N-CSR 1 tm237590d3_ncsr.htm N-CSR

 

 

 

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 – December Funds                    
(Exact name of registrant as specified in charter)

 

303 Broadway, Suite 1100
                   Cincinnati, Ohio 45202-4203                   
(Address of principal executive offices) (Zip code)

 

E. Blake Moore, Jr.

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:   December 31

 

Date of reporting period:   December 31, 2022

 

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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

 

 

 

Item 1. Reports to Stockholders.

 

(a)The Report to Shareholders is attached herewith.

 

December 31, 2022
Annual Report
Touchstone Strategic Trust
Touchstone Anti-Benchmark® US Core Equity Fund
Touchstone Dynamic Allocation Fund
(formerly known as Touchstone Dynamic Global Allocation Fund)
Touchstone Sands Capital International Growth Fund

 

Table of Contents
  Page
Letter from the President 3
Management's Discussion of Fund Performance (Unaudited) 4-13
Tabular Presentation of Portfolios of Investments (Unaudited) 14
Portfolios of Investments:  
Touchstone Anti-Benchmark® US Core Equity Fund 15-16
Touchstone Dynamic Allocation Fund (formerly known as Touchstone Dynamic Global Allocation Fund) 17
Touchstone Sands Capital International Growth Fund 18-19
Statements of Assets and Liabilities 20-21
Statements of Operations 22
Statements of Changes in Net Assets 23
Statements of Changes in Net Assets - Capital Stock Activity 24-25
Financial Highlights 26-27
Notes to Financial Statements 28-39
Report of Independent Registered Public Accounting Firm 40-41
Other Items (Unaudited) 42-47
Management of the Trust (Unaudited) 48-50
Privacy Protection Policy 51
This report identifies the Funds' investments on December 31, 2022. 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.
2

 

Letter from the President
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 twelve months ended December 31, 2022.
For the calendar year 2022, the U.S. Federal Reserve (Fed) initiated a series of Fed Funds rate hikes to combat persistent inflation. Over the course of the year, the Fed raised overnight rates by over 4 percent in an effort to slow down economic growth. The Fed’s attempt to engineer a “soft landing” for the economy created uncertainty at times throughout the year. This uncertainty contributed to a selloff in nearly every major asset class in the capital markets, a rare negative annual return for both U.S. equities and fixed income markets. Outside the U.S., global economic growth slowed due to various reasons such as the unexpected Russian invasion of Ukraine in February, disrupted supply chains and trade from continued COVID-related lockdowns in China, and political turbulence in the U.K. However, the capital markets absorption of the Russian-Ukrainian conflict by mid-year and the loosening of China’s COVID lockdowns later in the year, were not enough to squelch economic headwinds that had been occurring since the beginning of 2022 including higher rates of inflation, slowing demand and higher energy prices.
U.S. equity markets reported negative results for the year. The equity style shift from Growth to Value that began in late 2020 continued throughout 2022. Within the domestic markets, large cap value stocks outperformed their growth counterparts on a relative basis. The aforementioned Fed rate hikes disproportionately impacted growth stocks due to their higher implied growth rates and longer duration of earnings growth included in their valuation multiples. Value stocks generally benefit from higher commodity costs (e.g. Energy sector) and when equity investors seek refuge in defensive sectors such as Consumer Staples and Health Care – both of which occurred during 2022.
In the fixed income markets, Fed rate hikes and persistent inflation pushed shorter maturity yields up compared to longer maturities on the yield curve, providing a headwind for the investment grade bonds. Over the full year, credit spreads did not widen significantly despite slowing economic growth, hence below investment grade bonds outperformed their investment grade peers due to their yield advantage.
We are reminded especially in periods like these of the importance of the steady hands of financial professionals, trust in your investment strategy, and the risks of trying to time the market. Additionally, we believe that environments that are more volatile create more opportunity for active managers to add value, especially those that are Distinctively Active with high Active Share. We greatly value your continued support. Thank you for including Touchstone as part of your investment plan.
Sincerely,
E. Blake Moore Jr.
President
Touchstone Strategic Trust
3

 

Management's Discussion of Fund Performance (Unaudited)
Touchstone Anti-Benchmark® US Core Equity Fund
Sub-Advised by TOBAM S.A.S.
Investment Philosophy
The Touchstone Anti-Benchmark® US Core Equity Fund (the "Fund") seeks capital appreciation. TOBAM’s methodology seeks to enhance the diversification of portfolio holdings to reduce market bias and potentially improve risk-adjusted returns. TOBAM’s process selects individual stocks and their weights in an effort to reduce the correlations between individual holdings. This enables the creation of portfolios that seek to mitigate the inherent concentration risks associated with capitalization-weighted benchmarks. The lower correlations have the potential to provide a differentiated source of value than other methods of diversification. This quantitative approach creates fully invested, long-only portfolios that do not use leverage, and are designed to help guard against structural biases.
Fund Performance
The Touchstone Anti-Benchmark® US Core Equity Fund (Class Y Shares) outperformed its benchmark, the Russell 1000® Index, over the 12-month period ending December 31, 2022.  The Fund’s return was -9.10 percent (calculated excluding the maximum sales charges) compared to the -19.13 percent return of the Russell 1000® Index.
Market Environment 
Looking back at 2022, there were many themes in financial markets.  Central Banks turned more hawkish than investors had originally priced in. The Russia-Ukraine war contributed significantly to continued high inflation and increased economic uncertainty, particularly in Europe. China and its increasingly hostile relationship with the Western world, as well as its zero-COVID policy, have each been a large unknown variable that weighed on emerging markets as well as developed markets indices.  Equities and bond yields became negatively correlated sending equities and bonds into negative territory. The drawdown, particularly in high-grade credit markets, reached extreme and clearly unexpected levels. “Growthy” technology companies but also some mega-cap technology companies in the U.S. started to reprice, which we believe means that we might have reached a turning point in market concentration, at least in the U.S. (and in all cap-weighted indices that include the U.S. market).  In emerging markets (EM), India outperformed in relative terms on the back of China’s weakness. However, this started to reverse towards the end of the year when the zero-COVID policy was lifted. 
The biggest loser during 2022 in U.S. dollar (USD) terms was emerging markets (a lot of this coming from the Chinese rollercoaster and the generally still very difficult environment for many EM countries) and Japan. Note that currency effects also played a major role throughout the year, with a strong USD, most markets look much weaker in USD terms than they do in local currency. Despite the strong USD (or probably partially because of it and the hawkish Fed), U.S. stocks started to reprice quite strongly, making it one of the worst performing markets in 2022. Note, U.K. outperformance is probably not very representative for the struggling U.K. economy since the cap-weighted index is very concentrated towards two energy giants, two healthcare giants and five banks, which were three bets that heavily rewarded over of the year.
Looking at our measure of market concentration/diversification for various regions we can see that the reversal in market concentration seems to have started over 2022 in the U.S. market, which has translated as a consequence also into World and World Developed indices, but other markets have remained very concentrated for various reasons (e.g., in EM it is mainly China and India, in Europe it is the outperformance of its strong Value bias).
From a sector perspective, there were notable changes in U.S. market concentration.  After a slight increase in concentration early in the period mainly due to large cap Financials and Energy names outperforming, market concentration in the U.S. started to decrease in second quarter driven by a more hawkish Fed and high inflation uncertainty. However, in the middle of the period, markets rebounded strongly because investors were pricing in a scenario where Central Banks could get inflation quickly under control and then would decrease interest rates again to support the economy. During August and September 2022 on the back of bad inflation data, hopes for a “soft landing” faded making investors reconsider the excessive valuations of certain stocks and made markets retreat along with market concentration. This trend persisted until the end of the year with very negative earnings surprises for several of the mega cap stocks and a Fed that continued to be hawkish.
Portfolio Review
The Financial sector slightly outperformed the benchmark during the period. However, the Information Technology and Consumer Discretionary biases of the benchmark were not rewarded. Diversifying sectors such as Consumer Staples and Health Care performed well. Thanks to its high degree of diversification, the Fund was able to generate a significant amount of outperformance in this market environment.
4

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
Outlook and Conclusion
TOBAM’s Anti-Benchmark strategy does not forecast but simply seeks to maximize diversification. Thus, it does not include fundamental analysis of individual stocks, countries, sectors, economic environments or factors. No discretionary tactical or strategic asset allocation decisions are made with respect to specific regions, sectors or industries. TOBAM’s investment process consists of maximizing diversification from a bottom-up perspective. Securities are bought or sold solely in relation to their potential relative diversification benefits within the portfolio. A security will be completely sold when it no longer provides the most marginal diversification among all available stocks in the universe, and others purchased when they begin to provide more marginal diversification. TOBAM’s patented Anti-Benchmark approach is designed to avoid explicit and implicit biases in terms of sector, style, market cap and other statistical measures. For this reason, we apply as few constraints as possible and do not rely on any given view or forecast, in order to avoid unwanted systematic exposures. The Fund’s portfolio reflects even risk contributions from all independent effective risk factors in the investment universe, which may include sector and country factors.
5

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the Touchstone Anti-Benchmark® US Core Equity Fund Class Y* and the Russell 1000® Index
Average Annual Total Returns**
Touchstone Anti-Benchmark® US Core Equity Fund 1 Year Since
Inception*
Class A -13.89% 5.67%
Class C -10.74% 6.19%
Class Y -9.10% 7.29%
Institutional Class -8.96% 7.36%
Russell 1000® Index -19.13% 10.22%
* The chart above represents performance of Class Y shares only, which will vary from the performance of Class A shares, Class C 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 2, 2020, October 2, 2020, November 19, 2018, and November 19, 2018, respectively. Class A shares' and Class C shares' performance was calculated using the historical performance of Class Y shares for the periods prior to October 2, 2020. The returns have been restated for sales loads and fees applicable to Class A and Class C. 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
Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index.
The Frank Russell Company (FRC) is the source and owner of the 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.
6

 

Management's Discussion of Fund Performance (Unaudited)
Touchstone Dynamic Allocation Fund
Sub-Advised by Wilshire Advisors, LLC
Investment Philosophy
The Touchstone Dynamic Allocation Fund (the “Fund”) is a fund-of-funds, which seeks to achieve its investment goal of providing investors with capital appreciation by primarily investing in a diversified portfolio of underlying equity and fixed-income funds. These underlying funds, in turn, invest in a variety of U.S. and foreign equity and fixed-income securities (although a portion of its assets may be invested in cash, cash equivalents, or in money market funds). The underlying funds in which the Fund invests will be affiliated funds.
Fund Performance
The Touchstone Dynamic Allocation Fund (Class A Shares) outperformed its primary benchmark the MSCI All Country World Index (ACWI), but underperformed its secondary benchmark the Bloomberg US Universal Index for the 12-month period ended December 31, 2022. The Fund’s total return was -16.59 percent (calculated excluding the maximum sales charge) while the total return of the MSCI ACWI was -18.36 percent and the total return of the Bloomberg US Universal Index was -12.99 percent.
Market Environment
As the U.S. Federal Reserve (the “Fed”) continues to signal further interest rate hikes 2022 will likely be remembered as the year of interest rate hikes. The Fed hiked interest rates seven times throughout the year, with rates reaching the highest level in 15 years.  Inflation, the main concern for the Fed and the market, reached its high in June 2022 and finally trended down towards the end of the period.  Elevated inflation levels, in addition to the on-going Russian invasion of Ukraine, are likely to create continued volatility in 2023.  More positively, at the end of the period job growth was solid and unemployment rates stood at 3.5%.
The U.S. stock market was down for the year of 2022 as were most sectors. The best performing sector was Energy followed by Utilities. The two sectors producing the most losses were Communication Services and Consumer Discretionary. From a market-cap perspective, small-cap equities underperformed large-cap equities. Domestic growth equities materially underperformed domestic value equities throughout 2022.
Performance results within international equity markets were negative for the year, with foreign developed outperforming emerging markets. Europe faced similar headwinds as the United States, with surging inflation and aggressive central bank tightening – but Europe also had to contend with the ongoing Russian invasion of Ukraine. As of December 31, 2022, the labor market remained tight in the eurozone – including Germany, where unemployment had fallen below 3% – and many businesses reported that a labor shortage was limiting production. Despite China’s zero-COVID policies, including widespread lockdowns, infections continued to surge intermittently. Tension among the country’s citizens continued to rise and led to protests not seen in decades. In early December 2022, the central government took definitive steps to ease restrictions and re-open the economy.
The U.S. Treasury yield curve was up in the short-end (3-years) by more than 360 basis points since the beginning of the period as the Federal Reserve aggressively increased interest rates throughout the period.  The 10-year Treasury yield ended the period at 3.88%, up 236 basis points from December 2021. Credit spreads widened since the beginning of the year across both investment grade and high yield bonds. The Federal Open Market Committee met eight times during the year and increased the overnight rate seven times including increments of 0.75% in November and 0.50% in December, ending the year with the Fed targeting a range of 4.25% to 4.50%. The Fed’s “dot plot” is messaging that the current intent is for another 75 basis points in increases before the end of 2023. Following the December 2022 meeting, Fed Chair Jerome Powell indicated that inflation data during the fourth quarter 2022 has been encouraging but that it will take “substantially more evidence” to ensure that modest price increases are sustainable.
Portfolio Review
Individual manager performance within the equity allocation detracted from returns during the year, while allocation decisions within the equity allocation contributed. A drift overweight to foreign equities relative to U.S. equities, plus an early year overweight to value equities were the primary contributors to tilts within equities. 
On a stand-alone basis, the Fund’s fixed income allocation outperformed the Bloomberg US Universal Index. An overweight to credit and short duration fixed income during the year contributed to returns. While individual manager performance within fixed income did not add alpha this year, tilts within fixed income, and mismatch versus the benchmark, contributed to Fund results.
7

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
The Fund’s allocations to the Touchstone Value Fund and Touchstone Ultra Short Duration Fixed Income Fund were the two strongest contributors to manager selection. The Touchstone Value Fund was by far the Fund’s largest contributor to manager selection.  Conversely, the Touchstone Sands Capital Select Growth Fund was the top detractor.
In mid-January 2022, the Fund changed its mandate such that the Fund no longer utilized third party ETFs. The Fund’s fixed income benchmark changed from the Bloomberg Global Aggregate index (USD hedged) to the Bloomberg US Universal Index, while the Fund’s equity benchmark remained the MSCI ACWI Index.
Subsequent changes associated with the removal of ETFs included:
Fixed Income: exited the 6% allocation to iShares International Treasury Bond ETF, its 6% allocation to Vanguard Total International Bond ETF and replaced those exposures with a 12% increase to Touchstone Impact Bond Fund. The Fund also exited its 2% allocation to Vanguard Emerging Markets Government Bond ETF and initiated a new 2% allocation to Touchstone High Yield Fund. Overall, these changes led to a mild decrease in the Fund’s credit quality, but the Fund’s new fixed income benchmark has a lower credit quality profile than the prior benchmark.
Equities: There were no changes to the domestic equity allocation. Within foreign equities, the Fund exited its 3% allocation to iShares Core MSCI Emerging Markets ETF and reallocated to Touchstone Sands Capital Emerging Markets Growth Fund. The Fund also exited its 5% allocation to iShares MSCI EAFE Value ETF, as well as the 5% allocation to Touchstone International Growth Fund and initiated a new 10% allocation to Touchstone International ESG Equity Fund.  The Fund exited Touchstone International Growth Fund to avoid creating a large foreign growth overweight, as well as an emerging markets equity overweight. Moving to the Touchstone International ESG Equity Fund provided core, ACWI ex-USA exposure and served as a diversifier to the Touchstone Sands Emerging Markets Growth Fund and Touchstone Anti-Benchmark® International Core Equity Fund.
In early May, the Fund removed its overweight to bank loans by trimming 2% from the Touchstone Ares Credit Opportunities Fund and reallocating to the Touchstone High Yield Fund. The Fund also reduced its underweight to duration by trimming 4% from Touchstone Ultra Short Duration Fixed Income Fund, and 1% from Touchstone Impact Bond Fund, and initiating a new 5% investment in Touchstone Active Bond Fund. This change also enhanced the Fund’s investment diversification. Both the duration underweight and bank loan overweight have worked well, but we no longer anticipate that interest rates to rise rapidly in the coming months.
Within equities, the Fund removed its overweight to foreign equities (relative to U.S. equities) by trimming 2% from Touchstone Anti-Benchmark® International Core Equity Fund and reallocating 1% each to Touchstone Sands Capital Select Growth Fund and Touchstone Growth Opportunities Fund. This change was also part of the Fund’s migration away from being overweight domestic value equities towards a neutral stance. In conjunction with the reduction in value equity exposure, 1% was trimmed from the Touchstone Small Cap Value Fund and reallocated to Touchstone Growth Opportunities Fund.
The trim to foreign equities also created a modest (and purposeful) overweight to emerging markets equities, which we currently prefer over foreign developed equities.
In early August, the Fund moved to overweight credit relative to government fixed income. This led to trimming 5% from Touchstone Impact Bond Fund and reallocating 4% to Touchstone Active Bond Fund and 1% to Touchstone High Yield Fund. This change marginally reduced overall portfolio credit quality, increased the potential yield and had essentially no impact on the fixed income duration profile of the Fund. This change was made to take advantage of a modest increase in credit spreads.
Outlook and Conclusion
With the tightening of monetary policy, equities may continue to be volatile as investors digest changes to expected corporate profit and earnings growth.  Fixed income, on the other hand, may continue to enjoy a yield level not experienced for a decade given the aggressive interest rate hikes and widening of spreads. Should the Fed reverse its monetary policy from tightening to easing, equities and long duration fixed income investors may benefit from price appreciation as result of the easing of interest rates.  Additionally, the U.S. dollar may continue to weaken as result of easing monetary policy, putting foreign equities in a position for potential rally.
 As the world shifts its focus from COVID to inflation, we believe investors are likely to focus on companies that would benefit from the recovery.  However, re-opening trades largely depend on how likely central banks around the world are to manage inflation levels without triggering recessions.  The Chinese government has recently taken steps to ease its zero COVID policy.  As the wave of new COVID variant passes, Chinese Gross Domestic Product is poised to accelerate. The potential for monetary policy easing, fast-falling inflation and full emergence from COVID provides potential opportunities for the Fund in 2023.
Inflation remains a top concern for all investors, both domestic and global.  Should inflation remain elevated and the Fed’s aggressive actions continue, the possibility and severity of a recession increase.  Further escalation of the war in Ukraine, we believe would likely put not only upward pressure on inflation but also pressure on the economic outlook of the European countries.
8

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
 U.S. corporate balance sheets remain strong, and credit spreads are at attractive levels, allowing for the potential for outperformance from domestic credit issues in 2023.
The Fund has lower fixed income duration than its fixed income benchmark, so to the extent that interest rates rise in the coming months, we would anticipate the fixed income portion of the Fund to potentially outperform its benchmark. Rising interest rates generally benefit Value equities more than Growth equities, so the Fund’s value-oriented exposure may also be beneficial. The Fund has the potential to outperform its benchmark if foreign developed equities outpace domestic and emerging markets equities.
The Fund is positioned relatively neutral overall, with a target to equities that is in line with long-term expectations. We believe volatility within both the equity and credit markets is likely to remain elevated, though that volatility could lead to interesting investment opportunities for active managers. Given that the Fund invests solely in actively managed funds, we believe the outlook for the Fund remains strong for the coming quarters.
9

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the Touchstone Dynamic Allocation Fund Class A*, the MSCI All Country World Index, the Bloomberg US Universal Index and the Bloomberg Global Aggregate Index
Average Annual Total Returns**
Touchstone Dynamic Allocation Fund 1 Year 5 Years 10 Years
Class A -20.75% 0.29% 3.56%
Class C -17.95% 0.75% 3.56%
Class Y -16.34% 1.75% 4.44%
MSCI All Country World Index -18.36% 5.23% 7.98%
Bloomberg US Universal Index -12.99% 0.18% 1.33%
Bloomberg Global Aggregate Index -16.25% -1.66% -0.44%
* The chart above represents performance of Class A shares only, which will vary from the performance of Class C shares and Class Y shares based on the differences in sales loads and fees paid by shareholders in the different classes.
** 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 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 is an unmanaged index that measures the equity market performance of developed and emerging markets.
Effective January 18, 2022, the Fund's secondary benchmark changed from the Bloomberg Global Aggregate Index to the Bloomberg US Universal Index, as the Bloomberg US Universal Index was determined to be more representative of the markets in which the Fund invests.
The Bloomberg US Universal Index represents the union of the U.S. Aggregate Index, U.S. Corporate High Yield Index, Investment Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index and the non-ERISA eligible portion of the CMBS Index. The index covers USD-denominated, taxable bonds that are rated either investment grade or high-yield.
Bloomberg Global Aggregate Index is an unmanaged index that measures global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
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.
10

 

Management's Discussion of Fund Performance (Unaudited)
Touchstone Sands Capital International Growth Fund
Sub-Advised by Sands Capital Management, LLC
Investment Philosophy
The Touchstone Sands Capital International Growth Fund  (the “Fund”) seeks long-term capital appreciation. The Fund invests in equity and equity-related securities issued by companies located in foreign countries. The Fund’s sub-adviser, Sands Capital Management, LLC, uses a “bottom-up” approach to investment selection that focuses on a company’s long-term business fundamentals, as opposed to sector or regional allocations. 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 International Growth Fund (Class Y Shares) underperformed its benchmark, the MSCI ACWI Ex-USA Index, for the 12-month period ended December 31, 2022.  The Fund’s total return was -42.48 percent while the benchmark’s total return was -16.00 percent.
Market Environment
The 12 months ending 2022 was the worst year for international equities (as measured by the MSCI ACWI Index ex-USA) since 2008.  While the market selloff was broad-based, it was deeper for growth-oriented stocks. In 2022, the MSCI ACWI ex-USA Growth Index underperformed the MSCI ACWI ex-U.S. Value Index by the widest margin since 2000.
Within the broader MSCI ACWI ex-USA Index, outperforming sectors included Energy, Financials, and Materials.  Only Energy produced a positive return during the period.  Information Technology, Consumer Discretionary, and Communication Services were the laggards.
Portfolio Review
The Fund underperformed in 2022 amid the most challenging market for international growth equities in over two decades. Security selection drove the bulk of the underperformance, and sector allocation was also a headwind.
All regions and all but one sector detracted from relative results in 2022. Western Europe was the top regional detractor, while Eastern Europe detracted the least. From a sector perspective, Information Technology and Communication Services accounted for the bulk of the underperformance, while Real Estate—a zero percent weight—was the sole contributor to relative results.
The top absolute contributors were HDFC Bank Limited ("HDFC Bank"), Genmab A/S ("Genmab"), CTS Eventim AG ("CTS Eventim"), AIA, and WEG Industries ("WEG").  HDFC Bank remains what we view as the best emerging market banking franchise. Looking ahead, we believe the merger of HDFC Bank and Housing Development Finance Corporation (HDFC) will remove cross-selling barriers that previously existed for lending and mortgage products, enabling greater synergies and ultimately higher and more durable earnings growth.
CTS Eventim was added to the portfolio late in the period. The business is the largest event ticketing business in Europe, by market share. We see the business as a monopolistic marketplace connecting fragmented buyers and sellers within a secularly growing consumer category (live entertainment), seeded with some first-party inventory (internal concert promotion).
WEG—one of the world’s largest manufacturers of electric equipment—was also purchased late in the period. The Brazil-based business’ vision is to provide complete and efficient solutions for the entire electrification value chain, from power generation to consumption. The business is highly diversified, with over half of its revenue derived outside of Brazil, and a product base that spans industrial equipment, green energy, commercial motors, and paints/varnishes.
The top absolute detractors were Atlassian Corporation ("Atlassian"), Sea Limited ADR ("SEA"), Shopify Inc. ("Shopify"), Taiwan Semiconductor Manufacturing Company Limited (" Taiwan Semiconductor"), and Adyen NV ("Adyen").
Atlassian, Sea, and Shopify are all high-growth, high-valuation companies that sold off considerably among the market’s purge of long-duration assets. In Atlassian’s case, management’s about-face relating to cloud revenue guidance caused a drop in shares, and anxiety about enterprise cloud demand amid a potential U.S. recessionary environment continues to weigh on sentiment. Investors’ focus on near-term profitability weighed on shares of Sea, which is unprofitable and previously focused on aggressive international expansion. It has since refocused its efforts and has demonstrated progress in ecommerce profitability. Shopify shares came under pressure given its low current margin profile, concerns about the durability of ecommerce demand and growth, and competition.
11

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
All three businesses continue to meet our criteria.
Portfolio turnover during the period  was low, which we believe reflects the conviction we have in the portfolio we have constructed.  The most material big-picture changes were exits from Russia and the reduction of China exposure.  In 2022 we purchased Sika AG, WEG, Formula One, Dino Polska SA, and CTS Eventim. We sold Yandex LLC, Safran S.A., Auto 1 Group, Zur Rose Group, PagSeguro Digital Ltd., Tencent Holdings Lts., and Wuxi Biologics.
Outlook and Conclusion
We seek to outperform over rolling periods of three or more years. We have observed that earnings tend to drive stock prices over the long term, and over time, that a small percentage of companies have accounted for most of the value created in the market. Therefore, we seek to identify the few businesses that we believe can sustain above-average growth over long periods of time.
This approach did not work in 2022. This year will go down in history as one of the worst for global assets—not just equities—and high-growth stocks led the decline. Investors indiscriminately sold long-duration assets, including high-growth stocks, as they sought to shorten their time horizons and focus on near-term certainty amid tightening financial conditions, potentially slowing global economic growth, and geopolitical tensions. Amid this uncertainty, this market rapidly shifted its mindset from “growth at any cost” to “show me the money” when assigning value to companies and their profitability profiles.
We underwrote and stress tested every investment case, and were comforted to find that in most situations, we believe that the fundamentals underpinning our businesses are either intact or stronger than they were pre-pandemic. We believe that the portfolio of businesses we own today has better fundamental merit than it did at the onset of the pandemic, and importantly, is also more attractively valued.
We believe that our companies are better positioned than the average MSCI ACWI ex-USA constituent to weather a global economic slowdown, which many investors now fear. This is attributable to our fifth investment criterion, which focuses on financial strength. Our businesses generally carry less debt, have higher gross margins, and in our view, predominantly deliver needs over wants: essential and value-adding products and services for businesses and consumers alike.
12

 

Management's Discussion of Fund Performance (Unaudited) (Continued)
Comparison of the Change in Value of a $10,000 Investment in the Touchstone Sands Capital International Growth Fund Class Y* and the MSCI All Country World Ex USA-Index
Average Annual Total Returns
Touchstone Sands Capital International Growth Fund 1 Year Since
Inception*
Class Y -42.48% -25.28%
Institutional Class -42.34% -25.14%
Class R6 -42.34% -25.14%
MSCI All Country World Ex-USA Index -16.00% -6.25%
* The chart above represents performance of Class Y shares only, which will vary from the performance of Institutional Class shares and Class R6 shares based on the differences in fees paid by shareholders in the different classes. The inception date of the Fund was March 8, 2021. The returns of the index listed above are based on the inception date of the Fund.
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 Ex-USA Index is an unmanaged capitalization-weighted index composed of companies representative of both developed and emerging markets, excluding the USA.
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.
13

 

Tabular Presentation of Portfolios of Investments (Unaudited)
December 31, 2022
The tables below provide each Fund’s geographic allocation and/or sector allocation. We hope it will be useful to shareholders as it summarizes key information about each Fund’s investments.
Touchstone Anti-Benchmark® US Core Equity Fund

Sector Allocation*(% of Net Assets)
Health Care 28.1%
Consumer Staples 26.9
Information Technology 10.2
Energy 8.3
Consumer Discretionary 7.7
Communication Services 5.7
Utilities 4.6
Materials 3.8
Industrials 2.0
Financials 1.8
Real Estate 0.4
Short-Term Investment Funds 2.2
Other Assets/Liabilities (Net) (1.7)
Total 100.0%
Touchstone Dynamic Allocation Fund

Sector Allocation*(% of Net Assets)
Affiliated Mutual Funds  
Equity Funds 60.3%
Fixed Income Funds 39.1
Short-Term Investment Fund 0.8
Other Assets/Liabilities (Net) (0.2)
Total 100.0%
Touchstone Sands Capital International Growth Fund

Geographic Allocation(% of Net Assets)
Common Stocks  
Japan 17.0%
Netherlands 10.9
United States 9.4
Switzerland 8.9
India 7.7
Taiwan 6.5
Germany 6.0
Brazil 5.6
Denmark 3.8
United Kingdom 3.7
Sweden 3.7
Canada 3.6
Hong Kong 3.3
France 3.2
China 2.3
Poland 1.7
Short-Term Investment Fund 3.1
Other Assets/Liabilities (Net) (0.4)
Total 100.0%
 
* Sector classifications are based upon the Global Industry Classification Standard (GICS®).
14

 

Portfolio of Investments
Touchstone Anti-Benchmark® US Core Equity Fund – December 31, 2022
Shares       Market
Value
  Common Stocks — 99.5%  
  Health Care — 28.1%  
  1,158 AbbVie, Inc. $   187,144
  1,481 Alnylam Pharmaceuticals, Inc.*    351,960
  4,099 Baxter International, Inc.    208,926
  1,193 Becton Dickinson & Co.    303,380
  1,211 Biogen, Inc.*    335,350
  2,931 Bristol-Myers Squibb Co.    210,885
    797 Edwards Lifesciences Corp.*     59,464
  1,906 Eli Lilly & Co.    697,291
  3,340 Gilead Sciences, Inc.    286,739
    431 Humana, Inc.    220,754
  1,429 Johnson & Johnson    252,433
  6,288 Merck & Co., Inc.    697,654
  1,750 Moderna, Inc.*    314,335
  1,989 Neurocrine Biosciences, Inc.*    237,566
 13,221 Pfizer, Inc.    677,444
  1,738 Quest Diagnostics, Inc.    271,893
    411 Regeneron Pharmaceuticals, Inc.*    296,532
  1,229 Sarepta Therapeutics, Inc.*    159,254
  2,087 United Therapeutics Corp.*    580,374
  3,680 Viatris, Inc.     40,958
         6,390,336
  Consumer Staples — 26.9%  
  1,755 BJ's Wholesale Club Holdings, Inc.*    116,111
  4,224 Campbell Soup Co.    239,712
  4,921 Church & Dwight Co., Inc.    396,682
  4,596 Clorox Co. (The)    644,957
    460 Colgate-Palmolive Co.     36,243
 14,561 Conagra Brands, Inc.    563,511
  8,045 General Mills, Inc.    674,573
    230 Hershey Co. (The)     53,261
 13,919 Hormel Foods Corp.    634,010
  4,401 J M Smucker Co. (The)    697,382
  9,452 Kellogg Co.    673,361
  1,013 Keurig Dr Pepper, Inc.     36,124
  3,498 Kimberly-Clark Corp.    474,854
  5,496 Kraft Heinz Co. (The)    223,742
 14,342 Kroger Co. (The)    639,366
         6,103,889
  Information Technology — 10.2%  
  2,738 Amdocs Ltd.    248,884
    273 Crowdstrike Holdings, Inc.*     28,744
    500 Enphase Energy, Inc.*    132,480
    920 EPAM Systems, Inc.*    301,521
    752 Fidelity National Information Services, Inc.     51,023
  2,778 First Solar, Inc.*    416,117
 30,142 Gen Digital, Inc.    645,943
  6,097 Hewlett Packard Enterprise Co.     97,308
    792 Okta, Inc.*     54,117
  1,028 SolarEdge Technologies, Inc.*    291,202
    655 Zoom Video Communications, Inc. - Class A*     44,370
         2,311,709
  Energy — 8.3%  
  3,926 Antero Resources Corp.*    121,667
  7,458 Baker Hughes Co.    220,235
    300 Cheniere Energy, Inc.     44,988
  2,544 Diamondback Energy, Inc.    347,968
  1,158 EOG Resources, Inc.    149,984
  1,519 EQT Corp.     51,388
    862 HF Sinclair Corp.     44,729
  4,535 Occidental Petroleum Corp.     285,660
Shares       Market
Value
     
  Energy — (Continued)  
    510 Pioneer Natural Resources $   116,479
  8,668 Schlumberger Ltd.    463,391
  7,503 Southwestern Energy Co.*     43,892
         1,890,381
  Consumer Discretionary — 7.7%  
  1,264 Burlington Stores, Inc.*    256,289
  3,356 Dollar Tree, Inc.*    474,672
    308 Domino's Pizza, Inc.    106,691
  1,144 Expedia Group, Inc.*    100,214
  7,252 Las Vegas Sands Corp.*    348,604
  8,629 Yum China Holdings, Inc. (China)    471,575
         1,758,045
  Communication Services — 5.7%  
  2,242 AT&T, Inc.     41,275
 13,710 Paramount Global - Class B    231,425
  4,629 ROBLOX Corp.*    131,741
 23,309 Snap, Inc. - Class A*    208,616
  3,082 Take-Two Interactive Software, Inc.*    320,929
  7,473 Verizon Communications, Inc.    294,436
  6,056 Warner Bros Discovery, Inc.*     57,411
         1,285,833
  Utilities — 4.6%  
  5,801 Consolidated Edison, Inc.    552,893
  1,081 Eversource Energy     90,631
 24,920 PG&E Corp.*    405,199
         1,048,723
  Materials — 3.8%  
  1,109 CF Industries Holdings, Inc.     94,487
  3,092 Mosaic Co. (The)    135,646
 13,291 Newmont Corp.    627,335
           857,468
  Industrials — 2.0%  
  5,026 CH Robinson Worldwide, Inc.    460,181
  Financials — 1.8%  
  2,908 Cboe Global Markets, Inc.    364,867
  2,625 F&G Annuities & Life, Inc.*     52,526
           417,393
  Real Estate — 0.4%  
  1,412 Welltower, Inc. REIT     92,557
  Total Common Stocks $22,616,515
  Short-Term Investment Funds — 2.2%  
277,112 Dreyfus Government Cash Management, Institutional Shares, 4.19%∞Ω    277,112
232,760 Invesco Government & Agency Portfolio, Institutional Class, 4.22%∞Ω**    232,760
  Total Short-Term Investment Funds    $509,872
  Total Investment Securities—101.7%
(Cost $20,009,308)
$23,126,387
  Liabilities in Excess of Other Assets — (1.7%)   (396,964)
  Net Assets — 100.0% $22,729,423
* 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 December 31, 2022 was $229,095.
Open-End Fund.
Ω Represents the 7-Day SEC yield as of December 31, 2022.
 
15

 

Touchstone Anti-Benchmark® US Core Equity Fund (Continued)
Portfolio Abbreviations:
REIT – Real Estate Investment Trust
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 $22,616,515 $— $— $22,616,515
Short-Term Investment Funds 509,872 509,872
Total $23,126,387 $— $— $23,126,387
See accompanying Notes to Financial Statements.
16

 

Portfolio of Investments
Touchstone Dynamic Allocation Fund – December 31, 2022
Shares       Market
Value
  Affiliated Mutual Funds^~ — 99.4%  
  Equity Funds — 60.3%  
  656,401 Touchstone Anti-Benchmark® International Core Equity Fund $ 5,211,822
  201,343 Touchstone Growth Opportunities Fund  6,380,552
  943,516 Touchstone International ESG Equity Fund  6,397,038
   30,694 Touchstone Mid Cap Fund  1,271,959
  293,844 Touchstone Sands Capital Emerging Markets Growth Fund*  3,708,311
  355,990 Touchstone Sands Capital Select Growth Fund  3,385,462
   21,037 Touchstone Small Cap Value Fund    671,293
1,078,727 Touchstone Value Fund 10,862,784
        37,889,221
  Fixed Income Funds — 39.1%  
  618,771 Touchstone Active Bond Fund  5,674,132
  141,813 Touchstone Ares Credit Opportunities Fund  1,262,133
  435,718 Touchstone High Yield Fund  3,145,883
1,415,385 Touchstone Impact Bond Fund 12,582,772
  210,523 Touchstone Ultra Short Duration Fixed Income Fund  1,892,597
        24,557,517
  Total Affiliated Mutual Funds $62,446,738
  Short-Term Investment Fund — 0.8%  
  493,895 Dreyfus Government Cash Management, Institutional Shares, 4.19%∞Ω    493,895
  Total Investment Securities—100.2%
(Cost $69,685,557)
$62,940,633
  Liabilities in Excess of Other Assets — (0.2%)   (111,048)
  Net Assets — 100.0% $62,829,585
^ All affiliated underlying fund investments are invested in the Institutional Class, unless otherwise indicated.
~ The financial statements of the underlying funds can be found on the SEC website.
* Non-income producing security.
Open-End Fund.
Ω Represents the 7-Day SEC yield as of December 31, 2022.
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
Affiliated Mutual Funds $62,446,738 $— $— $62,446,738
Short-Term Investment Fund 493,895 493,895
Total $62,940,633 $— $— $62,940,633
See accompanying Notes to Financial Statements.
 
17

 

Portfolio of Investments
Touchstone Sands Capital International Growth Fund – December 31, 2022
Shares       Market
Value
  Common Stocks — 97.3%  
  Japan — 17.0%  
  Consumer Staples — 2.0%  
 16,600 Welcia Holdings Co. Ltd. $   386,951
  Health Care — 2.3%  
 16,300 M3, Inc.    442,762
  Industrials — 8.0%  
 31,800 MonotaRO Co. Ltd.    447,931
 45,400 Nihon M&A Center Holdings, Inc.    558,636
 18,100 Recruit Holdings Co. Ltd.    566,566
  Information Technology — 4.7%  
  2,350 Keyence Corp.    912,375
  Total Japan  3,315,221
  Netherlands — 10.9%  
  Information Technology — 10.9%  
    609 Adyen NV, 144a*    845,444
  2,364 ASML Holding NV  1,291,690
  Total Netherlands  2,137,134
  United States — 9.4%  
  Communication Services — 2.6%  
  8,379 Liberty Media Corp.-Liberty Formula One - Class C*    500,896
  Consumer Discretionary — 2.9%  
  6,005 Aptiv PLC*    559,246
  Health Care — 1.4%  
  1,416 CSL Ltd.    276,112
  Information Technology — 2.5%  
  3,879 Atlassian Corp. - Class A*    499,150
  Total United States  1,835,404
  Switzerland — 8.9%  
  Health Care — 2.9%  
  1,137 Lonza Group AG    558,125
  Industrials — 2.6%  
  1,856 VAT Group AG, 144a    509,505
  Materials — 3.4%  
  2,751 Sika AG    661,349
  Total Switzerland  1,728,979
  India — 7.7%  
  Financials — 7.7%  
  7,897 Bajaj Finance Ltd.    625,559
 12,959 HDFC Bank Ltd. ADR    886,525
  Total India  1,512,084
  Taiwan — 6.5%  
  Communication Services — 1.8%  
  6,889 Sea Ltd. ADR*    358,435
  Information Technology — 4.7%  
 12,349 Taiwan Semiconductor Manufacturing Co. Ltd. ADR    919,877
  Total Taiwan  1,278,312
  Germany — 6.0%  
  Communication Services — 3.5%  
 10,800 CTS Eventim AG & Co. KGaA*    685,573
  Consumer Discretionary — 2.5%  
 14,014 Zalando SE, 144a*    493,360
  Total Germany  1,178,933
Shares       Market
Value
     
  Brazil — 5.6%  
  Consumer Discretionary — 4.0%  
    921 MercadoLibre, Inc.* $   779,387
  Industrials — 1.6%  
 43,600 WEG SA    318,014
  Total Brazil  1,097,401
  Denmark — 3.8%  
  Health Care — 3.8%  
  1,763 Genmab A/S*    745,387
  United Kingdom — 3.7%  
  Consumer Discretionary — 3.7%  
 44,992 Entain PLC    716,501
  Sweden — 3.7%  
  Information Technology — 3.7%  
 68,306 Hexagon AB - Class B    716,195
  Canada — 3.6%  
  Information Technology — 3.6%  
 19,969 Shopify, Inc. - Class A*    693,124
  Hong Kong — 3.3%  
  Financials — 3.3%  
 57,800 AIA Group Ltd.    638,308
  France — 3.2%  
  Health Care — 3.2%  
  1,925 Sartorius Stedim Biotech    625,564
  China — 2.3%  
  Consumer Discretionary — 2.3%  
 35,000 ANTA Sports Products Ltd.    455,236
  Poland — 1.7%  
  Consumer Staples — 1.7%  
  3,745 Dino Polska SA, 144a*    321,637
  Total Common Stocks $18,995,420
  Short-Term Investment Fund — 3.1%  
611,958 Dreyfus Government Cash Management, Institutional Shares, 4.19%∞Ω    611,958
  Total Investment Securities — 100.4%
(Cost $23,506,096)
$19,607,378
  Liabilities in Excess of Other Assets — (0.4)%    (73,475)
  Net Assets — 100.0% $19,533,903
* Non-income producing security.
Open-End Fund.
Ω Represents the 7-Day SEC yield as of December 31, 2022.
Portfolio Abbreviations:
ADR – American Depositary Receipt
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 December 31, 2022, these securities were valued at $2,169,946 or 11.1% of net assets. These securities were deemed liquid pursuant to procedures approved by the Board of Trustees.
 
18

 

Touchstone Sands Capital International 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        
Japan $$3,315,221 $— $3,315,221
Netherlands 1,291,690 845,444 2,137,134
United States 1,559,292 276,112 1,835,404
Switzerland 1,728,979 1,728,979
India 886,525 625,559 1,512,084
Taiwan 1,278,312 1,278,312
Germany 1,178,933 1,178,933
Brazil 1,097,401 1,097,401
Denmark 745,387 745,387
United Kingdom 716,501 716,501
Sweden 716,195 716,195
Canada 693,124 693,124
Hong Kong 638,308 638,308
France 625,564 625,564
China 455,236 455,236
Poland 321,637 321,637
Short-Term Investment Fund 611,958 611,958
Total $7,418,302 $12,189,076 $— $19,607,378
See accompanying Notes to Financial Statements.
19

 

Statements of Assets and Liabilities
December 31, 2022
  Touchstone Anti-
Benchmark®
US Core Equity
Fund
Touchstone
Dynamic
Allocation
Fund
Touchstone
Sands Capital
International
Growth
Fund
Assets      
Affiliated securities, at cost $$69,191,662 $
Non-affiliated securities, at cost 20,009,308 493,895 23,506,096
Affiliated securities, at market value $$62,446,738 $
Non-affiliated securities, at market value* 23,126,387 493,895 19,607,378
Foreign currency 11,830
Dividends and interest receivable 22,116 6,127
Receivable for capital shares sold 19 1,924
Receivable for investments sold 135,000
Receivable for securities lending income 403
Tax reclaim receivable 7,721
Other assets 10,389 16,789 4,773
Total Assets 23,159,314 63,094,346 19,637,829
 
Liabilities      
Payable for return of collateral for securities on loan 232,760
Payable for capital shares redeemed 141,206 192,723 51,088
Payable to Investment Adviser 7,816
Payable to other affiliates 3,053 3,873 2,698
Payable to Trustees 6,419 6,419 6,419
Payable for professional services 24,022 22,107 31,498
Payable for reports to shareholders 4,281 5,391 3,191
Payable for transfer agent services 6,138 30,447 2,674
Other accrued expenses and liabilities 4,196 3,801 6,358
Total Liabilities 429,891 264,761 103,926
Net Assets $22,729,423 $62,829,585 $19,533,903
Net assets consist of:      
Paid-in capital 22,007,520 70,565,817 41,842,206
Distributable earnings (deficit) 721,903 (7,736,232) (22,308,303)
Net Assets $22,729,423 $62,829,585 $19,533,903
*Includes market value of securities on loan of: $229,095 $ $
Cost of foreign currency: $ $ $11,858
See accompanying Notes to Financial Statements.
20

 

Statements of Assets and Liabilities  (Continued)
  Touchstone Anti-
Benchmark®
US Core Equity
Fund
Touchstone
Dynamic
Allocation
Fund
Touchstone
Sands Capital
International
Growth
Fund
Pricing of Class A Shares      
Net assets applicable to Class A shares $5,112,813 $58,573,250 $
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value)
495,800 5,624,845
Net asset value price per share* $10.31 $10.41 $
Maximum sales charge - Class A shares 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
$10.85 $10.96 $
 
Pricing of Class C Shares      
Net assets applicable to Class C shares $860,378 $1,269,804 $
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value)
97,389 127,119
Net asset value and offering price per share** $8.83 $9.99 $
 
Pricing of Class Y Shares      
Net assets applicable to Class Y shares $12,081,079 $2,986,531 $1,520,662
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value)
1,150,615 283,587 258,219
Net asset value, offering price and redemption price per share $10.50 $10.53 $5.89
 
Pricing of Institutional Class Shares      
Net assets applicable to Institutional Class shares $4,675,153 $ $3,243,852
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value)
436,113 548,830
Net asset value, offering price and redemption price per share $10.72 $ $5.91
 
Pricing of Class R6 Shares      
Net assets applicable to Class R6 shares $ $ $14,769,389
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value)
2,500,250
Net asset value, offering price and redemption price per share $ $ $5.91
* There is no sales load on subscriptions of $1 million or more. Redemptions that were part of a $1 million or more subscription 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.
21

 

Statements of Operations For the Year Ended December 31, 2022
  Touchstone Anti-
Benchmark®
US Core Equity
Fund
Touchstone
Dynamic
Allocation
Fund
Touchstone
Sands Capital
International
Growth
Fund
Investment Income      
Dividends from affiliated securities $$1,389,490 $
Dividends from non-affiliated securities* 525,319 9,448 191,001
Income from securities loaned 17,938 1,809 478
Total Investment Income 543,257 1,400,747 191,479
Expenses      
Investment advisory fees 86,461 176,178 223,094
Administration fees 33,504 95,507 37,659
Compliance fees and expenses 3,372 3,372 3,372
Custody fees 16,245 3,657 18,383
Professional fees 28,289 79,181 36,659
Transfer Agent fees, Class A 7,056 63,312
Transfer Agent fees, Class C 852 2,229
Transfer Agent fees, Class Y 9,907 4,221 1,498
Transfer Agent fees, Institutional Class 66 8,256
Transfer Agent fees, Class R6 31
Registration Fees, Class A 11,657 19,545
Registration Fees, Class C 10,063 12,118
Registration Fees, Class Y 15,763 7,240 8,890
Registration Fees, Institutional Class 8,355 33,822
Registration Fees, Class R6 5,082
Reports to Shareholders, Class A 3,058 9,979
Reports to Shareholders, Class C 2,203 3,211
Reports to Shareholders, Class Y 3,767 2,649 2,229
Reports to Shareholders, Institutional Class 2,092 3,015
Reports to Shareholders, Class R6 2,516
Distribution expenses, Class A 13,889 162,981
Distribution and shareholder servicing expenses, Class C 10,777 15,821
Trustee fees 27,327 27,327 27,327
Other expenses 18,958 45,181 33,048
Total Expenses 313,661 733,709 444,881
Fees waived and/or reimbursed by the Adviser and/or Affiliates(A) (160,279) (385,701) (207,863)
Net Expenses 153,382 348,008 237,018
Net Investment Income (Loss) 389,875 1,052,739 (45,539)
Realized and Unrealized Gains (Losses) on Investments      
Net realized gains (losses) on investments in non-affiliated securities (450,074) 522,237 (17,481,577)
Net realized loss on investments in affiliated securities (2,056,206)
Net realized gains (losses) on foreign currency transactions 3 (3,803)
Capital gain distributions received from affiliated funds 760,582
Net change in unrealized appreciation(depreciation) on investments in non-affiliated securities (2,637,373) (534,396) (1,756,869)
Net change in unrealized appreciation (depreciation) on investments in affiliated securities (13,419,184)
Net change in unrealized appreciation (depreciation) on foreign currency transactions 664
Net Realized and Unrealized Gains (Losses) on Investments (3,087,444) (14,726,967) (19,241,585)
Change in Net Assets Resulting from Operations $(2,697,569) $(13,674,228) $(19,287,124)
*Net of foreign tax withholding of: $2,909 $ $18,389
(A) See Note 4 in Notes to Financial Statements.
See accompanying Notes to Financial Statements.
22

 

Statements of Changes in Net Assets
  Touchstone
Anti-
Benchmark®
US Core Equity
Fund
Touchstone
Dynamic
Allocation
Fund
Touchstone
Sands Capital
International Growth Fund
  For the
Year Ended
December 31,
2022
For the
Year Ended
December 31,
2021
For the
Year Ended
December 31,
2022
For the
Year Ended
December 31,
2021
For the
Year Ended
December 31,
2022
For the
Period Ended
December 31,
2021(A)
From Operations            
Net investment income (loss) $389,875 $476,576 $1,052,739 $1,109,427 $(45,539) $(191,526)
Net realized gains (losses) on investments, capital gain distributions received and foreign currency transactions (450,071) 4,739,555 (773,387) 5,253,080 (17,485,380) (865,603)
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions (2,637,373) (1,116,577) (13,953,580) (1,876,894) (1,756,205) (2,142,388)
Change in Net Assets from Operations (2,697,569) 4,099,554 (13,674,228) 4,485,613 (19,287,124) (3,199,517)
 
Distributions to Shareholders:            
Distributed earnings, Class A (1,253,219) (214,429) (3,140,993) (4,319,434)
Distributed earnings, Class C (224,292) (44,902) (86,179) (98,167)
Distributed earnings, Class Y (2,967,089) (579,062) (175,632) (289,245)
Distributed earnings, Institutional Class (1,053,897) (510,927)
Total Distributions (5,498,497) (1,349,320) (3,402,804) (4,706,846)
Change in Net Assets from Share Transactions(B) 1,880,328 (22,329,169) (5,055,174) (4,191,020) (23,993,590) 66,014,134
 
Total Increase (Decrease) in Net Assets (6,315,738) (19,578,935) (22,132,206) (4,412,253) (43,280,714) 62,814,617
 
Net Assets            
Beginning of period 29,045,161 48,624,096 84,961,791 89,374,044 62,814,617
End of period $22,729,423 $29,045,161 $62,829,585 $84,961,791 $19,533,903 $62,814,617
(A) Represents the period from commencement of operations (March 8, 2021) through December 31, 2021.
(B) For details on share transactions by class, see Statements of Changes in Net Assets - Capital Stock Activity on pages 24-25.
See accompanying Notes to Financial Statements.
23

 

Statements of Changes in Net Assets - Capital Stock Activity
  Touchstone
Anti-
Benchmark®
US Core Equity
Fund
Touchstone
Dynamic
Allocation
Fund
  For the Year
Ended
December 31, 2022
For the Year
Ended
December 31, 2021
For the Year
Ended
December 31, 2022
For the Year
Ended
December 31, 2021
  Shares Dollars Shares Dollars Shares Dollars Shares Dollars
Class A                
Proceeds from Shares issued 49,361 $583,698 41,894 $619,883 124,148 $1,423,148 163,860 $2,239,998
Reinvestment of distributions 89,804 932,168 10,386 152,526 264,215 2,818,941 289,884 3,862,634
Cost of Shares redeemed (82,021) (1,015,294) (53,991) (809,581) (681,497) (7,789,260) (702,314) (9,645,407)
Change from Class A Share Transactions 57,144 500,572 (1,711) (37,172) (293,134) (3,547,171) (248,570) (3,542,775)
Class C                
Proceeds from Shares issued 639 6,551 338 4,524 11,276 127,361 25,752 345,614
Reinvestment of distributions 25,120 223,567 3,317 43,502 8,298 85,275 7,477 97,049
Cost of Shares redeemed (40,264) (471,229) (47,554) (631,369) (50,568) (558,533) (107,897) (1,446,387)
Change from Class C Share Transactions (14,505) (241,111) (43,899) (583,343) (30,994) (345,897) (74,668) (1,003,724)
Class Y                
Proceeds from Shares issued 9,224 116,563 32,704 490,829 46,298 527,132 63,672 886,019
Reinvestment of distributions 239,189 2,528,230 34,967 519,941 15,163 164,100 20,088 270,809
Cost of Shares redeemed (163,205) (2,054,900) (228,587) (3,451,230) (158,348) (1,853,338) (57,404) (801,349)
Change from Class Y Share Transactions 85,208 589,893 (160,916) (2,440,460) (96,887) (1,162,106) 26,356 355,479
Institutional Class                
Proceeds from Shares issued 9,198 120,021
Reinvestment of distributions 97,673 1,053,897 33,650 510,927
Cost of Shares redeemed (10,665) (142,944) (1,276,961) (19,779,121)
Change from Institutional Class Share Transactions 96,206 1,030,974 (1,243,311) (19,268,194)
Class R6                
Proceeds from Shares issued
Cost of Shares redeemed
Change from Class R6 Share Transactions
Change from Share Transactions 224,053 $1,880,328 (1,449,837) $(22,329,169) (421,015) $(5,055,174) (296,882) $(4,191,020)
(A) Represents the period from commencement of operations (March 8, 2021) through December 31, 2021.
See accompanying Notes to Financial Statements.
24

 

Statements of Changes in Net Assets - Capital Stock Activity (Continued)
Touchstone
Sands Capital
International Growth Fund
For the Year
Ended
December 31, 2022
For the Period
Ended
December 31, 2021(A)
Shares Dollars Shares Dollars
       
$$
       
       
183,817 1,244,762 171,130 1,927,465
(50,052) (306,228) (46,676) (532,912)
133,765 938,534 124,454 1,394,553
       
701,127 5,286,759 3,614,814 40,776,835
(3,656,277) (30,218,883) (110,834) (1,159,754)
(2,955,150) (24,932,124) 3,503,980 39,617,081
       
2,500,250 25,002,504
(4)
2,500,250 25,002,500
(2,821,385) $(23,993,590) 6,128,684 $66,014,134
25

 

Financial Highlights
Touchstone Anti-Benchmark® US Core Equity Fund
Period ended   Net
asset
value at
beginning
of period
  Net
investment
income
  Net
realized
and
unrealized
gains (losses)
on investments
  Total from
investment
operations
  Distributions
from net
investment
income
  Distributions
from realized
capital
gains
  Return of
capital
  Total
distributions
  Net
asset
value
at end
of period
  Total
return(1)
  Net
assets
at end
of period
(000's)
  Ratio of net
expenses
to average
net assets
  Ratio of gross
expenses
to average
net assets
  Ratio
of net
investment
income (loss)
to average
net assets
  Portfolio
turnover
rate
Class A
12/31/20(2)   $12.97   $0.02   $1.20   $1.22   $(0.15)   $  $  $(0.15)   $14.04   9.41%(3)   $6,184   0.79%(4)   1.31%(4)   0.70%(4)   54%(3)(5)
12/31/21   14.04   0.11(6)   1.13   1.24   (0.28)   (0.22)     (0.50)   14.78   8.89   6,482   0.79   1.29   0.71   59
12/31/22   14.78   0.18(6)   (1.54)   (1.36)     (3.11)     (3.11)   10.31   (9.34)   5,113   0.79   1.51   1.41   85
Class C
12/31/20(2)   $11.57   $(7)   $1.07   $1.07   $  $  $  $  $12.64   9.25%(3)   $1,969   1.54%(4)   2.22%(4)   (0.05)%(4)   54%(3)(5)
12/31/21   12.64   (—)(6)(7)   1.00   1.00   (0.18)   (0.22)     (0.40)   13.24   8.05   1,482   1.54   2.44   (0.04)   59
12/31/22   13.24   0.08(6)   (1.38)   (1.30)     (3.11)     (3.11)   8.83   (9.99)   860   1.54   3.08   0.66   85
Class Y
09/30/19(8)(9)   $11.22   $0.10   $0.63   $0.73   $(0.07)   $  $  $(0.07)   $11.88   6.57%(3)   $52   0.54%(4)   110.89%(4)   2.10%(4)   137%(3)(10)
09/30/20(8)   11.88   0.29   1.44   1.73   (0.38)   (0.17)   (0.01)   (0.56)   13.05   14.63   159   0.54   9.63   1.91   73
12/31/20(8)(11)(12)   13.05   0.04   1.30   1.34   (0.19)       (0.19)   14.20   10.23(3)   17,411   0.54(4)   1.04(4)   0.92(4)   54(3)(5)
12/31/21   14.20   0.15(6)   1.14   1.29   (0.32)   (0.22)     (0.54)   14.95   9.14   15,924   0.54   0.85   0.96   59
12/31/22   14.95   0.22(6)   (1.56)   (1.34)     (3.11)     (3.11)   10.50   (9.10)   12,081   0.54   1.09   1.66   85
Institutional Class
09/30/19(8)(9)   $11.36   $0.22   $0.52   $0.74   $(0.07)   $  $  $(0.07)   $12.03   6.59%(3)   $26,648   0.44%(4)   0.85%(4)   2.21%(4)   137%(3)(10)
09/30/20(8)   12.03   0.25   1.53   1.78   (0.41)   (0.17)   (0.01)   (0.59)   13.22   14.77   30,585   0.44   0.77   2.01   73
12/31/20(8)(11)(12)   13.22   0.04   1.31   1.35   (—)(7)         14.57   10.22(3)   23,061   0.44(4)   0.82(4)   1.02(4)   54(3)(5)
12/31/21   14.57   0.17(6)   1.16   1.33   (0.51)   (0.22)     (0.73)   15.17   9.17   5,158   0.44   0.72   1.06   59
12/31/22   15.17   0.24(6)   (1.58)   (1.34)     (3.11)     (3.11)   10.72   (8.96)   4,675   0.44   1.09   1.76   85
(1) Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower.
(2) Represents the period from commencement of operations (October 2, 2020) through December 31, 2020.
(3) Not annualized.
(4) Annualized.
(5) Portfolio turnover excludes the purchases and sales of securities of the Touchstone Dynamic Equity Fund merger on October 2, 2020. If these transactions were included, portfolio turnover would have been higher.
(6) The net investment income (loss) per share was based on average shares outstanding for the period.
(7) Less than $0.005 per share.
(8) During the three months ended December 31, 2020, the Fund effected the following reverse stock split effective the close of business October 2, 2020: 0.8911 for 1 for Class Y shares and 0.8799 for 1 for Institutional Class shares. All historical per share information has been retroactively adjusted to reflect this reverse stock split.
(9) Represents the period from commencement of operations (November 19, 2018) through September 30, 2019.
(10) Portfolio turnover excludes securities received from processing a subscription-in-kind.
(11) Represents the three months ended December 31, 2020.
(12) The Fund changed its fiscal year end from September 30 to December 31.
See accompanying Notes to Financial Statements.
26

 

Financial Highlights (Continued)
Touchstone Dynamic Allocation Fund
Period ended   Net
asset
value at
beginning
of period
  Net
investment
income
  Net
realized
and
unrealized
gains (losses)
on investments
  Total from
investment
operations
  Distributions
from net
investment
income
  Distributions
from realized
capital
gains
  Total
distributions
  Net
asset
value
at end
of period
  Total
return(1)
  Net
assets
at end
of period
(000's)
  Ratio of net
expenses
to average
net assets(2)
  Ratio of gross
expenses
to average
net assets(2)
  Ratio
of net
investment
income (loss)
to average
net assets
  Portfolio
turnover
rate
Class A
12/31/18   $12.56   $0.20   $(1.16)   $(0.96)   $(0.26)   $ (0.71)   $(0.97)   $10.63   (7.91)%   $54,871   0.49%   0.92%   1.57%   40%
12/31/19   10.63   0.21   1.68   1.89   (0.26)   (0.20)   (0.46)   12.06   17.95   77,001   0.49   0.94   1.77   38
12/31/20   12.06   0.16   1.41   1.57   (0.19)   (0.20)   (0.39)   13.24   13.09   81,624   0.49   0.91   1.26   33
12/31/21   13.24   0.17   0.50   0.67   (0.33)   (0.42)   (0.75)   13.16   5.11   77,866   0.49   0.88   1.26   20
12/31/22   13.16   0.17(3)   (2.35)   (2.18)   (0.29)   (0.28)   (0.57)   10.41   (16.59)   58,573   0.49   1.00   1.50   60
Class C
12/31/18   $12.28   $0.11   $(1.13)   $(1.02)   $(0.17)   $ (0.71)   $(0.88)   $10.38   (8.55)%   $24,897   1.24%   1.68%   0.82%   40%
12/31/19   10.38   0.25   1.51   1.76   (0.14)   (0.20)   (0.34)   11.80   17.01   5,250   1.24   1.90   1.02   38
12/31/20   11.80   0.25   1.20   1.45   (0.10)   (0.20)   (0.30)   12.95   12.28   3,015   1.24   2.03   0.51   33
12/31/21   12.95   0.08   0.48   0.56   (0.22)   (0.42)   (0.64)   12.87   4.34   2,035   1.24   2.33   0.51   20
12/31/22   12.87   0.08(3)   (2.29)   (2.21)   (0.39)   (0.28)   (0.67)   9.99   (17.18)   1,270   1.24   2.72   0.75   60
Class Y
12/31/18   $12.67   $0.27   $(1.21)   $(0.94)   $(0.29)   $ (0.71)   $(1.00)   $10.73   (7.69)%   $5,525   0.24%   0.85%   1.82%   40%
12/31/19   10.73   0.31   1.64   1.95   (0.29)   (0.20)   (0.49)   12.19   18.35   4,060   0.24   0.97   2.02   38
12/31/20   12.19   0.17   1.42   1.59   (0.21)   (0.20)   (0.41)   13.37   13.23   4,735   0.24   0.88   1.51   33
12/31/21   13.37   0.21   0.51   0.72   (0.37)   (0.42)   (0.79)   13.30   5.39   5,061   0.24   0.87   1.51   20
12/31/22   13.30   0.20(3)   (2.37)   (2.17)   (0.32)   (0.28)   (0.60)   10.53   (16.34)   2,987   0.24   0.99   1.75   60
(1) Total returns shown exclude the effect of applicable sales loads and fees. If these charges were included, the returns would be lower.
(2) Ratio does not include expenses of the underlying funds.
(3) The net investment income per share was based on average shares outstanding for the period.
Touchstone Sands Capital International Growth Fund
Period ended   Net
asset
value at
beginning
of period
  Net
investment
loss
  Net
realized
and
unrealized
gains (losses)
on investments
  Total from
investment
operations
  Net
asset
value
at end
of period
  Total
return
  Net
assets
at end
of period
(000's)
  Ratio of net
expenses
to average
net assets
  Ratio of gross
expenses
to average
net assets
  Ratio
of net
investment
income (loss)
to average
net assets
  Portfolio
turnover
rate
Class Y
12/31/21(1)   $10.00   $(0.03)   $0.27   $0.24   $10.24   2.40%(2)   $1,274   0.98%(3)   2.57%(3)   (0.67)%(3)   18%(2)
12/31/22   10.24   (0.02)(4)   (4.33)   (4.35)   5.89   (42.48)   1,521   0.98   2.25   (0.29)   50
Institutional Class
12/31/21(1)   $10.00   $(0.02)   $0.27   $0.25   $10.25   2.50%(2)   $35,915   0.88%(3)   1.36%(3)   (0.57)%(3)   18%(2)
12/31/22   10.25   (0.01)(4)   (4.33)   (4.34)   5