-investment grade bonds to post strong results at the end of the 12-month period.
Portfolio Review
Concerns of an economic slowdown driven by the aforementioned trade war and flattening yield curve caused enough uncertainty to warrant a conservative posture during 2018, emphasizing higher quality issuers and structures.The Fund’s exposure to investment grade corporate credit, structured securities (Asset-Backed Securities, Commercial
5 |
Management's Discussion of Fund Performance (Unaudited) (Continued)
Mortgage-Backed Securities and Mortgage-Backed Securities) and preferred equities provided a positive performance tailwind through the second and third quarters of 2018 as credit spreads remained tight.
Economic slowdown fears manifested in a fourth quarter 2018 market pullback and widening credit spreads. Despite an overall conservative positioning going into the fourth quarter, the widening credit spreads represented a performance headwind, the Fund underperformed the benchmark during the fourth quarter of 2018. Investment grade corporate bonds and preferred securities accounted for most of the underperformance in the fourth quarter of 2018. As the Fund’s new sub-advisor, we at Bramshill, transitioned the portfolio during this market pullback, finding opportunities.
In December 2018, the Fund was repositioned by incorporating our investment process. This is a three step process including assessment of the relative value of each U.S. fixed income asset class, deployment of an optimal duration profile and selection of credits and securities which are attractive based on financial metrics and relative value. This opportunistic repositioning has resulted in positive results for the first quarter of 2019.
During the first two months of 2019, prices for most securities in the Fund had appreciated. We reduced the Fund’s allocation to preferred securities in an effort to increase Fund liquidity. The Fund’s High Yield and Investment Grade Corporate bond exposure had been fairly stable and we maintained high conviction in Municipal Bond closed-end funds. Cash and short-term U.S. Treasuries now represent approximately 20 percent of the Fund. Our outlook for interest rate risk shifted slightly in March as Fed commentary indicated it will be on hold in the near term and will stop selling its balance sheet assets by mid-year. Therefore, we decreased the Fund’s U.S. Treasury hedge in March, resulting in extending the Fund’s duration by approximately one year. We believe that both credit risk and interest rate risk are fairly neutral at this point in the cycle and therefore, we believe it is a favorable environment for income strategies such as the Fund.
Outlook
At Bramshill, we look to manage risk across various environments. We try to assess credit risk and interest rate risk. Regarding credit, we are constructive on the U.S. economy which we believe is likely to grow between 2.5 percent and 3 percent in 2019. Thus, we expect credit risk and defaults to remain low this year and are optimistic about this environment. At the same time, we anticipate volatility across many markets due to the large variance of economic forecasts, Fed uncertainty and shifting trade dynamics. We always seek to remain nimble and flexible to adjust as these market conditions dictate. In the first quarter of 2019, the Fund benefited from the opportunistic rotation described above into risk assets. We believe the current credit environment is still ripe with opportunities.
1A yield curve inversion is defined as when the yield on a short-term U.S. Treasury Bill exceeds the yield on a 10-year U.S. Treasury Bond.
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Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the
Touchstone Flexible Income Fund - Class A* and the Bloomberg Barclays U.S. Aggregate Bond Index
* | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares, Class Y shares and Institutional Class shares was April 1, 2004, October 29, 2001, September 1, 1998 and September 10, 2012, respectively. Class A shares, Class C shares and Class Y shares performance information was calculated using the historical performance of the Fifth Third/Maxus Income Fund Investor shares, with an inception date of March 10, 1985, for periods prior to April 1, 2004, October 29, 2001 and September 1, 1998, respectively. Institutional Class shares performance information was calculated using the historical performance of Class Y shares for the periods prior to September 10, 2012. The returns have been restated for sales loads and fees applicable to Class A, Class C, Class Y and Institutional Class shares. The returns of the index listed above are based on the inception date of the Fund. |
** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. Effective August 17, 2018, the maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 2.04% of the NAV (or 2.00% of the offering price). Prior to August 17, 2018, the maximum offering price per share of Class A shares was equal to the NAV per share plus a sales load equal to 6.10% of the NAV (or 5.75% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to sales charges. |
The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Note to Chart
Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and ten years.
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Management's Discussion of Fund Performance (Unaudited)
Touchstone Focused Fund
Sub-Advised by Fort Washington Investment Advisors, Inc.
Investment Philosophy
The Fund seeks to invest in companies of all capitalizations that are trading below what is believed to be the estimate of their intrinsic value and have a sustainable competitive advantage or a high barrier to entry in place. The barrier(s) to entry can be created through a cost advantage, economies of scale, high customer loyalty or a government barrier (e.g. license or subsidy). Fort Washington believes that the strongest barrier to entry is the combination of economies of scale and higher customer loyalty.
Fund Performance
The Touchstone Focused Fund (Class A Shares) underperformed its primary benchmark, the Russell 3000® Index, and its secondary benchmark, the S&P 500® Index, for the 12-month period ended March 31, 2019. The Fund’s total return was 3.82 percent (calculated excluding the maximum sales charge) while the total return of the Russell 3000® Index was 8.77 percent and the total return of the S&P 500® Index was 9.50 percent.
Market Environment
In the second and third quarters of 2018, U.S. equities rallied to all-time highs coming off a volatile first quarter. The impressive run for stocks over these quarters came as strong corporate results and economic growth overshadowed on-going trade concerns. In the fourth quarter, U.S. equities recorded negative returns as slowing global growth, U.S.-China trade relations, and U.S. Federal Reserve Board’s (Fed’s) commentary concerned investors. U.S. equity markets then rebounded to a strong first quarter in 2019 as fears that had dragged the market lower in the fourth quarter somewhat improved. Sectors that led the market higher included Utilities, Real Estate, and Information Technology. The Financials, Materials, and Energy sectors posted negative returns during the period.
Portfolio Review
Within the Fund, the sectors where holdings outperformed relative to the benchmark were Materials and Information Technology. Sectors that lagged relative to the benchmark included Energy, Real Estate, Health Care, Financials, Consumer Staples, Consumer Discretionary, and Industrials. Stock selection was negative for the period. Sector allocation was positive primarily due to the underweights in Materials and Energy which were underperforming sectors within the benchmark for the period.
Among the Fund’s contributors to performance were Salesforce.com Inc. (Information Technology sector), Twenty-First Century Fox Inc. (Communication Services sector), and Amazon.com Inc. (Consumer Discretionary sector). Salesforce.com rose primarily due to higher than expected revenue growth and the company’s announcement that it raised fiscal year 2019 revenue guidance. 21st Century Fox rose due to the acquisition from Disney. Amazon.com rose due to acceleration of growth in Prime and Amazon Web Services.
Among the stocks that detracted from performance were Bristol-Myers Squibb Company (Health Care sector) and Goldman Sachs Group Inc. (Financials sector). Bristol-Myers Squibb fell primarily due to concerns over positive results for a competitor to Bristol’s key immuno-oncology drug. Goldman Sachs was down during the period primarily due to charges related to the firm’s involvement in Malaysian bond offerings. The Fund continues to hold these stocks. Bank OZK also detracted from Fund performance after it reported losses on two real estate investments. Subsequently, we exited the Fund’s position.
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Management's Discussion of Fund Performance (Unaudited) (Continued)
From a market-cap perspective, the Fund maintained its underweight to both smaller-cap stocks (companies with a market cap below $2 billion) and mid-cap stocks. But the Fund continued to maintain an overweight in larger-cap businesses (companies with a market cap above $10 billion). This market capitalization allocation decision positively contributed to performance during the period as large-cap stocks outperformed.
As the period came to a close, the Fund had an overweight to the Communication Services, Consumer Discretionary, Financials, and Real Estate sectors and an underweight to the Consumer Staples, Industrials, Health Care, Information Technology, and Energy sectors. The Fund held no positions in the Utilities or Materials sectors at the end of the period.
Outlook
As the valuation of the U.S. equity market has increased in the first quarter of 2019, we have been evaluating the key questions of whether we consider this a healthy market rally and whether current valuations are a cause for concern. Our view is that the equity market rally which began in December 2018 has been a healthy one with broad participation across the market capitalization spectrum driving the market higher. While we continue to monitor credit, asset bubbles, and inflation, we do not see major signs for worry heading into the second quarter of 2019. In the absence of the warning signs, we monitor to determine when to position the Fund’s portfolio defensively. Our team believes there will still be attractive returns going forward.
Despite the health of the recent market rally, Fund positioning continues to reflect our belief that we are in the later stages of the market cycle. We believe this is a prudent approach considering the impressive bounce back by U.S. stocks which has certainly reduced the margin of safety for shocks to the equity market. As we continue to look for businesses that are mispriced by the market, we have been gradually improving the quality of the Fund’s portfolio. Evidence of this can be seen in the weighted average excess return on capital of the Fund’s portfolio which is currently at an all-time high and much higher than the market average. The Fund’s portfolio continues to emphasize larger cap, franchise value businesses with higher barriers to entry.
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Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison
of the Change in Value of a $10,000 Investment in the
Touchstone Focused Fund - Class A*, the Russell 3000® Index and the S&P 500® Index
* | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares, Class Y shares and Institutional Class shares was September 30, 2003, April 12, 2012, February 12, 1999 and December 20, 2006, respectively. Class A shares, Class C shares and Institutional Class shares performance information was calculated using the historical performance of Class Y shares for the periods prior to September 30, 2003, April 12, 2012 and December 20, 2006, respectively. The returns have been restated for sales loads and fees applicable to Class A, Class C and Institutional Class shares. The returns of the indexes listed above are based on the inception date of the Fund. |
** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. Effective August 17, 2018, the maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Prior to August 17, 2018, the maximum offering price per share of Class A shares was equal to the NAV per share plus a sales load equal to 6.10% of the NAV (or 5.75% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to sales charges. |
The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Notes to Chart
Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
S&P 500® Index is a group of 500 widely held stocks and is commonly regarded to be representative of the large capitalization stock universe.
The Frank Russell Company (FRC) is the source and owner of the Russell 3000® Index data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.
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Management's Discussion of Fund Performance (Unaudited)
Touchstone Growth Opportunities Fund
Sub-Advised by Westfield Capital Management Company, L.P.
Investment Philosophy
The Touchstone Growth Opportunities Fund seeks long-term growth of capital by primarily investing in stocks of U.S. companies with large, medium and small market capitalizations. The Fund’s portfolio managers place focus on companies they believe to have demonstrated records of achievement with excellent prospects for earnings growth over a 1- to 3-year period. Westfield looks for companies that it believes are reasonably priced with high forecasted earnings potential.
Fund Performance
The Touchstone Growth Opportunities Fund (Class A Shares) underperformed its benchmark, the Russell 3000® Growth Index, for the 12-month period ended March 31, 2019. The Fund’s total return was 10.40 percent (calculated excluding the maximum sales charge), while the total return of the benchmark was 12.06 percent.
Market Environment
Equity markets advanced with determination through the second and third quarters of 2018, only to give back a substantial portion of those gains in October and December. The fourth quarter of 2018 marked one of the largest quarterly declines in U.S. equities since 2011. While this outcome seemed surprising in the context of the positive market backdrop heading into the quarter, a shifting focus to 2019 and beyond brought new concerns to light as recessionary fears and the likelihood of a policy misstep captured the attention of investors. However, following these negative sentiment extremes, the first quarter of 2019 bore witness to a stock market advance of historical significance, as equities posted one of their largest quarterly gains since the stock market bottomed ten years ago. While in isolation these gains would appear emblematic of economic acceleration, the true narrative includes the steep declines and sentiment extremes experienced at year-end, which provided the backdrop for the rapid advance. With growth slowing and yields falling, expectations for further rate hikes quickly evolved with a more dovish tone culminating in the U.S. Federal Reserve Board’s (Fed’s) “pause” of further hikes. This evolution in thinking also coincided with falling volatility and tightening credit spreads, both of which flashed early warning signs of trouble at year-end but have since receded to less concerning levels. As in quarters past, trade remained a headline throughout as uncertainty surrounding the U.S.-China negotiations was cited as the single biggest driver of the global growth slowdown and expectations for a resolution rose despite an uncertain timeline. Pockets of slowing growth were also evident in the U.S. in manufacturing, housing, and retail sales.
Portfolio Review
Relative weakness in the Financials, Health Care and Consumer sectors (Consumer Discretionary and Consumer Staples) offset relative strength in the Industrials and Information Technology sectors.
Despite encouraging relative results from investments within biotechnology and life sciences tools & services, the Fund’s exposure to drug developers in pharmaceuticals detracted from relative returns within the Health Care sector. Haemonetics Corporation, a supplier focused on hematology products and solutions, specifically in the plasma market, was the sector’s largest relative detractor. While Haemonetics reported strong quarters throughout the trailing twelve-month period, the stock was weak to start the year following comments by the CEO that reset expectations around a new product launch. We maintain a strong conviction in the company and believe this is a transitory issue as the CEO is new and likely wants to manage what were high market expectations. The Fund continued to maintain exposure to the stock, however we are assessing the speed at which we believe the new product will ramp. Bristol-Myers Squibb, a pharmaceutical company, also detracted from relative results. We sold the Fund’s position in the fourth quarter of 2018 after the company announced
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Management's Discussion of Fund Performance (Unaudited) (Continued)
that its cancer immunotherapy drug, Opdivo, failed to meet its goal in a key Phase 3 study. We repurchased a Fund position in January 2019 at a more attractive valuation level as we are optimistic about Bristol-Myers Squibb’s acquisition of Celgene.The acquisition gives Bristol-Myers Squibb exposure to Celgene’s industry-leading oncology pipeline, expanding its current offering in this high growth space meaningfully.
The Consumer sectors (Consumer Discretionary and Consumer Staples) together were the largest source of relative weakness within the Fund. Delphi Technologies Plc (Consumer Discretionary sector), a manufacturer of various vehicle components, was a detractor as quarterly results posted in August sent the stock price lower. While earnings were better than expected, sales and profits came inline, despite slower growth in the second quarter driven by weakness in China. Despite our positive views on the fundamental growth story for Delphi, the near-term headwinds and overhang of escalating trade tensions with China proved too much to overcome and we exited the Fund’s position. Manufacturer of tobacco products, Philip Morris International Inc. (Consumer Staples sector), also detracted from Fund performance. The stock price declined after the company reported first quarter 2018 sales that fell shy of Wall Street consensus, with cigarette and heated tobacco unit shipment volumes declining. We originally invested in Philip Morris on the belief that the company’s growth potential for its e-cigarette brand iQos was substantial. However, our thesis was called into question in light of sales pressure in the company’s Japanese test market. We decided to exit the Fund’s position in mid-2018 and allocated the proceeds to other existing positions that we believed had more favorable risk/reward profiles.
Strength in the Industrials sector partially offset the aforementioned weakness. Ingersoll-Rand, an HVAC company, was the sector’s strongest relative performer. We initially purchased the stock on the belief that its valuation was attractive and that it offered a better organic growth opportunity relative to peers. We continue to hold conviction in the company and believe it can continue to post impressive organic growth numbers and grow its global market penetration. Union Pacific Corporation, a railroad with links to approximately 20 states, also added to relative returns during the period. After the stock’s price fell at the end of the year along with the broader market, the stock rallied in January on the news that Jim Vena, the former COO of Canadian National, had been hired as the new COO for Union Pacific. The stock climbed into the first quarter of 2019, as the market reacted well to Union Pacific’s further quarter earnings release, analyst day, and increased confidence around the ability to implement the Precision Scheduled Railroading plan.
The Information Technology sector was another relative contributor during the period with investments in the Software sub-industry driving the bulk of the sector’s relative performance gains. Zendesk, Inc., which offers a high-quality and differentiated customer service platform, was one of the strongest contributors. The company’s product can integrate with social media seamlessly, differentiating Zendesk from older call center and customer service products that are not built to support these next-generation applications. Based on our research, the company’s sales force is strategically focused on providing enterprise solution sales and, as a result, average deal sizes are increasing. We believe this continued shift toward enterprise customers should be good for Zendesk’s long-term prospects, allowing it to achieve substantial growth over the next several years.
Outlook
As a fundamental, bottom-up manager, macro-economic forecasts do not drive our stock selection process, but do help to shape our investment themes. We expect to see an acceleration in U.S. and global growth after the recent soft patch. While it remains too early to say with certainty that a slowdown is behind us, some green shoots are beginning to emerge such as the earliest leading indicator, policy changes. The Fed’s more dovish signaling, a marked departure from the monetary policy of mid-December, was well received by equity markets and should continue to support growth in the U.S. economy. Global growth may also see a boost as the Chinese government announced a stimulus package to shore up its economy against further slowing. Additionally, survey
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Management's Discussion of Fund Performance (Unaudited) (Continued)
data suggests that a bottoming process is already underway for growth in both countries. With the Fed on hold and the U.S. Dollar weakening, we could see small caps and cyclicals perform better into accelerating growth trends.
We believe the greatest risk to the Fund would be an event that takes the market’s focus off of fundamentals. Additional risks would include a risk-off market where defensive sectors like Consumer Staples, Telecommunication Services, Utilities, and REITs outperform, or a move to high beta1 and low quality markets as these are all areas where the Fund is traditionally underweight.
With that said, we believe the current environment is becoming more favorable to active security selection as intra-stock correlations have receded and idiosyncratic drivers, such as earnings, are helping to determine asset valuations. We also maintain a preference for quality businesses with clean balance sheets and believe that our GARP (“growth-at-a-reasonable-price”) philosophy has the potential to be rewarded in this environment.
1Beta is a measure of the volatility of a portfolio relative to its benchmark.
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Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the
Touchstone Growth Opportunities Fund - Class A* and the Russell 3000® Growth Index
* | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares, Class Y shares and Institutional Class shares was September 29, 1995, August 2, 1999, February 2, 2009 and February 2, 2009, respectively. Class C shares, Class Y shares and Institutional Class shares performance information was calculated using the historical performance of Class A shares for periods prior to August 2, 1999, February 2, 2009 and February 2, 2009, respectively. The returns have been restated for sales loads and fees applicable to Class C, Class Y and Institutional Class shares. The returns of the index listed above are based on the inception date of the Fund. |
** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. Effective August 17, 2018, the maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Prior to August 17, 2018, the maximum offering price per share of Class A shares was equal to the NAV per share plus a sales load equal to 6.10% of the NAV (or 5.75% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to sales charges. |
The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Notes to Chart
Russell 3000® Growth Index measures the performance of those Russell 3000® companies with higher price-to-book ratios and higher forecasted growth values.
The Frank Russell Company (FRC) is the source and owner of the Index data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.
14 |
Management's Discussion of Fund Performance (Unaudited)
Touchstone Mid Cap Growth Fund
Sub-Advised by Westfield Capital Management Company, L.P.
Investment Philosophy
The Touchstone Mid Cap Growth Fund seeks to increase the value of Fund shares by primarily investing in stocks of mid-cap U.S. companies. The Fund’s portfolio managers place focus on companies that they believe to have a demonstrated record of achievement with excellent prospects for earnings growth over a 1-to-3-year period. Westfield looks for companies that it believes are reasonably priced with high forecasted earnings potential.
Fund Performance
The Touchstone Mid Cap Growth Fund (Class A Shares) outperformed its benchmark, the Russell Midcap® Growth Index, for the 12-month period ended March 31, 2019. The Fund’s total return was 12.77 percent (calculated excluding the maximum sales charge), while the total return of the benchmark was 11.51 percent.
Market Environment
Equity markets advanced with determination through the second and third quarters of 2018, only to give back a substantial portion of those gains in October and December. The fourth quarter of 2018 marked one of the largest quarterly declines in U.S. equities since 2011. While this outcome seemed surprising in the context of the positive market backdrop heading into the quarter, a shifting focus to 2019 and beyond brought new concerns to light as recessionary fears and the likelihood of a policy misstep captured the attention of investors. However, following these negative sentiment extremes, the first quarter of 2019 bore witness to a stock market advance of historical significance, as equities posted one of their largest quarterly gains since the stock market bottomed ten years ago. While in isolation these gains would appear emblematic of economic acceleration, the true narrative includes the steep declines and sentiment extremes experienced at year-end, which provided the backdrop for the rapid advance. With growth slowing and yields falling, expectations for further rate hikes quickly evolved with a more dovish tone culminating in the U.S. Federal Reserve Board’s (Fed’s) “pause” of further hikes. This evolution in thinking also coincided with falling volatility and tightening credit spreads, both of which flashed early warning signs of trouble at year-end but have since receded to less concerning levels. As in quarters past, trade remained a headline throughout as uncertainty surrounding the U.S.-China negotiations was cited as the single biggest driver of the global growth slowdown and expectations for a resolution rose despite an uncertain timeline. Pockets of slowing growth were also evident in the U.S. in manufacturing, housing, and retail sales.
Portfolio Review
Relative strength in the Information Technology and Industrials sectors outweighed relative weakness in the Consumer (Consumer Discretionary and Consumer Staples) sectors.
The Information Technology sector, the Fund’s largest sector, was the top contributor to relative performance over the period. Strong stock selection drove relative returns with investments in the Software sub-industry driving the bulk of the sector’s relative performance gains. Zendesk, Inc. and Worldpay, Inc. were among the top contributors to the Fund’s relative performance.
Zendesk, Inc., which offers a high-quality and differentiated customer service platform, drove the sector’s relative outperformance. The company’s product can integrate with social media seamlessly, differentiating Zendesk from older call center and customer service products that are not built to support these next-generation applications. Based on our research, the company’s sales force is strategically focused on providing enterprise solution sales
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Management's Discussion of Fund Performance (Unaudited) (Continued)
and, as a result, average deal sizes are increasing. We believe this continued shift toward enterprise customers should be good for Zendesk’s long term prospects, allowing it to achieve substantial growth over the next several years.
The Industrials sector also contributed positively to relative returns.TransDigm, Inc. a manufacturer of engineered aircraft components for use on commercial and military aircrafts, was the sector’s top relative performer. Strong commercial aftermarket demand provided steady growth and the company is also a beneficiary of secular growth in air traffic. Additionally, TransDigm completed its Esterline Airlines acquisition ahead of schedule, and we are bullish on the potential for the combined entity. Airline operator United Continental Holdings, Inc. was another source of relative strength. The stock traded higher after the company posted better-than-expected second quarter results in mid-July. Importantly, the company reported strong passenger revenue per available seat mile, a widely watched industry profitability metric, and provided forward guidance pointing to an improvement in the next quarter. Following the strong quarterly report and subsequent price response, we chose to exit the Fund’s position on strength in early December 2018. HVAC manufacturer Lennox International, Inc. was another strong performer. We were pleased to see the company continue to execute well during the year and not get caught up in the downdraft of its peers. The Fund continues to own this long-term holding as we believe that the main drivers of replacement demand remain stable and should continue to drive growth at Lennox.
The Consumer sectors (Consumer Discretionary and Consumer Staples) were the Fund’s biggest source of weakness during the period. Consumer Discretionary was the largest detractor from relative returns. Delphi Technologies Plc, a manufacturer of various vehicle components, was the sector’s top relative underperformer. Quarterly results posted in August sent the stock price lower. While earnings were better than expected, sales and profits came inline, despite slower growth in the second quarter driven by weakness in China. Despite our positive views on the fundamental growth story for Delphi, the near-term headwinds and overhang of escalating trade tensions with China proved too much to overcome and we exited the Fund’s position. PVH Corp., a designer and marketer of apparel, was weak during the period. Initially we found PVH’s advantaged position appealing among peers given a difficult macro backdrop, in addition to its peer-leading digital platform. However, over the course of the last twelve months there was various data that led us to believe its momentum was slowing and that the European market was slowing faster than anticipated. We exited the Fund’s position during the fourth quarter of 2018 as we felt the risk/reward profile was no longer attractive and the growth trajectory would be slower than anticipated.
The Consumer Staples sector was another source of weakness during the period. The largest detractor was packaged foods producer Conagra Brands, Inc. We initially purchased the stock believing that it was undervalued based on what we believed would be a strong accretion due to its recent acquisition of Pinnacle Foods. As the fall progressed, it became clear that integration was proving more challenging than management expected, execution missteps began to mount, and the stock responded negatively. Despite this reaction, we think the setup from here is compelling, especially after management reported a better than expected fourth quarter and that the company is on track to meet previously announced synergy targets. That said, given the recent history, we will continue to monitor developments closely.
Outlook
As a fundamental, bottom-up manager, macro-economic forecasts do not drive our stock selection process, but do help to shape our investment themes. We expect to see an acceleration in U.S. and global growth after the recent soft patch. While it remains too early to say with certainty that a slowdown is behind us, some green shoots are beginning to emerge such as the earliest leading indicator, policy changes. The Fed’s more dovish signaling, a marked departure from the monetary policy of mid-December, was well received by equity markets and should continue to support growth in the U.S. economy. Global growth may also see a boost as the Chinese
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Management's Discussion of Fund Performance (Unaudited) (Continued)
government announced a stimulus package to shore up its economy against further slowing. Additionally, survey data suggests that a bottoming process is already underway for growth in both countries. With the Fed on hold and the U.S. Dollar weakening, we could see small caps and cyclicals perform better into accelerating growth trends.
We believe the greatest risk to the Fund would be an event that takes the market’s focus off of fundamentals. Additional risks would include a risk-off market where defensive sectors like Consumer Staples, Telecommunication Services, Utilities, and REITs outperform, or a move to high beta1 and low quality markets as these are all areas where the Fund is traditionally underweight.
With that said, we believe the current environment is becoming more favorable to active security selection as intra-stock correlations have receded and idiosyncratic drivers, such as earnings, are helping to determine asset valuations. We also maintain a preference for quality businesses with clean balance sheets and believe that our GARP (“growth-at-a-reasonable-price”) philosophy has the potential to be rewarded in this environment.
1Beta is a measure of the volatility of a portfolio relative to its benchmark.
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Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the
Touchstone Mid Cap Growth Fund - Class A* and the Russell Midcap® Growth Index
* | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares, Class Y shares and Institutional Class shares was October 3, 1994, October 3, 1994, February 2, 2009 and April 1, 2011. Class Y shares and Institutional Class shares performance information was calculated using the historical performance of Class A shares for periods prior to February 2, 2009 and April 1, 2011, respectively. The returns have been restated for fees applicable to Class Y and Institutional Class shares. The returns of the index listed above are based on the inception date of the Fund. |
** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. Effective August 17, 2018, the maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Prior to August 17, 2018, the maximum offering price per share of Class A shares was equal to the NAV per share plus a sales load equal to 6.10% of the NAV (or 5.75% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to sales charges. |
The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Notes to Chart
Russell Midcap® Growth Index measures the performance of those Russell Midcap® companies with higher price-to-book ratios and higher forecasted growth values.
The Frank Russell Company (FRC) is the source and owner of the Index data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a Touchstone Investments presentation of the data, and FRC is not responsible for the formatting or configuration of this material or for any inaccuracy in the presentation thereof.
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Management's Discussion of Fund Performance (Unaudited)
Touchstone Sands Capital Emerging Markets Growth Fund
Sub-Advised by Sands Capital Management, LLC
Investment Philosophy
The Touchstone Sands Capital Emerging Markets Growth Fund seeks long-term capital appreciation. The Fund invests in equity and equity-related securities issued by companies located in Emerging or Frontier Markets countries. The Fund’s sub-advisor, Sands Capital Management LLC, uses a “bottom-up” approach to investment selection, as opposed to sector or regional allocations, that focuses on a company’s long-term business fundamentals. Sands Capital seeks companies that have: sustainable above-average earnings growth; a leadership position in a promising business space; significant competitive advantages such as profitability, superior quality or distribution relative to competitors or strong brand and consumer loyalty; a clear mission in an understandable business model; financial strength; and a rational valuation in relation to competitors, the market and business prospects.
Fund Performance
The Touchstone Sands Capital Emerging Markets Growth Fund (Class Y Shares) outperformed its benchmark, the MSCI Emerging Markets Index, for the 12-month period ended March 31, 2019. The Fund’s total return was -3.02 percent, while the total return of the benchmark was -7.41 percent.
Market Environment
Emerging Market equities declined during the 12-month period. A number of issues weighed on sentiment, including continued U.S./China tensions (both trade and geopolitical), currency crises in select countries, slowing global growth, and a stronger U.S. Dollar.
Some of the losses were recouped in the first quarter 2019, recovering to August 2018 levels. The strength was broad-based, but China was a notable contributor, as U.S. trade deal optimism, announced government stimulus, A-share index inclusion news, and oversold conditions contributed to a double-digit rise.
For the period, no regions made a positive contribution to the results. Together, both Asia/Pacific ex-Japan and Emerging Asia accounted for the majority of the decline. Brazil and India were the top country contributors. Brazil fell, but rallied following Jair Bolsonaro’s presidential election victory, given optimism that he will deliver on his pro-business, anti-crime, and anti-corruption agenda. India’s market rose since October on dovish announcements from the Bank of India, and an improved outlook for Prime Minister Modi in the upcoming general election.
From a sector perspective, Energy and Real Estate were the only positive sector contributors. The fast-growing Information Technology and Communication Services sectors were the top detractors.
Portfolio Review
Emerging Asia and Asia/Pacific ex-Japan were the top regional contributors to relative results, while Europe was the sole detractor. From a sector perspective, Consumer Discretionary and Financials were the top relative contributors, while Energy (a zero percent weight) and Consumer Staples detracted the most. Relative results were largely attributable to selection effect, and currency also made a positive contribution. Allocation effect contributed on a regional basis, but detracted on a sector basis.
Top contributors to relative investment results were MercadoLibre Inc., Anta Sports Products Ltd., Sea Ltd. and NagaCorp Ltd.
MercadoLibre continues to strengthen its leadership in ecommerce and build out its suite of fintech services in Latin America. Ecommerce gross merchandise volume growth was strong at 31 percent year-over-year (on
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Management's Discussion of Fund Performance (Unaudited) (Continued)
a constant-currency basis). MercadoLibre continued to improve the experience of shopping online, and demonstrated progress with a number of its value-added services. For example, its owned logistics network handled nearly 20 percent of total volume sold, and shipping speeds continued to improve. In addition, its early stage off-marketplace payment business posted 172 percent year-over-year (also on a constant currency basis). Finally, its newer services—including its proprietary wallet, merchant loans, consumer loans, and asset management—also showed promising initial traction, and remain long-term upside options. MercadoLibre’s recent capital raise of approximately $2 billion should allow it to further invest behind these initiatives and accelerate growth. We continue to believe MercadoLibre is well positioned to be the main beneficiary of sustained growth of ecommerce and financial services in Latin America over time.
Anta Sports Products reported strong fiscal-year 2018 results, and in our view, remains the leading player in the world’s most attractive sportswear market (China). Sales grew 44 percent year-over-year, bolstered by apparel. Gross margins rose due to higher-margin initiatives, supply chain efficiencies, and less discounting. The Fila brand was a key highlight, posting 90 percent year-over-year growth. The Fila brand rights for China were acquired in 2009, when the brand was loss-making. Since then, Fila China’s revenue has increased and the brand is now the sixth-largest sports apparel name in China. Beyond strong momentum from Fila, Anta Kids, and other smaller brands, we believe that the recently announced acquisition of Amer Sports will be supportive of long-term growth. We believe that Anta’s management has a strong track record with international acquisitions (e.g. Fila), and Amer’s global brands—including Arc’teryx, Solomon, and Wilson—complement Anta’s existing portfolio.
NagaCorp continues to demonstrate momentum, primarily attributable to the success of the recently opened Naga2 property. Naga2—which features 1,000 hotel rooms and suites, a 2,000-seat theater, and over 2,500 tables and electronic gaming machines—is ramping far ahead of our expectations. Most of the property’s fixed costs are already more than covered, which should enable the property to be materially more profitable than originally expected. While much of this growth will likely stem from the VIP segment, which is lower margin than mass-market gaming, Naga2 should still be a strong contributor to absolute earnings growth. Looking ahead, we expect NagaCorp to benefit as Cambodia continues to attract visitors (China now accounts for 30 percent of visits, rising 86 percent year-over-year), and the anticipated opening of the Vladivostok property in Russia could add incremental upside.
Top relative detractors were Amorepacific Corp., Medy-Tox Inc., Baidu Inc. and Zee Entertainment Enterprises Ltd.
Medy-Tox was pressured over the past three quarters as the China channel crackdown and tough emerging-market comparables weighed on quarterly results. We expect a meaningful inflection in the business is on the horizon with the expected approval of Neuronox in China later this year. We expect strong penetration and market expansion for Neuronox—a lower-priced biosimilar alternative to Botox—given its high quality and price differential versus Botox. The launch will position Medy-Tox as the first Korean entrant into China, Asia’s largest and fastest-growing medical aesthetics market, where there are only two toxin products officially approved. After China, we expect the company to expand to Taiwan, Singapore, Saudi Arabia, Russia, Indonesia, and Malaysia over the next two years. We expect U.S. entry in 2022 with Innotox, a next-generation liquid toxin, which is currently undergoing clinical trials for aesthetic indications. While the recent near-term backdrop has been challenging, we expect sustained earnings growth moving forward, as Medy-Tox enters new markets with its differentiated and growing medical aesthetics product line.
Baidu faced pressure from the 2018 emerging markets selloff, particularly among higher-growth businesses. The company reported better-than-feared topline first-quarter 2019 results, with Baidu Core (search, feed, and cloud) posting 20 percent year-over-year growth. However, this reflected a seven percentage point deceleration from the prior quarter, due to the macro slowdown and other vertical-specific factors. Margins were lower than
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Management's Discussion of Fund Performance (Unaudited) (Continued)
expected, due to heavy investments in its new standalone short-video apps. Management’s decision to invest so heavily in areas with established incumbents is curious, and its investment track record has been mixed. We continue to hold discussions with management to better understand its vision with these new projects. Positively, internet search remains a durable business that we believe is underappreciated by the market, and Baidu’s artificial intelligence initiatives could provide longer-term upside.
Despite strong quarterly results, we believe Zee Entertainment continues to trade at a depressed valuation, as concerns about over-the-top digital broadcasting (OTT) competition/investment and the potential sale of an ownership stake held by promoters weighed on the company’s multiple. We believe that these issues have little influence on the long-term investment case, and continue to view Zee as an attractive growth business levered to powerful secular trends in a growing emerging market. Zee’s third-quarter fiscal 2019 results were strong, as domestic advertising and subscriptions drove 18 percent year-over-year revenue growth.The company continues to see strong viewership gains, and monetization remains early in newer markets. Looking ahead, we believe that Zee will be one of the primary beneficiaries of the shift toward OTT. The company’s decades-long local presence has resulted in a trove of content tailor-made for Indian viewers, which we view as a significant competitive advantage over Western competitors. We believe that Zee’s OTT offering, Zee5, will ultimately become one of India’s top digital entertainment platforms as it grows its content library and distribution partnerships. Zee5 reached 56 million users in December 2018, up from 41 million in the previous quarter. While Zee5 content production is expected to ramp by two to four times this year, we believe management remains focused on quality programming, rather than quantity.
During the year we purchased AIA Group Ltd., Bajaj Finance Ltd., BeiGene Ltd. Hutchison China MediTech Ltd., New Oriental Education & Tech Grp., and Wuxi Biologics Cayman Inc.
AIA is the largest pan-Asia life insurance business, with operations across nearly 20 markets. Demand across Asia for high-quality insurance products is rising, driven by multiple secular trends, including a large and growing middle class, aging populations, and favorable regulations and fiscal policies incentivizing consumers to purchase insurance products. We believe AIA has a distinct advantage as a premier brand with a long and distinguished operating track record. The company maintains a unique competitive advantage in being able to maintain 100 percent equity stakes in local subsidiaries, even in markets that no longer allow complete foreign ownership (e.g., China, one of the most lucrative markets in Asia). We believe this advantage has allowed the company to apply a consistent business strategy across all regions, which includes prudent product underwriting, an experienced and highly educated workforce, a disciplined focus on traditional insurance products with meaningful protection, a conservative approach in managing its investment book, and a strong capital and liquidity position.
Bajaj Finance is India’s largest financer of consumer-durable purchases, with over 60 percent market share. Bajaj is best known for offering zero-percent-interest financing for household electronic and digital products. In return for assuming the credit risk on behalf of manufacturers and dealers, Bajaj receives a payment often amounting to five to 12 percent of the purchase price. The company was an early adopter of big-data analytics and cloud technology, which enables it to vet potential borrowers and issue lending decisions within minutes at the point of sale. Consumer financing is Bajaj’s main customer-acquisition channel, through which it cross-sells other products, such as personal loans and mortgages. Beyond consumer financing, the remainder of Bajaj’s business includes loans to small and medium-sized enterprises and other commercial entities. The company is actively expanding into new areas, including lifestyle financing (health, education, travel/leisure, etc.), housing financing, and partnerships with retail chains and leading Indian ecommerce platforms.
BeiGene is a leading Chinese R&D-driven biotechnology business, with a focus on creating novel cancer drugs. The company has rapidly progressed its lead pipeline candidates since its founding in 2011, and today counts several late-stage trial candidates across a number of cancer indications. We believe that the company sits at
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Management's Discussion of Fund Performance (Unaudited) (Continued)
the intersection of several powerful secular trends, including 1) the high unmet need for better cancer therapy in China, 2) the relatively low, but increasing, penetration of branded cancer therapies, 3) the emergence of China’s prominence in biopharmaceuticals, and 4) the displacement of chemotherapy by genetically targeted therapies and immunotherapies. Our research indicates that BeiGene is uniquely positioned to benefit, given its leadership and development progress thus far, its pipeline of compelling assets, and its expertise in creating both small- and large-molecule therapeutics. We believe BeiGene will translate its clinical success into commercial sustainability, initially within China, and then globally over the long term.
Hutchison China MediTech (Chi-Med) is a China-based, R&D-driven biopharmaceutical company focused on developing novel small-molecule targeted therapies. The company is one of China’s earliest innovators in novel small-molecule cancer drugs. Chi-Med’s core R&D capabilities lie in medicinal chemistry, with a focus on creating highly specific drugs to inhibit known cancer targets.The most advanced drug candidates—fruquintinib and savolitinib—are both partnered with multinational pharmaceutical companies, and could potentially receive global approval for a number of cancer indications. The unmet medical need in China is large, particularly in cancer, where mortality rates are twice as high as in the U.S. Over the past few years, Chinese regulators have implemented dramatic reforms aimed at accelerating approvals for modern drugs to address unmet medical needs and to foster a world-class domestic innovative biopharma industry. We believe that Chi-Med is poised to capitalize on this new regulatory landscape, as one of the few Chinese firms with R&D sophistication comparable to leading Western companies.
New Oriental Education is the largest private education services business in China, with approximately 1,000 learning centers in over 75 cities. Historically, the company built a strong brand through its leading English-language training and overseas test preparation. In recent years, the company has shifted its focus to building one of the largest K-12 after-school tutoring businesses, which we view as the most attractive segment within private education. This segment is the largest and fastest growing within China’s education industry, supported by strong demand for quality education from Chinese parents. K-12 tutoring has historically been a very fragmented industry, due to low barriers to entry. However, looking ahead, we believe recent regulatory reform and the rising importance of technology will result in market share gains for select businesses. We believe that New Oriental will be a key beneficiary from this industry consolidation, given its scale, teacher quality, strong brand, and technology investments.
Wuxi Biologics (Wuxi) is China’s largest contract service provider for protein-based biologic drugs, based on market share. Wuxi, a contract development and manufacturing organization (CDMO), offers end-to-end outsourced solutions to global biopharmaceutical clients across the drug value chain, including discovery, development, and manufacturing. Biologic drugs represent the fastest-growing segment of R&D spending among global pharmaceuticals, but have high barriers to entry and switching costs. As the complexity for biologics R&D and manufacturing grows, biopharmaceutical companies are increasingly turning to CDMOs to promote efficiency and manage risk. Wuxi is also uniquely advantaged, in our view, as a partner of choice for multinational corporations seeking to enter the Chinese market, and for domestic companies seeking access to global markets. The company is in the midst of expanding its global operations, and looking ahead, we believe there will be sustained growth as Wuxi continues to add new projects, advance its pipeline, and deepens its existing client relationships with new service offerings.
During the period we sold Amorepacific Corp., Avenue Supermarts Ltd., Credicorp Ltd., IHH Healthcare Bhd., International Container Terminal Service, Magnit PAO, Netshoes Ltd., and Siloam International Hospitals Tbk.
We sold Amorepacific in November 2018. Penetration of the massive China cosmetics market was a key to our long-term investment case, and we lost conviction in Amore’s ability to drive growth due to 1) continued geopolitical risks that have hampered Chinese tourism to Korea and execution for Korean businesses in China,
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Management's Discussion of Fund Performance (Unaudited) (Continued)
and 2) increasing competitive pressure in the Chinese market from multinational and domestic brands. We believe Amorepacific will ultimately recover, and we are encouraged by the new CEO. However, we feel that the opportunity cost for waiting is too high. We decided to reallocate to other criteria-meeting businesses that we believe have better growth visibility within the massive and growing Chinese consumer market.
We sold Avenue Supermarts (DMart), following a period of strong stock price appreciation that, in our view, stretched its already high valuation. We believe that DMart, one of India’s leading food retailers, continues to be a high-quality business with a long growth runway supported by several favorable secular trends, including rising incomes and the shift toward formal retail. However, its current elevated valuation has caused our expected returns for the business to fall materially below the Fund’s portfolio average. Furthermore, risks remain high, as any mis-execution (even minor) is likely to result in significant de-rating from current levels. We will continue to monitor DMart, with the aim to repurchase the company if its valuation becomes more rational and/or our expected returns rise.
We sold Credicorp in order to invest in Bajaj Finance. Credicorp is the largest Peruvian bank by market share, and has been a Fund holding since 2015. Many of our differentiated insights about the business—particularly relating to cost efficiency realization—materialized faster than expected. We continue to view Credicorp as a solid franchise, benefiting from an oligopolistic competitive position against a favorable macroeconomic backdrop for financial services companies. However, our earnings growth expectations for Credicorp are now among the lowest in the Fund’s portfolio. We decided to recycle funds into Bajaj Finance, which provides exposure to a much larger addressable market, and features a management team that we believe is bringing innovation to the sector while effectively managing risk.
We sold IHH Healthcare (IHH) in the fourth quarter of 2018. We believe that macro risks, along with IHH’s valuation, make it less compelling than other businesses that meet our criteria. Nearly 20 percent of the company’s hospital revenue is derived from Turkey. Macro issues facing that country—which have already produced a negative currency impact—could ultimately affect the business’s underlying growth and margins. Additionally, we believe that IHH’s recently announced acquisition of Fortis, the second largest (and recently struggling) hospital operator in India, will face increased execution risk over the next several years. We continue to view India as one of the most attractive markets for private hospital growth, and think IHH’s expanded presence in India will ultimately be the right strategic move over time. However, over the next three to five years, the potential upside from this purchase appears more limited—and not sufficient to offset the associated execution risks and possibility of delays as management turns around Fortis. We prefer to gain direct exposure to this secular trend of Indian hospital growth via Apollo Hospitals Enterprise Limited, the country’s largest hospital operator by revenue and bed count. Finally, from IHH’s current price, our expected return for the business is among the lowest in the Fund’s portfolio, which, in our view, inadequately compensates for its increased risks.
We sold International Container. Its fundamentals remain sound, but a number of factors have rendered its long-term prospects less attractive to us, including the end of the commodity super-cycle, the global trade slowdown, and increased competition for emerging/frontier market port assets. Trade volumes and new port acquisition/ramp-up introduce earnings volatility that we feel is disproportionately high relative to its duration-growth profile. We decided to reallocate to other criteria-meeting businesses that we believe have better growth prospects and clearer earnings visibility.
We no longer believe that Magnit is a strong fit with our criteria, so we sold the business in October. The Russian food retail environment will soon reach maturity, in our view, and competition is becoming aggressive. This has created a difficult operating environment for major players like Magnit, especially when combined with a weak macroeconomic backdrop and bleak demographic prospects. The company replaced its management team, and is taking proactive steps to improve its value proposition and competitive moat. However, these
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Management's Discussion of Fund Performance (Unaudited) (Continued)
initiatives will likely take years to produce material improvements. In the meantime, we see better opportunities for sustainable growth in other businesses.
We sold Netshoes after losing conviction in the company’s ability to leverage its leading position in sporting goods to expand into the fashion category, which was a key pillar of our investment case. In our view, fashion has a more attractive growth and margin opportunity than sporting goods, given its large addressable market, a lower reliance on price comparison, and a fragmented supplier base. In the face of stronger competition from Dafiti, the incumbent player, Netshoes was unable to invest aggressively in pricing and customer acquisition to meaningfully gain market share. We sought to manage the competitive risk by owning the company at a small relative weight, however we underestimated the extent of Netshoes’s growth deceleration as the risk developed. Given our doubt about Netshoes’s long-term leadership in fashion—and combined with the company’s small weight in the Fund’s portfolio, its lower relative liquidity, and the attractiveness of other new opportunities in our pipeline—we decided to sell the business.
We sold Siloam International Hospitals, Indonesia’s largest private healthcare group, due to its deteriorating fit with our investment criteria. Specifically, we are concerned about the financing and execution of the company’s aggressive expansion plan. Management seems to be expanding without regard for profitability or sustainability, which is misaligned with our financial strength and management vision criteria. Additionally, Indonesia’s government healthcare program has reduced the attractiveness of the country’s private hospital industry, especially for newer hospitals and future expansion.These issues around financing, execution, and business space are further exacerbated by the company’s low stock liquidity, which has significantly declined since we first invested. This low liquidity raises the bar for how well the business fundamentals need to fit with our criteria for us to continue ownership. Given our mandate to selectively own what we view as the leading emerging market growth businesses, we decided to pursue other opportunities that are more aligned with our criteria.
Outlook
The growth and wealth creation engines in emerging markets are ripe for change in the coming decades. Emerging market investing long rested on the thesis that these nations will eventually catch up to their wealthier developed market counterparts. While elements of catch-up growth will persist, we expect secular trends to create new growth industries and to allow select businesses to leapfrog their developed market peers. As emerging markets shift from cyclical growth drivers to secular trends, we believe that those seeking innovative businesses will be best positioned to identify the new engines of wealth creation. When high-quality businesses with durable competitive advantages are linked to these changes, they can grow at above-average rates and for much longer than what the market expects. Given the evolution of the emerging markets landscape, change is the only certainty. Not all emerging markets are created equal, and we expect a greater divide between winners and losers among companies, industries, and countries. This divergence of fortunes amplifies the importance of having the skills necessary to identify tomorrow’s leaders. We believe that a deep understanding of innovative business models—in the context of local-market nuances—is required to identify the few companies capable of delivering sustainable above-average growth.
We continue to view emerging markets as an attractive area for long-term investors and believe the Fund is well positioned to weather the current environment. Through our in-depth research, we have selected a group of businesses that we believe can sustain above-average growth through a combination of business-specific drivers and powerful secular tailwinds.
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Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the
Touchstone Sands Capital Emerging Markets Growth Fund - Class A* and the MSCI Emerging Markets Index
* | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares, Class Y shares and Institutional Class shares was November 16, 2018, November 16, 2018, May 9, 2014 and May 9, 2014, respectively. Class A shares and Class C shares performance information was calculated using the historical performance of Class Y shares for periods prior to November 16, 2018. The returns have been restated for sales loads and fees applicable to Class A and Class C shares. The returns of the index listed above are based on the inception date of the Fund. |
** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. The maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to sales charges. |
The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Notes to Chart
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.
25 |
Management's Discussion of Fund Performance (Unaudited)
Touchstone Sustainability and Impact Equity Fund
Sub-Advised by Rockefeller & Co., Inc.
Investment Philosophy
The Touchstone Sustainability and Impact Equity Fund seeks long-term growth of capital. The Fund primarily invests in equity securities of U.S. and non-U.S. companies and generally focuses on larger, more established companies. The Fund selects investments based on an evaluation of a company’s sustainability and impact practices which considers environmental, social and governance (ESG) impacts and risks of a company, how well the company manages these impacts and risks and ascertains the company’s willingness and ability to take a leadership position in implementing best practices.
Fund Performance
The Touchstone Sustainability and Impact Equity Fund (Class A Shares) underperformed its benchmark, the MSCI All Country World Index, for the 12-month period ended March 31, 2019. The Fund’s total return was -0.47 percent (calculated excluding the maximum sales charge), while the total return of the benchmark was 2.60 percent.
Market Environment
Global equity markets posted modest gains for the 12-month period ended March 31, 2019. The first two quarters of the period produced positive equity market returns. However, a sell-off ensued in the fourth quarter as geopolitical concerns and fears of an impending recession dampened investor sentiment. Recession fears grew as global economic data indicated a loss of momentum among major economies. The slowdown heightened concerns that major central banks, notably the U.S. Federal Reserve Board (Fed), were proceeding too quickly on their path to monetary policy normalization. Equity markets rebounded strongly in the first quarter of 2019 after the Fed adopted a more dovish tone, signaling that further interest rate increases would be on hold.
Elsewhere, U.S.-China trade tensions impacted growth in Europe and Asia while a sell-off in the Turkish lira sparked fear among emerging markets. The Italian budget situation also sparked volatility in Europe, which ended with a more market friendly outcome. Brexit (Britain’s exit from the European Union) negotiations are ongoing but it seems as though an agreement may be in the works to ensure the United Kingdom doesn’t leave the union without a deal.
Portfolio Review
The Fund’s stock selection within the Financials and Industrials sectors was the largest detractor from relative performance. This was partially offset by positive contribution from selection within the Consumer Discretionary and Information Technology sectors. Within Financials, yield curve flattening and lower yields were headwinds, while an ongoing anti-money laundering investigation at Swedbank AB impacted performance. Swedbank was the Fund’s largest detractor during the period. Visa Inc. (Information Technology sector) was the largest contributor over the past year, which continued to benefit from the ongoing secular shift from physical cash payments to electronic forms. Some of the Fund’s more cyclical stocks such as Kion Group AG (Industrials sector) and Heidelberg Cement AG (Materials sector) were also negatively impacted by global growth concerns, while less economically sensitive stocks were able to provide some offset to this.
The Fund initiated several new positions during the period. Most recently, the Fund initiated two new positions in the auto-related space, Continental AG (Consumer Discretionary sector) and TE Connectivity Ltd. (Industrials sector) as we tried to position for a potential recovery in the auto sector. Continental traded at a low valuation despite its strong position to capture a growing share in automotive parts for electric vehicles. We believe TE Connectivity should see a greater bill of materials per vehicle as the industry embraces more technology and
26 |
Management's Discussion of Fund Performance (Unaudited) (Continued)
sensors. The Fund also initiated a position in Apple Inc. (Information Technology sector) after the company took down guidance on disappointing sales in China. We were cautious about Apple’s pricing strategy and believed that this downward revision largely reflected the impact of that flawed pricing strategy. However, Apple remains a high quality company with a loyal customer base that we believe should generate strong and steady free cash flow for the company.
Among the stocks that the Fund exited, BNP Paribas SA (Financials sector) was sold due to its exposure to Turkey, but the proceeds were added to other European financial stocks in the portfolio. The Fund took profits on Samsung SDI Co. Ltd. (Information Technology sector) as it became fully valued in our estimates. The Fund also exited Tokyo Gas Co. Ltd. (Utilities sector) on the concern that rising energy prices could pressure its earnings.
Outlook
We believe that the sharp recovery in the first quarter of 2019 has brought U.S. equities into fair market territory. Non-U.S. equities still appear slightly undervalued. Market expectation for the first half of 2019 has come down materially, but remains somewhat elevated for the second half. We believe equities will likely go through a period of consolidation before further appreciation.
Going forward, we see compelling values in the Financials sector and among automobile-related stocks. U.S. banks have the strongest capital positions in nearly eight decades. Higher quality European banks appear to have healthy amounts of excess capital and elevated dividend yields. As such, we have continued to overweight Financials and have increased our auto exposure. We also believe stock picking will start to exert more impact than top-down sector rotation. We will continue to look for what we consider undervalued stocks as markets grapple with conflicting signals in this extended expansion cycle.
27 |
Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the
Touchstone Sustainability and Impact Equity Fund - Class A* and the MSCI All Country World Index
* | The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares, Class Y shares and Institutional Class shares based on the differences in sales loads and fees paid by shareholders in the different classes. The inception date of Class A shares, Class C shares, Class Y shares and Institutional Class shares was December 19, 1997, October 4, 2003, November 10, 2004 and May 4, 2015, respectively. Class C shares, Class Y shares and Institutional Class shares performance information was calculated using the historical performance of Class A shares for periods prior to October 4, 2003, November 10, 2004 and May 4, 2015, respectively. The returns have been restated for sales loads and fees applicable to Class C, Class Y and Institutional Class shares . The returns of the index listed above are based on the inception date of the Fund. The launch date of the index listed above was after the inception date of the Fund, therefore there is no return for since inception. |
** | The average annual total returns shown above are adjusted for maximum sales loads and fees, if applicable. Effective August 17, 2018, the maximum offering price per share of Class A shares is equal to the net asset value (“NAV”) per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). Prior to August 17, 2018, the maximum offering price per share of Class A shares was equal to the NAV per share plus a sales load equal to 6.10% of the NAV (or 5.75% of the offering price). Class C shares are subject to a contingent deferred sales charge (“CDSC”) of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed, if redeemed within a one-year period from the date of purchase. Class Y shares and Institutional Class shares are not subject to sales charges. |
The performance of the above Fund does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Notes to Chart
MSCI All Country World Index measures the equity market performance of developed and emerging markets.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced by MSCI.
28 |
Tabular Presentation of Portfolios of Investments (Unaudited)
March 31, 2019
The tables below provide each Fund’s geographic allocation, sector allocation and/or credit quality. We hope it will be useful to shareholders as it summarizes key information about each Fund’s investments.
Touchstone Flexible Income Fund | ||||
Credit Quality* | (% of Fixed Income Securities) | |||
AAA/Aaa | 60.9 | % | ||
AA/Aa | 1.9 | |||
A/A | 6.4 | |||
BBB/Baa | 17.8 | |||
BB/Ba | 4.9 | |||
B/B | 7.7 | |||
Not Rated | 0.4 | |||
100.0 | % |
Credit Quality* | (% of Preferred Stocks) | |||
AAA/Aaa | 1.0 | |||
BBB/Baa | 40.7 | |||
BB/Ba | 55.3 | |||
B/B | 0.6 | |||
Not Rated | 2.4 | |||
100.0 | % |
Sector Allocation** | (% of Net Assets) | |||
Fixed Income Securities | 67.2 | |||
Preferred Stocks | ||||
Financials | 7.8 | |||
Real Estate | 2.4 | |||
Energy | 1.3 | |||
Utilities | 1.0 | |||
Industrials | 0.6 | |||
Common Stocks | ||||
Energy | 3.1 | |||
Master Limited Partnership | 1.8 | |||
Investment Funds | 11.2 | |||
Short-Term Investment Funds | 0.2 | |||
Other Assets/Liabilities (Net) | 3.4 | |||
Total | 100.0 | % |
Touchstone Focused Fund | ||||
Sector Allocation** | (% of Net Assets) | |||
Information Technology | 19.6 | % | ||
Communication Services | 17.5 | |||
Financials | 16.4 | |||
Consumer Discretionary | 14.1 | |||
Health Care | 12.5 | |||
Industrials | 6.8 | |||
Real Estate | 5.8 | |||
Energy | 3.9 | |||
Consumer Staples | 3.1 | |||
Short-Term Investment Fund | 0.5 | |||
Other Assets/Liabilities (Net) | (0.2 | ) | ||
Total | 100.0 | % |
Touchstone Growth Opportunities Fund | ||||
Sector Allocation** | (% of Net Assets) | |||
Information Technology | 31.2 | % | ||
Health Care | 16.1 | |||
Communication Services | 15.7 | |||
Industrials | 14.5 | |||
Consumer Discretionary | 12.1 | |||
Financials | 4.0 | |||
Energy | 3.7 | |||
Real Estate | 1.5 | |||
Short-Term Investment Fund | 1.5 | |||
Other Assets/Liabilities (Net) | (0.3 | ) | ||
Total | 100.0 | % |
* Credit quality ratings are from Standard & Poor's (“S&P”) and Moody's Investors Service (“Moody's”). If agency ratings differ, the higher rating will be used. Where no rating has been assigned, it may be for reasons unrelated to the creditworthiness of the issuer.
** Sector classifications are based upon the Global Industry Classification Standard (GICS®).
29 |
Tabular Presentation of Portfolios of Investments (Unaudited) (Continued)
Touchstone Mid Cap Growth Fund | ||||
Sector Allocation* | (% of Net Assets) | |||
Information Technology | 34.8 | % | ||
Industrials | 17.6 | |||
Consumer Discretionary | 13.5 | |||
Health Care | 12.8 | |||
Financials | 6.2 | |||
Energy | 4.3 | |||
Real Estate | 3.9 | |||
Materials | 3.1 | |||
Consumer Staples | 1.1 | |||
Short-Term Investment Fund | 2.6 | |||
Other Assets/Liabilities (Net) | 0.1 | |||
Total | 100.0 | % |
Touchstone Sands Capital Emerging Markets Growth Fund | ||||
Geographic Allocation | (% of Net Assets) | |||
Common Stocks | ||||
China | 30.7 | % | ||
India | 28.4 | |||
Russia | 5.7 | |||
Argentina | 4.1 | |||
South Africa | 3.7 | |||
Hong Kong | 3.2 | |||
Indonesia | 2.5 | |||
Thailand | 2.4 | |||
Taiwan | 2.4 | |||
South Korea | 2.4 | |||
Cambodia | 2.4 | |||
Singapore | 2.2 | |||
Mexico | 1.9 | |||
Macau | 1.9 | |||
Philippines | 1.4 | |||
Brazil | 0.7 | |||
Short-Term Investment Fund | 3.7 | |||
Other Assets/Liabilities (Net) | 0.3 | |||
Total | 100.0 | % |
Touchstone Sustainability and Impact Equity Fund | ||||
Geographic Allocation | (% of Net Assets) | |||
Common Stocks | ||||
United States | 54.7 | % | ||
Japan | 7.7 | |||
France | 6.6 | |||
Germany | 6.0 | |||
United Kingdom | 5.2 | |||
Switzerland | 3.6 | |||
China | 3.4 | |||
Netherlands | 3.3 | |||
Ireland | 1.8 | |||
Sweden | 1.5 | |||
South Korea | 1.4 | |||
Indonesia | 0.9 | |||
India | 0.9 | |||
Mexico | 0.7 | |||
Australia | 0.4 | |||
Exchange-Traded Funds | 1.2 | |||
Short-Term Investment Funds | 2.4 | |||
Other Assets/Liabilities (Net) | (1.7 | ) | ||
Total | 100.0 | % |
* Sector classifications are based upon the Global Industry Classification Standard (GICS®).
30 |
Touchstone Flexible Income Fund – March 31, 2019
Principal | Market | |||||||
Amount | Value | |||||||
Corporate Bonds — 34.7% | ||||||||
Financials — 28.6% | ||||||||
$ | 8,090,000 | American Express Co., Ser B, 5.200%(A)† | $ | 8,130,450 | ||||
8,905,000 | American Express Co., Ser C, 4.900%(A) | 8,856,468 | ||||||
6,057,000 | Bank of America Corp., Ser V, 5.125%(A) | 6,035,725 | ||||||
10,307,000 | Barclays PLC (United Kingdom), 8.000%(A) | 10,538,908 | ||||||
37,653,000 | Citigroup, Inc., Ser O, 5.875%(A) | 38,029,530 | ||||||
3,895,000 | Citigroup, Inc., Ser Q, 5.950%(A) | 3,933,950 | ||||||
5,187,000 | Citizens Financial Group, Inc., Ser A, 5.500%(A) | 5,238,870 | ||||||
32,568,000 | Goldman Sachs Group, Inc. (The), Ser M, 5.375%(A) | 32,852,970 | ||||||
8,686,000 | JPMorgan Chase & Co., Ser I, (3M LIBOR +3.470%), 6.221%(A)(B) | 8,729,430 | ||||||
500,000 | JPMorgan Chase & Co., Ser Z, 5.300%(A) | 505,250 | ||||||
24,539,000 | MetLife, Inc., Ser C, 5.250%(A) | 24,743,655 | ||||||
9,993,000 | Morgan Stanley, Ser H, 5.450%(A) | 10,017,982 | ||||||
18,452,000 | Morgan Stanley, Ser J, 5.550%(A) | 18,776,755 | ||||||
5,863,000 | Neuberger Berman Group LLC / Neuberger Berman Finance Corp., 144a, 4.875%, 4/15/45 | 5,313,284 | ||||||
17,427,000 | Wells Fargo & Co., Ser K, (3M LIBOR +3.770%), 6.381%(A)(B) | 17,535,919 | ||||||
199,239,146 | ||||||||
Energy — 2.8% | ||||||||
2,909,000 | Anadarko Petroleum Corp., 4.960%, 10/10/36# | 1,290,989 | ||||||
10,484,000 | Andeavor Logistics LP, Ser A, 6.875%(A) | 10,536,420 | ||||||
8,192,000 | Energy Transfer Operating LP, Ser A, 6.250%(A) | 7,741,440 | ||||||
19,568,849 | ||||||||
Consumer Discretionary — 1.7% | ||||||||
8,408,000 | Ford Motor Credit Co. LLC, 5.085%, 1/7/21 | 8,560,353 | ||||||
610,000 | General Motors Co., (3M LIBOR +0.900%), 3.501%, 9/10/21(B) | 605,016 | ||||||
2,674,000 | Wyndham Destinations, Inc., 5.750%, 4/1/27 | 2,652,341 | ||||||
11,817,710 | ||||||||
Communication Services — 1.3% | ||||||||
1,205,000 | Uber Technologies, Inc., 144a, 8.000%, 11/1/26 | 1,281,819 | ||||||
8,021,000 | Vodafone Group PLC (United Kingdom), 7.000%, 4/4/79 | 8,139,240 | ||||||
9,421,059 | ||||||||
Materials — 0.3% | ||||||||
1,750,000 | Domtar Corp., 6.250%, 9/1/42 | 1,780,465 | ||||||
Total Corporate Bonds | $ | 241,827,229 | ||||||
U.S. Treasury Obligations — 14.3% | ||||||||
43,574,000 | U.S. Treasury Note, 1.375%, 12/15/19 | 43,250,599 | ||||||
56,465,000 | U.S. Treasury Note, 1.625%, 6/30/19 | 56,339,277 | ||||||
Total U.S. Treasury Obligations | $ | 99,589,876 |
Shares | ||||||||
Preferred Stocks — 13.1% | ||||||||
Financials — 7.8% | ||||||||
115,879 | AllianzGI Convertible &, Income Fund, Ser A, 5.625%(A)† | 2,811,225 | ||||||
110,646 | Annaly Capital Management, Inc., Ser F, 6.950%(A)† | 2,833,644 | ||||||
146,181 | Apollo Global Management LLC, Ser A, 6.375%(A) | 3,628,212 | ||||||
475,764 | Ares Management Corp., Ser A, 7.000%(A)† | 12,465,017 | ||||||
99,162 | Bank of America Corp., Ser W, 6.625%(A)† | 2,533,589 | ||||||
67,812 | Citigroup Capital XIII, (3M LIBOR +6.370%), 9.121%, 10/30/40(B) | 1,854,658 | ||||||
327,909 | Citizens Financial Group, Inc., Ser D, 6.350%(A) | 8,607,611 | ||||||
68,197 | GMAC Capital Trust I, Ser 2, (3M LIBOR +5.785%), 8.469%, 2/15/40(B) | 1,775,850 | ||||||
329,117 | Hartford Financial Services Group, Inc. (The), 7.875%, 4/15/42 | 9,343,632 | ||||||
52,823 | Oaktree Capital Group LLC, Ser B, 6.550%(A) | 1,313,180 | ||||||
2,558 | Partnerre Ltd., 7.250%(A) | 69,245 | ||||||
117,906 | Stifel Financial Corp., 5.200%, 10/15/47† | 2,843,893 | ||||||
179,832 | Valley National Bancorp, Ser B, 5.500%(A) | 4,485,010 | ||||||
54,564,766 | ||||||||
Real Estate — 2.4% | ||||||||
390,664 | Digital Realty Trust, Inc., Ser H, 7.375%(A) | 9,758,786 | ||||||
255,747 | Kimco Realty Corp., Ser M, 5.250%(A) | 5,958,905 | ||||||
48,886 | Vornado Realty Trust, Ser M, 5.250%(A) | 1,146,377 | ||||||
16,864,068 | ||||||||
Energy — 1.3% | ||||||||
188,000 | Energy Transfer Operating LP, Ser C, 7.375%(A) | 4,628,560 | ||||||
160,099 | Energy Transfer Operating LP, Ser D, 7.625%(A) | 4,082,525 | ||||||
8,711,085 | ||||||||
Utilities — 1.0% | ||||||||
171,920 | Duke Energy Corp., Ser A, 5.750%(A) | 4,378,802 | ||||||
23,622 | Entergy Arkansas LLC, 4.900%, 12/1/52 | 599,054 | ||||||
17,885 | Entergy Arkansas LLC, 4.750%, 6/1/63† | 451,954 | ||||||
47,321 | Entergy Louisiana LLC, 4.875%, 9/1/66 | 1,184,445 | ||||||
6,614,255 |
31 |
Touchstone Flexible Income Fund (Continued)
Market | ||||||||
Shares | Value | |||||||
Preferred Stocks — 13.1% (Continued) | ||||||||
Industrials — 0.6% | ||||||||
160,689 | Seaspan Corp. (Marshall Islands), 6.375%, 4/30/19 | $ | 4,068,645 | |||||
Total Preferred Stocks | $ | 90,822,819 | ||||||
Investment Funds — 11.2% | ||||||||
522,450 | BlackRock Corporate High Yield Fund, Inc.± | 5,360,337 | ||||||
334,678 | BlackRock Municipal Income Trust± | 4,511,459 | ||||||
264,079 | BlackRock MuniHoldings New York Quality Fund, Inc.± | 3,411,637 | ||||||
641,743 | BlackRock MuniVest Fund, Inc.± | 5,782,104 | ||||||
374,737 | BlackRock MuniYield Quality Fund III, Inc.±† | 4,845,349 | ||||||
330,033 | Eaton Vance Municipal Bond Fund± | 4,092,409 | ||||||
508,618 | Invesco Municipal Opportunity Trust± | 6,067,813 | ||||||
478,685 | Invesco Municipal Trust± | 5,768,154 | ||||||
1,864,133 | Invesco Senior Income Trust± | 7,829,359 | ||||||
365,510 | Invesco Trust for Investment Grade Municipals± | 4,528,669 | ||||||
1,695,266 | Nuveen Credit Strategies Income Fund± | 13,104,406 | ||||||
540,661 | Nuveen Quality Municipal Income Fund±† | 7,336,770 | ||||||
1,045,179 | Western Asset High, Income Opportunity Fund Inc.± | 5,048,215 | ||||||
Total Investment Funds | $ | 77,686,681 |
Principal | ||||||||
Amount | ||||||||
Asset-Backed Securities — 8.3% | ||||||||
$ | 625,113 | American Credit Acceptance Receivables Trust, Ser 2018-3, Class A, 144a, 2.920%, 8/12/21 | 625,060 | |||||
3,892,675 | American Homes 4 Rent Trust, Ser 2014-SFR2, Class A, 144a, 3.786%, 10/17/36 | 4,000,355 | ||||||
5,800,270 | AmeriCredit Automobile Receivables, Ser 2016-1, Class B, 2.300%, 3/8/21 | 5,795,978 | ||||||
10,174,000 | CARDS II Trust, Ser 2017-1A, Class A, 144a, (1M LIBOR +0.370%), 2.854%, 4/18/22(B) | 10,173,999 | ||||||
314,980 | Conseco Finance Corp., Ser 1998-4, Class A7, 6.870%, 4/1/30(B)(C) | 328,681 | ||||||
1,271,648 | Drive Auto Receivables Trust, Ser 2017-2, Class C, 2.750%, 9/15/23 | 1,271,009 | ||||||
205,403 | DT Auto Owner Trust, Ser 2017-2A, Class C, 144a, 3.030%, 1/17/23 | 205,416 | ||||||
1,616,920 | DT Auto Owner Trust, Ser 2017-3A, Class B, 144a, 2.400%, 5/17/21 | 1,616,097 | ||||||
257,003 | DT Auto Owner Trust, Ser 2018-1A, Class A, 144a, 2.590%, 5/17/21 | 256,893 | ||||||
154,935 | DT Auto Owner Trust, Ser 2019-1A, Class A, 144a, 3.080%, 9/15/22 | 155,064 | ||||||
634,825 | Flagship Credit Auto Trust, Ser 2016-3, Class B, 144a, 2.430%, 6/15/21 | 634,178 | ||||||
1,000,000 | LCM Ltd., Ser 2019-30, 144a, 0.000%, 4/21/31(B)(C) | 1,000,000 | ||||||
501,782 | Mid-State Capital Corp. Trust, Ser 2005-1, Class M2, 7.079%, 1/15/40 | 558,224 | ||||||
4,972,665 | New Residential Mortgage Trust, Ser 2018-1A, Class A1A, 144a, 4.000%, 12/25/57(B)(C) | 5,075,569 | ||||||
182,246 | Park Place Securities, Inc. Asset-Backed Pass-Through Certificates, Ser 2004-MHQ1, Class M2, (1M LIBOR +1.125%), 3.615%, 12/25/34(B) | 182,261 | ||||||
6,312,697 | Santander Drive Auto Receivables Trust, Ser 2016-1, Class C, 3.090%, 4/15/22 | 6,316,578 | ||||||
6,895,148 | Santander Drive Auto Receivables Trust, Ser 2017-1, Class B, 2.100%, 6/15/21 | 6,888,965 | ||||||
5,900,000 | Towd Point Mortgage Trust, Ser 2016-1, Class M1, 144a, 3.500%, 2/25/55(B)(C) | 5,918,952 | ||||||
7,083,336 | Towd Point Mortgage Trust, Ser 2017-6, Class A1, 144a, 2.750%, 10/25/57(B)(C) | 6,952,994 | ||||||
24,116 | Wachovia Student Loan Trust, Ser 2006-1, Class A5, 144a, (3M LIBOR +0.120%), 2.891%, 7/26/27(B) | 24,114 | ||||||
Total Asset-Backed Securities | $ | 57,980,387 | ||||||
Agency Collateralized Mortgage Obligations — 5.6% | ||||||||
2,109 | GNMA, Ser 2011-83, Class NI, 4.500%, 10/16/37(D) | 1 | ||||||
7,378,179 | GNMA, Ser 2012-147, Class IO, 0.562%, 4/16/54(B)(C)(D) | 251,904 | ||||||
33,203,162 | GNMA, Ser 2016-110, Class IO, 1.032%, 5/16/58(B)(C)(D) | 2,576,369 | ||||||
38,422,909 | GNMA, Ser 2016-158, Class IO, 0.907%, 6/16/58(B)(C)(D) | 2,770,253 | ||||||
70,305,748 | GNMA, Ser 2016-34, Class IO, 0.993%, 1/16/58(B)(C)(D) | 5,425,530 | ||||||
62,630,655 | GNMA, Ser 2016-35, Class IO, 0.887%, 3/16/58(B)(C)(D) | 4,339,033 | ||||||
65,753,846 | GNMA, Ser 2016-50, Class IO, 1.038%, 8/16/57(B)(C)(D) | 4,912,286 | ||||||
46,676,584 | GNMA, Ser 2016-52, Class IO, 0.932%, 3/16/58(B)(C)(D) | 3,252,093 | ||||||
65,014,814 | GNMA, Ser 2016-64, Class IO, 0.963%, 12/16/57(B)(C)(D) | 4,494,611 | ||||||
58,090,794 | GNMA, Ser 2016-67, Class IO, 1.167%, 7/16/57(B)(C)(D) | 4,663,912 | ||||||
42,395,490 | GNMA, Ser 2017-76, Class IO, 0.954%, 12/16/56(B)(C)(D) | 3,179,272 | ||||||
48,413,198 | GNMA, Ser 2017-94, Class IO, 0.660%, 2/16/59(B)(C)(D) | 2,892,045 | ||||||
Total Agency Collateralized Mortgage Obligations | $ | 38,757,309 |
32 |
Touchstone Flexible Income Fund (Continued)
Principal | Market | |||||||
Amount | Value | |||||||
Non-Agency Collateralized Mortgage Obligations — 4.3% | ||||||||
$ | 1,006,242 | American Home Mortgage Investment Trust, Ser 2004-4, Class 4A, (6M LIBOR +2.000%), 4.685%, 2/25/45(B) | $ | 1,020,006 | ||||
4,245,729 | Bear Stearns ALT-A Trust, Ser 2004-12, Class 1M1, (1M LIBOR +0.930%), 3.416%, 1/25/35(B) | 4,231,281 | ||||||
91,249 | Bear Stearns Asset Backed Securities Trust, Ser 2003-AC7, Class A2, 5.750%, 1/25/34(B)(C) | 91,900 | ||||||
5,700,892 | Citigroup Mortgage Loan Trust, Inc., Ser 2018-RP1, Class A1, 144a, 3.000%, 9/25/64(B)(C) | 5,643,657 | ||||||
942,740 | GSR Mortgage Loan Trust, Ser 2005-AR4, Class 6A1, 4.329%, 7/25/35(B)(C) | 950,006 | ||||||
6,288 | Merrill Lynch Mortgage Investors Trust, Ser 2003-A1, Class 2A, (12M LIBOR +1.625%), 4.492%, 12/25/32(B) | 6,312 | ||||||
4,878,192 | Metlife Securitization Trust, Ser 2017-1A, Class A, 144a, 3.000%, 4/25/55(B)(C) | 4,831,258 | ||||||
268,768 | Morgan Stanley Mortgage Loan Trust, Ser 2004-7AR, Class 2A6, 4.488%, 9/25/34(B)(C) | 272,581 | ||||||
4,544,491 | Morgan Stanley Mortgage Loan Trust, Ser 2005-5AR, Class 1M1, (1M LIBOR +0.750%), 3.236%, 9/25/35(B) | 4,539,143 | ||||||
3,225,260 | New Residential Mortgage Loan Trust, Ser 2017-2A, Class A3, 144a, 4.000%, 3/25/57(B)(C) | 3,295,973 | ||||||
14,470 | RALI Trust, Ser 2004-QS6, Class A1, 5.000%, 5/25/19 | 14,408 | ||||||
4,966,956 | Sequoia Mortgage Trust, Ser 2013-9, Class B1, 144a, 3.500%, 7/25/43 | 4,961,166 | ||||||
99,111 | Wells Fargo Mortgage Backed Securities Trust, Ser 2004-X, Class 1A5, 4.832%, 11/25/34(B)(C) | 100,973 | ||||||
Total Non-Agency Collateralized Mortgage Obligations | $ | 29,958,664 |
Shares | ||||||||
Common Stocks — 3.1% | ||||||||
Energy — 3.1% | ||||||||
362,514 | Hess Corp. | $ | 21,834,218 | |||||
Master Limited Partnership — 1.8% | ||||||||
Financials — 1.8% | ||||||||
700,000 | Carlyle Group LP (The) | 12,796,000 | ||||||
Short-Term Investment Funds — 0.2% | ||||||||
67,151 | Dreyfus Government Cash Management, Institutional Shares, 2.34%∞Ω | 67,151 | ||||||
1,374,575 | Invesco Government & Agency Portfolio, Institutional Class, 2.26%**∞Ω | 1,374,575 | ||||||
Total Short-Term Investment Funds | $ | 1,441,726 | ||||||
Total Investment Securities —96.6% | $ | 672,694,909 | ||||||
(Cost $659,354,174) | ||||||||
Other Assets in Excess of Liabilities — 3.4% | 23,690,066 | |||||||
Net Assets — 100.0% | $ | 696,384,975 |
(A) | Perpetual Bond - A bond with no definite maturity date. |
(B) | Variable rate security - Rate reflected is the rate in effect as of March 31, 2019. |
(C) | Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description. |
(D) | Interest only security - This type of security represents the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the “interest only” holding. |
# | Zero coupon bond - Rate shown reflects effective yield to maturity at time of purchase. |
** | Represents collateral for securities loaned. |
± | Closed-End Fund. |
† | All or a portion of the security is on loan. The total market value of the securities on loan as of March 31, 2019 was $1,292,556. |
∞ | Open-End Fund. |
Ω | Represents the 7-day SEC yield as of March 31, 2019. |
33 |
Touchstone Flexible Income Fund (Continued)
Portfolio Abbreviations:
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
LLC - Limited Liability Company
LP - Limited Partnership
PLC - Public Limited Company
144a - This is a restricted security that was sold in a transaction qualifying for the exemption under Rule 144a of the Securities Act of 1933. This security may be sold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2019, these securities were valued at $61,965,848 or 8.9% of net assets. These securities were deemed liquid pursuant to procedures approved by the Board of Trustees.
Other Information:
The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the security valuation section in the accompanying Notes to Financial Statements.
Valuation inputs at Reporting Date: | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Long Positions | ||||||||||||||||
Corporate Bonds | $ | — | $ | 241,827,229 | $ | — | $ | 241,827,229 | ||||||||
U.S. Treasury Obligations | — | 99,589,876 | — | 99,589,876 | ||||||||||||
Preferred Stocks | 90,822,819 | — | — | 90,822,819 |
Valuation inputs at Reporting Date: Description | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investment Funds | $ | 77,686,681 | $ | — | $ | — | $ | 77,686,681 | ||||||||
Asset-Backed Securities | — | 57,980,387 | — | 57,980,387 | ||||||||||||
Agency Collateralized Mortgage Obligations | — | 38,757,309 | — | 38,757,309 | ||||||||||||
Non-Agency Collateralized Mortgage Obligations | — | 29,958,664 | — | 29,958,664 | ||||||||||||
Common Stocks | 21,834,218 | — | — | 21,834,218 | ||||||||||||
Master Limited Partnership | 12,796,000 | — | — | 12,796,000 | ||||||||||||
Short-Term Investment Funds | 1,441,726 | — | — | 1,441,726 | ||||||||||||
Total Assets | $ | 204,581,444 | $ | 468,113,465 | $ | — | $ | 672,694,909 | ||||||||
Liabilities: | ||||||||||||||||
Other Financial Instruments*** | ||||||||||||||||
Futures Interest Rate Contracts | $ | (1,580,368 | ) | $ | — | $ | — | $ | (1,580,368 | ) | ||||||
Total Liabilities | $ | (1,580,368 | ) | $ | — | $ | — | $ | (1,580,368 | ) | ||||||
Total | $ | 203,001,076 | $ | 468,113,465 | $ | — | $ | 671,114,541 |
*** Other Financial Instruments are derivative instruments not reflected in total investments. Amounts shown represent unrealized depreciation on futures interest rate contracts.
Futures Contracts
At March 31, 2019, $6,406,916 was segregated with the broker as collateral for futures contracts. The Fund had the following futures contracts, brokered by Wells Fargo, open at March 31, 2019:
Value and | ||||||||||||||
Number of | Notional | Unrealized | ||||||||||||
Description | Expiration Date | Contracts | Amount | Depreciation | ||||||||||
Short Futures: | ||||||||||||||
Ultra US Treasury Bond Futures | 06/28/2019 | 254 | $ | 41,091,632 | $ | (1,580,368 | ) | |||||||
$ | (1,580,368 | ) |
See accompanying Notes to Financial Statements.
34 |
Touchstone Focused Fund – March 31, 2019
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 99.7% | ||||||||
Information Technology — 19.6% | ||||||||
Apple, Inc. | 231,906 | $ | 44,050,545 | |||||
Avnet, Inc. | 428,483 | 18,583,308 | ||||||
International Business Machines Corp. | 115,125 | 16,244,137 | ||||||
Microsoft Corp. | 452,422 | 53,358,651 | ||||||
Oracle Corp. | 469,200 | 25,200,732 | ||||||
salesforce.com, Inc.* | 240,363 | 38,066,288 | ||||||
195,503,661 | ||||||||
Communication Services — 17.5% | ||||||||
Alphabet, Inc. - Class A* | 16,581 | 19,514,013 | ||||||
Alphabet, Inc. - Class C* | 34,961 | 41,020,091 | ||||||
AT&T, Inc. | 478,081 | 14,992,620 | ||||||
Baidu, Inc. (China) ADR* | 90,149 | 14,861,063 | ||||||
Comcast Corp. - Class A | 658,008 | 26,307,160 | ||||||
Facebook, Inc. - Class A* | 232,753 | 38,797,598 | ||||||
Fox Corp. - Class A* | 127,909 | 4,695,527 | ||||||
Walt Disney Co. (The) | 127,711 | 14,179,752 | ||||||
174,367,824 | ||||||||
Financials — 16.4% | ||||||||
Bank of America Corp. | 987,717 | 27,251,112 | ||||||
Berkshire Hathaway, Inc. - Class B* | 473,530 | 95,127,442 | ||||||
Goldman Sachs Group, Inc. (The) | 116,068 | 22,283,895 | ||||||
Signature Bank/NewYork NY | 146,881 | 18,811,050 | ||||||
163,473,499 | ||||||||
Consumer Discretionary — 14.1% | ||||||||
Alibaba Group Holding Ltd. (China) ADR* | 45,778 | 8,352,196 | ||||||
Amazon.com, Inc.* | 31,767 | 56,569,085 | ||||||
Booking Holdings, Inc.* | 5,288 | 9,227,084 | ||||||
Carnival Corp. | 376,700 | 19,106,224 | ||||||
Dunkin' Brands Group, Inc. | 86,097 | 6,465,885 | ||||||
JD.com, Inc. (China) ADR* | 239,723 | 7,227,648 | ||||||
Starbucks Corp. | 200,238 | 14,885,693 | ||||||
Yum China Holdings, Inc. (China) | 427,158 | 19,183,666 | ||||||
141,017,481 | ||||||||
Health Care — 12.5% | ||||||||
AmerisourceBergen Corp. | 265,728 | 21,130,691 | ||||||
Biogen, Inc.* | 55,500 | 13,119,090 | ||||||
Bio-Rad Laboratories, Inc. - Class A* | 49,573 | 15,153,475 | ||||||
Bristol-Myers Squibb Co. | 405,252 | 19,334,573 | ||||||
Johnson & Johnson | 191,981 | 26,837,024 | ||||||
Novartis AG (Switzerland) ADR | 309,187 | 29,725,238 | ||||||
125,300,091 | ||||||||
Industrials — 6.8% | ||||||||
Deere & Co. | 80,693 | 12,897,969 | ||||||
FedEx Corp. | 52,884 | 9,593,686 | ||||||
General Electric Co. | 675,080 | 6,744,049 | ||||||
Union Pacific Corp. | 102,537 | 17,144,186 | ||||||
United Technologies Corp. | 163,548 | 21,079,702 | ||||||
67,459,592 | ||||||||
Real Estate — 5.8% | ||||||||
Jones Lang LaSalle, Inc. | 181,925 | 28,049,196 | ||||||
Simon Property Group, Inc. REIT | 165,062 | 30,075,947 | ||||||
58,125,143 | ||||||||
Energy — 3.9% | ||||||||
Exxon Mobil Corp. | 225,353 | 18,208,522 | ||||||
Halliburton Co. | 293,206 | 8,590,936 | ||||||
Schlumberger Ltd. | 288,409 | 12,565,980 | ||||||
39,365,438 | ||||||||
Consumer Staples — 3.1% | ||||||||
Monster Beverage Corp.* | 307,545 | 16,785,806 | ||||||
Unilever NV (United Kingdom) | 234,527 | 13,670,579 | ||||||
30,456,385 | ||||||||
Total Common Stocks | $ | 995,069,114 | ||||||
Short-Term Investment Fund — 0.5% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 2.34%∞Ω | 4,927,360 | $ | 4,927,360 | |||||
Total Investment Securities —100.2% | ||||||||
(Cost $716,888,544) | $ | 999,996,474 | ||||||
Liabilities in Excess of Other Assets — (0.2%) | (1,635,278 | ) | ||||||
Net Assets — 100.0% | $ | 998,361,196 |
* | Non-income producing security. |
∞ | Open-End Fund. |
Ω | Represents the 7-day SEC yield as of March 31, 2019. |
Portfolio Abbreviations:
ADR - American Depositary Receipt
PLC - Public Limited Company
REIT - Real Estate Investment Trust
35 |
Touchstone Focused Fund (Continued)
Other Information:
The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the security valuation section in the accompanying Notes to Financial Statements.
Valuation inputs at Reporting Date: | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 995,069,114 | $ | — | $ | — | $ | 995,069,114 | ||||||||
Short-Term Investment Fund | 4,927,360 | — | — | 4,927,360 | ||||||||||||
Total | $ | 999,996,474 | $ | — | $ | — | $ | 999,996,474 |
See accompanying Notes to Financial Statements.
36 |
Touchstone Growth Opportunities Fund – March 31, 2019
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 98.8% | ||||||||
Information Technology — 31.2% | ||||||||
Apple, Inc. | 52,409 | $ | 9,955,090 | |||||
Applied Materials, Inc. | 58,840 | 2,333,594 | ||||||
Black Knight, Inc.* | 46,766 | 2,548,747 | ||||||
Microsoft Corp. | 50,771 | 5,987,932 | ||||||
Proofpoint, Inc.* | 27,540 | 3,344,182 | ||||||
Pure Storage, Inc. - Class A* | 60,040 | 1,308,272 | ||||||
salesforce.com, Inc.* | 29,370 | 4,651,327 | ||||||
ServiceNow, Inc.* | 14,425 | 3,555,618 | ||||||
Total System Services, Inc. | 31,008 | 2,946,070 | ||||||
Visa, Inc. - Class A | 38,197 | 5,965,989 | ||||||
Worldpay, Inc. - Class A* | 40,210 | 4,563,835 | ||||||
Zendesk, Inc.* | 36,739 | 3,122,815 | ||||||
50,283,471 | ||||||||
Health Care — 16.1% | ||||||||
Biogen, Inc.* | 5,603 | 1,324,437 | ||||||
Bio-Rad Laboratories, Inc. - Class A* | 11,690 | 3,573,399 | ||||||
Bristol-Myers Squibb Co. | 90,000 | 4,293,900 | ||||||
Haemonetics Corp.* | 20,740 | 1,814,335 | ||||||
Medicines Co. (The)* | 97,340 | 2,720,653 | ||||||
STERIS PLC | 18,780 | 2,404,403 | ||||||
Thermo Fisher Scientific, Inc. | 9,101 | 2,491,126 | ||||||
UnitedHealth Group, Inc. | 18,585 | 4,595,327 | ||||||
Vertex Pharmaceuticals, Inc.* | 14,670 | 2,698,547 | ||||||
25,916,127 | ||||||||
Communication Services — 15.7% | ||||||||
Alphabet, Inc. - Class A* | 3,847 | 4,527,496 | ||||||
Alphabet, Inc. - Class C* | 4,143 | 4,861,023 | ||||||
Charter Communications, Inc. - Class A* | 8,759 | 3,038,585 | ||||||
Facebook, Inc. - Class A* | 15,584 | 2,597,697 | ||||||
Madison Square Garden Co. (The) - Class A* | 7,920 | 2,321,590 | ||||||
Netflix, Inc.* | 10,414 | 3,713,216 | ||||||
T-Mobile US, Inc.* | 33,260 | 2,298,266 | ||||||
Walt Disney Co. (The) | 18,049 | 2,003,980 | ||||||
25,361,853 | ||||||||
Industrials — 14.5% | ||||||||
AMETEK, Inc. | 34,584 | 2,869,434 | ||||||
Boeing Co. (The) | 16,026 | 6,112,637 | ||||||
Caterpillar, Inc. | 19,660 | 2,663,733 | ||||||
IHS Markit Ltd. (United Kingdom)* | 50,966 | 2,771,531 | ||||||
Illinois Tool Works, Inc. | 17,905 | 2,569,905 | ||||||
Ingersoll-Rand PLC | 30,424 | 3,284,271 | ||||||
Union Pacific Corp. | 18,535 | 3,099,052 | ||||||
23,370,563 | ||||||||
Consumer Discretionary — 12.1% | ||||||||
Amazon.com, Inc.* | 4,297 | 7,651,883 | ||||||
Home Depot, Inc. (The) | 26,123 | 5,012,742 | ||||||
Marriott International, Inc. - Class A | 29,077 | 3,637,242 | ||||||
Ulta Beauty, Inc.* | 9,419 | 3,284,688 | ||||||
19,586,555 | ||||||||
Financials — 4.0% | ||||||||
Bank of America Corp. | 58,260 | 1,607,393 | ||||||
Progressive Corp. (The) | 32,919 | 2,373,131 | ||||||
S&P Global, Inc. | 11,670 | 2,457,119 | ||||||
6,437,643 | ||||||||
Energy — 3.7% | ||||||||
Marathon Petroleum Corp. | 49,746 | 2,977,298 | ||||||
Pioneer Natural Resources Co. | 20,052 | 3,053,519 | ||||||
6,030,817 | ||||||||
Real Estate — 1.5% | ||||||||
Alexandria Real Estate Equities, Inc. REIT | 17,509 | 2,496,083 | ||||||
Total Common Stocks | $ | 159,483,112 | ||||||
Short-Term Investment Fund — 1.5% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 2.34%∞Ω | 2,329,811 | $ | 2,329,811 | |||||
Total Investment Securities —100.3% | ||||||||
(Cost $116,338,038) | $ | 161,812,923 | ||||||
Liabilities in Excess of Other Assets — (0.3%) | (436,028 | ) | ||||||
Net Assets — 100.0% | $ | 161,376,895 |
* | Non-income producing security. |
∞ | Open-End Fund. |
Ω | Represents the 7-day SEC yield as of March 31, 2019. |
Portfolio Abbreviations:
PLC - Public Limited Company
REIT - Real Estate Investment Trust
37 |
Touchstone Growth Opportunities Fund (Continued)
Other Information:
The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the security valuation section in the accompanying Notes to Financial Statements.
Valuation inputs at Reporting Date: | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 159,483,112 | $ | — | $ | — | $ | 159,483,112 | ||||||||
Short-Term Investment Fund | 2,329,811 | — | — | 2,329,811 | ||||||||||||
Total | $ | 161,812,923 | $ | — | $ | — | $ | 161,812,923 |
See accompanying Notes to Financial Statements.
38 |
Touchstone Mid Cap Growth Fund – March 31, 2019
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 97.3% | ||||||||
Information Technology — 34.8% | ||||||||
Arista Networks, Inc.* | 55,415 | $ | 17,425,801 | |||||
Autodesk, Inc.* | 126,425 | 19,699,544 | ||||||
Fidelity National Information Services, Inc. | 178,630 | 20,203,053 | ||||||
Fiserv, Inc.* | 175,870 | 15,525,804 | ||||||
FleetCor Technologies, Inc.* | 142,090 | 35,037,973 | ||||||
Fortinet, Inc.* | 219,532 | 18,434,102 | ||||||
Lam Research Corp. | 91,945 | 16,459,074 | ||||||
Marvell Technology Group Ltd. | 531,460 | 10,570,739 | ||||||
Microchip Technology, Inc. | 152,620 | 12,661,355 | ||||||
NetApp, Inc. | 215,916 | 14,971,615 | ||||||
Nice Ltd. (Israel) ADR* | 135,853 | 16,643,351 | ||||||
Palo Alto Networks, Inc.* | 91,765 | 22,287,883 | ||||||
Red Hat, Inc.* | 23,530 | 4,298,931 | ||||||
ServiceNow, Inc.* | 100,230 | 24,705,693 | ||||||
Skyworks Solutions, Inc. | 154,850 | 12,772,028 | ||||||
Splunk, Inc.* | 118,810 | 14,803,726 | ||||||
Square, Inc. - Class A* | 176,140 | 13,196,409 | ||||||
SS&C Technologies Holdings, Inc. | 305,100 | 19,431,819 | ||||||
Ultimate Software Group, Inc. (The)* | 44,075 | 14,550,480 | ||||||
Worldpay, Inc. - Class A* | 273,090 | 30,995,715 | ||||||
Zendesk, Inc.* | 320,020 | 27,201,700 | ||||||
381,876,795 | ||||||||
Industrials — 17.6% | ||||||||
AMETEK, Inc. | 256,100 | 21,248,617 | ||||||
IHS Markit Ltd. (United Kingdom)* | 377,504 | 20,528,668 | ||||||
Ingersoll-Rand PLC | 162,530 | 17,545,114 | ||||||
JB Hunt Transport Services, Inc. | 168,386 | 17,055,818 | ||||||
Lennox International, Inc. | 89,781 | 23,738,096 | ||||||
Rockwell Automation, Inc. | 77,825 | 13,655,174 | ||||||
Teledyne Technologies, Inc.* | 117,829 | 27,926,651 | ||||||
TransDigm Group, Inc.* | 72,117 | 32,740,397 | ||||||
TransUnion | 281,071 | 18,786,786 | ||||||
193,225,321 | ||||||||
Consumer Discretionary — 13.5% | ||||||||
Advance Auto Parts, Inc. | 96,000 | 16,370,880 | ||||||
Hilton Worldwide Holdings, Inc. | 317,680 | 26,402,385 | ||||||
Lululemon Athletica, Inc. (Canada)* | 92,300 | 15,125,201 | ||||||
Six Flags Entertainment Corp. | 213,980 | 10,559,913 | ||||||
Tiffany & Co. | 112,800 | 11,906,040 | ||||||
Tractor Supply Co. | 202,788 | 19,824,555 | ||||||
Ulta Beauty, Inc.* | 92,995 | 32,430,146 | ||||||
VF Corp. | 174,820 | 15,193,606 | ||||||
147,812,726 | ||||||||
Health Care — 12.8% | ||||||||
Ascendis Pharma A/S (Denmark) ADR* | 157,230 | 18,505,971 | ||||||
Cooper Cos., Inc. (The) | 82,129 | 24,324,146 | ||||||
DexCom, Inc.* | 65,970 | 7,857,027 | ||||||
ICON PLC (Ireland)* | 138,950 | 18,977,791 | ||||||
IDEXX Laboratories, Inc.* | 82,518 | 18,451,025 | ||||||
Medicines Co. (The)* | 585,700 | 16,370,315 | ||||||
Mettler-Toledo International, Inc.* | 26,809 | 19,382,907 | ||||||
STERIS PLC | 132,159 | 16,920,317 | ||||||
140,789,499 | ||||||||
Financials — 6.2% | ||||||||
Arthur J Gallagher & Co. | 251,300 | 19,626,530 | ||||||
MSCI, Inc. | 119,195 | 23,700,734 | ||||||
SVB Financial Group* | 49,507 | 11,008,377 | ||||||
Western Alliance Bancorp* | 332,710 | 13,654,418 | ||||||
67,990,059 | ||||||||
Energy — 4.3% | ||||||||
Marathon Petroleum Corp. | 399,174 | 23,890,564 | ||||||
Pioneer Natural Resources Co. | 154,965 | 23,598,070 | ||||||
47,488,634 | ||||||||
Real Estate — 3.9% | ||||||||
Alexandria Real Estate Equities, Inc. REIT | 117,860 | 16,802,122 | ||||||
SBA Communications Corp. REIT* | 131,720 | 26,299,215 | ||||||
43,101,337 | ||||||||
Materials — 3.1% | ||||||||
Avery Dennison Corp. | 193,190 | 21,830,470 | ||||||
RPM International, Inc. | 217,080 | 12,599,323 | ||||||
34,429,793 | ||||||||
Consumer Staples — 1.1% | ||||||||
Conagra Brands, Inc. | 414,810 | 11,506,829 | ||||||
Total Common Stocks | $ | 1,068,220,993 | ||||||
Short-Term Investment Fund — 2.6% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 2.34%∞Ω | 28,806,856 | 28,806,856 | ||||||
Total Investment Securities —99.9% | ||||||||
(Cost $846,734,945) | $ | 1,097,027,849 | ||||||
Other Assets in Excess of Liabilities — 0.1% | 568,141 | |||||||
Net Assets — 100.0% | $ | 1,097,595,990 |
* | Non-income producing security. |
∞ | Open-End Fund. |
Ω | Represents the 7-day SEC yield as of March 31, 2019. |
Portfolio Abbreviations:
ADR - American Depositary Receipt
PLC - Public Limited Company
REIT - Real Estate Investment Trust
39 |
Touchstone Mid Cap Growth Fund (Continued)
Other Information:
The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the security valuation section in the accompanying Notes to Financial Statements.
Valuation inputs at Reporting Date: | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 1,068,220,993 | $ | — | $ | — | $ | 1,068,220,993 | ||||||||
Short-Term Investment Fund | 28,806,856 | — | — | 28,806,856 | ||||||||||||
Total | $ | 1,097,027,849 | $ | — | $ | — | $ | 1,097,027,849 |
See accompanying Notes to Financial Statements.
40 |
Touchstone Sands Capital Emerging Markets Growth Fund – March 31, 2019
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 96.0% | ||||||||
China — 30.7% | ||||||||
Communication Services — 8.8% | ||||||||
Baidu, Inc. ADR* | 107,598 | $ | 17,737,530 | |||||
Tencent Holdings Ltd. | 1,234,900 | 56,790,331 | ||||||
Consumer Discretionary — 18.4% | ||||||||
Alibaba Group Holding Ltd. ADR* | 414,615 | 75,646,507 | ||||||
ANTA Sports Products Ltd. | 4,845,500 | 33,031,739 | ||||||
Ctrip.com International Ltd. ADR* | 724,000 | 31,631,560 | ||||||
New Oriental Education & Technology Group, Inc. ADR* | 171,514 | 15,451,696 | ||||||
Health Care — 1.8% | ||||||||
BeiGene Ltd. ADR* | 53,548 | 7,068,336 | ||||||
Wuxi Biologics, Inc., 144a* | 794,500 | 7,739,544 | ||||||
Information Technology — 1.7% | ||||||||
Sunny Optical Technology Group Co. Ltd. | 1,193,200 | 14,304,546 | ||||||
Total China | 259,401,789 | |||||||
India — 28.4% | ||||||||
Communication Services — 1.7% | ||||||||
Zee Entertainment Enterprises Ltd. | 2,182,770 | 14,048,715 | ||||||
Consumer Discretionary — 6.8% | ||||||||
Eicher Motors Ltd. | 33,544 | 9,945,320 | ||||||
Jubilant Foodworks Ltd. | 1,096,444 | 22,844,392 | ||||||
Makemytrip Ltd.* | 589,700 | 16,275,720 | ||||||
Maruti Suzuki India Ltd. | 88,973 | 8,565,384 | ||||||
Consumer Staples — 2.1% | ||||||||
Britannia Industries Ltd. | 201,574 | 8,969,662 | ||||||
ITC Ltd. | 2,058,691 | 8,829,828 | ||||||
Financials — 11.0% | ||||||||
Bajaj Finance Ltd. | 439,261 | 19,166,840 | ||||||
HDFC Bank Ltd. | 886,650 | 29,750,633 | ||||||
Housing Development Finance Corp. Ltd. | 869,903 | 24,707,800 | ||||||
IndusInd Bank Ltd. | 761,341 | 19,561,539 | ||||||
Health Care — 2.8% | ||||||||
Apollo Hospitals Enterprise Ltd. | 1,350,521 | 23,924,504 | ||||||
Industrials — 2.6% | ||||||||
Adani Ports & Special Economic Zone Ltd. | 1,937,938 | 10,573,157 | ||||||
Larsen & Toubro Ltd. | 551,674 | 11,035,789 | ||||||
Materials — 1.4% | ||||||||
Asian Paints Ltd. | 541,105 | 11,650,447 | ||||||
Total India | 239,849,730 | |||||||
Russia — 5.7% | ||||||||
Communication Services — 5.7% | ||||||||
Mail.Ru Group Ltd. GDR* | 471,000 | 11,661,960 | ||||||
Yandex NV - Class A* | 1,056,000 | 36,263,040 | ||||||
Total Russia | 47,925,000 | |||||||
Argentina — 4.1% | ||||||||
Consumer Discretionary — 4.1% | ||||||||
MercadoLibre, Inc.* | 68,000 | 34,525,640 | ||||||
South Africa — 3.7% | ||||||||
Consumer Discretionary — 3.7% | ||||||||
Naspers Ltd. - Class N | 132,300 | 30,831,411 | ||||||
Hong Kong — 3.2% | ||||||||
Financials — 2.5% | ||||||||
AIA Group Ltd. | 2,108,800 | 21,087,516 | ||||||
Health Care — 0.7% | ||||||||
Hutchison China MediTech Ltd. ADR* | 181,320 | 5,544,766 | ||||||
Total Hong Kong | 26,632,282 | |||||||
Indonesia — 2.5% | ||||||||
Financials — 2.5% | ||||||||
Bank Central Asia Tbk PT | 10,652,100 | 20,786,334 | ||||||
Thailand — 2.4% | ||||||||
Consumer Staples — 2.4% | ||||||||
CP ALL PCL | 8,756,700 | 20,634,552 | ||||||
Taiwan — 2.4% | ||||||||
Information Technology — 2.4% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 498,240 | 20,407,910 | ||||||
South Korea — 2.4% | ||||||||
Health Care — 2.4% | ||||||||
Medy-Tox, Inc. | 39,250 | 20,251,122 | ||||||
Cambodia — 2.4% | ||||||||
Consumer Discretionary — 2.4% | ||||||||
NagaCorp Ltd. | 14,445,000 | 20,229,709 | ||||||
Singapore — 2.2% | ||||||||
Communication Services — 2.2% | ||||||||
Sea Ltd. ADR* | 778,900 | 18,319,728 | ||||||
Mexico — 1.9% | ||||||||
Industrials — 1.9% | ||||||||
Grupo Aeroportuario del Sureste SAB de CV ADR | 101,786 | 16,464,903 |
41 |
Touchstone Sands Capital Emerging Markets Growth Fund (Continued)
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 96.0% (Continued) | ||||||||
Macau — 1.9% | ||||||||
Consumer Discretionary — 1.9% | ||||||||
Sands China Ltd. | 3,190,200 | $ | 16,056,115 | |||||
Philippines — 1.4% | ||||||||
Real Estate — 1.4% | ||||||||
SM Prime Holdings, Inc. | 15,210,000 | 11,564,449 | ||||||
Brazil — 0.7% | ||||||||
Consumer Staples — 0.7% | ||||||||
Raia Drogasil SA | 366,400 | 6,085,533 | ||||||
Total Common Stocks | $ | 809,966,207 | ||||||
Short-Term Investment Fund — 3.7% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 2.34%∞Ω | 31,624,066 | $ | 31,624,066 | |||||
Total Investment Securities —99.7% | ||||||||
(Cost $703,985,455) | $ | 841,590,273 | ||||||
Other Assets in Excess of Liabilities — 0.3% | 2,581,153 | |||||||
Net Assets — 100.0% | $ | 844,171,426 |
* | Non-income producing security. |
∞ | Open-End Fund. |
Ω | Represents the 7-day SEC yield as of March 31, 2019. |
Portfolio Abbreviations:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
PCL - Public Company Limited
144a - This is a restricted security that was sold in a transaction qualifying for the exemption under Rule 144a of the Securities Act of 1933. This security may be sold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2019, these securities were valued at $7,739,544 or 0.9% of net assets. These securities were deemed liquid pursuant to procedures approved by the Board of Trustees.
Other Information:
The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the security valuation section in the accompanying Notes to Financial Statements.
Valuation inputs at Reporting Date: | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | ||||||||||||||||
China | $ | 147,535,629 | $ | 111,866,160 | $ | — | $ | 259,401,789 | ||||||||
India | 16,275,720 | 223,574,010 | — | 239,849,730 | ||||||||||||
Russia | 47,925,000 | — | — | 47,925,000 | ||||||||||||
Argentina | 34,525,640 | — | — | 34,525,640 | ||||||||||||
South Africa | — | 30,831,411 | — | 30,831,411 | ||||||||||||
Hong Kong | 5,544,766 | 21,087,516 | — | 26,632,282 | ||||||||||||
Indonesia | — | 20,786,334 | — | 20,786,334 | ||||||||||||
Thailand | — | 20,634,552 | — | 20,634,552 | ||||||||||||
Taiwan | 20,407,910 | — | — | 20,407,910 | ||||||||||||
South Korea | — | 20,251,122 | — | 20,251,122 | ||||||||||||
Cambodia | — | 20,229,709 | — | 20,229,709 | ||||||||||||
Singapore | 18,319,728 | — | — | 18,319,728 | ||||||||||||
Mexico | 16,464,903 | — | — | 16,464,903 | ||||||||||||
Macau | — | 16,056,115 | — | 16,056,115 | ||||||||||||
Philippines | — | 11,564,449 | — | 11,564,449 | ||||||||||||
Brazil | 6,085,533 | — | — | 6,085,533 | ||||||||||||
Short-Term Investment Fund | 31,624,066 | — | — | 31,624,066 | ||||||||||||
Total | $ | 344,708,895 | $ | 496,881,378 | $ | — | $ | 841,590,273 |
See accompanying Notes to Financial Statements.
42 |
Touchstone Sustainability and Impact Equity Fund – March 31, 2019
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 98.1% | ||||||||
United States — 54.7% | ||||||||
Communication Services — 10.4% | ||||||||
Alphabet, Inc. - Class A* | 22,311 | $ | 26,257,593 | |||||
Comcast Corp. - Class A | 583,830 | 23,341,523 | ||||||
Facebook, Inc. - Class A* | 147,343 | 24,560,605 | ||||||
Consumer Discretionary — 9.0% | ||||||||
Amazon.com, Inc.* | 12,775 | 22,749,081 | ||||||
Foot Locker, Inc. | 93,910 | 5,690,946 | ||||||
Ross Stores, Inc. | 153,180 | 14,261,058 | ||||||
Royal Caribbean Cruises Ltd. | 184,723 | 21,172,950 | ||||||
Energy — 2.8% | ||||||||
ConocoPhillips | 128,980 | 8,608,125 | ||||||
EOG Resources, Inc. | 117,490 | 11,182,698 | ||||||
Financials — 9.3% | ||||||||
Comerica, Inc. | 150,972 | 11,069,267 | ||||||
Fifth Third Bancorp | 319,183 | 8,049,795 | ||||||
First Horizon National Corp. | 424,408 | 5,933,224 | ||||||
JPMorgan Chase & Co. | 155,990 | 15,790,868 | ||||||
Reinsurance Group of America, Inc. | 105,972 | 15,045,905 | ||||||
Synchrony Financial | 328,176 | 10,468,814 | ||||||
Health Care — 9.3% | ||||||||
Alnylam Pharmaceuticals, Inc.* | 53,659 | 5,014,434 | ||||||
Becton Dickinson & Co. | 38,002 | 9,490,239 | ||||||
Biogen, Inc.* | 25,558 | 6,041,400 | ||||||
Cerner Corp.* | 181,628 | 10,390,938 | ||||||
Covetrus, Inc.* | 164,635 | 5,243,625 | ||||||
CVS Health Corp. | 205,165 | 11,064,548 | ||||||
DexCom, Inc.* | 38,602 | 4,597,498 | ||||||
Illumina, Inc.* | 21,930 | 6,813,432 | ||||||
Neurocrine Biosciences, Inc.* | 26,879 | 2,368,040 | ||||||
Regeneron Pharmaceuticals, Inc.* | 13,474 | 5,532,694 | ||||||
Industrials — 4.9% | ||||||||
Hexcel Corp. | 103,369 | 7,149,000 | ||||||
Southwest Airlines Co. | 381,304 | 19,793,491 | ||||||
United Continental Holdings, Inc.* | 98,773 | 7,880,110 | ||||||
Information Technology — 7.9% | ||||||||
Apple, Inc. | 79,968 | 15,189,922 | ||||||
Micron Technology, Inc.* | 171,841 | 7,102,188 | ||||||
Microsoft Corp. | 146,099 | 17,230,916 | ||||||
Visa, Inc. - Class A | 105,957 | 16,549,424 | ||||||
Utilities — 1.1% | ||||||||
American Water Works Co., Inc. | 74,996 | 7,819,083 | ||||||
Total United States | 389,453,434 | |||||||
Japan — 7.7% | ||||||||
Communication Services — 1.8% | ||||||||
KDDI Corp. | 604,100 | 13,010,682 | ||||||
Consumer Discretionary — 1.4% | ||||||||
Sony Corp. | 235,600 | 9,947,318 | ||||||
Industrials — 2.9% | ||||||||
Amada Holdings Co. Ltd. | 598,700 | 5,940,455 | ||||||
Kinden Corp. | 435,600 | 7,228,400 | ||||||
Mitsubishi Electric Corp. | 582,200 | 7,511,773 | ||||||
Information Technology — 1.6% | ||||||||
Kyocera Corp. | 187,700 | 11,052,312 | ||||||
Total Japan | 54,690,940 | |||||||
France — 6.6% | ||||||||
Energy — 3.2% | ||||||||
TOTAL SA | 414,509 | 23,067,247 | ||||||
Industrials — 1.7% | ||||||||
Cie de Saint-Gobain | 173,955 | 6,307,458 | ||||||
Schneider Electric SE | 71,744 | 5,631,110 | ||||||
Utilities — 1.7% | ||||||||
Rubis SCA | 218,793 | 11,932,911 | ||||||
Total France | 46,938,726 | |||||||
Germany — 6.0% | ||||||||
Consumer Discretionary — 0.9% | ||||||||
Continental AG | 44,409 | 6,699,523 | ||||||
Industrials — 0.7% | ||||||||
KION Group AG | 88,115 | 4,610,916 | ||||||
Materials — 1.6% | ||||||||
HeidelbergCement AG | 155,283 | 11,193,128 | ||||||
Real Estate — 2.8% | ||||||||
Vonovia SE | 381,406 | 19,793,370 | ||||||
Total Germany | 42,296,937 | |||||||
United Kingdom — 5.2% | ||||||||
Consumer Discretionary — 1.8% | ||||||||
Compass Group PLC | 556,882 | 13,088,297 | ||||||
Financials — 3.4% | ||||||||
Lloyds Banking Group PLC | 19,299,774 | 15,636,336 | ||||||
Prudential PLC | 426,696 | 8,553,366 | ||||||
Total United Kingdom | 37,277,999 | |||||||
Switzerland — 3.6% | ||||||||
Health Care — 2.6% | ||||||||
Novartis AG | 196,257 | 18,864,132 | ||||||
Information Technology — 1.0% | ||||||||
TE Connectivity Ltd. | 87,269 | 7,046,972 | ||||||
Total Switzerland | 25,911,104 | |||||||
China — 3.4% | ||||||||
Communication Services — 2.1% | ||||||||
Tencent Holdings Ltd. | 330,000 | 15,175,973 |
43 |
Touchstone Sustainability and Impact Equity Fund (Continued)
Market | ||||||||
Shares | Value | |||||||
Common Stocks — 98.1% (Continued) | ||||||||
China — (Continued) | ||||||||
Consumer Discretionary — 0.8% | ||||||||
Shenzhou International Group Holdings Ltd. | 442,000 | $ | 5,938,366 | |||||
Health Care — 0.5% | ||||||||
BeiGene Ltd. ADR* | 25,454 | 3,359,928 | ||||||
Total China | 24,474,267 | |||||||
Netherlands — 3.3% | ||||||||
Financials — 3.3% | ||||||||
ABN AMRO Group NV, 144a | 340,595 | 7,678,596 | ||||||
ING Groep NV | 1,314,350 | 15,926,440 | ||||||
Total Netherlands | 23,605,036 | |||||||
Ireland — 1.8% | ||||||||
Health Care — 1.8% | ||||||||
Medtronic PLC | 136,268 | 12,411,289 | ||||||
Sweden — 1.5% | ||||||||
Financials — 1.5% | ||||||||
Swedbank AB - Class A† | 748,903 | 10,580,320 | ||||||
South Korea — 1.4% | ||||||||
Communication Services — 1.4% | ||||||||
KT Corp. ADR* | 805,327 | 10,018,268 | ||||||
Indonesia — 0.9% | ||||||||
Financials — 0.9% | ||||||||
Bank Rakyat Indonesia Persero Tbk PT | 21,443,400 | 6,226,314 | ||||||
India — 0.9% | ||||||||
Financials — 0.9% | ||||||||
ICICI Bank Ltd. ADR | 536,095 | 6,143,649 | ||||||
Mexico — 0.7% | ||||||||
Materials — 0.7% | ||||||||
Cemex SAB de CV ADR* | 1,110,100 | 5,150,864 | ||||||
Australia — 0.4% | ||||||||
Consumer Staples — 0.4% | ||||||||
Treasury Wine Estates Ltd. | 278,646 | 2,957,889 | ||||||
Total Common Stocks | $ | 698,137,036 | ||||||
Exchange-Traded Funds — 1.2% | ||||||||
iShares Core MSCI EAFE ETF | 62,311 | 3,786,639 | ||||||
iShares Core S&P 500 ETF | 17,918 | 5,098,746 | ||||||
Total Exchange-Traded Funds | $ | 8,885,385 | ||||||
Short-Term Investment Funds — 2.4% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 2.34%∞Ω | 5,243,014 | 5,243,014 | ||||||
Invesco Government & Agency Portfolio, Institutional Class, 2.26%**∞Ω | 11,907,093 | 11,907,093 | ||||||
Total Short-Term Investment Funds | $ | 17,150,107 | ||||||
Total Investment Securities —101.7% | ||||||||
(Cost $652,772,878) | $ | 724,172,528 | ||||||
Liabilities in Excess of Other Assets — (1.7%) | (12,176,367 | ) | ||||||
Net Assets — 100.0% | $ | 711,996,161 |
* | Non-income producing security. |
** | Represents collateral for securities loaned. |
† | All or a portion of the security is on loan. The total market value of the securities on loan as of March 31, 2019 was $10,474,503. |
∞ | Open-End Fund. |
Ω | Represents the 7-day SEC yield as of March 31, 2019. |
Portfolio Abbreviations:
ADR - American Depositary Receipt
ETF - Exchange-Traded Fund
PLC - Public Limited Company
144a - This is a restricted security that was sold in a transaction qualifying for the exemption under Rule 144a of the Securities Act of 1933. This security may be sold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2019, these securities were valued at $7,678,596 or 1.08% of net assets. These securities were deemed liquid pursuant to procedures approved by the Board of Trustees.
44 |
Touchstone Sustainability and Impact Equity Fund (Continued)
Other Information:
The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the security valuation section in the accompanying Notes to Financial Statements.
Valuation inputs at Reporting Date: | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | ||||||||||||||||
United States | $ | 389,453,434 | $ | — | $ | — | $ | 389,453,434 | ||||||||
Japan | — | 54,690,940 | — | 54,690,940 | ||||||||||||
France | 11,932,911 | 35,005,815 | — | 46,938,726 | ||||||||||||
Germany | — | 42,296,937 | — | 42,296,937 | ||||||||||||
United Kingdom | 13,088,297 | 24,189,702 | — | 37,277,999 | ||||||||||||
Switzerland | 7,046,972 | 18,864,132 | — | 25,911,104 | ||||||||||||
China | 3,359,928 | 21,114,339 | — | 24,474,267 | ||||||||||||
Netherlands | — | 23,605,036 | — | 23,605,036 | ||||||||||||
Ireland | 12,411,289 | — | — | 12,411,289 | ||||||||||||
Sweden | 10,580,320 | — | — | 10,580,320 | ||||||||||||
South Korea | 10,018,268 | — | — | 10,018,268 | ||||||||||||
Indonesia | — | 6,226,314 | — | 6,226,314 | ||||||||||||
India | 6,143,649 | — | — | 6,143,649 | ||||||||||||
Mexico | 5,150,864 | — | — | 5,150,864 | ||||||||||||
Australia | — | 2,957,889 | — | 2,957,889 | ||||||||||||
Exchange-Traded Funds | 8,885,385 | — | — | 8,885,385 | ||||||||||||
Short-Term Investment Funds | 17,150,107 | — | — | 17,150,107 | ||||||||||||
Total | $ | 495,221,424 | $ | 228,951,104 | $ | — | $ | 724,172,528 |
See accompanying Notes to Financial Statements.
45 |
Statements of Assets and Liabilities
March 31, 2019
Touchstone | Touchstone | |||||||||||
Flexible | Touchstone | Growth | ||||||||||
Income | Focused | Opportunities | ||||||||||
Fund | Fund | Fund | ||||||||||
Assets | ||||||||||||
Investments, at cost | $ | 659,354,174 | $ | 716,888,544 | $ | 116,338,038 | ||||||
Investments, at market value (A) | $ | 672,694,909 | $ | 999,996,474 | $ | 161,812,923 | ||||||
Cash deposits held at prime broker (B) | 8,514,679 | — | — | |||||||||
Foreign Currency (C) | — | — | — | |||||||||
Dividends and interest receivable | 4,528,861 | 246,657 | 47,656 | |||||||||
Receivable for capital shares sold | 3,909,282 | 281,853 | 18,545 | |||||||||
Receivable for investments sold | 39,034,599 | — | 1,727,427 | |||||||||
Receivable for securities lending income | 7,873 | — | 116 | |||||||||
Receivable from other affiliates | — | — | 2,492 | |||||||||
Tax reclaim receivable | — | 332,506 | — | |||||||||
Other assets | 41,345 | 41,788 | 20,205 | |||||||||
Total Assets | 728,731,548 | 1,000,899,278 | 163,629,364 | |||||||||
Liabilities | ||||||||||||
Bank overdrafts | 2,063,422 | — | — | |||||||||
Payable for return of collateral for securities on loan | 1,374,575 | — | — | |||||||||
Deferred foreign capital gains tax (D) | — | — | — | |||||||||
Payable for capital shares redeemed | 2,095,001 | 945,348 | 269,357 | |||||||||
Unrealized depreciation on futures contracts | 1,580,368 | — | — | |||||||||
Payable for investments purchased | 24,539,625 | 511,146 | 1,796,519 | |||||||||
Payable to Investment Advisor | 363,542 | 534,935 | 106,756 | |||||||||
Payable to other affiliates | 103,055 | 154,481 | — | |||||||||
Payable to Trustees | 3,549 | 3,549 | 3,549 | |||||||||
Payable for professional services | 32,260 | 32,903 | 23,932 | |||||||||
Payable for reports to shareholders | 24,944 | 33,700 | 13,716 | |||||||||
Payable to Transfer Agent | 141,226 | 315,539 | 33,598 | |||||||||
Other accrued expenses and liabilities | 25,006 | 6,481 | 5,042 | |||||||||
Total Liabilities | 32,346,573 | 2,538,082 | 2,252,469 | |||||||||
Net Assets | $ | 696,384,975 | $ | 998,361,196 | $ | 161,376,895 | ||||||
Net assets consist of: | ||||||||||||
Paid-in capital | $ | 697,604,329 | $ | 688,707,943 | $ | 122,887,867 | ||||||
Distributable earnings (deficit) | (1,219,354 | ) | 309,653,253 | 38,489,028 | ||||||||
Net Assets | $ | 696,384,975 | $ | 998,361,196 | $ | 161,376,895 | ||||||
(A) Includes market value of securities on loan of: | $ | 1,292,556 | $ | — | $ | — | ||||||
(B) Represents segregated cash collateral for futures contracts and swap agreements. | ||||||||||||
(C) Cost of foreign currency: | $ | — | $ | — | $ | — | ||||||
(D) See Note 2 in Notes to Financial Statements. |
See accompanying Notes to Financial Statements.
46 |
Statements of Assets and Liabilities (Continued)
Touchstone | Touchstone | Touchstone | ||||||||
Mid Cap | Sands Capital | Sustainability | ||||||||
Growth | Emerging Markets | and Impact | ||||||||
Fund | Growth Fund | Equity Fund | ||||||||
$ | 846,734,945 | $ | 703,985,455 | $ | 652,772,878 | |||||
$ | 1,097,027,849 | $ | 841,590,273 | $ | 724,172,528 | |||||
— | — | — | ||||||||
— | 705 | 2,187,136 | ||||||||
405,673 | 385,881 | 2,523,461 | ||||||||
1,771,370 | 7,780,614 | 523,746 | ||||||||
3,650,375 | — | 1,459,291 | ||||||||
4 | 1,770 | 667 | ||||||||
— | — | — | ||||||||
— | — | 309,824 | ||||||||
56,886 | 37,729 | 32,866 | ||||||||
1,102,912,157 | 849,796,972 | 731,209,519 | ||||||||
— | — | — | ||||||||
— | — | 11,907,093 | ||||||||
— | 932,552 | — | ||||||||
1,399,932 | 2,105,941 | 862,001 | ||||||||
— | — | — | ||||||||
2,713,185 | 1,628,403 | 5,618,035 | ||||||||
659,481 | 665,435 | 398,711 | ||||||||
214,299 | 99,540 | 198,946 | ||||||||
3,549 | 3,549 | 3,549 | ||||||||
35,205 | 33,535 | 32,019 | ||||||||
50,464 | 24,049 | 23,527 | ||||||||
233,764 | 97,567 | 155,155 | ||||||||
6,288 | 34,975 | 14,322 | ||||||||
5,316,167 | 5,625,546 | 19,213,358 | ||||||||
$ | 1,097,595,990 | $ | 844,171,426 | $ | 711,996,161 | |||||
$ | 836,445,256 | $ | 736,527,700 | $ | 647,527,563 | |||||
261,150,734 | 107,643,726 | 64,468,598 | ||||||||
$ | 1,097,595,990 | $ | 844,171,426 | $ | 711,996,161 | |||||
$ | — | $ | — | $ | 10,474,503 | |||||
$ | — | $ | 834 | $ | 2,187,317 |
47 |
Statements of Assets and Liabilities (Continued)
Touchstone | Touchstone | |||||||||||
Flexible | Touchstone | Growth | ||||||||||
Income | Focused | Opportunities | ||||||||||
Fund | Fund | Fund | ||||||||||
Pricing of Class A Shares | ||||||||||||
Net assets applicable to Class A shares | $ | 110,459,818 | $ | 55,399,140 | $ | 42,404,484 | ||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 10,276,808 | 1,298,157 | 1,296,461 | |||||||||
Net asset value price per share* | $ | 10.75 | $ | 42.68 | $ | 32.71 | ||||||
Maximum sales charge - Class A shares | 2.00 | % | 5.00 | % | 5.00 | % | ||||||
Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to the nearest cent) - Class A shares | $ | 10.97 | $ | 44.93 | $ | 34.43 | ||||||
Pricing of Class C Shares | ||||||||||||
Net assets applicable to Class C shares | $ | 66,925,963 | $ | 33,875,162 | $ | 3,863,081 | ||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 6,316,295 | 841,417 | 147,552 | |||||||||
Net asset value and offering price per share** | $ | 10.60 | $ | 40.26 | $ | 26.18 | ||||||
Pricing of Class Y Shares | ||||||||||||
Net assets applicable to Class Y shares | $ | 459,861,348 | $ | 879,704,450 | $ | 43,703,121 | ||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 42,652,963 | 20,402,223 | 1,293,648 | |||||||||
Net asset value, offering price and redemption price per share | $ | 10.78 | $ | 43.12 | $ | 33.78 | ||||||
Pricing of Institutional Class Shares | ||||||||||||
Net assets applicable to Institutional Class Shares | $ | 59,137,846 | $ | 29,382,444 | $ | 71,406,209 | ||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 5,485,690 | 678,640 | 2,086,822 | |||||||||
Net asset value, offering price and redemption price per share | $ | 10.78 | $ | 43.30 | $ | 34.22 |
* There is no sales load on subscriptions of $1 million or more for all funds except for Flexible Income Fund. There is no sales load on subscriptions of $500,000 or more for Flexible Income Fund. Redemptions that were part of a $500,000 or $1 million or more subscription, as applicable, may be subject to a contingent deferred sales load if redeemed within a one-year period from the date of purchase.
** Redemption price per share varies by length of time shares are held due to the terms of the contingent deferred sales charge.
See accompanying Notes to Financial Statements.
48 |
Statements of Assets and Liabilities (Continued)
Touchstone | Touchstone | Touchstone | ||||||||
Mid Cap | Sands Capital | Sustainability | ||||||||
Growth | Emerging Markets | and Impact | ||||||||
Fund | Growth Fund | Equity Fund | ||||||||
$ | 262,492,163 | $ | 1,349,148 | $ | 445,607,928 | |||||
8,970,579 | 102,616 | 22,352,766 | ||||||||
$ | 29.26 | $ | 13.15 | $ | 19.94 | |||||
5.00 | % | 5.00 | % | 5.00 | % | |||||
$ | 30.80 | $ | 13.84 | $ | 20.99 | |||||
$ | 32,831,129 | $ | 58,914 | $ | 14,925,756 | |||||
1,816,272 | 4,493 | 896,448 | ||||||||
$ | 18.08 | $ | 13.11 | $ | 16.65 | |||||
$ | 452,407,229 | $ | 318,093,295 | $ | 207,080,090 | |||||
14,832,919 | 24,177,762 | 10,022,081 | ||||||||
$ | 30.50 | $ | 13.16 | $ | 20.66 | |||||
$ | 349,865,469 | $ | 524,670,069 | $ | 44,382,387 | |||||
11,361,699 | 39,703,108 | 2,145,741 | ||||||||
$ | 30.79 | $ | 13.21 | $ | 20.68 |
49 |
For the Year Ended March 31, 2019
Touchstone | Touchstone | |||||||||||
Flexible | Touchstone | Growth | ||||||||||
Income | Focused | Opportunities | ||||||||||
Fund | Fund | Fund | ||||||||||
Investment Income | ||||||||||||
Dividends(A) | $ | 6,185,785 | $ | 17,268,229 | $ | 2,807,431 | ||||||
Interest | 31,845,172 | 225 | — | |||||||||
Income from securities loaned | 31,897 | 805 | 1,774 | |||||||||
Total Investment Income | 38,062,854 | 17,269,259 | 2,809,205 | |||||||||
Expenses | ||||||||||||
Investment advisory fees | 4,691,398 | 7,131,768 | 1,974,093 | |||||||||
Administration fees | 1,215,505 | 1,651,011 | 381,658 | |||||||||
Compliance fees and expenses | 2,299 | 2,299 | 2,299 | |||||||||
Custody fees | 110,741 | 23,510 | 32,169 | |||||||||
Professional fees | 35,301 | 55,617 | 30,157 | |||||||||
Transfer Agent fees, Class A | 102,903 | 312,994 | 48,402 | |||||||||
Transfer Agent fees, Class C | 71,244 | 28,822 | 9,709 | |||||||||
Transfer Agent fees, Class Y | 474,475 | 814,058 | 40,829 | |||||||||
Transfer Agent fees, Institutional Class | 34,286 | 4,956 | 87,668 | |||||||||
Registration fees, Class A | 16,769 | 16,471 | 15,048 | |||||||||
Registration fees, Class C | 17,108 | 15,484 | 12,798 | |||||||||
Registration fees, Class Y | 41,635 | 22,324 | 15,111 | |||||||||
Registration fees, Institutional Class | 14,211 | 14,721 | 17,642 | |||||||||
Interest expense on securities sold short | 22,486 | — | — | |||||||||
Reports to Shareholders, Class A | 16,309 | 16,656 | 8,854 | |||||||||
Reports to Shareholders, Class C | 16,012 | 9,994 | 7,037 | |||||||||
Reports to Shareholders, Class Y | 54,811 | 56,065 | 7,035 | |||||||||
Reports to Shareholders, Institutional Class | 13,194 | 7,931 | 10,900 | |||||||||
Distribution expenses, Class A | 289,220 | 335,935 | 100,424 | |||||||||
Distribution and shareholder servicing expenses, Class C | 850,710 | 379,393 | 78,298 | |||||||||
Trustee fees | 14,630 | 14,630 | 14,630 | |||||||||
Other expenses | 135,765 | 360,464 | 50,435 | |||||||||
Total Expenses | 8,241,012 | 11,275,103 | 2,945,196 | |||||||||
Fees waived and/or reimbursed by the Advisor and/or Affiliates(B) | (513,008 | ) | (184,509 | ) | (326,885 | ) | ||||||
Fees recouped by the Advisor(B) | — | — | — | |||||||||
Net Expenses | 7,728,004 | 11,090,594 | 2,618,311 | |||||||||
Net Investment Income (Loss) | 30,334,850 | 6,178,665 | 190,894 | |||||||||
Realized and Unrealized Gains (Losses) on Investments | ||||||||||||
Net realized gains (losses) on investments (C) | (17,517,628 | ) | 48,864,054 | 24,110,105 | ||||||||
Net realized losses on futures contracts | (1,215,178 | ) | — | — | ||||||||
Net realized gains on swap agreements | 124,424 | — | — | |||||||||
Net realized losses on securities sold short | (182,136 | ) | — | — | ||||||||
Net realized gains on forward foreign currency contracts | 5,738,706 | — | — | |||||||||
Net realized losses on foreign currency transactions | (957,428 | ) | — | — | ||||||||
Net change in unrealized appreciation (depreciation) on investments (D) | 11,592,084 | (19,682,696 | ) | (16,138,816 | ) | |||||||
Net change in unrealized appreciation (depreciation) on futures contracts | (1,584,468 | ) | — | — | ||||||||
Net change in unrealized appreciation (depreciation) on forward foreign currency contracts | (534,208 | ) | — | — | ||||||||
Net change in unrealized appreciation (depreciation) on foreign currency transactions | 833 | — | — | |||||||||
Net Realized and Unrealized Gains (Losses) on Investments | (4,534,999 | ) | 29,181,358 | 7,971,289 | ||||||||
Change in Net Assets Resulting from Operations | $ | 25,799,851 | $ | 35,360,023 | $ | 8,162,183 | ||||||
(A) Net of foreign tax withholding of: | $ | — | $ | 224,728 | $ | 16,266 | ||||||
(B) See Note 4 in Notes to Financial Statements. | ||||||||||||
(C) On December 31, 2018, the Growth Opportunities Fund had a redemption-in-kind of securities in the amount of $27,245,398. Net realized gains (losses) on investments includes the realized gain on the transaction of $10,111,524, which is not recognized as a realized gain by the Fund for tax purposes. | ||||||||||||
(D) Includes change in deferred foreign capital gains tax of: | $ | — | $ | — | $ | — |
See accompanying Notes to Financial Statements.
50 |
Statements of Operations (Continued)
Touchstone | ||||||||||
Touchstone | Sands Capital | Touchstone | ||||||||
Mid Cap | Emerging | Sustainability | ||||||||
Growth | Markets | and Impact | ||||||||
Fund | Growth Fund | Equity Fund | ||||||||
$ | 8,724,727 | $ | 6,014,596 | $ | 13,858,866 | |||||
1,182 | 2,583 | — | ||||||||
11,500 | 11,464 | 80,275 | ||||||||
8,737,409 | 6,028,643 | 13,939,141 | ||||||||
6,938,272 | 6,686,008 | 4,855,568 | ||||||||
1,387,793 | 969,471 | 1,083,165 | ||||||||
2,299 | 2,299 | 2,299 | ||||||||
25,350 | 321,433 | 60,882 | ||||||||
54,823 | 100,808 | 31,894 | ||||||||
239,915 | 91 | 360,143 | ||||||||
85,679 | 30 | 33,770 | ||||||||
452,098 | 230,389 | 143,467 | ||||||||
134,082 | 166,808 | 24,513 | ||||||||
16,390 | 1,173 | 19,521 | ||||||||
15,795 | 1,093 | 16,278 | ||||||||
25,202 | 39,605 | 22,921 | ||||||||
31,349 | 23,149 | 12,149 | ||||||||
— | — | — | ||||||||
19,788 | 4,236 | 20,981 | ||||||||
14,367 | 4,236 | 9,686 | ||||||||
60,852 | 31,188 | 21,383 | ||||||||
33,249 | 19,850 | 7,115 | ||||||||
540,367 | 404 | 1,158,434 | ||||||||
787,683 | 96 | 314,361 | ||||||||
14,630 | 14,630 | 14,630 | ||||||||
92,957 | 73,655 | 193,420 | ||||||||
10,972,940 | 8,690,652 | 8,406,580 | ||||||||
— | (98,932 | ) | (92,449 | ) | ||||||
3,786 | 4,513 | — | ||||||||
10,976,726 | 8,596,233 | 8,314,131 | ||||||||
(2,239,317 | ) | (2,567,590 | ) | 5,625,010 | ||||||
48,246,917 | (20,246,087 | ) | 42,444,396 | |||||||
— | — | — | ||||||||
— | — | — | ||||||||
— | — | — | ||||||||
— | — | — | ||||||||
— | (167,903 | ) | (126,272 | ) | ||||||
61,192,656 | 11,136,723 | (52,191,179 | ) | |||||||
— | — | — | ||||||||
— | — | — | ||||||||
— | (5,214 | ) | (4,513 | ) | ||||||
109,439,573 | (9,282,481 | ) | (9,877,568 | ) | ||||||
$ | 107,200,256 | $ | (11,850,071 | ) | $ | (4,252,558 | ) | |||
$ | 133,186 | $ | 330,764 | $ | 1,017,419 | |||||
$ | — | $ | (22,153 | ) | $ | — |
51 |
Statements of Changes in Net Assets
Touchstone | ||||||||||||||||
Flexible Income | Touchstone | |||||||||||||||
Fund | Focused Fund | |||||||||||||||
For the | For the | For the | For the | |||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||
March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | |||||||||||||
From Operations | ||||||||||||||||
Net investment income (loss) | $ | 30,334,850 | $ | 22,718,901 | $ | 6,178,665 | $ | 7,611,303 | ||||||||
Net realized gains (losses) on investments, futures contracts, written options, swap agreements, securities sold short, forward foreign currency contracts and foreign currency transactions | (14,009,240 | ) | 16,281,122 | 48,864,054 | 120,283,282 | |||||||||||
Net change in unrealized appreciation (depreciation) on investments, futures contracts, written options, forward foreign currency contracts and foreign currency transactions | 9,474,241 | (14,807,252 | ) | (19,682,696 | ) | (5,587,396 | ) | |||||||||
Change in Net Assets from Operations | 25,799,851 | 24,192,771 | 35,360,023 | 122,307,189 | ||||||||||||
Distributions to Shareholders from(A): | ||||||||||||||||
Distributed earnings, Class A | (4,595,320 | ) | — | (6,047,651 | ) | — | ||||||||||
Distributed earnings, Class C | (2,794,088 | ) | — | (1,537,491 | ) | — | ||||||||||
Distributed earnings, Class Y | (23,651,685 | ) | — | (42,711,920 | ) | — | ||||||||||
Distributed earnings, Institutional Class | (3,170,908 | ) | — | (1,121,274 | ) | — | ||||||||||
Net investment income, Class A | — | (2,242,445 | ) | — | — | |||||||||||
Net investment income, Class C | — | (1,336,882 | ) | — | — | |||||||||||
Net investment income, Class Y | — | (15,422,024 | ) | — | (8,394,330 | ) | ||||||||||
Net investment income, Institutional Class | — | (2,744,520 | ) | — | (224,556 | ) | ||||||||||
Net realized gains, Class A | — | — | — | (10,732,390 | ) | |||||||||||
Net realized gains, Class C | — | — | — | (2,837,165 | ) | |||||||||||
Net realized gains, Class Y | — | — | — | (58,912,960 | ) | |||||||||||
Net realized gains, Institutional Class | — | — | — | (1,383,014 | ) | |||||||||||
Total Distributions | (34,212,001 | ) | (21,745,871 | ) | (51,418,336 | ) | (82,484,415 | ) | ||||||||
Net Increase (Decrease) from Share Transactions (B) | (247,881,927 | ) | 277,011,831 | (189,398,237 | ) | (331,194,847 | ) | |||||||||
Total Increase (Decrease) in Net Assets | (256,294,077 | ) | 279,458,731 | (205,456,550 | ) | (291,372,073 | ) | |||||||||
Net Assets | ||||||||||||||||
Beginning of period | 952,679,052 | 673,220,321 | 1,203,817,746 | 1,495,189,819 | ||||||||||||
End of period | $ | 696,384,975 | $ | 952,679,052 | $ | 998,361,196 | $ | 1,203,817,746 | ||||||||
Undistributed (Distributions in excess of) Net Investment Income(A) | N/A | $ | 808,064 | N/A | $ | 4,572,920 |
(A) The presentation of Distributions to Shareholders and Undistributed Net Investment Income have been updated to reflect the changes prescribed in amendments to Regulation S-X, effective November 5, 2018. The presentation for the year ended March 31, 2018, was not impacted.
(B) For details on share transaction by class, see Statements of Changes in Net Assets - Capital Stock Activity on pages 54-56.
See accompanying Notes to Financial Statements.
52 |
Statements of Changes in Net Assets (Continued)
Touchstone | Touchstone | Touchstone | Touchstone | |||||||||||||||||||||||||||
Growth Opportunities | Mid Cap | Sands Capital Emerging | Sustainability and Impact | |||||||||||||||||||||||||||
Fund | Growth Fund | Markets Growth Fund | Equity Fund | |||||||||||||||||||||||||||
For the | For the | For the | For the | For the | For the | For the | For the | |||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||||||
March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | |||||||||||||||||||||||
$ | 190,894 | $ | (202,619 | ) | $ | (2,239,317 | ) | $ | (1,755,434 | ) | $ | (2,567,590 | ) | $ | (2,882,217 | ) | $ | 5,625,010 | $ | 3,145,215 | ||||||||||
24,110,105 | 31,494,443 | 48,246,917 | 74,765,740 | (20,413,990 | ) | 7,979,013 | 42,318,124 | 107,712,049 | ||||||||||||||||||||||
(16,138,816 | ) | 16,991,709 | 61,192,656 | 56,871,354 | 11,131,509 | 86,545,880 | (52,195,692 | ) | (53,602,082 | ) | ||||||||||||||||||||
8,162,183 | 48,283,533 | 107,200,256 | 129,881,660 | (11,850,071 | ) | 91,642,676 | (4,252,558 | ) | 57,255,182 | |||||||||||||||||||||
(3,565,267 | ) | — | (14,077,353 | ) | — | — | — | (39,433,398 | ) | — | ||||||||||||||||||||
(925,118 | ) | — | (9,020,791 | ) | — | — | — | (2,981,402 | ) | — | ||||||||||||||||||||
(4,049,458 | ) | — | (29,241,070 | ) | — | — | — | (17,812,087 | ) | — | ||||||||||||||||||||
(17,958,575 | ) | — | (21,549,399 | ) | — | — | — | (4,318,491 | ) | — | ||||||||||||||||||||
— | — | — | — | — | — | — | (3,484,805 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | — | — | |||||||||||||||||||||||
— | — | — | — | — | — | — | (1,360,309 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | — | (325,999 | ) | ||||||||||||||||||||||
— | (3,662,965 | ) | — | (21,079,821 | ) | — | — | — | (55,263,887 | ) | ||||||||||||||||||||
— | (950,760 | ) | — | (12,691,656 | ) | — | — | — | (4,969,553 | ) | ||||||||||||||||||||
— | (4,305,355 | ) | — | (32,957,620 | ) | — | — | — | (19,953,999 | ) | ||||||||||||||||||||
— | (16,435,542 | ) | — | (7,253,812 | ) | — | — | — | (4,442,461 | ) | ||||||||||||||||||||
(26,498,418 | ) | (25,354,622 | ) | (73,888,613 | ) | (73,982,909 | ) | — | — | (64,545,378 | ) | (89,801,013 | ) | |||||||||||||||||
(102,251,511 | ) | 14,449,376 | 284,262,807 | 29,486,603 | 274,360,206 | 204,149,556 | 25,835,271 | 483,918,133 | ||||||||||||||||||||||
(120,587,746 | ) | 37,378,287 | 317,574,450 | 85,385,354 | 262,510,135 | 295,792,232 | (42,962,665 | ) | 451,372,302 | |||||||||||||||||||||
281,964,641 | 244,586,354 | 780,021,540 | 694,636,186 | 581,661,291 | 285,869,059 | 754,958,826 | 303,586,524 | |||||||||||||||||||||||
$ | 161,376,895 | $ | 281,964,641 | $ | 1,097,595,990 | $ | 780,021,540 | $ | 844,171,426 | $ | 581,661,291 | $ | 711,996,161 | $ | 754,958,826 | |||||||||||||||
N/A | $ | — | N/A | $ | — | N/A | $ | (1,475,036 | ) | N/A | $ | (764,327 | ) |
53 |
Statements of Changes in Net Assets - Capital Stock Activity
Touchstone Flexible Income Fund | Touchstone Focused Fund | |||||||||||||||||||||||||||||||
For the Year Ended March 31, 2019 | For the Year Ended March 31, 2018 | For the Year Ended March 31, 2019 | For the Year Ended March 31, 2018 | |||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars | |||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 1,702,051 | $ | 18,079,500 | 2,384,072 | $ | 26,062,646 | 303,350 | $ | 12,999,888 | 5,193,856 | $ | 215,393,682 | ||||||||||||||||||||
Proceeds from Shares issued in connection with merger(A) | — | — | 9,063,086 | 99,393,351 | — | — | — | — | ||||||||||||||||||||||||
Reinvestment of distributions | 366,554 | 3,904,389 | 168,647 | 1,840,354 | 135,309 | 5,442,939 | 218,807 | 9,362,745 | ||||||||||||||||||||||||
Cost of Shares redeemed | (4,425,321 | ) | (47,409,661 | ) | (3,606,795 | ) | (39,446,661 | ) | (3,038,693 | ) | (121,370,943 | ) | (11,772,123 | ) | (489,616,422 | ) | ||||||||||||||||
Change from Class A Share Transactions | (2,356,716 | ) | (25,425,772 | ) | 8,009,010 | 87,849,690 | (2,600,034 | ) | (102,928,116 | ) | (6,359,460 | ) | (264,859,995 | ) | ||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 452,578 | 4,885,903 | 847,920 | 9,145,298 | 102,760 | 3,910,653 | 76,446 | 3,154,356 | ||||||||||||||||||||||||
Proceeds from Shares issued in connection with merger(A) | — | — | 6,398,405 | 69,228,625 | — | — | — | — | ||||||||||||||||||||||||
Reinvestment of distributions | 225,722 | 2,369,234 | 105,881 | 1,140,279 | 36,988 | 1,407,007 | 62,701 | 2,560,724 | ||||||||||||||||||||||||
Cost of Shares redeemed | (3,811,829 | ) | (40,183,323 | ) | (3,109,526 | ) | (33,533,208 | ) | (316,569 | ) | (12,745,519 | ) | (468,507 | ) | (19,362,544 | ) | ||||||||||||||||
Change from Class C Share Transactions | (3,133,529 | ) | (32,928,186 | ) | 4,242,680 | 45,980,994 | (176,821 | ) | (7,427,859 | ) | (329,360 | ) | (13,647,464 | ) | ||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 18,247,422 | 195,823,059 | 26,129,990 | 286,674,927 | 1,053,846 | 46,002,011 | 1,589,181 | 69,971,464 | ||||||||||||||||||||||||
Proceeds from Shares issued in connection with merger(A) | — | — | 4,717,881 | 51,897,275 | — | — | — | — | ||||||||||||||||||||||||
Reinvestment of distributions | 2,050,335 | 21,908,828 | 1,121,385 | 12,280,699 | 995,011 | 40,275,173 | 1,448,905 | 63,266,483 | ||||||||||||||||||||||||
Cost of Shares redeemed | (35,608,601 | ) | (380,268,509 | ) | (17,187,979 | ) | (188,422,447 | ) | (3,995,235 | ) | (172,060,584 | ) | (3,782,697 | ) | (166,382,947 | ) | ||||||||||||||||
Change from Class Y Share Transactions | (15,310,844 | ) | (162,536,622 | ) | 14,781,277 | 162,430,454 | (1,946,378 | ) | (85,783,400 | ) | (744,611 | ) | (33,145,000 | ) | ||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 4,047,381 | 43,141,969 | 2,830,930 | 31,031,315 | 448,768 | 19,693,152 | 266,753 | 11,739,387 | ||||||||||||||||||||||||
Reinvestment of distributions | 275,960 | 2,947,628 | 182,493 | 1,998,020 | 27,623 | 1,121,274 | 36,639 | 1,607,570 | ||||||||||||||||||||||||
Cost of Shares redeemed | (6,822,189 | ) | (73,080,944 | ) | (4,769,408 | ) | (52,278,642 | ) | (314,123 | ) | (14,073,288 | ) | (763,585 | ) | (32,889,345 | ) | ||||||||||||||||
Change from Institutional Class Share Transactions | (2,498,848 | ) | (26,991,347 | ) | (1,755,985 | ) | (19,249,307 | ) | 162,268 | 6,741,138 | (460,193 | ) | (19,542,388 | ) | ||||||||||||||||||
Change from Share Transactions | (23,299,937 | ) | $ | (247,881,927 | ) | 25,276,982 | $ | 277,011,831 | (4,560,965 | ) | $ | (189,398,237 | ) | (7,893,624 | ) | $ | (331,194,847 | ) |
(A) | See Note 9 in the Notes to Financial Statements. |
See accompanying Notes to Financial Statements.
54 |
Statements of Changes in Net Assets - Capital Stock Activity (Continued)
Touchstone Growth Opportunities Fund | Touchstone Mid Cap Growth Fund | |||||||||||||||||||||||||||||
For the Year Ended March 31, 2019 | For the Year Ended March 31, 2018 | For the Year Ended March 31, 2019 | For the Year Ended March 31, 2018 | |||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars | |||||||||||||||||||||||
176,314 | $ | 5,490,184 | 36,639 | $ | 1,195,506 | 2,530,737 | $ | 69,220,088 | 1,278,278 | $ | 35,159,997 | |||||||||||||||||||
— | — | — | — | — | — | — | — | |||||||||||||||||||||||
114,276 | 3,342,578 | 107,787 | 3,426,398 | 490,513 | 12,478,658 | 700,280 | 18,792,918 | |||||||||||||||||||||||
(210,808 | ) | (6,826,628 | ) | (211,068 | ) | (6,916,585 | ) | (1,849,658 | ) | (53,198,198 | ) | (2,878,169 | ) | (79,842,262 | ) | |||||||||||||||
79,782 | 2,006,134 | (66,642 | ) | (2,294,681 | ) | 1,171,592 | 28,500,548 | (899,611 | ) | (25,889,347 | ) | |||||||||||||||||||
13,543 | 484,879 | 14,373 | 394,942 | 333,219 | 6,547,161 | 221,414 | 4,144,476 | |||||||||||||||||||||||
— | — | — | — | — | — | — | — | |||||||||||||||||||||||
36,254 | 850,868 | 33,112 | 870,838 | 552,670 | 8,704,555 | 692,097 | 12,118,582 | |||||||||||||||||||||||
(222,708 | ) | (5,650,815 | ) | (61,897 | ) | (1,698,261 | ) | (4,024,501 | ) | (69,115,679 | ) | (2,302,342 | ) | (42,936,290 | ) | |||||||||||||||
(172,911 | ) | (4,315,068 | ) | (14,412 | ) | (432,481 | ) | (3,138,612 | ) | (53,863,963 | ) | (1,388,831 | ) | (26,673,232 | ) | |||||||||||||||
112,147 | 3,813,714 | 73,508 | 2,472,287 | 5,652,098 | 167,673,486 | 4,508,287 | 128,755,742 | |||||||||||||||||||||||
— | — | — | — | — | — | — | — | |||||||||||||||||||||||
132,809 | 4,009,404 | 129,813 | 4,234,487 | 1,026,643 | 27,195,777 | 1,106,714 | 30,755,540 | |||||||||||||||||||||||
(362,870 | ) | (12,173,920 | ) | (321,436 | ) | (10,885,343 | ) | (4,765,491 | ) | (138,073,175 | ) | (4,375,191 | ) | (125,544,270 | ) | |||||||||||||||
(117,914 | ) | (4,350,802 | ) | (118,115 | ) | (4,178,569 | ) | 1,913,250 | 56,796,088 | 1,239,810 | 33,967,012 | |||||||||||||||||||
750,211 | 26,690,785 | 902,423 | 30,540,021 | 10,783,290 | 331,066,959 | 2,041,573 | 61,136,861 | |||||||||||||||||||||||
587,087 | 17,953,552 | 498,198 | 16,435,542 | 797,551 | 21,334,480 | 254,738 | 7,137,762 | |||||||||||||||||||||||
(4,703,861 | ) | (140,236,112 | ) | (761,920 | ) | (25,620,456 | ) | (3,465,413 | ) | (99,571,305 | ) | (694,722 | ) | (20,192,453 | ) | |||||||||||||||
(3,366,563 | ) | (95,591,775 | ) | 638,701 | 21,355,107 | 8,115,428 | 252,830,134 | 1,601,589 | 48,082,170 | |||||||||||||||||||||
(3,577,606 | ) | $ | (102,251,511 | ) | 439,532 | $ | 14,449,376 | 8,061,658 | $ | 284,262,807 | 552,957 | $ | 29,486,603 |
55 |
Statements of Changes in Net Assets - Capital Stock Activity (Continued)
Touchstone
Sands Capital Emerging Markets Growth Fund | Touchstone
Sustainability and Impact Equity Fund | |||||||||||||||||||||||||||||||
For
the Year Ended March 31, 2019(A) | For
the Year Ended March 31, 2018 | For
the Year Ended March 31, 2018 | For
the Year Ended March 31, 2019 | |||||||||||||||||||||||||||||
Shares | Dollars | Shares | Dollars | Shares | Dollars | Shares | Dollars | |||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 103,927 | $ | 1,276,203 | — | $ | — | 1,392,791 | $ | 28,628,010 | 1,146,374 | $ | 26,531,636 | ||||||||||||||||||||
Proceeds from Shares issued in connection with merger(B) | — | — | — | — | — | — | 15,059,186 | 366,882,146 | ||||||||||||||||||||||||
Reinvestment of distributions | — | — | — | — | 1,932,411 | 37,482,138 | 2,491,351 | 55,905,909 | ||||||||||||||||||||||||
Cost of Shares redeemed | (1,311 | ) | (15,793 | ) | — | — | (3,021,622 | ) | (65,404,158 | ) | (1,902,098 | ) | (44,334,865 | ) | ||||||||||||||||||
Change from Class A Share Transactions | 102,616 | 1,260,410 | — | — | 303,580 | 705,990 | 16,794,813 | 404,984,826 | ||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 4,716 | 56,188 | — | — | 120,812 | 2,209,583 | 325,409 | 6,440,754 | ||||||||||||||||||||||||
Reinvestment of distributions | — | — | — | — | 172,361 | 2,792,251 | 228,656 | 4,362,762 | ||||||||||||||||||||||||
Cost of Shares redeemed | (223 | ) | (2,537 | ) | — | — | (1,405,396 | ) | (24,311,446 | ) | (1,125,959 | ) | (22,454,884 | ) | ||||||||||||||||||
Change from Class C Share Transactions | 4,493 | 53,651 | — | — | (1,112,223 | ) | (19,309,612 | ) | (571,894 | ) | (11,651,368 | ) | ||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 18,151,658 | 223,814,446 | 7,625,778 | 97,669,943 | 4,383,342 | 96,836,936 | 3,108,576 | 74,213,609 | ||||||||||||||||||||||||
Proceeds from Shares issued in connection with merger(B) | — | — | — | — | — | — | 1,194,468 | 29,944,579 | ||||||||||||||||||||||||
Reinvestment of distributions | — | — | — | — | 819,591 | 16,471,978 | 832,351 | 19,285,566 | ||||||||||||||||||||||||
Cost of Shares redeemed | (9,251,596 | ) | (109,485,928 | ) | (2,015,311 | ) | (25,789,341 | ) | (3,525,483 | ) | (76,466,172 | ) | (1,892,189 | ) | (45,196,983 | ) | ||||||||||||||||
Change from Class Y Share Transactions | 8,900,062 | 114,328,518 | 5,610,467 | 71,880,602 | 1,677,450 | 36,842,742 | 3,243,206 | 78,246,771 | ||||||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||||||
Proceeds from Shares issued | 23,807,151 | 295,926,159 | 14,639,380 | 183,478,921 | 757,385 | 16,616,972 | 593,288 | 14,439,758 | ||||||||||||||||||||||||
Reinvestment of distributions | — | — | — | — | 208,677 | 4,204,447 | 205,537 | 4,768,460 | ||||||||||||||||||||||||
Cost of Shares redeemed | (11,615,625 | ) | (137,208,532 | ) | (4,130,300 | ) | (51,209,967 | ) | (673,399 | ) | (13,225,268 | ) | (287,080 | ) | (6,870,314 | ) | ||||||||||||||||
Change from Institutional Class Share Transactions | 12,191,526 | 158,717,627 | 10,509,080 | 132,268,954 | 292,663 | 7,596,151 | 511,745 | 12,337,904 | ||||||||||||||||||||||||
Change from Share Transactions | 21,198,697 | $ | 274,360,206 | 16,119,547 | $ | 204,149,556 | 1,161,470 | $ | 25,835,271 | 19,977,870 | $ | 483,918,133 |
(A) | Represents the period from commencement of operations (November 16, 2018) through March 31, 2019 for Class A and Class C. |
(B) | See Note 9 in the Notes to Financial Statements. |
See accompanying Notes to Financial Statements.
56 |
Touchstone Flexible Income Fund—Class A
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 10.81 | $ | 10.71 | $ | 10.58 | $ | 10.67 | $ | 10.60 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.39 | 0.26 | 0.30 | 0.32 | 0.43 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | (0.01 | ) | 0.11 | 0.11 | (0.10 | ) | 0.11 | |||||||||||||
Total from investment operations | 0.38 | 0.37 | 0.41 | 0.22 | 0.54 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.38 | ) | (0.27 | ) | (0.28 | ) | (0.31 | ) | (0.47 | ) | ||||||||||
Realized capital gains | (0.06 | ) | — | — | — | — | ||||||||||||||
Total distributions | (0.44 | ) | (0.27 | ) | (0.28 | ) | (0.31 | ) | (0.47 | ) | ||||||||||
Net asset value at end of period | $ | 10.75 | $ | 10.81 | $ | 10.71 | $ | 10.58 | $ | 10.67 | ||||||||||
Total return(A) | 3.59 | % | 3.46 | % | 3.93 | % | 2.13 | % | 5.22 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 110,460 | $ | 136,609 | $ | 49,544 | $ | 57,671 | $ | 32,695 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses (including dividend and interest expense on securities sold short) | 1.04 | % | 1.06 | %(B) | 1.10 | %(B) | 1.09 | % | 1.09 | % | ||||||||||
Gross expenses (including dividend and interest expense on securities sold short) | 1.11 | % | 1.14 | %(C) | 1.30 | %(C) | 1.32 | % | 1.35 | % | ||||||||||
Net investment income | 3.50 | % | 2.60 | % | 2.74 | % | 3.19 | % | 3.95 | % | ||||||||||
Portfolio turnover rate | 171 | % | 100 | %(D) | 127 | % | 122 | % | 102 | % |
Touchstone Flexible Income Fund—Class C
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 10.67 | $ | 10.57 | $ | 10.44 | $ | 10.54 | $ | 10.47 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.30 | 0.20 | 0.20 | 0.26 | 0.34 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | (0.01 | ) | 0.09 | 0.13 | (0.12 | ) | 0.12 | |||||||||||||
Total from investment operations | 0.29 | 0.29 | 0.33 | 0.14 | 0.46 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.30 | ) | (0.19 | ) | (0.20 | ) | (0.24 | ) | (0.39 | ) | ||||||||||
Realized capital gains | (0.06 | ) | — | — | — | — | ||||||||||||||
Total distributions | (0.36 | ) | (0.19 | ) | (0.20 | ) | (0.24 | ) | (0.39 | ) | ||||||||||
Net asset value at end of period | $ | 10.60 | $ | 10.67 | $ | 10.57 | $ | 10.44 | $ | 10.54 | ||||||||||
Total return(A) | 2.77 | % | 2.73 | % | 3.22 | % | 1.32 | % | 4.52 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 66,926 | $ | 100,800 | $ | 55,043 | $ | 45,079 | $ | 25,853 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses (including dividend and interest expense on securities sold short) | 1.79 | % | 1.81 | %(B) | 1.85 | %(B) | 1.84 | % | 1.84 | % | ||||||||||
Gross expenses (including dividend and interest expense on securities sold short) | 1.86 | % | 1.89 | %(C) | 2.00 | %(C) | 2.05 | % | 2.10 | % | ||||||||||
Net investment income | 2.75 | % | 1.85 | % | 1.99 | % | 2.44 | % | 3.20 | % | ||||||||||
Portfolio turnover rate | 171 | % | 100 | %(D) | 127 | % | 122 | % | 102 | % |
(A) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
(B) | The ratio of net expenses to average net assets excluding dividend and interest expense on securities sold short for Class A was 1.06% and 1.09% and for Class C was 1.81% and 1.84% for the years ended March 31, 2018 and 2017, respectively. |
(C) | The ratio of gross expenses to average net assets excluding dividend and interest expense on securities sold short for Class A was 1.14% and 1.29% and for Class C was 1.89% and 1.99% for the years ended March 31, 2018 and 2017, respectively. |
(D) | Portfolio turnover excludes the purchases and sales of securities of the Sentinel Multi-Asset Income Fund acquired on October 27, 2017 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
See accompanying Notes to Financial Statements.
57 |
Financial Highlights (Continued)
Touchstone Flexible Income Fund—Class Y
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 10.85 | $ | 10.75 | $ | 10.61 | $ | 10.70 | $ | 10.62 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.42 | 0.31 | 0.32 | 0.36 | 0.46 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | (0.02 | ) | 0.09 | 0.13 | (0.11 | ) | 0.12 | |||||||||||||
Total from investment operations | 0.40 | 0.40 | 0.45 | 0.25 | 0.58 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.41 | ) | (0.30 | ) | (0.31 | ) | (0.34 | ) | (0.50 | ) | ||||||||||
Realized capital gains | (0.06 | ) | — | — | — | — | ||||||||||||||
Total distributions | (0.47 | ) | (0.30 | ) | (0.31 | ) | (0.34 | ) | (0.50 | ) | ||||||||||
Net asset value at end of period | $ | 10.78 | $ | 10.85 | $ | 10.75 | $ | 10.61 | $ | 10.70 | ||||||||||
Total return | 3.75 | % | 3.71 | % | 4.28 | % | 2.38 | % | 5.58 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 459,861 | $ | 628,693 | $ | 464,002 | $ | 358,423 | $ | 238,081 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses (including dividend and interest expense on securities sold short) | 0.79 | % | 0.82 | %(A) | 0.85 | %(A) | 0.84 | % | 0.84 | % | ||||||||||
Gross expenses (including dividend and interest expense on securities sold short) | 0.84 | % | 0.90 | %(B) | 1.00 | %(B) | 1.05 | % | 1.01 | % | ||||||||||
Net investment income | 3.75 | % | 2.84 | % | 2.99 | % | 3.44 | % | 4.21 | % | ||||||||||
Portfolio turnover rate | 171 | % | 100 | %(C) | 127 | % | 122 | % | 102 | % |
Touchstone Flexible Income Fund—Institutional Class
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 10.84 | $ | 10.74 | $ | 10.60 | $ | 10.69 | $ | 10.62 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.44 | 0.33 | 0.33 | 0.36 | 0.46 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | (0.02 | ) | 0.08 | 0.13 | (0.10 | ) | 0.12 | |||||||||||||
Total from investment operations | 0.42 | 0.41 | 0.46 | 0.26 | 0.58 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.42 | ) | (0.31 | ) | (0.32 | ) | (0.35 | ) | (0.51 | ) | ||||||||||
Realized capital gains | (0.06 | ) | — | — | — | — | ||||||||||||||
Total distributions | (0.48 | ) | (0.31 | ) | (0.32 | ) | (0.35 | ) | (0.51 | ) | ||||||||||
Net asset value at end of period | $ | 10.78 | $ | 10.84 | $ | 10.74 | $ | 10.60 | $ | 10.69 | ||||||||||
Total return | 3.95 | % | 3.81 | % | 4.28 | % | 2.57 | % | 5.58 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 59,138 | $ | 86,578 | $ | 104,631 | $ | 82,286 | $ | 44,732 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses (including dividend and interest expense on securities sold short) | 0.69 | % | 0.72 | %(A) | 0.75 | %(A) | 0.74 | % | 0.74 | % | ||||||||||
Gross expenses (including dividend and interest expense on securities sold short) | 0.82 | % | 0.86 | %(B) | 0.92 | %(B) | 0.94 | % | 0.95 | % | ||||||||||
Net investment income | 3.85 | % | 2.94 | % | 3.09 | % | 3.54 | % | 4.30 | % | ||||||||||
Portfolio turnover rate | 171 | % | 100 | %(C) | 127 | % | 122 | % | 102 | % |
(A) | The ratio of net expenses to average net assets excluding dividend and interest expense on securities sold short for Class Y was 0.82% and 0.84% and for Institutional Class was 0.72% and 0.74% for the years ended March 31, 2018 and 2017, respectively. |
(B) | The ratio of gross expenses to average net assets excluding dividend and interest expense on securities sold short for Class Y was 0.90% and 0.99% and for Institutional Class was 0.86% and 0.91% for the years ended March 31, 2018 and 2017, respectively. |
(C) | Portfolio turnover excludes the purchases and sales of securities of the Sentinel Multi-Asset Income Fund acquired on October 27, 2017 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
See accompanying Notes to Financial Statements.
58 |
Financial Highlights (Continued)
Touchstone Focused Fund—Class A
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 42.93 | $ | 41.47 | $ | 36.68 | $ | 37.19 | $ | 34.87 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income(A) | 0.14 | 0.17 | 0.15 | 0.16 | 0.20 | |||||||||||||||
Net realized and unrealized gains on investments | 1.39 | 4.02 | 5.12 | 0.38 | 2.23 | |||||||||||||||
Total from investment operations | 1.53 | 4.19 | 5.27 | 0.54 | 2.43 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.01 | ) | — | (0.14 | ) | (0.20 | ) | (0.11 | ) | |||||||||||
Realized capital gains | (1.77 | ) | (2.73 | ) | (0.34 | ) | (0.85 | ) | — | |||||||||||
Total distributions | (1.78 | ) | (2.73 | ) | (0.48 | ) | (1.05 | ) | (0.11 | ) | ||||||||||
Net asset value at end of period | $ | 42.68 | $ | 42.93 | $ | 41.47 | $ | 36.68 | $ | 37.19 | ||||||||||
Total return(B) | 3.82 | % | 10.13 | % | 14.45 | % | 1.47 | % | 6.99 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 55,399 | $ | 167,354 | $ | 425,366 | $ | 405,458 | $ | 297,072 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | ||||||||||
Gross expenses | 1.32 | % | 1.29 | % | 1.28 | % | 1.31 | % | 1.37 | % | ||||||||||
Net investment income | 0.32 | % | 0.40 | % | 0.39 | % | 0.43 | % | 0.57 | % | ||||||||||
Portfolio turnover rate | 12 | % | 8 | %(C) | 20 | % | 28 | % | 33 | % |
Touchstone Focused Fund—Class C
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 40.89 | $ | 39.90 | $ | 35.54 | $ | 36.34 | $ | 34.32 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss(A) | (0.18 | ) | (0.14 | ) | (0.13 | ) | (0.11 | ) | (0.06 | ) | ||||||||||
Net realized and unrealized gains on Investments | 1.32 | 3.86 | 4.94 | 0.37 | 2.18 | |||||||||||||||
Total from investment operations | 1.14 | 3.72 | 4.81 | 0.26 | 2.12 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | — | — | (0.11 | ) | (0.21 | ) | (0.10 | ) | ||||||||||||
Realized capital gains | (1.77 | ) | (2.73 | ) | (0.34 | ) | (0.85 | ) | — | |||||||||||
Total distributions | (1.77 | ) | (2.73 | ) | (0.45 | ) | (1.06 | ) | (0.10 | ) | ||||||||||
Net asset value at end of period | $ | 40.26 | $ | 40.89 | $ | 39.90 | $ | 35.54 | $ | 36.34 | ||||||||||
Total return(B) | 3.03 | % | 9.34 | % | 13.56 | % | 0.73 | % | 6.18 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 33,875 | $ | 41,635 | $ | 53,776 | $ | 44,338 | $ | 9,617 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.95 | % | 1.94 | % | 1.95 | % | 1.95 | % | 1.95 | % | ||||||||||
Gross expenses | 1.95 | % | 1.94 | % | 1.97 | % | 2.00 | % | 2.09 | % | ||||||||||
Net investment loss | (0.43 | %) | (0.34 | %) | (0.36 | %) | (0.32 | %) | (0.18 | %) | ||||||||||
Portfolio turnover rate | 12 | % | 8 | %(C) | 20 | % | 28 | % | 33 | % |
(A) | The net investment income (loss) per share was based on average shares outstanding for the period. |
(B) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
(C) | Portfolio turnover excludes securities delivered from processing a redemption-in-kind. |
See accompanying Notes to Financial Statements.
59 |
Financial Highlights (Continued)
Touchstone Focused Fund—Class Y
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 43.50 | $ | 42.21 | $ | 37.29 | $ | 37.76 | $ | 35.34 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income(A) | 0.27 | 0.31 | 0.27 | 0.26 | 0.31 | |||||||||||||||
Net realized and unrealized gains on investments | 1.39 | 4.08 | 5.22 | 0.39 | 2.26 | |||||||||||||||
Total from investment operations | 1.66 | 4.39 | 5.49 | 0.65 | 2.57 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.27 | ) | (0.37 | ) | (0.23 | ) | (0.27 | ) | (0.15 | ) | ||||||||||
Realized capital gains | (1.77 | ) | (2.73 | ) | (0.34 | ) | (0.85 | ) | — | |||||||||||
Total distributions | (2.04 | ) | (3.10 | ) | (0.57 | ) | (1.12 | ) | (0.15 | ) | ||||||||||
Net asset value at end of period | $ | 43.12 | $ | 43.50 | $ | 42.21 | $ | 37.29 | $ | 37.76 | ||||||||||
Total return | 4.13 | % | 10.43 | % | 14.77 | % | 1.75 | % | 7.29 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 879,704 | $ | 972,273 | $ | 974,660 | $ | 853,900 | $ | 756,579 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 0.91 | % | 0.91 | % | 0.92 | % | 0.93 | % | 0.92 | % | ||||||||||
Gross expenses | 0.91 | % | 0.91 | % | 0.92 | % | 0.94 | % | 0.97 | % | ||||||||||
Net investment income | 0.61 | % | 0.69 | % | 0.68 | % | 0.70 | % | 0.85 | % | ||||||||||
Portfolio turnover rate | 12 | % | 8 | %(B) | 20 | % | 28 | % | 33 | % |
Touchstone Focused Fund—Institutional Class
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 43.68 | $ | 42.38 | $ | 37.45 | $ | 37.91 | $ | 35.47 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income(A) | 0.30 | 0.34 | 0.30 | 0.31 | 0.35 | |||||||||||||||
Net realized and unrealized gains on investments | 1.39 | 4.11 | 5.24 | 0.39 | 2.28 | |||||||||||||||
Total from investment operations | 1.69 | 4.45 | 5.54 | 0.70 | 2.63 | |||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.30 | ) | (0.42 | ) | (0.27 | ) | (0.31 | ) | (0.19 | ) | ||||||||||
Realized capital gains | (1.77 | ) | (2.73 | ) | (0.34 | ) | (0.85 | ) | — | |||||||||||
Total distributions | (2.07 | ) | (3.15 | ) | (0.61 | ) | (1.16 | ) | (0.19 | ) | ||||||||||
Net asset value at end of period | $ | 43.30 | $ | 43.68 | $ | 42.38 | $ | 37.45 | $ | 37.91 | ||||||||||
Total return | 4.20 | % | 10.54 | % | 14.84 | % | 1.89 | % | 7.40 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 29,382 | $ | 22,556 | $ | 41,389 | $ | 48,805 | $ | 51,765 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 0.83 | % | 0.83 | % | 0.83 | % | 0.82 | % | 0.80 | % | ||||||||||
Gross expenses | 0.92 | % | 0.92 | % | 0.88 | % | 0.90 | % | 0.88 | % | ||||||||||
Net investment income | 0.69 | % | 0.77 | % | 0.76 | % | 0.81 | % | 0.97 | % | ||||||||||
Portfolio turnover rate | 12 | % | 8 | %(B) | 20 | % | 28 | % | 33 | % |
(A) | The net investment income per share was based on average shares outstanding for the period. |
(B) | Portfolio turnover excludes securities delivered from processing a redemption-in-kind. |
See accompanying Notes to Financial Statements.
60 |
Financial Highlights (Continued)
Touchstone Growth Opportunities Fund—Class A
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 32.79 | $ | 30.20 | $ | 27.35 | $ | 33.29 | $ | 32.61 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.05 | ) | (0.11 | ) | (— | )(A) | (0.08 | ) | (0.15 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 3.10 | 5.89 | 3.86 | (2.90 | ) | 4.82 | ||||||||||||||
Total from investment operations | 3.05 | 5.78 | 3.86 | (2.98 | ) | 4.67 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Realized capital gains | (3.13 | ) | (3.19 | ) | (1.01 | ) | (2.96 | ) | (3.99 | ) | ||||||||||
Net asset value at end of period | $ | 32.71 | $ | 32.79 | $ | 30.20 | $ | 27.35 | $ | 33.29 | ||||||||||
Total return(B) | 10.40 | % | 19.51 | % | 14.38 | % | (9.12 | %) | 14.99 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 42,404 | $ | 39,901 | $ | 38,752 | $ | 38,297 | $ | 49,162 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.24 | % | 1.24 | % | 1.24 | % | 1.24 | % | 1.24 | % | ||||||||||
Gross expenses | 1.37 | % | 1.38 | % | 1.39 | % | 1.38 | % | 1.40 | % | ||||||||||
Net investment loss | (0.17 | %) | (0.32 | %) | (0.01 | %) | (0.24 | %) | (0.47 | %) | ||||||||||
Portfolio turnover rate | 94 | %(C) | 86 | % | 90 | % | 137 | % | 87 | % |
Touchstone Growth Opportunities Fund — Class C
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 27.08 | $ | 25.60 | $ | 23.51 | $ | 29.27 | $ | 29.32 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.49 | ) | (0.29 | ) | (0.23 | ) | (0.24 | ) | (0.33 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 2.72 | 4.96 | 3.33 | (2.56 | ) | 4.27 | ||||||||||||||
Total from investment operations | 2.23 | 4.67 | 3.10 | (2.80 | ) | 3.94 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Realized capital gains | (3.13 | ) | (3.19 | ) | (1.01 | ) | (2.96 | ) | (3.99 | ) | ||||||||||
Net asset value at end of period | $ | 26.18 | $ | 27.08 | $ | 25.60 | $ | 23.51 | $ | 29.27 | ||||||||||
Total return(B) | 9.54 | % | 18.65 | % | 13.49 | % | (9.78 | %) | 14.11 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 3,863 | $ | 8,680 | $ | 8,574 | $ | 11,665 | $ | 13,813 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.99 | % | 1.99 | % | 1.99 | % | 1.99 | % | 1.99 | % | ||||||||||
Gross expenses | 2.32 | % | 2.29 | % | 2.26 | % | 2.20 | % | 2.21 | % | ||||||||||
Net investment loss | (0.92 | %) | (1.07 | %) | (0.76 | %) | (0.99 | %) | (1.22 | %) | ||||||||||
Portfolio turnover rate | 94 | %(C) | 86 | % | 90 | % | 137 | % | 87 | % |
(A) | Less than $0.005 per share. |
(B) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
(C) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
See accompanying Notes to Financial Statements.
61 |
Financial Highlights (Continued)
Touchstone Growth Opportunities Fund—Class Y
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 33.69 | $ | 30.87 | $ | 27.90 | $ | 33.81 | $ | 32.97 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | 0.03 | (0.02 | ) | 0.10 | — | (A) | (0.06 | ) | ||||||||||||
Net realized and unrealized gains (losses) on investments | 3.19 | 6.03 | 3.91 | (2.95 | ) | 4.90 | ||||||||||||||
Total from investment operations | 3.22 | 6.01 | 4.01 | (2.95 | ) | 4.84 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | — | (A) | — | (0.03 | ) | — | (0.01 | ) | ||||||||||||
Realized capital gains | (3.13 | ) | (3.19 | ) | (1.01 | ) | (2.96 | ) | (3.99 | ) | ||||||||||
Total distributions | (3.13 | ) | (3.19 | ) | (1.04 | ) | (2.96 | ) | (4.00 | ) | ||||||||||
Net asset value at end of period | $ | 33.78 | $ | 33.69 | $ | 30.87 | $ | 27.90 | $ | 33.81 | ||||||||||
Total return | 10.67 | % | 19.80 | % | 14.64 | % | (8.88 | %) | 15.32 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 43,703 | $ | 47,554 | $ | 47,222 | $ | 83,721 | $ | 107,295 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 0.99 | % | 0.99 | % | 0.99 | % | 0.99 | % | 0.94 | % | ||||||||||
Gross expenses | 1.08 | % | 1.07 | % | 1.07 | % | 1.07 | % | 1.01 | % | ||||||||||
Net investment income (loss) | 0.08 | % | (0.07 | %) | 0.24 | % | 0.01 | % | (0.17 | %) | ||||||||||
Portfolio turnover rate | 94 | %(B) | 86 | % | 90 | % | 137 | % | 87 | % |
Touchstone Growth Opportunities Fund—Institutional Class
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 34.08 | $ | 31.16 | $ | 28.15 | $ | 34.05 | $ | 33.18 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | 0.09 | 0.01 | 0.12 | 0.01 | (0.04 | ) | ||||||||||||||
Net realized and unrealized gains (losses) on investments | 3.21 | 6.10 | 3.96 | (2.95 | ) | 4.92 | ||||||||||||||
Total from investment operations | 3.30 | 6.11 | 4.08 | (2.94 | ) | 4.88 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.03 | ) | — | (0.06 | ) | — | (0.02 | ) | ||||||||||||
Realized capital gains | (3.13 | ) | (3.19 | ) | (1.01 | ) | (2.96 | ) | (3.99 | ) | ||||||||||
Total distributions | (3.16 | ) | (3.19 | ) | (1.07 | ) | (2.96 | ) | (4.01 | ) | ||||||||||
Net asset value at end of period | $ | 34.22 | $ | 34.08 | $ | 31.16 | $ | 28.15 | $ | 34.05 | ||||||||||
Total return | 10.79 | % | 19.94 | % | 14.77 | % | (8.79 | %) | 15.39 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 71,406 | $ | 185,831 | $ | 150,038 | $ | 176,191 | $ | 134,795 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 0.89 | % | 0.89 | % | 0.89 | % | 0.89 | % | 0.87 | % | ||||||||||
Gross expenses | 1.01 | % | 1.01 | % | 1.00 | % | 0.98 | % | 0.97 | % | ||||||||||
Net investment income (loss) | 0.18 | % | 0.03 | % | 0.34 | % | 0.11 | % | (0.10 | %) | ||||||||||
Portfolio turnover rate | 94 | %(B) | 86 | % | 90 | % | 137 | % | 87 | % |
(A) | Less than $0.005 per share. |
(B) | Portfolio turnover excludes securities delivered from processing redemptions-in-kind. |
See accompanying Notes to Financial Statements.
62 |
Financial Highlights (Continued)
Touchstone Mid Cap Growth Fund—Class A
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 28.05 | $ | 25.91 | $ | 23.28 | $ | 27.06 | $ | 26.50 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.09 | ) | (0.08 | )(A) | (0.06 | ) | (0.10 | ) | (0.14 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 3.36 | 4.95 | 3.31 | (1.62 | ) | 4.19 | ||||||||||||||
Total from investment operations | 3.27 | 4.87 | 3.25 | (1.72 | ) | 4.05 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Realized capital gains | (2.06 | ) | (2.73 | ) | (0.62 | ) | (2.06 | ) | (3.49 | ) | ||||||||||
Net asset value at end of period | $ | 29.26 | $ | 28.05 | $ | 25.91 | $ | 23.28 | $ | 27.06 | ||||||||||
Total return(B) | 12.77 | % | 19.28 | % | 14.13 | % | (6.34 | %) | 16.34 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 262,492 | $ | 218,727 | $ | 225,381 | $ | 226,201 | $ | 267,421 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.27 | % | 1.29 | % | 1.30 | % | 1.31 | % | 1.34 | % | ||||||||||
Gross expenses | 1.27 | % | 1.29 | % | 1.30 | % | 1.31 | % | 1.34 | % | ||||||||||
Net investment loss | (0.35 | %) | (0.29 | %) | (0.26 | %) | (0.42 | %) | (0.55 | %) | ||||||||||
Portfolio turnover rate | 71 | % | 76 | % | 95 | % | 92 | % | 73 | % |
Touchstone Mid Cap Growth Fund—Class C
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 18.27 | $ | 17.84 | $ | 16.33 | $ | 19.78 | $ | 20.39 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.49 | ) | (0.20 | )(A) | (0.22 | ) | (0.21 | ) | (0.24 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 2.36 | 3.36 | 2.35 | (1.18 | ) | 3.12 | ||||||||||||||
Total from investment operations | 1.87 | 3.16 | 2.13 | (1.39 | ) | 2.88 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Realized capital gains | (2.06 | ) | (2.73 | ) | (0.62 | ) | (2.06 | ) | (3.49 | ) | ||||||||||
Net asset value at end of period | $ | 18.08 | $ | 18.27 | $ | 17.84 | $ | 16.33 | $ | 19.78 | ||||||||||
Total return(B) | 11.91 | % | 18.38 | % | 13.28 | % | (7.02 | %) | 15.51 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 32,831 | $ | 90,502 | $ | 113,153 | $ | 127,852 | $ | 157,315 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 2.04 | % | 2.04 | % | 2.06 | % | 2.06 | % | 2.07 | % | ||||||||||
Gross expenses | 2.04 | % | 2.04 | % | 2.06 | % | 2.06 | % | 2.07 | % | ||||||||||
Net investment loss | (1.12 | %) | (1.04 | %) | (1.02 | %) | (1.17 | %) | (1.29 | %) | ||||||||||
Portfolio turnover rate | 71 | % | 76 | % | 95 | % | 92 | % | 73 | % |
(A) | The net investment loss per share was based on average shares outstanding for the period. |
(B) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
See accompanying Notes to Financial Statements.
63 |
Financial Highlights (Continued)
Touchstone Mid Cap Growth Fund—Class Y
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 29.07 | $ | 26.70 | $ | 23.92 | $ | 27.71 | $ | 27.00 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.03 | ) | (0.01 | )(A) | (— | )(B) | (0.04 | ) | (0.08 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 3.52 | 5.11 | 3.40 | (1.65 | ) | 4.28 | ||||||||||||||
Total from investment operations | 3.49 | 5.10 | 3.40 | (1.69 | ) | 4.20 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | — | — | — | (0.04 | ) | — | ||||||||||||||
Realized capital gains | (2.06 | ) | (2.73 | ) | (0.62 | ) | (2.06 | ) | (3.49 | ) | ||||||||||
Total distributions | (2.06 | ) | (2.73 | ) | (0.62 | ) | (2.10 | ) | (3.49 | ) | ||||||||||
Net asset value at end of period | $ | 30.50 | $ | 29.07 | $ | 26.70 | $ | 23.92 | $ | 27.71 | ||||||||||
Total return | 13.05 | % | 19.62 | % | 14.38 | % | (6.08 | %) | 16.69 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 452,407 | $ | 375,617 | $ | 311,865 | $ | 347,706 | $ | 299,247 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.02 | % | 1.02 | % | 1.06 | % | 1.05 | % | 1.07 | % | ||||||||||
Gross expenses | 1.02 | % | 1.02 | % | 1.06 | % | 1.05 | % | 1.07 | % | ||||||||||
Net investment loss | (0.10 | %) | (0.02 | %) | (0.02 | %) | (0.16 | %) | (0.29 | %) | ||||||||||
Portfolio turnover rate | 71 | % | 76 | % | 95 | % | 92 | % | 73 | % |
Touchstone Mid Cap Growth Fund—Institutional Class
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 29.32 | $ | 26.90 | $ | 24.07 | $ | 27.85 | $ | 27.10 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | (0.01 | ) | — | (A)(B) | 0.10 | (0.02 | ) | (0.03 | ) | |||||||||||
Net realized and unrealized gains (losses) on investments | 3.54 | 5.15 | 3.35 | (1.65 | ) | 4.27 | ||||||||||||||
Total from investment operations | 3.53 | 5.15 | 3.45 | (1.67 | ) | 4.24 | ||||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | — | — | — | (0.05 | ) | — | ||||||||||||||
Realized capital gains | (2.06 | ) | (2.73 | ) | (0.62 | ) | (2.06 | ) | (3.49 | ) | ||||||||||
Total distributions | (2.06 | ) | (2.73 | ) | (0.62 | ) | (2.11 | ) | (3.49 | ) | ||||||||||
Net asset value at end of period | $ | 30.79 | $ | 29.32 | $ | 26.90 | $ | 24.07 | $ | 27.85 | ||||||||||
Total return | 13.10 | % | 19.62 | % | 14.50 | % | (5.97 | %) | 16.73 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 349,865 | $ | 95,176 | $ | 44,236 | $ | 84,152 | $ | 102,420 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 0.97 | %(C) | 0.99 | % | 0.99 | % | 0.95 | % | 0.98 | % | ||||||||||
Gross expenses | 0.97 | % | 0.99 | % | 1.00 | % | 0.95 | % | 0.98 | % | ||||||||||
Net investment income (loss) | (0.06 | %) | 0.01 | % | 0.05 | % | (0.05 | %) | (0.20 | %) | ||||||||||
Portfolio turnover rate | 71 | % | 76 | % | 95 | % | 92 | % | 73 | % |
(A) | The net investment income (loss) per share was based on average shares outstanding for the period. |
(B) | Less than $0.005 per share. |
(C) | Net expenses include amounts recouped by the Advisor. |
See accompanying Notes to Financial Statements.
64 |
Financial Highlights (Continued)
Touchstone Sands Capital Emerging Markets Growth Fund—Class A
Selected Data for a Share Outstanding Throughout The Period
Period Ended March 31, 2019(A) | ||||
Net asset value at beginning of period | $ | 11.21 | (B) | |
Income (loss) from investment operations: | ||||
Net investment loss | (0.01 | ) | ||
Net realized and unrealized gains on investments | 1.95 | |||
Total from investment operations | 1.94 | |||
Net asset value at end of period | $ | 13.15 | ||
Total return(C) | 17.31 | %(D) | ||
Ratios and supplemental data: | ||||
Net assets at end of period (000's) | $ | 1,349 | ||
Ratio to average net assets: | ||||
Net expenses | 1.60 | %(E) | ||
Gross expenses | 4.89 | %(E) | ||
Net investment loss | (0.94 | %)(E) | ||
Portfolio turnover rate | 31 | % |
Touchstone Sands Capital Emerging Markets Growth Fund—Class C
Selected Data for a Share Outstanding Throughout The Period
Period Ended March 31, 2019(A) | ||||
Net asset value at beginning of period | $ | 11.21 | (B) | |
Income (loss) from investment operations: | ||||
Net investment loss | (0.04 | ) | ||
Net realized and unrealized gains on investments | 1.94 | |||
Total from investment operations | 1.90 | |||
Net asset value at end of period | $ | 13.11 | ||
Total return(C) | 16.95 | %(D) | ||
Ratios and supplemental data: | ||||
Net assets at end of period (000's) | $ | 59 | ||
Ratio to average net assets: | ||||
Net expenses | 2.35 | %(E) | ||
Gross expenses | 57.88 | %(E) | ||
Net investment loss | (1.69 | %)(E) | ||
Portfolio turnover rate | 31 | % |
(A) | Represents the period from commencement of operations (November 16, 2018) through March 31, 2019. |
(B) | Net asset value at the beginning of period is based on the net asset value of Class Y shares on November 16, 2018. |
(C) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
(D) | Not annualized. |
(E) | Annualized. |
See accompanying Notes to Financial Statements.
65 |
Financial Highlights (Continued)
Touchstone Sands Capital Emerging Markets Growth Fund—Class Y
Selected Data for a Share Outstanding Throughout Each Period
Period Ended | ||||||||||||||||||||
Year Ended March 31, | March 31, | |||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015(A) | ||||||||||||||||
Net asset value at beginning of period | $ | 13.56 | $ | 10.70 | $ | 9.40 | $ | 10.37 | $ | 10.00 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.03 | ) | (0.06 | ) | (0.03 | ) | (0.04 | ) | (0.03 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | (0.37 | ) | 2.92 | 1.33 | (0.93 | ) | 0.40 | |||||||||||||
Total from investment operations | (0.40 | ) | 2.86 | 1.30 | (0.97 | ) | 0.37 | |||||||||||||
Net asset value at end of period | $ | 13.16 | $ | 13.56 | $ | 10.70 | $ | 9.40 | $ | 10.37 | ||||||||||
Total return | (3.02 | %) | 26.82 | % | 13.83 | % | (9.35 | %) | 3.70 | %(B) | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 318,093 | $ | 207,209 | $ | 103,467 | $ | 58,106 | $ | 39,541 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.35 | %(C) | 1.47 | % | 1.49 | % | 1.49 | % | 1.49 | %(D) | ||||||||||
Gross expenses | 1.35 | % | 1.49 | % | 1.55 | % | 1.59 | % | 1.68 | %(D) | ||||||||||
Net investment loss | (0.45 | %) | (0.73 | %) | (0.49 | %) | (0.52 | %) | (0.46 | %)(D) | ||||||||||
Portfolio turnover rate | 31 | % | 27 | % | 49 | % | 32 | % | 90 | %(B) |
Touchstone Sands Capital Emerging Markets Growth Fund—Institutional Class
Selected Data for a Share Outstanding Throughout Each Period
Period Ended | ||||||||||||||||||||
Year Ended March 31, | March 31, | |||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015(A) | ||||||||||||||||
Net asset value at beginning of period | $ | 13.61 | $ | 10.73 | $ | 9.41 | $ | 10.37 | $ | 10.00 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment loss | (0.03 | ) | (0.06 | ) | (0.03 | ) | (0.02 | ) | (0.03 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | (0.37 | ) | 2.94 | 1.35 | (0.94 | ) | 0.40 | |||||||||||||
Total from investment operations | (0.40 | ) | 2.88 | 1.32 | (0.96 | ) | 0.37 | |||||||||||||
Net asset value at end of period | $ | 13.21 | $ | 13.61 | $ | 10.73 | $ | 9.41 | $ | 10.37 | ||||||||||
Total return | (2.94 | %) | 26.84 | % | 14.03 | % | (9.26 | %) | 3.70 | %(B) | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 524,670 | $ | 374,452 | $ | 182,402 | $ | 101,401 | $ | 32,743 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.25 | % | 1.37 | % | 1.39 | % | 1.39 | % | 1.39 | %(D) | ||||||||||
Gross expenses | 1.27 | % | 1.41 | % | 1.46 | % | 1.51 | % | 1.59 | %(D) | ||||||||||
Net investment loss | (0.35 | %) | (0.63 | %) | (0.39 | %) | (0.42 | %) | (0.36 | %)(D) | ||||||||||
Portfolio turnover rate | 31 | % | 27 | % | 49 | % | 32 | % | 90 | %(B) |
(A) | Represents the period from commencement of operations (May 12, 2014) through March 31, 2015. |
(B) | Not annualized. |
(C) | Net expenses include amounts recouped by the Advisor. |
(D) | Annualized. |
See accompanying Notes to Financial Statements.
66 |
Financial Highlights (Continued)
Touchstone Sustainability and Impact Equity Fund—Class A
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 22.01 | $ | 21.52 | $ | 18.98 | $ | 30.96 | $ | 31.81 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.15 | 0.03 | 0.18 | 0.06 | (A) | 0.11 | ||||||||||||||
Net realized and unrealized gains (losses) on investments | (0.29 | ) | 3.37 | 2.47 | (1.99 | ) | 4.87 | |||||||||||||
Total from investment operations | (0.14 | ) | 3.40 | 2.65 | (1.93 | ) | 4.98 | |||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.17 | ) | (0.17 | ) | (0.11 | ) | (0.03 | ) | (0.05 | ) | ||||||||||
Realized capital gains | (1.76 | ) | (2.74 | ) | — | (10.02 | ) | (5.78 | ) | |||||||||||
Total distributions | (1.93 | ) | (2.91 | ) | (0.11 | ) | (10.05 | ) | (5.83 | ) | ||||||||||
Net asset value at end of period | $ | 19.94 | $ | 22.01 | $ | 21.52 | $ | 18.98 | $ | 30.96 | ||||||||||
Total return(B) | (0.37 | %) | 15.57 | % | 14.01 | % | (8.73 | %) | 17.17 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 445,608 | $ | 485,413 | $ | 113,062 | $ | 137,306 | $ | 257,273 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.17 | % | 1.19 | % | 1.24 | % | 1.24 | % | 1.25 | % | ||||||||||
Gross expenses | 1.17 | % | 1.22 | % | 1.36 | % | 1.39 | % | 1.28 | % | ||||||||||
Net investment income | 0.70 | % | 0.58 | % | 0.83 | % | 0.31 | % | 0.35 | % | ||||||||||
Portfolio turnover rate | 40 | % | 72 | %(C) | 53 | % | 304 | % | 98 | % |
Touchstone Sustainability and Impact Equity Fund—Class C
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 18.68 | $ | 18.62 | $ | 16.47 | $ | 28.32 | $ | 29.72 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss) | (0.06 | ) | (0.05 | ) | 0.01 | (0.08 | )(A) | (0.12 | ) | |||||||||||
Net realized and unrealized gains (losses) on investments | (0.21 | ) | 2.85 | 2.15 | (1.75 | ) | 4.50 | |||||||||||||
Total from investment operations | (0.27 | ) | 2.80 | 2.16 | (1.83 | ) | 4.38 | |||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | — | — | (0.01 | ) | (10.02 | ) | (5.78 | ) | ||||||||||||
Realized capital gains | (1.76 | ) | (2.74 | ) | — | — | — | |||||||||||||
Total distributions | (1.76 | ) | (2.74 | ) | (0.01 | ) | (10.02 | ) | (5.78 | ) | ||||||||||
Net asset value at end of period | $ | 16.65 | $ | 18.68 | $ | 18.62 | $ | 16.47 | $ | 28.32 | ||||||||||
Total return(B) | (1.18 | %) | 14.75 | % | 13.12 | % | (9.41 | %) | 16.30 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 14,926 | $ | 37,513 | $ | 48,055 | $ | 56,435 | $ | 103,861 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 1.99 | % | 1.99 | % | 1.99 | % | 1.99 | % | 2.00 | % | ||||||||||
Gross expenses | 2.03 | % | 2.05 | % | 2.12 | % | 2.15 | % | 2.03 | % | ||||||||||
Net investment income (loss) | (0.12 | %) | (0.23 | %) | 0.08 | % | (0.44 | %) | (0.40 | %) | ||||||||||
Portfolio turnover rate | 40 | % | 72 | %(C) | 53 | % | 304 | % | 98 | % |
(A) | The net investment income (loss) per share was based on average shares outstanding for the period. |
(B) | Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower. |
(C) | Portfolio turnover excludes the purchases and sales of securities of the Sentinel Sustainable Core Opportunities Fund acquired on October 27, 2017 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have beenhigher. |
See accompanying Notes to Financial Statements.
67 |
Financial Highlights (Continued)
Touchstone Sustainability and Impact Equity Fund—Class Y
Selected Data for a Share Outstanding Throughout Each Period
Year Ended March 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Net asset value at beginning of period | $ | 22.75 | $ | 22.11 | $ | 19.49 | $ | 31.49 | $ | 32.23 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.21 | 0.16 | 0.20 | 0.13 | (A) | 0.22 | ||||||||||||||
Net realized and unrealized gains (losses) on investments | (0.31 | ) | 3.41 | 2.58 | (2.06 | ) | 4.92 | |||||||||||||
Total from investment operations | (0.10 | ) | 3.57 | 2.78 | (1.93 | ) | 5.14 | |||||||||||||
Distributions from: | ||||||||||||||||||||
Net investment income | (0.23 | ) | (0.19 | ) | (0.16 | ) | (0.05 | ) | (0.10 | ) | ||||||||||
Realized capital gains | (1.76 | ) | (2.74 | ) | — | (10.02 | ) | (5.78 | ) | |||||||||||
Total distributions | (1.99 | ) | (2.93 | ) | (0.16 | ) | (10.07 | ) | (5.88 | ) | ||||||||||
Net asset value at end of period | $ | 20.66 | $ | 22.75 | $ | 22.11 | $ | 19.49 | $ | 31.49 | ||||||||||
Total return | (0.09 | %) | 15.90 | % | 14.30 | % | (8.54 | %) | 17.48 | % | ||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets at end of period (000's) | $ | 207,080 | $ | 189,837 | $ | 112,790 | $ | 67,638 | $ | 416,741 | ||||||||||
Ratio to average net assets: | ||||||||||||||||||||
Net expenses | 0.90 | % | 0.94 | % | 0.99 | % | 0.99 | % | 0.99 | % | ||||||||||
Gross expenses | 0.93 | % | 0.99 | % | 1.09 | % | 1.14 | % | 1.00 | % | ||||||||||
Net investment income | 0.97 | % | 0.82 | % | 1.08 | % | 0.56 | % | 0.61 | % | ||||||||||
Portfolio turnover rate | 40 | % | 72 | %(B) | 53 | % | 304 | % | 98 | % |
Touchstone Sustainability and Impact Equity Fund—Institutional Class
Selected Data for a Share Outstanding Throughout Each Period
Period Ended | ||||||||||||||||
Year Ended March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2017 | 2016(C) | |||||||||||||
Net asset value at beginning of period | $ | 22.77 | $ | 22.13 | $ | 19.50 | $ | 31.44 | ||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income | 0.22 | 0.20 | 0.19 | 0.11 | (A) | |||||||||||
Net realized and unrealized gains (losses) on investments | (0.32 | ) | 3.38 | 2.61 | (1.98 | ) | ||||||||||
Total from investment operations | (0.10 | ) | 3.58 | 2.80 | (1.87 | ) | ||||||||||
Distributions from: | ||||||||||||||||
Net investment income | (0.23 | ) | (0.20 | ) | (0.17 | ) | (0.05 | ) | ||||||||
Realized capital gains | (1.76 | ) | (2.74 | ) | — | (10.02 | ) | |||||||||
Total distributions | (1.99 | ) | (2.94 | ) | (0.17 | ) | (10.07 | ) | ||||||||
Net asset value at end of period | $ | 20.68 | $ | 22.77 | $ | 22.13 | $ | 19.50 | ||||||||
Total return | (0.10 | %) | 15.95 | % | 14.41 | % | (8.49 | %)(D) | ||||||||
Ratios and supplemental data: | ||||||||||||||||
Net assets at end of period (000's) | $ | 44,382 | $ | 42,196 | $ | 29,679 | $ | 6,843 | ||||||||
Ratio to average net assets: | ||||||||||||||||
Net expenses | 0.89 | % | 0.89 | % | 0.89 | % | 0.89 | %(E) | ||||||||
Gross expenses | 0.93 | % | 1.01 | % | 1.11 | % | 1.48 | %(E) | ||||||||
Net investment income | 0.98 | % | 0.87 | % | 1.18 | % | 0.66 | %(E) | ||||||||
Portfolio turnover rate | 40 | % | 72 | %(B) | 53 | % | 304 | % |
(A) | The net investment income per share was based on average shares outstanding for the period. |
(B) | Portfolio turnover excludes the purchases and sales of securities of the Sentinel Sustainable Core Opportunities Fund acquired on October 27, 2017 (See Note 9 in the Notes to Financial Statements). If these transactions were included, portfolio turnover would have been higher. |
(C) | Represents the period from commencement of operations (May 4, 2015) through March 31, 2016. |
(D) | Not annualized. |
(E) | Annualized. |
See accompanying Notes to Financial Statements.
68 |
March 31, 2019
1. Organization
The Touchstone Strategic Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was established as a Massachusetts business trust pursuant to an Agreement and Declaration of Trust dated November 18, 1982. TheTrust consists of twenty-one funds, including the following six funds (individually, a “Fund”, and collectively, the “Funds”):
Touchstone Flexible Income Fund (“Flexible Income Fund”)
Touchstone Focused Fund (“Focused Fund”)
Touchstone Growth Opportunities Fund (“Growth Opportunities Fund”)
Touchstone Mid Cap Growth Fund (“Mid Cap Growth Fund”)
Touchstone Sands Capital Emerging Markets Growth Fund (“Sands Capital Emerging Markets Growth Fund”)
Touchstone Sustainability and Impact Equity Fund (“Sustainability and Impact Equity Fund”)
Each Fund is diversified, with the exception of the Focused Fund, the Growth Opportunities Fund and the Sands Capital Emerging Markets Growth Fund, which are non-diversified.
The Agreement and Declaration of Trust permits the Trust to issue an unlimited number of shares of beneficial interest of each Fund. The table below indicates the classes of shares that each Fund is registered to offer:
Class A | Class C | Class Y | Institutional Class | |
Flexible Income Fund | X | X | X | X |
Focused Fund | X | X | X | X |
Growth Opportunities Fund | X | X | X | X |
Mid Cap Growth Fund | X | X | X | X |
Sands Capital Emerging Markets Growth Fund | X | X | X | X |
Sustainability and Impact Equity Fund | X | X | X | X |
The assets of each Fund are segregated, and a shareholder’s interest is limited to the Fund in which shares are held. The Funds’ prospectus provides a description of each Fund’s investment goal, policies, and strategies along with information on the classes of shares currently being offered.
2. Significant Accounting Policies
The following is a summary of the Funds’ significant accounting policies:
Each Fund is an investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies.
Regulatory Updates — In August 2018, the Securities and Exchange Commission (the “SEC”) released its Final Rules that eliminated or amended disclosure requirements in the financial statements that were redundant or outdated in light of changes in SEC requirements or U.S. generally accepted accounting principles (“U.S. GAAP”). The Final Rules were effective November 5, 2018. Management has evaluated the SEC Final Rules and is complying with the amendments in the current financial statements.
In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which amends and eliminates certain disclosure requirements for fair value as part of its framework project. The ASU is effective for annual and interim periods beginning after December 15, 2019.The early adoption of the removal or modification of disclosures and delay of adoption of the additional disclosures is permitted. As of March 31, 2019, the Funds have adopted the removal of applicable disclosures.
Security valuation and fair value measurements — U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. All investments in securities are recorded at their fair value. The Funds define the term
69 |
Notes to Financial Statements (Continued)
“market value”, as used throughout this report, as the estimated fair value. The Funds use various methods to measure fair value of their portfolio securities on a recurring basis. U.S. GAAP fair value measurement standards require disclosure of a hierarchy that prioritizes inputs to valuation methods.
These inputs are summarized in the three broad levels listed below:
• Level 1 – | quoted prices in active markets for identical securities |
• Level 2 – | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
• Level 3 – | significant unobservable inputs (including a Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The aggregate value by input level, as of March 31, 2019, for each Fund’s investments, is included in each Fund’s Portfolio of Investments, which also includes a breakdown of the Fund’s investments by geographic, portfolio or sector allocation. The Funds did not hold or transfer any Level 3 categorized securities during the year ended March 31, 2019.
Changes in valuation techniques may result in transfers into or out of an investment’s assigned level within the hierarchy.
During the year ended March 31, 2019, there were no material changes to the valuation policies and techniques.
The Funds’ portfolio securities are valued as of the close of the regular session of trading on the New York Stock Exchange (“NYSE”) (currently 4:00 p.m., Eastern Time or at the time as of which the NYSE establishes official closing prices). Portfolio securities traded on stock exchanges are valued at the last reported sale price, official close price, or last bid price if no sales are reported. Portfolio securities quoted by NASDAQ are valued at the NASDAQ Official Closing Price (“NOCP”) or from the primary exchange on which the security trades. To the extent these securities are actively traded, they are categorized in Level 1 of the fair value hierarchy. Options and futures are valued at the last quoted sales price. If there is no such reported sale on the valuation date, long option positions are valued at the most recent bid price, and short option positions are valued at the most recent ask price on the valuation date and are categorized in Level 1. Shares of mutual funds in which the Funds invest are valued at their respective net asset value (“NAV”) as reported by the underlying funds (the “Underlying Funds”) and are categorized in Level 1.
Debt securities held by the Funds are valued at their evaluated bid by an independent pricing service or at their last broker-quoted bid prices as obtained from one or more of the major market makers for such securities. Independent pricing services use information provided by market makers or estimates of market values through accepted market modeling conventions. Observable inputs to the models may include prepayment speeds, pricing spread, yield, trade information, dealer quotes, market color, cash flow models, the securities’ terms and conditions, among others, and are generally categorized in Level 2. Debt securities with remaining maturities of 60 days or less may be valued at amortized cost, provided such amount approximates market value and are categorized in Level 2. While this method provides consistency in valuation (and may only be used if it approximates market value), it may result in periods during which fair value, as determined by amortized cost, is higher or lower than the price that would be received if the Fund sold the investment.
70 |
Notes to Financial Statements (Continued)
Foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of regular trading on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available and categorized in Level 2.
Securities mainly traded on a non-U.S. exchange or denominated in foreign currencies are generally valued according to the preceding closing values on that exchange, translated to U.S. dollars using currency exchange rates as of the close of regular trading on the NYSE, and are generally categorized in Level 1. However, if an event that may change the value of a security occurs after the time that the closing value on the non-U.S. exchange was determined, but before the close of regular trading on the NYSE, the security may be priced based on fair value and is generally categorized in Level 2. This may cause the value of the security, if held on the books of a Fund, to be different from the closing value on the non-U.S. exchange and may affect the calculation of that Fund’s NAV.
The Funds may use fair value pricing under the following circumstances, among others:
• | If the value of a security has been materially affected by events occurring before the Funds’ pricing time but after the close of the primary markets on which the security is traded. |
• | If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Funds’ NAV calculation. |
• | If a security is so thinly traded that reliable market quotations are unavailable due to infrequent trading. |
• | If the validity of market quotations is not reliable. |
Securities held by the Funds that do not have readily available market quotations, significant observable inputs, or securities for which the available market quotations are not reliable, are priced at their estimated fair value using procedures approved by the Funds’ Board of Trustees (the “Board”) and are generally categorized in Level 3.
Investment companies — The Funds may invest in securities of other investment companies, including exchange-traded funds (“ETFs”), open-end funds, and closed-end funds. Open-end funds are investment companies that issue new shares continuously and redeem shares daily. Closed-end funds are investment companies that typically issue a fixed number of shares that trade on a securities exchange or over-the-counter (“OTC”). An ETF is an investment company that typically seeks to track the performance of an index by holding in its portfolio shares of all the companies, or a representative sample of the companies, that are components of a particular index. ETF shares are traded on a securities exchange based on their market value.The risks of investment in other investment companies typically reflect the risks of the types of securities in which the other investment companies invest. Investments in ETFs and closed-end funds are subject to the additional risk that their shares may trade at a premium or discount to their NAV. When a Fund invests in another investment company, shareholders of the Fund indirectly bear their proportionate share of the other investment company’s fees and expenses, including operating, registration, trustee, licensing, and marketing, as well as their share of the Fund’s fees and expenses.
Securities sold short — The Flexible Income Fund may engage in selling securities short, which obligates the Fund to replace a security borrowed by purchasing the same security at the current market value. The Fund would incur a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund would realize a gain if the price of the security declines between those dates.
As of March 31, 2019, the Flexible Income Fund did not hold any securities sold short.
71 |
Notes to Financial Statements (Continued)
Options — The Flexible Income Fund may write or purchase financial option contracts primarily to hedge against changes in the value of equity securities (or securities that the Fund intends to purchase), against fluctuations in fair value caused by changes in prevailing market interest rates or foreign currency exchange rates and against changes in overall equity market volatility. In addition, the Fund may utilize options in an attempt to generate gains from option premiums or to reduce overall portfolio risk. The Fund’s option strategy primarily focuses on the use of writing and/or purchasing call or put options on equity indexes. When the Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or proceeds from the sale in determining whether the Fund has realized a gain or loss on investment transactions. The Fund, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. The Fund, as purchaser of an option, bears the risk that the counterparties to the option may not have the ability to meet the terms of the option contracts. There is minimal counterparty credit risk involved in entering into option contracts since they are exchange-traded instruments and the exchange’s clearinghouse, as counterparty to all exchange-traded options, guarantees the options against default. The maximum risk of loss associated with writing put options is the notional amount as presented in the Portfolio of Investments. In certain circumstances, the maximum risk of loss amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract. The maximum risk of loss associated with writing call options is potentially unlimited.
As of March 31, 2019, the Flexible Income Fund did not hold any options.
Futures Contracts — The Flexible Income Fund may buy and sell futures contracts and related options to manage its exposure to changing interest rates and securities prices. Some strategies reduce the Fund’s exposure to price fluctuations, while others tend to increase its market exposure. Futures and options on futures can be volatile instruments and involve certain risks that could negatively impact the Fund’s return. In order to avoid leveraging and related risks, when the Fund purchases futures contracts, it will collateralize its position by depositing an amount of cash or liquid securities, equal to the market value of the futures positions held, less margin deposits, in a segregated account with its custodian or otherwise “cover” its position in a manner consistent with the 1940 Act or the rules of the Securities and Exchange Commission (the “SEC”) or interpretations thereunder. Collateral equal to the current fair value of the futures position will be determined on a daily basis.
When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund’s basis in the contract. Risks of entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Fund could lose more than the original margin deposit required to initiate the futures transaction. Finally, the risk exists that losses could exceed amounts disclosed on the Statements of Assets and Liabilities. There is minimal counterparty credit risk involved in entering into futures contracts since they are exchange-traded instruments and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default.
As of March 31, 2019, the Flexible Income Fund held futures contracts as shown in the Portfolio of Investments and had cash in the amount of $6,406,916 held at the prime broker as collateral to cover futures contracts.
72 |
Notes to Financial Statements (Continued)
Foreign currency translation — The books and records of the Funds are maintained in U.S. dollars and translated into U.S. dollars on the following basis:
(1) | market value of investment securities, assets and liabilities at the current rate of exchange on the valuation date; and |
(2) | purchases and sales of investment securities, income, and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. |
The Funds do not isolate that portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities.
Forward foreign currency contracts — A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing a Fund’s total return, and the potential for losses in excess of a Fund’s initial investment.
The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked to market daily and the change in value is recorded by a Fund as an unrealized gain or loss. Realized gains or losses, equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed, are recorded upon delivery or receipt of the currency.
During the year ended March 31, 2019, the Flexible Income Fund used forward foreign currency contracts to enhance potential gains, hedge against anticipated currency exchange rates, maintain diversity and liquidity of the portfolio and/or adjust exposure to foreign currencies.
As of March 31, 2019, there were no open forward foreign currency contracts.
Real Estate Investment Trusts — The Funds may invest in real estate investment trusts (“REITs”) that involve risks not associated with investing in stocks. Risks associated with investments in REITs include declines in the value of real estate, general and economic conditions, changes in the value of the underlying property and defaults by borrowers. The value of assets in the real estate industry may go through cycles of relative underperformance and outperformance in comparison to equity securities markets in general. Dividend income is recorded using management’s estimate of the income included in distributions received from REIT investments. The actual amounts of income, return of capital and capital gains are only determined by each REIT after its fiscal year-end and may differ from the estimated amount. Estimates of income are adjusted in the Funds to the actual amounts when the amounts are determined.
Master Limited Partnerships — The Funds may invest in Master Limited Partnership (“MLP”) common units that represent limited partnership interests in the MLP. Common units are generally listed and traded on U.S. securities exchanges or OTC with their value fluctuating predominantly based on the success of the MLP. Unlike owners of common stock of a corporation, owners of MLP common units have limited voting rights and have no ability to annually elect directors. MLPs generally distribute all available cash flow (cash flow from operations less maintenance capital expenditures) in the form of quarterly distributions. Common unit holders have first priority to receive quarterly cash distributions up to the minimum quarterly distribution and have arrearage rights. Distributions received from MLPs generally are comprised of income and return of capital. Investment income and return of capital are recorded based on estimates made at the time distributions are received. The actual amounts of income and return of capital are only determined by each MLP after its fiscal year-end and may differ from the estimated amount. Estimates of income are adjusted in the Funds to the actual amounts
73 |
Notes to Financial Statements (Continued)
when the amounts are determined. In the event of liquidation, common unit holders have preference over subordinated units, but not debt holders or preferred unit holders, to the remaining assets of the MLP.
Derivative instruments and hedging activities — The Flexible Income Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement” or “MNA”) or similar agreement with certain counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs OTC derivatives and foreign exchange contracts, and typically contains, among other things, collateral posting terms and master netting provisions in the event of a default or termination. Under an ISDA Master Agreement, a party may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables or receivables with collateral held or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out netting). These default events include bankruptcy or insolvency of the counterparty. Note, however, that bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset.
When entering into a derivative transaction, the Fund may be required to post and maintain collateral or margin (including both initial and maintenance margin). Collateral and margin requirements differ by type of derivative. Margin requirements are established by the broker or clearing house for exchange-traded and centrally cleared derivatives (financial futures contracts, options, and centrally cleared swaps). Brokers can ask for margining in excess of the clearing house’s minimum in certain circumstances. Collateral terms are contract specific for OTC derivatives (forward foreign currency contracts, options, and swaps). For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the marked-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, are reported separately on the Statements of Assets and Liabilities as cash deposits held at prime broker and due to prime broker, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Portfolio of Investments. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.
Certain ISDA Master Agreements allow counterparties to OTC derivatives transactions to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreement, which would cause the Fund (counterparty) to accelerate payment of any net liability owed to the counterparty (Fund).
For financial reporting purposes, the Flexible Income Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
As of March 31, 2019, the Flexible Income Fund’s assets and liabilities that were subject to a MNA on a gross basis were as follows:
Assets | Liabilities | |||||||
Flexible Income Fund | ||||||||
Futures Contracts | $ | — | $ | (1,580,368 | ) |
74 |
Notes to Financial Statements (Continued)
The following table presents the Flexible Income Fund’s liabilities net of amounts available for offset under a MNA and net of the related collateral pledged by the Fund as of March 31, 2019:
Counterparty | Derivative Type | Gross Amount of Recognized Liabilities | Gross Amount Available for Offset in Statement of Assets and Liabilities | Non-Cash Collateral Pledged | Cash Collateral Pledged | Net Amount(A) | ||||||||||||||||
Wells Fargo | Futures Contracts | $ | 1,580,368 | $ | — | $ | — | $ | (1,580,368 | ) | $ | — |
(A) Net amount represents the net amount payable due to the counterparty in the event of default.
The following table sets forth the fair value of the Flexible Income Fund’s derivative financial instruments by primary risk exposure as of March 31, 2019:
Fair Value of Derivative Investments As of March 31, 2019 | ||||||||||
Fund | Derivatives not accounted for as hedging instruments under ASC 815 | Asset Derivatives | Liability Derivatives | |||||||
Flexible Income Fund | Futures - Interest Rate Contracts* | $ | — | $ | (1,580,368 | ) |
* Statements of Assets and Liabilities Location: Unrealized appreciation on futures contracts and unrealized depreciation on futures contracts, respectively.
The following table sets forth the effect of the Flexible Income Fund’s derivative financial instruments by primary risk exposure on the Statements of Operations for the year ended March 31, 2019:
The Effect of Derivative Investments on the Statements of Operations for the Year Ended March 31, 2019 | ||||||||||
Fund | Derivatives not accounted for as hedging instruments under ASC 815 | Realized Gain (Loss) on Derivatives | Change in Unrealized Appreciation (Depreciation) on Derivatives | |||||||
Flexible Income Fund | Purchased Options - Commodity Contracts* | $ | (558,045 | ) | $ | — | ||||
Purchased Options - Equity Contracts* | (326,746 | ) | — | |||||||
Purchased Options - Interest Rate Contracts* | (562,751 | ) | — | |||||||
Futures - Equity Contracts** | 2,064,767 | (347,910 | ) | |||||||
Futures - Interest Rate Contracts** | (3,279,945 | ) | (1,236,558 | ) | ||||||
Swap Agreements - Credit Contracts*** | 124,424 | — | ||||||||
Forward - Foreign Currency Contracts**** | 5,738,706 | (534,208 | ) |
* Statements of Operations Location: Net realized gains (losses) on investments and Net change in unrealized appreciation (depreciation) on investments, respectively.
** Statements of Operations Location: Net realized losses on futures contracts and Net change in unrealized appreciation (depreciation) on futures contracts, respectively.
*** Statements of Operations Location: Net realized gains on swap agreements and Net change in unrealized appreciation (depreciation) on swap agreements, respectively.
****Statements of Operations Location: Net realized gains on forward foreign currency contracts and Net change in unrealized appreciation (depreciation) on forward foreign currency contracts, respectively.
75 |
Notes to Financial Statements (Continued)
For the year ended March 31, 2019, the average quarterly balance of outstanding derivative financial instruments for the Flexible Income Fund was as follows:
Flexible | ||||
Income | ||||
Fund | ||||
Commodity contracts: | ||||
Purchased Options - Cost | $ | 138,661 | ||
Equity contracts: | ||||
Purchased Options - Cost* | $ | — | ||
Futures - Notional value | $ | 3,298,714 | ||
Interest rate contracts: | ||||
Purchased Options - Cost* | $ | — | ||
Futures - Notional value | $ | 45,402,503 | ||
Forward foreign currency contracts: | ||||
U.S. dollar amount delivered | $ | 7,289,629 | ||
U.S. dollar amount received | $ | 15,448,154 | ||
Credit contracts: | ||||
Credit Default Swaps - Notional value* | $ | — |
* The balance at each quarter end was zero.
Portfolio securities loaned — The Funds may lend their portfolio securities. Lending portfolio securities exposes the Funds to the risk that the borrower may fail to return the loaned securities or may not be able to provide additional collateral or that the Funds may experience delays in recovery of the loaned securities or loss of rights in the collateral if the borrower fails financially. To minimize these risks, the borrower must agree to maintain cash collateral with the Funds’ custodian. The loaned securities are secured by collateral valued at least equal, at all times, to the market value of the loaned securities plus accrued interest, if any. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The cash collateral is reinvested by the Funds’ custodian into an approved short-term investment vehicle. The approved short-term investment vehicle is subject to market risk.
As of March 31, 2019, the following Funds loaned securities and received collateral as follows:
Market | ||||||||||||||
Market Value of | Value of | |||||||||||||
Securities | Collateral | Net | ||||||||||||
Fund | Security Type | Loaned* | Received** | Amount*** | ||||||||||
Flexible Income Fund | Corporate Bonds | $ | 231,150 | $ | 287,500 | $ | 56,350 | |||||||
Investment Funds | 50,145 | 51,355 | 1,210 | |||||||||||
Preferred Stocks | 1,011,261 | 1,035,720 | 24,459 | |||||||||||
Total Flexible Income Fund | 1,292,556 | 1,374,575 | 82,019 | |||||||||||
Sustainability and Impact Equity Fund | Common Stocks | 10,474,503 | 11,907,093 | 1,432,590 |
* The remaining contractual maturity is overnight for all securities.
** Gross amount of recognized liabilities for securities lending included in the Statements of Assets and Liabilities.
*** Net amount represents the net amount payable due to the borrower in the event of default.
All cash collateral is received, held, and administered by the Funds’ custodian for the benefit of the lending Fund in its custody account or other account established for the purpose of holding collateral in cash equivalents.
Funds participating in securities lending receive compensation in the form of fees. Securities lending income is derived from lending long securities from the Funds to creditworthy approved borrowers at rates that are
76 |
Notes to Financial Statements (Continued)
determined based on trading volumes, float, short-term interest rates and market liquidity and is shown net of fees on the Statements of Operations. When a Fund lends securities, it retains the interest or dividends on the investment of any cash received as collateral, and the Fund continues to receive interest or dividends on the loaned securities.
Unrealized gain or loss on the market value of the loaned securities that may occur during the term of the loan is recognized by the Fund. The Fund has the right under the lending agreement to recover any loaned securities from the borrower on demand.
Share valuation — The NAV per share of each class of shares of each Fund is calculated daily by dividing the total value of a Fund’s assets attributable to that class, less liabilities attributable to that class, by the number of outstanding shares of that class.
Effective August 17, 2018, the maximum offering price per share of Class A shares of the equity funds (all funds except the Flexible Income Fund) is equal to the NAV per share plus a sales load equal to 5.26% of the NAV (or 5.00% of the offering price). The maximum offering price per share of Class A shares of the fixed income fund (the Flexible Income Fund) is equal to the NAV per share plus a sales load equal to 2.04% of the NAV (or 2.00% of the offering price). Prior to August 17, 2018, the maximum offering price per share of Class A shares of the Funds was equal to the NAV per share plus a sales load equal to 6.10% of the NAV (or 5.75% of the offering price). There is no sales load on equity or fixed income fund purchases when aggregate purchases in all Touchstone funds equal at least $1 million or $500,000, respectively. The maximum offering price per share of Class C, Class Y, and Institutional Class shares of the Funds is equal to the NAV per share.
The redemption price per share of each class of shares of the Funds is generally equal to the NAV per share. However, Class A redemptions that were part of a no-load purchase due to the aggregate purchase amount in all Touchstone funds equaling at least $1 million for equity funds or $500,000 for fixed income funds where a Finder’s Fee was paid may be subject to a contingent deferred sales charge (“CDSC”) of up to 1.00% or 0.50%, respectively, if redeemed within a one-year period from the date of purchase. Additionally, purchases of Class C shares of the Funds are subject to a CDSC of 1.00%. The CDSC will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the shares being redeemed or (2) the NAV of such shares being redeemed.
Investment income — Dividend income from securities is recognized on the ex-dividend date, net of foreign withholding taxes, if any, which are reduced by any amounts reclaimable by the Funds, where applicable. Interest income from securities is recorded on the basis of interest accrued, premium amortized and discount accreted. Realized gains and losses resulting from principal paydowns on mortgage-backed and asset-backed securities are included in interest income. Market discounts, original issue discounts and market premiums on debt securities are accreted/amortized to interest income over the life of the security with a corresponding adjustment in the cost basis of that security. In addition, it is the Funds’ policy to accrue for foreign capital gains taxes, if applicable, on certain foreign securities held by the Funds. An estimated foreign capital gains tax is recorded daily on net unrealized gains on these securities and is payable upon the sale of such securities when a gain is realized.
Distributions to shareholders — Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. Each Fund, except for the Flexible Income Fund, declares and distributes net investment income, if any, annually, as a dividend to shareholders. The Flexible Income Fund declares and distributes net investment income, if any, monthly, as a dividend to shareholders. Each Fund makes distributions of capital gains, if any, at least annually, net of applicable capital loss carryforwards. Income distributions and capital gain distributions are determined in accordance with income tax regulations. Recognition of the Funds’ net investment income from investments in Underlying Funds is affected by the timing of dividend declarations by the Underlying Funds.
77 |
Notes to Financial Statements (Continued)
Allocations — Investment income earned, realized capital gains and losses, and unrealized appreciation and depreciation for a Fund are allocated daily to each class of shares based upon its proportionate share of total net assets of the Fund. Class-specific expenses are charged directly to the class incurring the expense. Common expenses, which are not attributable to a specific class, are allocated daily to each class of shares based upon their proportionate share of total net assets of the Fund. Expenses not directly billed to a Fund are allocated proportionally among all the Funds in the Trust, and, if applicable, Touchstone Funds Group Trust, Touchstone Institutional Funds Trust, and Touchstone Variable Series Trust (collectively with the Trust, “Touchstone Fund Complex”), daily in relation to net assets of each Fund or another reasonable measure.
Security transactions — Security transactions are reflected for financial reporting purposes as of the trade date. Realized gains and losses on sales of portfolio securities are calculated using the identified cost basis.
Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
3. Investment Transactions
Investment transactions (excluding short-term investments and U.S. Government securities) were as follows for the year ended March 31, 2019:
Flexible | Growth | |||||||||||
Income | Focused | Opportunities | ||||||||||
Fund | Fund | Fund* | ||||||||||
Purchases of investment securities | $ | 764,041,635 | $ | 136,877,343 | $ | 242,171,417 | ||||||
Proceeds from sales and maturities | $ | 1,048,499,857 | $ | 345,234,194 | $ | 337,162,572 |
Sands Capital | ||||||||||||
Emerging | Sustainability | |||||||||||
Mid Cap | Markets | and Impact | ||||||||||
Growth | Growth | Equity | ||||||||||
Fund | Fund | Fund | ||||||||||
Purchases of investment securities | $ | 873,527,544 | $ | 465,166,352 | $ | 295,953,387 | ||||||
Proceeds from sales and maturities | $ | 667,302,908 | $ | 202,087,401 | $ | 328,192,845 |
* Growth Opportunities Fund had redemptions-in-kind which resulted in redemptions out of the Fund of $27,245,398 which is excluded from the proceeds from sales and maturities.
For the year ended March 31, 2019, purchases and proceeds from sales and maturities in U.S. Government securities were $548,740,536 and $608,346,632, respectively, for the Flexible Income Fund.
4. Transactions with Affiliates and Other Related Parties
Certain officers of the Trust are also officers of Touchstone Advisors, Inc. (the “Advisor”), Touchstone Securities, Inc. (the “Underwriter”), or The Bank of New York Mellon, the Sub-Administrator to the Funds, and BNY Mellon Investment Servicing (U.S.) Inc., the Transfer Agent to the Funds (collectively referenced to herein as “BNY Mellon”). Such officers receive no compensation from the Trust. The Advisor and the Underwriter are each wholly-owned subsidiaries of Western & Southern Financial Group, Inc. (“Western & Southern”).
On behalf of the Funds, the Advisor pays each Independent Trustee a quarterly retainer plus additional retainers to the Lead Independent Trustee and the chairs of each standing committee. Interested Trustees do not receive compensation from the Funds. Each Independent Trustee also receives compensation for each Board meeting and committee meeting attended. Each standing committee chair receives additional compensation for each
78 |
Notes to Financial Statements (Continued)
committee meeting that he or she oversees. The Advisor is reimbursed by the Funds for the Independent Trustees’ compensation and out-of-pocket expenses relating to their services. The Funds accrued Trustee-related expenses of $87,780 for the year ended March 31, 2019.
MANAGEMENT & EXPENSE LIMITATION AGREEMENTS
The Advisor provides general investment supervisory services for the Funds, under the terms of an advisory agreement (“Advisory Agreement”). Under the Advisory Agreement, each Fund pays the Advisor a fee, which is computed and accrued daily and paid monthly, at an annual rate based on average daily net assets of each Fund as shown in the table below.
Flexible Income Fund | 0.60% on the first $500 million |
0.50% on such assets in excess of $500 million | |
Focused Fund | 0.70% on the first $100 million |
0.65% on the next $400 million | |
0.60% on such assets in excess of $500 million | |
Growth Opportunities Fund | 0.75% on the first $500 million |
0.70% on the next $500 million | |
0.65% on such assets in excess of $1 billion | |
Mid Cap Growth Fund | 0.75% on the first $500 million |
0.70% on the next $500 million | |
0.65% on such assets in excess of $1 billion | |
Sands Capital Emerging Markets Growth Fund | 1.00% |
Sustainability and Impact Equity Fund | 0.65% on the first $1 billion |
0.60% on such assets in excess of $1 billion |
The Advisor has entered into investment sub-advisory agreements with the following parties (each, a “Sub-Advisor”):
Bramshill Investments, LLC * | Sands Capital Management, LLC |
Flexible Income Fund | Sands Capital Emerging Markets Growth Fund |
Fort Washington Investment Advisors, Inc.** | Westfield Capital Management Company, L.P. |
Focused Fund | Growth Opportunities Fund |
Rockefeller & Co., LLC | Mid Cap Growth Fund |
Sustainability and Impact Equity Fund |
*Effective November 30, 2018, Bramshill Investments LLC became the sub-advisor of the Flexible Income Fund. Prior to November 30, 2018, ClearArc Capital, Inc. was the sub-advisor.
**Affiliate of the Advisor and wholly-owned subsidiary of Western & Southern.
The Advisor, not the Funds, pays sub-advisory fees to each Sub-Advisor.
The Advisor entered into an expense limitation agreement (the “Expense Limitation Agreement”) to contractually limit the annual operating expenses of the Funds, excluding: dividend and interest expenses relating to short sales; interest; taxes; brokerage commissions and other transaction costs; portfolio transaction and investment related expenses, including expenses associated with the Funds’ liquidity providers; other expenditures which are capitalized in accordance with U.S. GAAP; the cost of “Acquired Fund Fees and Expenses”, if any; and other extraordinary expenses not incurred in the ordinary course of business. The maximum annual operating expense limit in any year with respect to the Funds is based on a percentage of the average daily net assets of the Funds. The Advisor has agreed to waive a portion of its fees and to reimburse certain fund expenses in order to maintain the following expense limitations for the Funds:
79 |
Notes to Financial Statements (Continued)
Institutional | ||||||||||||||||
Class A | Class C | Class Y | Class | |||||||||||||
Flexible Income Fund | 1.04 | % | 1.79 | % | 0.79 | % | 0.69 | % | ||||||||
Focused Fund | 1.20 | % | 1.95 | % | 0.95 | % | 0.83 | % | ||||||||
Growth Opportunities Fund | 1.24 | % | 1.99 | % | 0.99 | % | 0.89 | % | ||||||||
Mid Cap Growth Fund | 1.39 | % | 2.14 | % | 1.14 | % | 0.99 | % | ||||||||
Sands Capital Emerging Markets Growth Fund | 1.60 | % | 2.35 | % | 1.35 | % | 1.25 | % | ||||||||
Sustainability and Impact Equity Fund | 1.17 | % | 1.99 | % | 0.90 | % | 0.89 | % |
These expense limitations will remain in effect for all Funds through at least July 29, 2019, except for Flexible Income Fund, Sands Capital Emerging Markets Growth Fund and Sustainability and Impact Equity Fund. The expense limitation for Flexible Income Fund and Sustainability and Impact Equity Fund will remain in effect through at least October 26, 2019. The expense limitation for Sands Capital Emerging Markets Growth Fund will remain in effect through at least November 16, 2019. The expense limitation agreement can be terminated by a vote of the Funds’ Board if it deems the termination to be beneficial to the Funds’ shareholders.
During the year ended March 31, 2019, the Advisor or its affiliates waived investment advisory fees and administration fees or other operating expenses, including distribution fees of the Funds, as follows:
Investment | ||||||||||||||||
Advisory | Other Operating | |||||||||||||||
Fees | Administration | Expenses | ||||||||||||||
Fund | Waived | Fees Waived | Waived | Total | ||||||||||||
Flexible Income Fund | $ | — | $ | 407,494 | $ | 105,514 | $ | 513,008 | ||||||||
Focused Fund | — | — | 184,509 | 184,509 | ||||||||||||
Growth Opportunities Fund | — | 140,745 | 186,140 | 326,885 | ||||||||||||
Sands Capital Emerging Markets Growth Fund | — | — | 98,932 | 98,932 | ||||||||||||
Sustainability and Impact Equity Fund | — | — | 92,449 | 92,449 |
Under the terms of the Expense Limitation Agreement, the Advisor is entitled to recover, subject to approval by the Funds’ Board, such amounts waived or reimbursed for a period of up to three years from the date on which the Advisor reduced its compensation or assumed expenses for the Funds. The Funds will make repayments to the Advisor only if such repayment does not cause the Funds’ operating expenses (after the repayment is taken into account) to exceed the Funds’ expense limit in place when such amounts were waived or reimbursed by the Advisor and the Funds’ current expense limitation.
As of March 31, 2019, the Advisor may seek recoupment of previously waived fees and reimbursed expenses as follows:
Expires on or | Expires on or | Expires on or | ||||||||||||||
before | before | before | ||||||||||||||
March 31, | March 31, | March 31, | ||||||||||||||
Fund | 2020 | 2021 | 2022 | Total | ||||||||||||
Flexible Income Fund | $ | 988,671 | $ | 695,170 | $ | 474,385 | $ | 2,158,226 | ||||||||
Focused Fund | 23,692 | 23,561 | 22,968 | 70,221 | ||||||||||||
Growth Opportunities Fund | 262,643 | 267,156 | 273,078 | 802,877 | ||||||||||||
Sands Capital Emerging Markets Growth Fund | 148,454 | 147,227 | 98,432 | 394,113 | ||||||||||||
Sustainability and Impact Equity Fund | 218,763 | 161,406 | 73,180 | 453,349 |
For the year ended March 31, 2019, the Advisor recouped previously waived fees or reimbursed expenses from the Mid Cap Growth Fund and Sands Capital Emerging Markets Growth Fund of $3,786 and $4,513, respectively.
80 |
Notes to Financial Statements (Continued)
ADMINISTRATION AGREEMENT
The Advisor entered into an Administration Agreement with the Trust, whereby the Advisor is responsible for: supplying executive and regulatory compliance services; supervising the preparation of tax returns; coordinating the preparation of reports to shareholders and reports to, and filings with, the SEC and state securities authorities, as well as materials for meetings of the Board; calculating the daily NAV per share; and maintaining the financial books and records of each Fund.
For its services, the Advisor’s annual administrative fee is:
0.145% on the first $20 billion of the aggregate average daily net assets;
0.11% on the next $10 billion of aggregate average daily net assets;
0.09% on the next $10 billion of aggregate average daily net assets; and
0.07% on the aggregate average daily net assets over $40 billion.
The fee is computed and allocated among the Touchstone Fund Complex (excluding Touchstone Institutional Funds Trust) on the basis of relative daily net assets.
The Advisor has engaged BNY Mellon as the Sub-Administrator to the Trust. BNY Mellon provides administrative and accounting services to the Trust and is compensated directly by the Advisor, not the Trust.
TRANSFER AGENT AGREEMENT
Under the terms of the Transfer Agent Agreement between the Trust and BNY Mellon, BNY Mellon maintains the records of each shareholder’s account, answers shareholders’ inquiries concerning their accounts, processes purchases and redemptions of each Fund’s shares, acts as dividend and distribution disbursing agent, and performs other shareholder service functions. For these services, BNY Mellon receives a monthly fee from each Fund. In addition, each Fund pays out-of-pocket expenses incurred by BNY Mellon, including, but not limited to, postage and supplies.
The Funds may reimburse the Advisor for fees paid to intermediaries such as banks, broker-dealers, financial advisors or other financial institutions for sub-transfer agency, sub-administration and other services provided to investors whose shares of record are held in omnibus, other group accounts, retirement plans or accounts traded through registered securities clearing agents. These fees may vary based on, for example, the nature of services provided, but generally range up to 0.15% of the assets of the class serviced or maintained by the intermediary or up to $22 per sub-account maintained by the intermediary.
PLANS OF DISTRIBUTION AND SHAREHOLDER SERVICING FEE ARRANGEMENTS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act for each class of shares it offers that is subject to 12b-1 distribution fees. The plans allow each Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. The fees charged to the Funds are limited to the actual expenses incurred. Under the Class A plan, each Fund offering Class A shares pays an annual fee not to exceed 0.25% of average daily net assets that are attributable to Class A shares. Under the Class C plan, each Fund offering Class C shares pays an annual fee not to exceed 1.00% of average daily net assets that are attributable to Class C shares (of which up to 0.75% is a distribution fee and up to 0.25% is a shareholder servicing fee).
81 |
Notes to Financial Statements (Continued)
UNDERWRITING AGREEMENT
The Underwriter is the Funds’ principal underwriter and, as such, acts as exclusive agent for distribution of the Funds’ shares. Under the terms of the Underwriting Agreement between the Trust and the Underwriter, the Underwriter earned underwriting and broker commissions on the sale of Class A shares of the Funds. W&S Brokerage Services, Inc., an affiliate of the Underwriter and the Advisor, also earned broker commissions on the sale of Class A shares of the Funds. Listed below are the total underwriting and broker commissions earned by the Underwriter and its affiliate during the year ended March 31, 2019:
Fund | Amount | |||
Flexible Income Fund | $ | 7,959 | ||
Focused Fund | 13,480 | |||
Growth Opportunities Fund | 5,920 | |||
Mid Cap Growth Fund | 48,813 | |||
Sustainability and Impact Equity Fund | 15,342 |
In addition, the Underwriter collected CDSC on the redemption of Class A and Class C shares of the Funds listed below during the year ended March 31, 2019:
Fund | Class A | Class C | ||||||
Flexible Income Fund | $ | — | $ | 1,989 | ||||
Focused Fund | — | 486 | ||||||
Growth Opportunities Fund | — | 11 | ||||||
Mid Cap Growth Fund | 1 | 104 | ||||||
Sustainability and Impact Equity Fund | — | 134 |
INTERFUND TRANSACTIONS
Pursuant to Rule 17a-7 under the 1940 Act, the Funds may engage in purchase and sale transactions with funds that have a common investment advisor (or affiliated investment advisors), common Trustees and/or common Officers. During the year ended March 31, 2019, the Flexible Income Fund had purchases and sales under Rule 17a-7 of $176,993,910 and $38,732,636, respectively.
5. Liquidity
ReFlow Fund LLC—The Funds may participate in the ReFlow Fund LLC liquidity program (“ReFlow”), which is designed to provide an alternative liquidity source for funds experiencing redemptions. In order to pay cash to shareholders who redeem their shares on a given day, a fund typically must hold cash in its portfolio, liquidate portfolio securities, or borrow money. ReFlow provides participating funds with another source of cash by standing ready to purchase shares from a fund up to the amount of the fund’s net redemptions on a given day, cumulatively limited to 3% of the outstanding voting shares of a Fund. ReFlow then generally redeems those shares (in cash or in-kind) when the Fund experiences net sales, at the end of a maximum holding period determined by ReFlow, or at other times at ReFlow’s discretion. In return for this service, the Fund will pay a fee to ReFlow at a rate determined by a daily auction with other participating mutual funds.
During the year ended March 31, 2019, ReFlow was not utilized by the Funds.
Interfund Lending—Pursuant to an Exemptive Order issued by the SEC on March 28, 2017, the Funds, along with certain other funds in the Touchstone Fund Complex, may participate in an interfund lending program. The interfund lending program provides an alternate credit facility that allows the Funds to lend to or borrow from other participating funds in the Touchstone Fund Complex, subject to the conditions of the Exemptive Order. The Funds may not borrow under the facility for leverage purposes and the loans’ duration may be no more than 7 days.
82 |
Notes to Financial Statements (Continued)
During the year ended March 31, 2019, the following Funds participated as lender in the interfund lending program. The daily average amount loaned, average interest rate and interest income were as follows:
Daily Average | Weighted Average | |||||||||||
Amount | Interest | Interest | ||||||||||
Fund | Loaned | Rate | Income* | |||||||||
Flexible Income Fund | $ | 28,307 | 2.24 | % | $ | 653 | ||||||
Focused Fund | 9,612 | 2.31 | % | 225 | ||||||||
Mid Cap Growth Fund | 39,460 | 2.83 | % | 1,182 | ||||||||
Sands Capital Emerging Markets Growth Fund | 89,169 | 2.69 | % | 2,583 |
* Included in Interest in the Statements of Operations.
During the year ended March 31, 2019, the following Funds participated as a borrower in the interfund lending program. The daily average amount borrowed, average interest rate and interest expense were as follows:
Daily Average | Weighted Average | |||||||||||
Amount | Interest | Interest | ||||||||||
Fund | Borrowed | Rate | Expense* | |||||||||
Flexible Income Fund | $ | 660,697 | 2.68 | % | $ | 18,044 | ||||||
Growth Opportunities Fund | 80,228 | 3.08 | % | 2,507 | ||||||||
Sustainability and Impact Equity Fund | 88,586 | 2.32 | % | 2,090 |
* Included in Other expenses in the Statements of Operations.
6. Federal Tax Information
Federal Income Tax — It is each Fund’s policy to continue to comply with the special provisions of the Internal Revenue Code applicable to regulated investment companies. As provided therein, in any fiscal year in which a Fund so qualifies and distributes at least 90% of its investment company taxable income, the Fund (but not the shareholders) will be relieved of federal income tax on the income distributed. It is each Fund’s policy to distribute all of its taxable income and accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated investment companies, it is also each Fund’s intention to declare and pay as dividends in each calendar year at least 98% of its investment company taxable income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ending October 31) plus undistributed amounts from prior years.
The tax character of distributions paid for the years ended March 31, 2019 and March 31, 2018 are as follows:
Flexible | Growth | |||||||||||||||||||||||
Income Fund | Focused Fund | Opportunities Fund | ||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
From ordinary income | $ | 29,977,346 | $ | 21,745,871 | $ | 8,895,802 | $ | 29,800,080 | $ | 190,894 | $ | 15,769,503 | ||||||||||||
From long-term capital gains | 4,234,655 | — | 42,522,534 | 52,684,335 | 26,307,524 | 9,585,119 | ||||||||||||||||||
Total distributions | $ | 34,212,001 | $ | 21,745,871 | $ | 51,418,336 | $ | 82,484,415 | $ | 26,498,418 | $ | 25,354,622 |
83 |
Notes to Financial Statements (Continued)
Sands Capital | Sustainability | |||||||||||||||||||||||
Mid Cap | Emerging Markets | and Impact Equity | ||||||||||||||||||||||
Growth Fund | Growth Fund | Fund | ||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
March 31, | March 31, | March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
From ordinary income | $ | 13,059,653 | $ | 12,550,670 | $ | — | $ | — | $ | 11,745,647 | $ | 5,228,811 | ||||||||||||
From long-term capital gains | 60,828,960 | 61,432,239 | — | — | 52,799,731 | 84,572,202 | ||||||||||||||||||
Total distributions | $ | 73,888,613 | $ | 73,982,909 | $ | — | $ | — | $ | 64,545,378 | $ | 89,801,013 |
The following information is computed on a tax basis for each item as of March 31, 2019:
Flexible | Growth | |||||||||||
Income | Focused | Opportunities | ||||||||||
Fund | Fund | Fund | ||||||||||
Tax cost of portfolio investments | $ | 659,400,487 | $ | 717,212,625 | $ | 119,346,817 | ||||||
Gross unrealized appreciation on investments | 15,148,433 | 327,410,483 | 46,717,460 | |||||||||
Gross unrealized depreciation on investments | (1,854,011 | ) | (44,626,634 | ) | (4,251,354 | ) | ||||||
Net unrealized appreciation (depreciation) on investments | 13,294,422 | 282,783,849 | 42,466,106 | |||||||||
Qualified late-year losses | — | — | (3,977,078 | ) | ||||||||
Capital loss carryforwards | (15,234,279 | ) | — | — | ||||||||
Other temporary differences | (2,895 | ) | — | — | ||||||||
Undistributed ordinary income | 723,398 | 3,621,396 | — | |||||||||
Undistributed capital gains | — | 23,248,008 | — | |||||||||
Distributable earnings (deficit) | $ | (1,219,354 | ) | $ | 309,653,253 | $ | 38,489,028 | |||||
Sands Capital | Sustainability | |||||||||||
Mid Cap | Emerging Markets | and Impact | ||||||||||
Growth | Growth | Equity | ||||||||||
Fund | Fund | Fund | ||||||||||
Tax cost of portfolio investments | $ | 849,608,905 | $ | 719,283,157 | $ | 657,310,860 | ||||||
Gross unrealized appreciation on investments | 266,319,226 | 151,265,856 | 114,867,257 | |||||||||
Gross unrealized depreciation on investments | (18,900,282 | ) | (28,958,740 | ) | (48,005,589 | ) | ||||||
Net unrealized appreciation (depreciation) on investments | 247,418,944 | 122,307,116 | 66,861,668 | |||||||||
Gross unrealized appreciation on foreign currency transactions and deferred foreign capital gains tax | — | — | 5,536 | |||||||||
Gross unrealized depreciation on foreign currency transactions and deferred foreign capital gains tax | — | (935,135 | ) | (17,440 | ) | |||||||
Net unrealized depreciation on foreign currency transactions and deferred foreign capital gains tax | — | (935,135 | ) | (11,904 | ) | |||||||
Qualified late-year losses | (715,475 | ) | (565,778 | ) | (2,381,166 | ) | ||||||
Capital loss carryforwards | — | (13,162,477 | ) | — | ||||||||
Undistributed capital gains | 14,447,265 | — | — | |||||||||
Distributable earnings (deficit) | $ | 261,150,734 | $ | 107,643,726 | $ | 64,468,598 |
The difference between the tax cost of portfolio investments and the financial statement cost is primarily due to wash sale loss deferrals, trust preferred securities and investments in passive foreign investment company (“PFIC”) adjustments.
84 |
Notes to Financial Statements (Continued)
As of March 31, 2019, the Funds had the following capital loss carryforwards for federal income tax purposes:
No | No | |||||||||||
Expiration | Expiration | |||||||||||
Fund | Short Term | Long Term | Total | |||||||||
Flexible Income Fund | $ | 1,886,958 | $ | 13,347,321 | $ | 15,234,279 | ||||||
Sands Capital Emerging Markets Growth Fund | 13,162,477 | — | 13,162,477 |
The capital loss carryforwards may be utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders.
Under current laws, certain capital losses realized after October 31 and ordinary losses realized after December 31 may be deferred (and certain ordinary losses after October and/or December 31 may be deferred) and treated as occurring on the first day of the following fiscal year. For the year ended March 31, 2019, the Funds elected to defer the following losses:
Realized | Ordinary | |||||||||||
Fund | Capital Losses | Losses | Total | |||||||||
Growth Opportunities Fund | $ | 3,977,078 | $ | — | $ | 3,977,078 | ||||||
Mid Cap Growth Fund | — | 715,475 | 715,475 | |||||||||
Sands Capital Emerging Markets Growth Fund | — | 565,778 | 565,778 | |||||||||
Sustainability and Impact Equity Fund | 2,381,166 | — | 2,381,166 |
The Funds have analyzed their tax positions taken or to be taken on federal income tax returns for all open tax years (tax years ended March 31, 2016 through 2019) and have concluded that no provision for income tax is required in their financial statements.
Certain reclassifications, the result of permanent differences between financial statement and income tax reporting requirements, have been made to the components of capital as presented on the Statements of Assets and Liabilities. These reclassifications have no impact on the net assets or NAV per share of the Funds. The following reclassifications, which are primarily attributed to net operating losses, in-kind distributions for shareholder redemptions and deemed distributions on shareholder redemptions have been made to the following Funds for the year ended March 31, 2019:
Paid-In | Distributable | |||||||
Fund | Capital | Earnings | ||||||
Focused Fund | $ | 8,697,586 | $ | (8,697,586 | ) | |||
Growth Opportunities Fund | 10,099,576 | (10,099,576 | ) | |||||
Mid Cap Growth Fund | (1,523,842 | ) | 1,523,842 | |||||
Sands Capital Emerging Markets Growth Fund | (3,644,751 | ) | 3,644,751 |
7. Commitments and Contingencies
The Funds indemnify the Trust’s officers and Trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds.
8. Principal Risks
Risks Associated with Foreign Investments — Some of the Funds may invest in the securities of foreign issuers. Investing in securities issued by companies whose principal business activities are outside the U.S. may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Foreign issuers are generally not bound by uniform accounting, auditing, and financial
85 |
Notes to Financial Statements (Continued)
reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitations on the removal of funds or other assets of a Fund, political or financial instability or diplomatic and other developments which could affect such investments. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as those in the U.S., and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker-dealers, and issuers than in the U.S.
Risks Associated with Sector Concentration — Certain Funds may invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, these Funds may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility in the Funds’ NAVs and magnified effect on the total return.
Risks Associated with Credit — An issuer may be unable to make timely payments of either principal or interest. This may cause the issuer’s securities to decline in value. Credit risk is particularly relevant to those Funds that invest a significant amount of their assets in junk bonds or lower-rated securities.
Risks Associated with Interest Rate Changes — As interest rates rise, the value of fixed-income securities a Fund owns will likely decrease. The price of debt securities is generally linked to the prevailing market interest rates. In general, when interest rates rise, the price of debt securities falls, and when interest rates fall, the price of debt securities rises. The price volatility of a debt security also depends on its maturity. Longer-term securities are generally more volatile, so the longer the average maturity or duration of these securities, the greater their price risk. Duration is a measure of the expected life, taking into account any prepayment or call features of the security, that is used to determine the price sensitivity of the security for a given change in interest rates. Specifically, duration is the change in the value of a fixed-income security that will result from a 1% change in interest rates, and generally is stated in years. For example, as a general rule a 1% rise in interest rates means a 1% fall in value for every year of duration. Maturity, on the other hand, is the date on which a fixed-income security becomes due for payment of principal. The negative impact on fixed income securities if interest rates increase as a result could negatively impact a Fund’s NAV.
Please see the Funds’ prospectus for a complete discussion of these and other risks.
9. Fund Mergers
Flexible Income Fund:
The shareholders of the Sentinel Multi-Asset Income Fund, a series of the Sentinel Group Funds, Inc., approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities of the Sentinel Multi-Asset Income Fund to the Touchstone Flexible Income Fund. The tax-free merger took place on October 27, 2017.
86 |
Notes to Financial Statements (Continued)
After | ||||||||||||
Before Reorganization | Reorganization | |||||||||||
Sentinel | Touchstone | Touchstone | ||||||||||
Multi-Asset | Flexible | Flexible | ||||||||||
Income Fund | Income Fund | Income Fund | ||||||||||
Class A | ||||||||||||
Shares | 9,063,086 | (A) | 4,559,664 | 13,622,750 | ||||||||
Net Assets | $ | 99,393,351 | $ | 50,004,817 | $ | 149,398,168 | ||||||
Net Asset Value | $ | 10.97 | (A) | $ | 10.97 | $ | 10.97 | |||||
Class C | ||||||||||||
Shares | 6,398,405 | (B) | 4,812,158 | 11,210,563 | ||||||||
Net Assets | $ | 69,228,625 | $ | 52,065,980 | $ | 121,294,605 | ||||||
Net Asset Value | $ | 10.82 | (B) | $ | 10.82 | $ | 10.82 | |||||
Class Y* | ||||||||||||
Shares | 4,717,881 | (C) | 51,502,699 | 56,220,580 | ||||||||
Net Assets | $ | 51,897,275 | $ | 566,535,937 | $ | 618,433,212 | ||||||
Net Asset Value | $ | 11.00 | (C) | $ | 11.00 | $ | 11.00 | |||||
Institutional Class | ||||||||||||
Shares | — | 9,032,583 | 9,032,583 | |||||||||
Net Assets | $ | — | $ | 99,330,556 | $ | 99,330,556 | ||||||
Net Asset Value | $ | — | $ | 11.00 | $ | 11.00 | ||||||
Fund Total | ||||||||||||
Shares Outstanding | 17,801,358 | 69,907,104 | 90,086,476 | |||||||||
Net Assets | $ | 220,519,251 | $ | 767,937,290 | $ | 988,456,541 | ||||||
Unrealized Appreciation | $ | 8,201,027 | $ | 20,254,664 | $ | 28,455,691 |
(A)Reflects a 1.1325:1 reverse stock split which occurred on the date of reorganization, October 27, 2017.
(B)Reflects a 1.1411:1 reverse stock split which occurred on the date of reorganization, October 27, 2017.
(C)Reflects a 1.1256:1 reverse stock split which occurred on the date of reorganization, October 27, 2017.
* The Sentinel Multi-Asset Income Fund had Class I shares outstanding immediately prior to the reorganization, which were exchanged for Class Y shares of the Flexible Income Fund.
Assuming this reorganization had been completed on April 1, 2017, the Flexible Income Fund’s results of operations for the year ended March 31, 2018 (unaudited) would have been as follows:
Net investment income | $ | 29,517,381 | ||
Net realized and unrealized gains (losses) on investments, foreign currency and derivatives | $ | 6,551,457 | ||
Net increase in net assets resulting from operations | $ | 36,068,838 |
Because the combined investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the Flexible Income Fund that have been included in its statement of operations since the reorganization.
Sustainability and Impact Equity Fund:
The shareholders of the Sentinel Sustainable Core Opportunities Fund, a series of the Sentinel Group Funds, Inc., approved an Agreement and Plan of Reorganization providing for the transfer of all assets and liabilities of the Sentinel Sustainable Core Opportunities Fund to the Touchstone Sustainability and Impact Equity Fund. The tax-free merger took place on October 27, 2017.
87 |
Notes to Financial Statements (Continued)
After | ||||||||||||
Before Reorganization | Reorganization | |||||||||||
Sentinel | Touchstone | Touchstone | ||||||||||
Sustainable | Sustainability | Sustainability | ||||||||||
Core | and | and | ||||||||||
Opportunities | Impact Equity | Impact Equity | ||||||||||
Fund | Fund | Fund | ||||||||||
Class A | ||||||||||||
Shares | 15,059,186 | (A) | 5,341,974 | 20,401,160 | ||||||||
Net Assets | $ | 366,882,146 | $ | 130,145,017 | $ | 497,027,163 | ||||||
Net Asset Value | $ | 24.36 | (A) | $ | 24.36 | $ | 24.36 | |||||
Class C | ||||||||||||
Shares | — | 1,938,144 | 1,938,144 | |||||||||
Net Assets | $ | — | $ | 40,684,897 | $ | 40,684,897 | ||||||
Net Asset Value | $ | — | $ | 20.99 | $ | 20.99 | ||||||
Class Y* | ||||||||||||
Shares | 1,194,468 | (B) | 6,049,314 | 7,243,782 | ||||||||
Net Assets | $ | 29,944,579 | $ | 151,652,545 | $ | 181,597,124 | ||||||
Net Asset Value | $ | 25.07 | (B) | $ | 25.07 | $ | 25.07 | |||||
Institutional Class | ||||||||||||
Shares | — | 1,507,931 | 1,507,931 | |||||||||
Net Assets | $ | — | $ | 37,853,181 | $ | 37,853,181 | ||||||
Net Asset Value | $ | — | $ | 25.10 | $ | 25.10 | ||||||
Fund Total | ||||||||||||
Shares Outstanding | 16,455,114 | 14,837,363 | 31,091,017 | |||||||||
Net Assets | $ | 396,826,725 | $ | 360,335,640 | $ | 757,162,365 | ||||||
Unrealized Appreciation | $ | 147,234,940 | $ | 65,885,795 | $ | 213,120,735 |
(A)Reflects a 0.9897:1 stock split which occurred on the date of reorganization, October 27, 2017.
(B)Reflects a 0.9645:1 stock split which occurred on the date of reorganization, October 27, 2017.
* The Sentinel Sustainable Core Opportunities Fund had Class I shares outstanding immediately prior to the reorganization, which were exchanged for Class Y shares of the Sustainability and Impact Equity Fund.
Assuming this reorganization had been completed on April 1, 2017, the Sustainability and Impact Equity Fund’s results of operations for the year ended March 31, 2018 (unaudited) would have been as follows:
Net investment income | $ | 5,616,467 | ||
Net realized and unrealized gains (losses) on investments and foreign currency | $ | 93,683,687 | ||
Net increase in net assets resulting from operations | $ | 99,300,154 |
Because the combined investment portfolios have been managed as a single portfolio since the reorganization was completed, it is not practical to separate the amounts of revenue and earnings to the Sustainability and Impact Equity Fund that have been included in its statement of operations since the reorganization.
10. Subsequent Events
Subsequent events occurring after the date of this report have been evaluated for potential impact to this report through the date the financial statements were issued.
At a meeting of the Board of Trustees (the “Board”) of the Trust held on May 16, 2019, the Board approved the name change of the Sustainability and Impact Equity Fund to the Touchstone Global ESG Equity Fund. The change will be effective on or about July 29, 2019.
There were no other subsequent events that necessitated recognition or disclosure in the Fund’s financial statements.
88 |
Report of Independent Registered Public Accounting Firm
To the Shareholders of Touchstone Flexible Income Fund, Touchstone Focused Fund, Touchstone Growth Opportunities Fund,Touchstone Mid Cap Growth Fund,Touchstone Sands Capital Emerging Markets Growth Fund and Touchstone Sustainability and Impact Equity Fund and the Board of Trustees of Touchstone Strategic Trust.
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of Touchstone Flexible Income Fund, Touchstone Focused Fund, Touchstone Growth Opportunities Fund, Touchstone Mid Cap Growth Fund, Touchstone Sands Capital Emerging Markets Growth Fund and Touchstone Sustainability and Impact Equity Fund (collectively referred to as the “Funds”), (six of the funds constituting the Touchstone Strategic Trust (the “Trust”)), including the portfolios of investments, as of March 31, 2019, and the related statements of operations and changes in net assets, and the financial highlights for each of the periods indicated in the table below and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds (six of the funds constituting Touchstone Strategic Trust) at March 31, 2019, and the results of their operations, changes in net assets and financial highlights for each of the periods indicated in the table below, in conformity with U.S. generally accepted accounting principles.
Individual funds | |||
Constituting | |||
Touchstone Strategic | Statement of | Statements of | |
Trust | operations | changes in net assets | Financial highlights |
Touchstone Flexible Income Fund Touchstone Focused Fund Touchstone Growth Opportunities Fund Touchstone Mid Cap Growth Fund Touchstone Sustainability and Impact |
For the year ended March 31, 2019 | For each of the two years in the period ended March 31, 2019 | For each of the five years in the period ended March 31, 2019 |
Touchstone Sands Capital Emerging Markets Growth Fund |
For the year ended March 31, 2019 | For each of the two years in the period ended March 31, 2019 | For each of the four years in the period ended March 31, 2019 and the period from May 12, 2014 (commencement of operations) through March 31, 2015 |
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
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Report of Independent Registered Public Accounting Firm (Continued)
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian, transfer agent and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Touchstone Investments’ investment companies since 1999.
Cincinnati, Ohio
May 21, 2019
90 |
Qualified Dividend Income
Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “Act”), the following percentages of ordinary dividends paid during the fiscal year ended March 31, 2019 are designated as “qualified dividend income,” as defined in the Act, and are subject to reduced tax rates. The Funds intend to pass through the maximum allowable percentage for Form 1099 Div.
Flexible Income Fund | 9.30 | % | ||
Focused Fund | 100.00 | % | ||
Growth Opportunities Fund | 100.00 | % | ||
Mid Cap Growth Fund | 22.53 | % | ||
Sustainability and Impact Equity Fund | 100.00 | % |
Dividend Received Deduction
For corporate shareholders, the following ordinary distributions paid during the current fiscal year ended March 31, 2019 qualify for the corporate dividends received deduction. The Funds intend to pass through the maximum allowable percentage.
Flexible Income Fund | 6.68 | % | ||
Focused Fund | 100.00 | % | ||
Growth Opportunities Fund | 100.00 | % | ||
Mid Cap Growth Fund | 21.18 | % | ||
Sustainability and Impact Equity Fund | 51.04 | % |
For the fiscal year ended March 31, 2019, the Funds designated long-term capital gains as follows:
Flexible Income Fund | $ | 4,234,655 | ||
Focused Fund | 50,047,880 | |||
Growth Opportunities Fund | 26,307,524 | |||
Mid Cap Growth Fund | 60,828,960 | |||
Sustainability and Impact Equity Fund | 52,799,731 |
Proxy Voting Guidelines and Proxy Voting Records
The Sub-Advisors are responsible for exercising the voting rights associated with the securities purchased and held by the Funds. A description of the policies and procedures that the Sub-Advisors use in fulfilling this responsibility is available as an appendix to the most recent Statement of Additional Information, which can be obtained without charge by calling toll free 1.800.543.0407 or by visiting the Touchstone website at TouchstoneInvestments.com or on the Securities and Exchange Commission’s (the “Commission”) website sec.gov. Information regarding how those proxies were voted during the most recent twelve-month period ended June 30, which will be filed by August 31 of that year, is also available without charge by calling toll free 1.800.543.0407 or on the Commission’s website at sec.gov.
Quarterly Portfolio Disclosure
The Trust files a complete listing of portfolio holdings for each Fund as of the end of the first and third quarters of each fiscal year on Form N-PORT. The information will be publicly available 60 days after the end of the period. The complete listing of each Fund’s portfolio holdings is available on the Commission’s website and will be made available to shareholders upon request by calling 1.800.543.0407.
Schedule of Shareholder Expenses
As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including reinvested dividends or other distributions; and (2) ongoing costs, including investment advisory fees; distribution (12b-1) fees;
91 |
Other Items (Unaudited) (Continued)
and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2018 through March 31, 2019).
Actual Expenses
The first line of the table below for each share class of a Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six Months Ended March 31, 2019” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below for each share class of a Fund provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line for each share class of a Fund in the table below is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
92 |
Other Items (Unaudited) (Continued)
Expenses | ||||||||||||||||||
Net Expense | Beginning | Ending | Paid During | |||||||||||||||
Ratio | Account | Account | the Six Months | |||||||||||||||
Annualized | Value | Value | Ended | |||||||||||||||
March 31, | October 1, | March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2019 | 2019* | |||||||||||||||
Touchstone Flexible Income Fund | ||||||||||||||||||
Class A | Actual | 1.04 | % | $ | 1,000.00 | $ | 1,024.70 | $ | 5.25 | |||||||||
Class A | Hypothetical | 1.04 | % | $ | 1,000.00 | $ | 1,019.75 | $ | 5.24 | |||||||||
Class C | Actual | 1.79 | % | $ | 1,000.00 | $ | 1,020.30 | $ | 9.02 | |||||||||
Class C | Hypothetical | 1.79 | % | $ | 1,000.00 | $ | 1,016.01 | $ | 9.00 | |||||||||
Class Y | Actual | 0.79 | % | $ | 1,000.00 | $ | 1,025.00 | $ | 3.99 | |||||||||
Class Y | Hypothetical | 0.79 | % | $ | 1,000.00 | $ | 1,020.99 | $ | 3.98 | |||||||||
Institutional Class | Actual | 0.69 | % | $ | 1,000.00 | $ | 1,026.50 | $ | 3.49 | |||||||||
Institutional Class | Hypothetical | 0.69 | % | $ | 1,000.00 | $ | 1,021.49 | $ | 3.48 | |||||||||
Touchstone Focused Fund | ||||||||||||||||||
Class A | Actual | 1.20 | % | $ | 1,000.00 | $ | 960.90 | $ | 5.87 | |||||||||
Class A | Hypothetical | 1.20 | % | $ | 1,000.00 | $ | 1,018.95 | $ | 6.04 | |||||||||
Class C | Actual | 1.95 | % | $ | 1,000.00 | $ | 957.20 | $ | 9.52 | |||||||||
Class C | Hypothetical | 1.95 | % | $ | 1,000.00 | $ | 1,015.21 | $ | 9.80 | |||||||||
Class Y | Actual | 0.91 | % | $ | 1,000.00 | $ | 962.30 | $ | 4.45 | |||||||||
Class Y | Hypothetical | 0.91 | % | $ | 1,000.00 | $ | 1,020.39 | $ | 4.58 | |||||||||
Institutional Class | Actual | 0.83 | % | $ | 1,000.00 | $ | 962.70 | $ | 4.06 | |||||||||
Institutional Class | Hypothetical | 0.83 | % | $ | 1,000.00 | $ | 1,020.79 | $ | 4.18 | |||||||||
Touchstone Growth Opportunities Fund | ||||||||||||||||||
Class A | Actual | 1.24 | % | $ | 1,000.00 | $ | 983.20 | $ | 6.13 | |||||||||
Class A | Hypothetical | 1.24 | % | $ | 1,000.00 | $ | 1,018.75 | $ | 6.24 | |||||||||
Class C | Actual | 1.99 | % | $ | 1,000.00 | $ | 979.00 | $ | 9.82 | |||||||||
Class C | Hypothetical | 1.99 | % | $ | 1,000.00 | $ | 1,015.01 | $ | 10.00 | |||||||||
Class Y | Actual | 0.99 | % | $ | 1,000.00 | $ | 984.00 | $ | 4.90 | |||||||||
Class Y | Hypothetical | 0.99 | % | $ | 1,000.00 | $ | 1,020.00 | $ | 4.99 | |||||||||
Institutional Class | Actual | 0.89 | % | $ | 1,000.00 | $ | 984.80 | $ | 4.40 | |||||||||
Institutional Class | Hypothetical | 0.89 | % | $ | 1,000.00 | $ | 1,020.49 | $ | 4.48 | |||||||||
Touchstone Mid Cap Growth Fund | ||||||||||||||||||
Class A | Actual | 1.26 | % | $ | 1,000.00 | $ | 1,019.70 | $ | 6.34 | |||||||||
Class A | Hypothetical | 1.26 | % | $ | 1,000.00 | $ | 1,018.65 | $ | 6.34 | |||||||||
Class C | Actual | 2.05 | % | $ | 1,000.00 | $ | 1,015.70 | $ | 10.30 | |||||||||
Class C | Hypothetical | 2.05 | % | $ | 1,000.00 | $ | 1,014.71 | $ | 10.30 | |||||||||
Class Y | Actual | 1.03 | % | $ | 1,000.00 | $ | 1,020.90 | $ | 5.19 | |||||||||
Class Y | Hypothetical | 1.03 | % | $ | 1,000.00 | $ | 1,019.80 | $ | 5.19 | |||||||||
Institutional Class | Actual | 0.99 | % | $ | 1,000.00 | $ | 1,021.00 | $ | 4.99 | |||||||||
Institutional Class | Hypothetical | 0.99 | % | $ | 1,000.00 | $ | 1,020.00 | $ | 4.99 |
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Other Items (Unaudited) (Continued)
Expenses | ||||||||||||||||||
Net Expense | Beginning | Ending | Paid During | |||||||||||||||
Ratio | Account | Account | the Six Months | |||||||||||||||
Annualized | Value | Value | Ended | |||||||||||||||
March 31, | October 1, | March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2019 | 2019* | |||||||||||||||
Touchstone Sands Capital Emerging Markets Growth Fund | ||||||||||||||||||
Class A(A) | Actual | 1.60 | % | $ | 1,000.00 | $ | 1,173.10 | $ | 6.33 | |||||||||
Class A | Hypothetical | 1.60 | % | $ | 1,000.00 | $ | 1,016.95 | $ | 8.05 | |||||||||
Class C(A) | Actual | 2.35 | % | $ | 1,000.00 | $ | 1,169.50 | $ | 9.29 | |||||||||
Class C | Hypothetical | 2.35 | % | $ | 1,000.00 | $ | 1,013.21 | $ | 11.80 | |||||||||
Class Y | Actual | 1.35 | % | $ | 1,000.00 | $ | 1,104.00 | $ | 7.08 | |||||||||
Class Y | Hypothetical | 1.35 | % | $ | 1,000.00 | $ | 1,018.20 | $ | 6.79 | |||||||||
Institutional Class | Actual | 1.25 | % | $ | 1,000.00 | $ | 1,104.50 | $ | 6.56 | |||||||||
Institutional Class | Hypothetical | 1.25 | % | $ | 1,000.00 | $ | 1,018.70 | $ | 6.29 | |||||||||
Touchstone Sustainability and Impact Equity Fund | ||||||||||||||||||
Class A | Actual | 1.18 | % | $ | 1,000.00 | $ | 931.20 | $ | 5.68 | |||||||||
Class A | Hypothetical | 1.18 | % | $ | 1,000.00 | $ | 1,019.05 | $ | 5.94 | |||||||||
Class C | Actual | 1.99 | % | $ | 1,000.00 | $ | 927.40 | $ | 9.56 | |||||||||
Class C | Hypothetical | 1.99 | % | $ | 1,000.00 | $ | 1,015.01 | $ | 10.00 | |||||||||
Class Y | Actual | 0.90 | % | $ | 1,000.00 | $ | 932.10 | $ | 4.34 | |||||||||
Class Y | Hypothetical | 0.90 | % | $ | 1,000.00 | $ | 1,020.44 | $ | 4.53 | |||||||||
Institutional Class | Actual | 0.89 | % | $ | 1,000.00 | $ | 932.20 | $ | 4.29 | |||||||||
Institutional Class | Hypothetical | 0.89 | % | $ | 1,000.00 | $ | 1,020.49 | $ | 4.48 |
(A)Represents the period from commencement of operations (November 16, 2018) through March 31, 2019. Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 133/365.
* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/365 (to reflect one-half year period).
Advisory and Sub-Advisory Agreement Approval Disclosure
At a meeting held on November 15, 2018, the Board of Trustees (the “Board” or “Trustees”) of the Touchstone Strategic Trust (the “Trust”), and by a separate vote, the Independent Trustees of the Trust, approved the continuance of the Investment Advisory Agreement between the Trust and the Advisor with respect to each Fund of the Trust, and the continuance of the Sub-Advisory Agreement between the Advisor and each Fund’s respective Sub-Advisor.
In determining whether to approve the continuation of the Investment Advisory Agreement and the Sub-Advisory Agreements, the Advisor furnished information necessary for a majority of the Independent Trustees to make the determination that the continuance of the Investment Advisory Agreement and each Sub-Advisory Agreement was in the best interests of the respective Funds and their shareholders. The information provided to the Board included: (1) industry data comparing advisory fees and total expense ratios of comparable funds; (2) comparative performance information; (3) the Advisor’s and its affiliates’ revenues and costs of providing services to the Funds; and (4) information about the Advisor’s and Sub-Advisors’ personnel. Prior to voting, the Independent Trustees reviewed the proposed continuance of the Investment Advisory Agreement and the Sub-Advisory Agreements with management and experienced independent legal counsel and received materials from such counsel discussing the legal standards for their consideration of the proposed continuation of the Investment Advisory Agreement and each Sub-Advisory Agreement. The Independent Trustees also reviewed the proposed continuation of the
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Other Items (Unaudited) (Continued)
Investment Advisory Agreement and each Sub-Advisory Agreement with independent legal counsel in private sessions at which no representatives of management were present.
In approving the Funds’ Investment Advisory Agreement, the Board considered various factors, among them: (1) the nature, extent and quality of services provided to the Funds, including the personnel providing such services; (2) the Advisor’s compensation and profitability; (3) a comparison of fees and performance with comparable funds; (4) economies of scale; and (5) the terms of the Investment Advisory Agreement. The Board’s analysis of these factors is set forth below. The Independent Trustees were advised by independent legal counsel throughout the process.
Nature, Extent and Quality of Advisor Services. The Board considered the level and depth of knowledge of the Advisor, including the professional experience and qualifications of senior personnel. In evaluating the quality of services provided by the Advisor, the Board took into account its familiarity with the Advisor’s senior management through Board meetings, discussions and reports during the preceding year. The Board also took into account the Advisor’s compliance policies and procedures. The quality of administrative and other services, including the Advisor’s role in coordinating the activities of the Funds’ other service providers, was also considered. The Board also considered the Advisor’s relationship with its affiliates and the resources available to them, as well as any potential conflicts of interest.
The Board discussed the Advisor’s effectiveness in monitoring the performance of each Sub-Advisor, including the Sub-Advisor that was an affiliate of the Advisor, and the Advisor’s timeliness in responding to performance issues. The Board considered the Advisor’s process for monitoring each of the Sub-Advisors, which includes an examination of both qualitative and quantitative elements of the Sub-Advisor’s organization, personnel, procedures, investment discipline, infrastructure and performance. The Board considered that the Advisor conducts periodic compliance due diligence of each Sub-Advisor, during which the Advisor examines a wide variety of factors, such as the financial condition of the Sub-Advisor, the quality of the Sub-Advisor’s systems, the effectiveness of the Sub-Advisor’s disaster recovery programs, trade allocation and execution procedures, compliance with the Sub-Advisor’s policies and procedures, results of regulatory examinations and any other factors that might affect the quality of services that the Sub-Advisor provides to the applicable Fund(s). The Board noted that the Advisor’s compliance monitoring processes also include quarterly reviews of compliance certifications, and that any issues arising from such certifications and the Advisor’s compliance visits to the Sub-Advisors are reported to the Board.
The Trustees concluded that they were satisfied with the nature, extent and quality of services provided to each Fund by the Advisor under the Investment Advisory Agreement.
Advisor’s Compensation and Profitability. The Board took into consideration the financial condition and profitability of the Advisor and its affiliates (including the Sub-Advisor to one of the Funds) and the direct and indirect benefits derived by the Advisor and its affiliates from the Advisor’s relationship with the Funds. The information considered by the Board included operating profit margin information for the Advisor’s business as a whole. The Board noted that the Advisor had waived a portion of advisory fees and administrative fees and/or reimbursed expenses in order to limit all but one of the Fund’s net operating expenses. The Board also noted that the Advisor pays the Sub-Advisors’ sub-advisory fees out of the advisory fees the Advisor receives from the Funds. The Board reviewed the profitability of the Advisor’s relationship with the Funds both before and after tax expenses, and also considered whether the Advisor has the financial wherewithal to continue to provide services to the Funds, noting the ongoing commitment of the Advisor’s parent company with respect to providing support and resources as needed. The Board considered that the Funds’ distributor, an affiliate of the Advisor, receives Rule 12b-1 distribution fees from the Funds and receives a portion of the sales charges on sales or redemptions of certain classes of shares. The Board also noted that the Advisor derives benefits to its reputation and other benefits from its association with the Funds.
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Other Items (Unaudited) (Continued)
The Board recognized that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to each Fund and the entrepreneurial risk that it assumes as Advisor. Based upon their review, the Trustees concluded that the Advisor’s and its affiliates’ level of profitability, if any, from their relationship with each Fund was reasonable and not excessive.
Expenses and Performance. The Board compared the respective advisory fees and total expense ratios for each of the Funds with various comparative data, including the median and average advisory fees and total expense ratios of each Fund’s respective peer group. The Board also considered, among other data, the Funds’ respective performance results during the six-month, twelve-month, and thirty-six month periods ended September 30, 2018 and noted that the Board reviews on a quarterly basis detailed information about each Fund’s performance results, portfolio composition and investment strategies. The Board also took into account current market conditions and their effect on the Funds’ performance.
The Board also considered the effect of each Fund’s growth and size on its performance and expenses. The Board noted that the Advisor had waived a portion of the fees and/or reimbursed expenses of all but one of the Funds in order to reduce such Funds’ respective operating expenses to targeted levels. The Board noted that the sub-advisory fees under the Sub-Advisory Agreement with respect to each Fund were paid by the Advisor out of the advisory fees it receives from the Fund and considered the impact of such sub-advisory fees on the profitability of the Advisor. In reviewing the respective expense ratios and performance of each of the Funds, the Board also took into account the nature, extent and quality of the services provided to the Funds by the Advisor and its affiliates.
The Board considered, among other data, the specific factors and related conclusions set forth below with respect to each Fund:
Touchstone Flexible Income Fund. The Fund’s advisory fee and total expense ratio (net of applicable expense waivers and reimbursements) were above the median of its peer group. The Board noted that the Advisor was waiving a portion of the Fund’s fees and/or reimbursing a portion of the Fund’s operating expenses. The Fund’s performance for the six- and twelve-month periods ended September 30, 2018 was in the 2nd quintile of its peer group, and the Fund’s performance for the thirty-six-month period ended September 30, 2018 was in the 4th quintile of its peer group. The Board noted management’s discussion of the Fund’s performance. Based upon their review, the Trustees concluded that the overall performance of the Fund was satisfactory relative to the performance of funds with similar investment objectives and relevant indices, and that the advisory fee was reasonable in light of the services received by the Fund from the Advisor and the other factors considered.
Touchstone Focused Fund. The Fund’s advisory fee and total expense ratio (net of applicable expense waivers and reimbursements) were above the median of its peer group. The Board noted that the Advisor was waiving a portion of the Fund’s fees and/or reimbursing a portion of the Fund’s operating expenses. The Fund’s performance for the six- and twelve-month periods ended September 30, 2018 was in the 4th quintile of its peer group, and the Fund’s performance for the thirty-six-month period ended September 30, 2018 was in the 5th quintile of its peer group. The Board noted management’s discussion of the Fund’s performance, particularly in light of the current market environment. Based upon their review, the Trustees concluded that the overall performance of the Fund was satisfactory relative to the performance of funds with similar investment objectives and relevant indices, and that the advisory fee was reasonable in light of the services received by the Fund from the Advisor and the other factors considered.
Touchstone Growth Opportunities Fund. The Fund’s advisory fee and total expense ratio (net of applicable expense waivers and reimbursements) were above the median of its peer group. The Board noted that the Advisor was waiving a portion of the Fund’s fees and/or reimbursing a portion of the Fund’s operating expenses. The Fund’s performance for the six-month period ended September 30, 2018 was in the 3rd quintile of its peer group, and the Fund’s performance for the twelve- and thirty-six-month periods ended September 30, 2018
96 |
Other Items (Unaudited) (Continued)
was in the 4th quintile of its peer group. The Board noted management’s discussion of the Fund’s performance. Based upon their review, the Trustees concluded that the overall performance of the Fund was satisfactory relative to the performance of funds with similar investment objectives and relevant indices, and that the advisory fee was reasonable in light of the services received by the Fund from the Advisor and the other factors considered.
Touchstone Mid Cap Growth Fund. The Fund’s advisory fee and total expense ratio were below the median and above the median, respectively, of its peer group. The Fund’s performance for the six- and twelve-month periods ended September 30, 2018 was in the 3rd quintile of its peer group, and the Fund’s performance for the thirty-six month period ended September 30, 2018 was in the 2nd quintile of its peer group. Based upon their review, the Trustees concluded that the overall performance of the Fund was satisfactory relative to the performance of funds with similar investment objectives and relevant indices, and that the advisory fee was reasonable in light of the services received by the Fund from the Advisor and the other factors considered.
Touchstone Sands Capital Emerging Markets Growth Fund. The Fund’s advisory fee and total expense ratio (net of applicable expense waivers and reimbursements) were at the median and above the median, respectively, of its peer group. The Board noted that the Advisor was waiving a portion of the Fund’s fees and/or reimbursing a portion of the Fund’s operating expenses. The Fund’s performance for the six- and twelve-month periods ended September 30, 2018 was in the 4th quintile of its peer group, and the Fund’s performance for the thirty-six-month period ended September 30, 2018 was in the 3rd quintile of its peer group. The Board noted management’s discussion of the Fund’s performance. Based upon their review, the Trustees concluded that the overall performance of the Fund was satisfactory relative to the performance of funds with similar investment objectives and relevant indices, and that the advisory fee was reasonable in light of the services received by the Fund from the Advisor and the other factors considered.
Touchstone Sustainability and Impact Equity Fund. The Fund’s advisory fee and total expense ratio (net of applicable expense waivers and reimbursements) were below the median of its peer group. The Board noted that the Advisor was waiving a portion of the Fund’s fees and/or reimbursing a portion of the Fund’s operating expenses. The Fund’s performance for the six-month period ended September 30, 2018 was in the 1st quintile of its peer group, and the Fund’s performance for the twelve- and thirty-six-month periods ended September 30, 2018 was in the 2nd quintile of its peer group. Based upon their review, the Trustees concluded that the overall performance of the Fund was satisfactory relative to the performance of funds with similar investment objectives and relevant indices, and that the advisory fee was reasonable in light of the services received by the Fund from the Advisor and the other factors considered.
Economies of Scale. The Board considered the effect of each Fund’s current size and potential growth on its performance and expenses. The Board took into account management’s discussion of the Funds’ advisory fee structure. The Board considered the effective advisory fees under the Investment Advisory Agreement as a percentage of assets at different asset levels and possible economies of scale that might be realized if the assets of each Fund increase. The Board noted that the advisory fee schedule for each Fund, except the Touchstone Sands Capital Emerging Markets Growth Fund, contains breakpoints that would reduce the respective advisory fee rate on assets above specified levels as the applicable Fund’s assets increased and considered the necessity of adding breakpoints with respect to the Funds that did not currently have such breakpoints in their advisory fee schedules. The Board determined that adding breakpoints at specified levels to the advisory fee schedule of the Touchstone Sands Capital Emerging Markets Growth Fund would not be appropriate at this time. The Board noted that if a Fund’s assets increase over time, the Fund might realize other economies of scale if assets increase proportionally more than certain other expenses. The Board also considered the fact that, under the Investment Advisory Agreement, the advisory fee payable to the Advisor by a Fund was reduced by the total sub-advisory fee paid by the Advisor to the Fund’s Sub-Advisor.
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Other Items (Unaudited) (Continued)
Conclusion. In considering the renewal of the Funds’ Investment Advisory Agreement, the Board, including the Independent Trustees, did not identify any single factor as controlling, and each Trustee may have attributed different weights to the various factors. The Trustees evaluated all information available to them on a Fund-by-Fund basis, and their determinations were made separately with respect to each Fund. The Board reached the following conclusions regarding the Funds’ Investment Advisory Agreement with the Advisor, among others: (a) the Advisor demonstrated that it possesses the capability and resources to perform the duties required of it under the Investment Advisory Agreement; (b) the Advisor maintains an appropriate compliance program; (c) the overall performance of each Fund is satisfactory relative to the performance of funds with similar investment objectives and relevant indices; and (d) each Fund’s advisory fee is reasonable in light of the services received by the Fund from the Advisor and other factors considered. Based on their conclusions, the Trustees determined with respect to each Fund that continuation of the Investment Advisory Agreement was in the best interests of the Fund and its shareholders.
In approving the Funds’ respective Sub-Advisory Agreements, the Board considered various factors with respect to each Fund and the applicable Sub-Advisory Agreement, among them: (1) the nature, extent and quality of services provided to the Fund, including the personnel providing such services; (2) the Sub-Advisor’s compensation; (3) a comparison of the sub-advisory fee and performance with comparable funds; and (4) the terms of the Sub-Advisory Agreement. The Board’s analysis of these factors is set forth below. The Independent Trustees were advised by independent legal counsel throughout the process.
Nature, Extent and Quality of Services Provided; Investment Personnel. The Board considered information provided by the Advisor regarding the services provided by each Sub-Advisor, including information presented periodically throughout the previous year. The Board noted the affiliation of one of the Sub-Advisors with the Advisor, noting any potential conflicts of interest. The Board also noted that, on a periodic basis, the Board meets with portfolio managers of the Sub-Advisors to discuss their respective performance and investment processes and strategies. The Board considered each Sub-Advisor’s level of knowledge and investment style. The Board reviewed the experience and credentials of the applicable investment personnel who are responsible for managing the investment of portfolio securities with respect to the Funds. The Board also noted each Sub-Advisor’s brokerage practices.
Sub-Advisor’s Compensation, Profitability and Economies of Scale. The Board also took into consideration the financial condition of each Sub-Advisor and any indirect benefits derived by each Sub-Advisor and its affiliates from the Sub-Advisor’s relationship with the Funds. In considering the profitability to each Sub-Advisor of its relationship with the Funds, the Board noted the undertaking of the Advisor to maintain expense limitations for the Funds and also noted that the sub-advisory fees under the Sub-Advisory Agreements were paid by the Advisor out of the advisory fees that it receives under the Investment Advisory Agreement and in addition, with respect to the unaffiliated Sub-Advisors, are negotiated at arm’s-length. As a consequence, the profitability to each Sub-Advisor of its relationship with a Fund was not a substantial factor in the Board’s deliberations. For similar reasons, the Board did not consider the potential economies of scale in each Sub-Advisor’s management of the applicable Fund to be a substantial factor in its consideration, although the Board noted that the sub-advisory fee schedule for all but one of the Funds contained breakpoints that would reduce the sub-advisory fee rate on assets above specified levels as the applicable Fund’s assets increased.
Sub-Advisory Fees and Fund Performance. The Board considered that each Fund pays an advisory fee to the Advisor and that the Advisor pays the sub-advisory fee to the Sub-Advisor out of the advisory fee it receives from the respective Fund. The Board also compared the sub-advisory fees paid by the Advisor to fees charged by the Sub-Advisor to manage comparable institutional separate accounts. The Board considered the amount retained by the Advisor and the sub-advisory fee paid to each Sub-Advisor with respect to the various services provided by the Advisor and the Sub-Advisor. The Board also noted that the Advisor negotiated the sub-advisory fee with each of the unaffiliated Sub-Advisors at arm’s-length. The Board reviewed the sub-advisory fee for
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Other Items (Unaudited) (Continued)
each Fund in relation to various comparative data, including the median and average sub-advisory fees of each Fund’s peer group, and considered the following information:
Touchstone Flexible Income Fund. The Fund’s sub-advisory fee was above the median of its peer group. Based upon their review, theTrustees concluded that the sub-advisory fee was reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered.
Touchstone Focused Fund. The Fund’s sub-advisory fee was above the median of its peer group. Based upon their review, the Trustees concluded that the sub-advisory fee was reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered.
Touchstone Growth Opportunities Fund. The Fund’s sub-advisory fee was above the median of its peer group. Based upon their review, the Trustees concluded that the sub-advisory fee was reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered.
Touchstone Mid Cap Growth Fund. The Fund’s sub-advisory fee was above the median of its peer group. Based upon their review, the Trustees concluded that the sub-advisory fee was reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered.
Touchstone Sands Capital Emerging Markets Growth Fund. The Fund’s sub-advisory fee was above the median of its peer group. Based upon their review, the Trustees concluded that the sub-advisory fee was reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered.
Touchstone Sustainability and Impact Equity Fund. The Fund’s sub-advisory fee was below the median of its peer group. Based upon their review, the Trustees concluded that the sub-advisory fee was reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered.
As noted above, the Board considered each Fund’s performance during the six-month, twelve-month, and thirty-six month periods ended September 30, 2018 as compared to each Fund’s peer group and noted that the Board reviews on a quarterly basis detailed information about each Fund’s performance results, portfolio composition and investment strategies. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style and risk-adjusted performance of each Sub-Advisor. The Board also was mindful of the Advisor’s ongoing monitoring of each Sub-Advisor’s performance and the measures undertaken by the Advisor to address any underperformance.
Conclusion. In considering the renewal of the Sub-Advisory Agreement with respect to each Fund, the Board, including the Independent Trustees, did not identify any single factor as controlling, and each Trustee may have attributed different weights to the various factors. The Board reached the following conclusions regarding each Sub-Advisory Agreement, among others: (a) the Sub-Advisor is qualified to manage each Fund’s assets in accordance with the Fund’s investment goals and policies; (b) the Sub-Advisor maintains an appropriate compliance program; (c) the overall performance of each Fund is satisfactory relative to the performance of funds with similar investment objectives and relevant indices; (d) each Fund’s sub-advisory fees are reasonable in light of the services received by the Fund from the Sub-Advisor and the other factors considered; and (e) the Sub-Advisor’s investment strategies are appropriate for pursuing the investment goals of each Fund. Based on its conclusions, the Board determined that approval of the Sub-Advisory Agreement with respect to each Fund was in the best interests of the Fund and its shareholders.
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Management of the Trust (Unaudited)
Listed below is required information regarding the Trustees and principal officers of the Trust. The Trust’s Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling 1.800.543.0407 or by visiting the Touchstone website at TouchstoneInvestments.com.
Interested Trustee1: | ||||||||||
Number | ||||||||||
of Funds | ||||||||||
Overseen | ||||||||||
Term of | in the | |||||||||
Name | Position(s) | Office And | Touchstone | Other | ||||||
Address | Held with | Length of | Principal Occupation(s) | Fund | Directorships | |||||
Year of Birth | Trust | Time Served | During Past 5 Years | Complex2 | Held During the Past 5 Years3 | |||||
Jill T. McGruder Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1955 |
Trustee and President | Until retirement at age 75 or until she resigns or is removed Trustee since 1999 | President and CEO of IFS Financial Services, Inc. (a holding company). | 46 | IFS Financial Services, Inc. (a holding company) from 1999 to the present; Integrity and National Integrity Life Insurance Co. from 2005 to the present; Touchstone Securities (the Trust’s distributor) from 1999 to the present; Touchstone Advisors (the Trust’s investment advisor and administrator) from 1999 to the present; W&S Brokerage Services (a brokerage company) from 1999 to the present; W&S Financial Group Distributors (a distribution company) from 1999 to the present; Cincinnati Analysts, Inc. from 2012 to the present; Columbus Life Insurance Co. from 2016 to the present; The Lafayette Life Insurance Co. from 2016 to the present; Taft Museum of Art from 2007 to the present; YWCA of Greater Cincinnati from 2012 to the present; and LL Global, Inc. from 2016 to the present. | |||||
Independent Trustees: | ||||||||||
Phillip R. Cox c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1947 |
Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 1999 | President and Chief Executive Officer of Cox Financial Corp. (a financial services company) from 1971 to the present. | 46 | Director of Cincinnati Bell (a communications company) from 1994 to the present; Bethesda Inc. (a hospital) from 2005 to the present; Timken Co. (a manufacturing company) from 2004 to 2014; TimkenSteel from 2014 to the present; Diebold, Inc. (a technology solutions company) from 2004 to the present; and Ohio Business Alliance for Higher Education and the Economy from 2005 to the present. | |||||
William C. Gale c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1952 |
Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2013 | Retired; formerly Senior Vice President and Chief Financial Officer (from 2003 to January 2015) of Cintas Corporation (a business services company). | 46 | None. |
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Management of the Trust (Unaudited) (Continued)
Independent Trustees (Continued): | ||||||||||
Number | ||||||||||
of Funds | ||||||||||
Overseen | ||||||||||
Term of | in the | |||||||||
Name | Position(s) | Office And | Touchstone | Other | ||||||
Address | Held with | Length of | Principal Occupation(s) | Fund | Directorships | |||||
Year of Birth | Trust | Time Served | During Past 5 Years | Complex2 | Held During the Past 5 Years3 | |||||
Susan J. Hickenlooper c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1946 |
Trustee | Until retirement at age 75 or until she resigns or is removed Trustee since 2009 | Retired; formerly Financial Analyst for Impact 100 (charitable organization) from November 2012 to 2013. | 46 | Trustee of Diocese of Southern Ohio from 2014 to the present; and Trustee of Cincinnati Parks Foundation from 2000 to 2016. | |||||
Kevin A. Robie c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1956 |
Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2013 | Vice President of Portfolio Management at Soin International LLC (a private multinational holding company) from 2004 to the present. | 46 | Director of SaverSystems, Inc. from 2015 to the present; Director of Buckeye EcoCare, Inc. (a lawn care company) from 2013 to the present; Trustee of Dayton Region New Market Fund, LLC (a private fund) from 2010 to the present; and Trustee of the Entrepreneurs Center, Inc. (a small business incubator) from 2006 to the present. | |||||
Edward J. VonderBrink c/o Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1944 |
Trustee | Until retirement at age 75 or until he resigns or is removed Trustee since 2013 | Consultant, VonderBrink Consulting LLC from 2000 to the present. | 46 | Director of Streamline Health Solutions, Inc. (healthcare IT) from 2006 to 2015; Mercy Health from 2013 to the present; Mercy Health Foundation (healthcare nonprofit) from 2008 to the present; Al Neyer Inc. (a construction company) from 2013 to the present; and BASCO Shower Door from 2010 to the present. |
1 | Ms. McGruder, as a director of the Advisor and the Distributor, and an officer of affiliates of the Advisor and the Distributor, is an “interested person” of the Trust within the meaning of Section 2(a) (19) of the 1940 Act. |
2 | As of March 31, 2019, the Touchstone Fund Complex consisted of 21 series of the Trust, 14 series of Touchstone Funds Group Trust, 1 series of Touchstone Institutional Funds Trust, and 10 variable annuity series of Touchstone Variable Series Trust. |
3 | Each Trustee is also a Trustee of Touchstone Funds Group Trust, Touchstone Institutional Funds Trust, and Touchstone Variable Series Trust. |
101 |
Management of the Trust (Unaudited) (Continued)
The following is a list of the Principal Officers of the Trusts, the length of time served, and principal occupations for the past five years.
Principal Officers: | ||||||
Term of | ||||||
Name | Position(s) | Office and | ||||
Address | Held with | Length of | Principal Occupation(s) | |||
Year of Birth | Trust1 | Time Served | During Past 5 Years | |||
Jill T. McGruder Touchstone Advisors, Inc. 303 Broadway Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1955 |
President and Trustee | Until resignation, removal or disqualification President since 2006 | See biography above. | |||
Steven M. Graziano Year of Birth: 1954 |
Vice President | Until resignation, removal or disqualification Vice President since 2009 | President of Touchstone Advisors, Inc. | |||
Timothy D. Paulin Cincinnati, Ohio 45202 Year of Birth: 1963 |
Vice President | Until resignation, removal or disqualification Vice President since 2010 | Senior Vice President of Investment Research and Product Management of Touchstone Advisors, Inc. | |||
Timothy S. Stearns 303 Broadway Suite 1100 |
Chief Compliance Officer | Until resignation, removal or disqualification Chief Compliance Officer since 2013 | Chief Compliance Officer of Touchstone Advisors, Inc. | |||
Terrie A. Wiedenheft Touchstone Advisors, Inc. Suite 1100 Cincinnati, Ohio 45202 Year of Birth: 1962 |
Controller and Treasurer | Until resignation, removal or disqualification Controller and Treasurer since 2006 | Senior Vice President, Chief Financial Officer and Chief Operations Officer of IFS Financial Services, Inc. (a holding company). | |||
Meredyth A. Whitford Western & Southern Financial Group 400 Broadway Cincinnati, Ohio 45202 Year of Birth: 1981 |
Secretary | Until resignation, removal or disqualification Secretary since 2018 | Counsel - Securities/Mutual Funds of Western & Southern Financial Group (2015 to present); Associate at Morgan Lewis & Bockius LLP (law firm) (2014 to 2015); Associate at Bingham McCutchen LLP (law firm) (2008 to 2014). |
1 | Each officer also holds the same office with Touchstone Funds Group Trust, Touchstone Institutional Funds Trust, and Touchstone Variable Series Trust. |
102 |
We Respect Your Privacy
Thank you for your decision to invest with us. Touchstone and its affiliates have always placed a high value on the trust and confidence our clients place in us. We believe that confidence must be earned and validated through time. In today’s world, when technology allows the sharing of information at light speeds, trust must be reinforced by our sincere pledge to take the steps necessary to ensure that the information you share with us is treated with respect and confidentiality.
Our Pledge to Our Clients
· | We collect only the information we need to service your account and administer our business. |
· | We are committed to keeping your information confidential and we place strict limits and controls on the use and sharing of your information. |
· | We make every effort to ensure the accuracy of your information. |
We Collect the Following Nonpublic Personal Information About You:
· | Information we receive from you on or in applications or other forms, correspondence, or conversations, including, but not limited to, your name, address, phone number, social security number, assets, income and date of birth; and |
· | Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payment history, parties to transactions, cost basis information, and other financial information. |
Categories of Information We Disclose and Parties to Whom We Disclose
We do not disclose any nonpublic personal information about our current or former clients to nonaffiliated third parties, except as required or permitted by law.
We Place Strict Limits and Controls on the Use and Sharing of Your Information
· | We restrict access to nonpublic personal information about you to authorized employees who need the information to administer your business. |
· | We maintain physical, electronic and procedural safeguards that comply with federal standards to protect this information. |
· | We do not disclose any nonpublic personal information about our current or former clients to anyone, except as required or permitted by law or as described in this document. |
· | We will not sell your personal information to anyone. |
We May Provide Information to Service Your Account
Sometimes it is necessary to provide information about you to various companies such as transfer agents, custodians, broker-dealers and marketing service firms to facilitate the servicing of your account. These organizations have a legitimate business need to see some of your personal information in order for us to provide service to you. We may disclose to these various companies the information that we collect as described above. We require that these companies, including our own subsidiaries and affiliates, strictly maintain the confidentiality of this information and abide by all applicable laws. Companies within our corporate family that may receive this information are financial service providers and insurance companies. We do not permit these associated companies to sell the information for their own purposes, and we never sell our customer information.
This policy is applicable to the following affiliated companies: Touchstone Funds Group Trust, Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone Institutional Funds Trust, Touchstone Securities, Inc.,* and W&S Brokerage Services, Inc.
* Touchstone Securities, Inc. serves as the underwriter to the Touchstone Funds.
A Member of Western & Southern Financial Group®
The Privacy Protection Policy is not part of the Annual Report.
103 |
Touchstone Investments
Distributor
Touchstone Securities, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
800.638.8194
www.touchstoneinvestments.com
Investment Advisor
Touchstone Advisors, Inc.*
303 Broadway
Cincinnati, Ohio 45202-4203
Transfer Agent
BNY Mellon Investment Servicing (US) Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Shareholder Service
800.543.0407
* A Member of Western & Southern Financial Group
TSF-54-TST-AR-1903
Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
(c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has determined that the registrant has at least one audit committee financial expert serving on its audit committee. Mr. William Gale is the registrant’s audit committee financial expert and is an independent trustee within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”).
Item 4. Principal Accountant Fees and Services.
Audit Fees
(a) | Audit fees for Touchstone Strategic Trust (March Funds) totaled $109,000 and $161,600 for the fiscal years ended March 31, 2019 and March 31, 2018, respectively, including fees associated with the annual audits and filings of Form N-1A and Form N-SAR (2018). |
Audit-Related Fees
(b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $4,000 and $11,525 for the fiscal years ended March 31, 2019 and March 31, 2018 respectively. The fees for 2019 relate to consent filing for N-1A. The fees for 2018 relate to consent filings for N-14s. |
Tax Fees
(c) | The Fees for tax compliance services totaled $85,723 and $78,983 for the fiscal years ended March 31, 2019 and March 31, 2018, respectively. The fees relate to the preparation of federal income and excise tax returns, review of capital gains distribution calculations and tax agent services. |
All Other Fees
(d) | The aggregate fees billed for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $20,845 and $38,914 for the fiscal years ended March 31, 2019 and March 31, 2018, respectively. The fees relate to the PFIC Analyzer and Global Withholding Tax Reporter subscriptions. |
(e)(1) | Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
The Audit Committee’s pre-approval policies describe the types of audit, audit-related, tax and other services that have the general pre-approval of the Audit Committee. The pre-approval policies provide that annual audit service fees, tax services not specifically granted pre-approval, services exceeding pre-approved cost levels and other services that have not received general pre-approval will be subject to specific pre-approval by the Audit Committee. The pre-approval policies further provide that the Committee may grant general pre-approval to other audit services (statutory audits and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings), audit-related services (accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services,” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities, agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements Form N-CSR), tax services that have historically been provided by the auditor that the Committee believes would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence and permissible non-audit services classified as “all other services” that are routine and recurring services.
(e)(2) | All services described in paragraphs (c) through (d) of Item 4 were approved by the Audit Committee. |
(f) | The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. |
(g) | The aggregate non-audit fees for Touchstone Strategic Trust (March Funds) and certain entities*, totaled approximately $674,100 and $129,422 for the fiscal years ended March 31, 2019 and March 31, 2018, respectively. |
* These include the advisors (excluding sub-advisors) and any entity controlling, controlled by or under common control with the advisors that provides ongoing services to the registrant (Funds).
(h) | The registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Touchstone Strategic Trust
By (Signature and Title)* /s/ Jill T. McGruder
Jill T. McGruder, President
(principal executive officer)
Date May 29, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ Jill T. McGruder
Jill T. McGruder, President
(principal executive officer)
Date May 29, 2019
By (Signature and Title)* /s/ Terrie A. Wiedenheft
Terrie A. Wiedenheft, Controller and Treasurer
(principal financial officer)
Date May 29, 2019
* Print the name and title of each signing officer under his or her signature.
EX-99.CODE ETH
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
CODE OF ETHICS FOR
SENIOR FINANCIAL OFFICERS
I. INTRODUCTION
The Board of Trustees of Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds Trust (the “Trusts”) has adopted this code of ethics (the “Code”), as amended, applicable to its Principal Executive Officer and Principal Financial Officer (the “Covered Officers”) to promote:
• | Honest and ethical conduct, including the ethical handling of conflicts of interest; |
• | Full, fair, accurate, timely and understandable disclosure; |
• | Compliance with applicable laws and governmental rules and regulations; |
• | The prompt internal reporting to an appropriate person or persons identified in the Code for violations of the Code; and |
• | Accountability for adherence to the Code. |
II. COVERED OFFICERS SHOULD ACT HONESTLY AND CANDIDLY
Each Covered Officer owes a duty to the Trusts to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity.
Each Covered Officer must:
• | Act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Trusts’ policies; |
• | Observe both the form and spirit of laws and governmental rules and regulations, accounting standards and the Trusts policies; |
• | Adhere to a high standard of business ethics; and |
• | Place the interests of the Trusts before the Covered Officer’s own personal interests. |
All activities of Covered Officers should be guided by and adhere to these fiduciary standards.
III. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APRARENT CONFLICTS OF INTEREST
GUIDING PRINCIPLES: A “conflict of interest” occurs when an individual’s personal interest interferes with the interest of the Trusts. A conflict of interest can arise when a Covered Officer takes actions or has interests that may make it difficult to perform the Trusts’ work objectively and effectively. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Trusts. In addition, investment companies should be sensitive to situations that create apparent, not actual, conflicts of interest. Service to the Trusts should never be subordinated to gain a personal advantage.
Certain conflicts of interest covered by this Code arise out of the relationships between Covered Officers and the Trusts that already are subject to conflict of interest provisions in the Investment Company Act of 1940, (the “1940 Act”), and the Investment Advisers Act of 1940, each as amended. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Trusts because of their status as “affiliated persons” of the Trusts. Therefore, as to the existing statutory and regulatory prohibitions on individual behavior they will be deemed to be incorporated in this Code and therefore any such violation will also be deemed a violation of the Code. Covered Officers must in all cases comply with applicable statutes and regulations.
As to conflicts arising from, or as a result of the contract relationship between, the Trusts, Touchstone Advisors, Inc. (the “Advisor”), the Trusts’ investment adviser, and Touchstone Securities, Inc. (the “Distributor”), the Trusts’ distributor, of which the Covered Officers are also officers or employees, it is recognized by the Board that, subject to the Advisor’s fiduciary duties to the Trusts, the Covered Officers will in the normal course of their duties (whether formally for the Trusts or for the Advisor, or for both) be involved in establishing policies and implementing decisions which will have different effects on the Advisor and the Trusts. The Board recognizes that the participation of the Covered Officers in such activities is inherent in the contractual relationship between the Trusts and the Advisor and is consistent with the expectation of the Board of the performance by the Covered Officers of their duties as officers of the Trusts.
Each Covered Officer must:
• | Avoid conflicts of interest wherever possible; |
• | Handle any actual or apparent conflict of interest ethically; |
• | Not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by a Trust whereby the Covered Officer would benefit personally to the detriment of the Trust; |
• | Not cause a Trust to take action, or fail to take action, for the personal benefit of the Covered Officer rather than the benefit such Trust; |
• | Not use knowledge of portfolio transactions made or contemplated for a Trust to profit or cause others to profit, by the market effect of such transactions; |
• | As described in more detail below, discuss any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest with the Trusts’ Compliance Officer; and |
• | Report at least annually any affiliations or other relationships related to conflicts of interest that the Trusts’ Directors and Officers Questionnaire covers. |
Some conflict of interest situations that should always be discussed with the Trusts’ Chief Compliance Officer, if material, include the following:
• | Any outside business activity; |
• | Service as a director on the board of any public or private company; |
• | The receipt of any gifts; |
• | The receipt of any entertainment from any company with which the Trusts have current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; |
• | Being in the position of supervision, reviewing or having any influence on the job evaluation, pay or benefit of any immediate family member; |
• | Any ownership interest in, or any consulting or employment relationship with, any of the Trusts’ service providers, other than the Advisor and Distributor; and |
• | A direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trusts for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership. |
IV. DISCLOSURE
Each Covered Officer is required to be familiar, and comply, with the Trusts’ disclosure controls and procedures so that the Trusts’ subject reports and documents filed with the U.S. Securities and Exchange Commission (the “SEC”) comply in all material respects with the applicable federal securities laws and SEC rules. In addition, each Covered Officer having direct or supervisory authority regarding these SEC filings or the Trusts’ other public communications should, to the extent appropriate within his or her area of responsibility, consult with other Trust officers and employees and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and understandable disclosure.
Each Covered Officer must:
• | Familiarize himself or herself with the disclosure requirements applicable to the Trusts as well as the business and financial operations of the Trusts; and |
• | Not knowingly misrepresent, or cause others to misrepresent, facts about the Trusts to others, whether within or outside the Trusts, including to the Trusts’ internal auditors, independent directors, independent auditors, and to governmental regulators and self-regulatory organizations. |
V. COMPLIANCE
It is the Trusts’ policy to comply with all applicable laws and governmental rules and regulations. It is the personal responsibility of each Covered Officer to adhere to the standards and restrictions imposed by those laws, rules, and regulations, including those relating to affiliated transactions, accounting, and auditing matters.
VI. REPORTING AND ACCOUNTABILITY
Each Covered Officer must:
• | Upon receipt of this Code, sign and submit to the Trusts’ Chief Compliance Officer an acknowledgment stating that he or she has received, read, and understands the Code. |
• | Annually thereafter submit a form to the Trusts’ Chief Compliance Officer confirming that he or she has received, read, and understands the Code, and has complied with the requirements of the Code. |
• | Not retaliate against any employee or Covered Officer for reports of potential violations that are made in good faith. |
• | Notify the Trusts’ Chief Compliance Officer promptly if he or she becomes aware of any existing or potential violation of this Code. Failure to do so is itself a violation of this Code. |
Except as described otherwise below, the Trusts’ Chief Compliance Officer is responsible for applying this Code to specific situations in which questions are presented to it and has the authority to interpret this Code in any particular situation. The Trusts’ Chief Compliance Officer shall take all action he or she considers appropriate to investigate any actual or potential violations reported to him or her.
The Trusts’ Chief Compliance Officer is authorized and encouraged to consult, as appropriate, with the Audit Committee (the “Committee”) and the Independent Trustees.
The Committee is responsible for granting waivers and determining sanctions, as appropriate. In addition, approvals, interpretations, or waivers sought by the Principal Executive Officer will be considered by the Committee.
The Trusts will follow these procedures in investigating and enforcing this Code, and in reporting on the Code:
• | The Trusts’ Chief Compliance Officer will take all appropriate action to investigate any violations reported to him or her; |
• | Violations and potential violations will be reported to the Committee after such investigation; |
• | If the Committee determines that a violation occurred, it will inform the Board of Trustees who will take all appropriate disciplinary or preventive action; |
• | Appropriate disciplinary or preventive action may include a letter of censure, suspension, dismissal or, in the event of criminal or other serious violations of law, notification of the SEC or other appropriate law enforcement authorities; and |
• | Any changes to or waivers of this Code will, to the extent required, be disclosed on Form N-CSR as provided by SEC Rules. |
VII. OTHER POLICIES AND PROCEDURES
The Trusts’ code of ethics under Rule 17j-1 of the 1940 Act are separate requirements applying to Covered Officers and others, and are not part of this Code.
VIII. AMENDMENTS
This Code may not be amended except in written form, which is specifically approved by a majority vote of the Board of Trustees, including a majority of Independent Trustees.
IX. CONFIDENTIALITY
All reports and records prepared or maintained pursuant to this Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the members of Board of Trustees and their counsel.
X. INTERNAL USE
The Code is intended solely for the internal use by the Trusts and does not constitute an admission, by or on behalf of the Trusts, as to any fact, circumstance, or legal conclusion.
Date: May 19, 2003
Amended: February 15, 2017
Exhibit A
Persons Covered by this Code of Ethics
Jill T. McGruder | — President | Touchstone Strategic Trust |
Touchstone Variable Series Trust | ||
Touchstone Funds Group Trust | ||
Touchstone Institutional Funds Trust |
Terrie A. Wiedenheft | — Controller and Treasurer | Touchstone Strategic Trust |
Touchstone Variable Series Trust | ||
Touchstone Funds Group Trust | ||
Touchstone Institutional Funds Trust |
CODE OF ETHICS
FOR
SENIOR FINANCIAL OFFICERS
ANNUAL CERTIFICATION
TO: | Trusts’ Chief Compliance Officer |
RE: | Code of Ethics for Senior Financial Officers |
FROM: | _______________________________________________ |
(Please print your name) |
I hereby acknowledge, agree and certify that I have received, read, understand and will abide by the Code of Ethics for Senior Financial Officers.
_________________________________ | ___________________ | |
Signature | Date |
EX-99.CERT
Certification Pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act
I, Jill T. McGruder, certify that:
1. | I have reviewed this report on Form N-CSR of Touchstone Strategic Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 29, 2019 | /s/ Jill T. McGruder |
Jill T. McGruder, President | |
(principal executive officer) |
Certification Pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act
I, Terrie A. Wiedenheft, certify that:
1. | I have reviewed this report on Form N-CSR of Touchstone Strategic Trust; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: May 29, 2019 | /s/ Terrie A. Wiedenheft |
Terrie A. Wiedenheft, Controller and Treasurer | |
(principal financial officer) |
EX-99.906CERT
Certification Pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act
I, Jill T. McGruder, President of Touchstone Strategic Trust (the “Registrant”), certify that:
1. | The Form N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: May 29, 2019 | /s/ Jill T. McGruder |
Jill T. McGruder, President | |
(principal executive officer) |
I, Terrie A. Wiedenheft, Controller and Treasurer of Touchstone Strategic Trust (the “Registrant”), certify that:
1. | The Form N-CSR of the Registrant (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: May 29, 2019 | /s/ Terrie A. Wiedenheft |
Terrie A. Wiedenheft, Controller and Treasurer | |
(principal financial officer) |
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