Square Mile Capital Accumulation Advisory Portfolio 2

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1 Square Mile Capital Accumulation Advisory Portfolio 2 SQUARE MILE Portfolio Objectives To generate investment performance that has a volatility level that is consistent with the evalue risk profile 4 over an 11 to 15 year time frame (profile code T24). The volatility forecast will vary in line with changes to evalue s underlying assumptions. The portfolio is likely to be predominantly invested in fixed income and other defensive assets with some exposure to equities. Equity exposure will typically range between 35% and 55%. Launch Date: 30/04/15 Benchmark: Dynamic Asset Allocation* *evalue dynamic strategic asset class allocations and Square Mile sub-asset class allocations using IA sector averages (details available on request). Square Mile Rating Fund Name % Holding As At 31 October 2016 % Holding As At 31 July 2016 Cash 26% 3% SUSPENDED Henderson UK Property PAIF 10% 10% Vanguard US Equity Index 10% 8% Fidelity MoneyBuilder Income 10% 0% CF Lindsell Train UK Equity 5% 8% CF Woodford Equity Income 5% 8% Fidelity MoneyBuilder Income Reduced Duration 4% 4% JPM Strategic Bond 4% 4% Kames High Yield Bond 4% 4% Fidelity Emerging Markets 4% 3% Fundsmith Equity 4% 0% Polar Capital Global Insurance 4% 0% Old Mutual UK Alpha 3% 9% Jupiter UK Special Situations 3% 5% Schroder Tokyo 2% 2% BlackRock Continental European Income 2% 0% L&G All Stocks Gilt Index 0% 19% Invesco Perpetual Corporate Bond 0% 10% Threadneedle UK Equity Income 0% 3% 1

2 Commentary Following on from the excitement and uncertainty created by the Referendum in June, markets enjoyed a relatively calm summer and the price of many financial assets have appreciated. The portfolio has performed strongly as a result. Yields on gilts have continued to decline forcing investors to look further afield. We do not think that this is a market environment to be too greedy and we have taken some profits from our bond and equity positions. Proceeds will be in cash for the moment. We also have switched some equity exposure out the UK and Europe into international funds due to the Brexit uncertainties. Summary of Proposed Changes Fund Change From To Rationale L&G All Stocks Gilt Index -19% 19% 0% Cash 23% 3% 26% CF Lindsell Train UK Equity -3% 8% 5% CF Woodford Equity Income -3% 8% 5% Old Mutual UK Alpha -6% 9% 3% Jupiter UK Special Situations -2% 5% 3% Threadneedle UK Equity Income -3% 3% 0% Vanguard US Equity Index 2% 8% 10% BlackRock Continental European Income 2% 0% 2% Fundsmith Equity 4% 0% 4% Polar Capital Global Insurance 4% 0% 4% Fidelity Emerging Markets 1% 3% 4% Yields on UK gilts have fallen so low that they are now barely discernible. We are looking to take advantage of these rich valuations and we are selling down the portfolio's gilt positions. Selling down our UK gilt exposure has raised the level of cash in the portfolio. We are actively looking for opportunities to deploy this cash but we are in no hurry to do so. Patience is often an investor's friend, especially at a time when other investors seem a little complacent. sold a proportion of our holding in the CF Lindsell Train UK Equity sold a proportion of our holding in the CF Woodford Equity Income sold a proportion of our holding in the Old Mutual UK Alpha Fund. We are selling down our UK Equity exposure in order to reduce the risks that Brexit will bring. sold a proportion of our holding in the Jupiter UK Special Situations sold a proportion of our holding in the Threadneedle UK Equity Income Fund. We are selling down our UK Equity exposure in order to reduce therefore reduce the risks that Brexit will bring, we have increased the portfolio s exposure to the US market through the Vanguard US Equity Index Fund. To orientate the portfolio towards international businesses, we have increased the portfolio s exposure to the Blackrock Continental European Income Fund. We believe that this fund s cautious equity income strategy may gain increasing favour with European investors. therefore reduce the risks that Brexit will bring, we have initiated a position in the Fundsmith Equity Fund. To orientate the portfolio towards international businesses we have initiated a position in the Polar Capital Global Insurance Fund. This conservatively run fund invests in a small sub sector of the financials sector. Property/casualty insurance businesses are often seen as complex and unprofitable, and are therefore commonly ignored by many investors. However the best run firms in the sector can generate steady returns with a favourable risk reward profile. therefore reduce the risks that Brexit will bring, we have increased the portfolio s exposure to the Fidelity Emerging Markets Fund. 2

3 Fund Change From To Rationale Invesco Perpetual Corporate Bond -10% 10% 0% Fidelity MoneyBuilder Income 10% 0% 10% We have replaced the portfolio s holding in the Invesco Perpetual Corporate Bond Fund with the Fidelity Moneybuilder Income Fund, which is a more conservatively run corporate bond fund. We have replaced the portfolio s holding in the Invesco Perpetual Corporate Bond Fund with the Fidelity Moneybuilder Income Fund, which is a more conservatively run corporate bond fund. Fund & Portfolio Performance Fund Name % Holding As At 31 October 2016 ISIN 3 Months to 31 October Year 3 Year 5 Year BlackRock Continental European Income 2% GB00B3S9LG25 4.5% 20.0% 37.1% 106.1% CF Lindsell Train UK Equity 5% GB00B18B9X76 2.0% 14.1% 40.2% 117.5% CF Woodford Equity Income 5% GB00BLRZQC88 0.3% 3.7% Fidelity Emerging Markets 4% GB00B9SMK % 30.6% 32.1% 57.8% Fidelity MoneyBuilder Income 10% GB00B3Z9PT62-1.1% 9.0% 18.7% 36.6% Fidelity MoneyBuilder Income Reduced Duration 4% GB00B6ZT4N49 1.3% 3.4% 4.5% Fundsmith Equity 4% GB00B4Q5X % 34.9% 84.9% 165.8% Henderson UK Property PAIF 10% GB00BP46GF57 4.2% -3.9% 17.6% 31.3% Invesco Perpetual Corporate Bond 0% GB00BJ04F % 6.3% JPM Strategic Bond 4% GB00B3RJBC99 0.4% 3.5% 6.8% 14.5% Jupiter UK Special Situations 3% GB00B4KL9F89 9.0% 19.6% 27.3% 87.2% Kames High Yield Bond 4% GB % 5.0% 10.7% 35.4% L&G All Stocks Gilt Index 0% GB % 9.0% 20.1% 24.9% Old Mutual UK Alpha 3% GB00B946BX62 6.3% 8.8% 9.5% 64.7% Polar Capital Global Insurance 4% IE00B5339C57 9.5% 30.0% 64.9% 146.9% Schroder Tokyo 2% GB00BDD2J % 33.5% 57.3% 106.4% Threadneedle UK Equity Income 0% GB00B888FR33 2.4% 12.2% 25.0% 83.8% Vanguard US Equity Index 10% GB00B5B71Q71 6.7% 31.4% 64.2% 141.2% Square Mile Capital Accumulation Advisory Portfolio 2 2.4% 9.8% Benchmark* 2.3% 12.3% *evalue dynamic strategic asset class allocations and Square Mile sub-asset class allocations using IA sector averages (details available on request). Performance is bid-bid total returns (with net income reinvested), net of underlying fund manager fees. 3

4 T November Portfolio Breakdown 42% 10% 22% 26% Corporate Bonds 18% Fixed Specialist 4% Interest Cash 26% Cash Property 10% Property UK 16% Global 8% North American 10% Europe 2% Japan 2% Emerging Markets 4% Equities Risk The advisory portfolio aims to be in line with evalue risk profile 4 over an 11 to 15 year time frame (profile code T24). The advisory portfolio will be reviewed quarterly to ensure that it is consistent with the T24 risk profile. Target Risk Rating

5 Market Information Following the excitement and uncertainty created by the Referendum in June, markets enjoyed a very calm summer and the price of many financial assets were bid higher. The UK economy since then has behaved well. The initial shock of the vote had caused a number of forward looking economic indicators to suddenly drop but as the weeks passed business confidence has recovered somewhat as it has become apparent that the economy has continued to grow. The new Prime Minister has underlined the government s intention to exit the EU although policy so far has got no further than Brexit means Brexit. To use the words of Michael O Leary, the Ryanair boss, it is clear as mud as to what this will actually entail. Such uncertainty makes it very difficult for many companies to plan ahead and business investment, an important component in driving GDP growth, will suffer as a result. The Japanese have been quick to highlight that their companies employ 140,000 workers in the UK, and many of these positions are reliant on access to the European market. Theresa May s announcement at the end of the quarter that Article 50 will be triggered by March at least provides some clarity on the time frame of the formal process but it will take years to finalise the details. In response to the expected slow down, both the Chancellor and the Bank of England have announced plans to stimulate the economy. Philip Hammond, the new Chancellor, has pushed back plans to balance the government s books by 2020 and we expect a pick up in spending to be announced in the Autumn Statement. Monetary conditions have also been eased by the Bank of England, which cut base rates by a quarter of a percent and implemented further measures to increase bank lending. While there is perhaps never an ideal moment to execute an exit from the EU, at least our key trading partners are doing well as the EU economies are enjoying a period of cyclical uplift. Yields on bond markets have been making new lows for a number of years but the moves in UK government bonds (sometimes referred to as gilts) this year have been nothing short of extraordinary. During the summer yields on gilts fell to well below 1%; this is the lowest level since the industrial revolution began 250 years ago and indeed since records began. This fall in gilt yields has generated some very strong capital gains and from here, it is difficult to envisage gilts returning much, in either capital or income terms. Stockmarkets have been very strong over the period. Typically, there are two possible drivers of any outsized market return. These are either from increased optimism about the outlook of profits growth, or a revaluation of the existing stream of company profits. Analysts forecasts for profits are bullish next year and factor double digit gains from the major markets. However it is not unusual for analysts to be optimistic and for the forecasts to be reined in as the year progresses. This has certainly been the case in a number of recent years. Profits should receive a boost from the recovery in oil companies revenues, nevertheless, double digit growth rates strike us as being be rather too hopeful given the challenges faced by the developed economies. We believe that it is more probable that the recent stockmarket move represents a shift upwards in the valuation of profits streams. The fact that the value of government bonds has shifted higher the same way helps support this view. The distinction is important. We are becoming increasingly inured to cash yields running at record lows and bond yields similarly have fallen well below any previous low. Why shouldn t equity yields fall as well? Perhaps they should and we have been suspecting that they might for some time. However, equity markets tend to be far more volatile than bond markets. We believe there is a strong case for equity markets to be more expensively valued than they have been through history. However, they are likely to be skittish during this period of adjustment whilst investors become accustomed to the new norm, if this is what it is. Markets have been making tentative steps to revaluing equities over the last few years, though there is a sense of complacency over the recent surge. There are plenty of factors that could rock this stability including Brexit developments, the US elections or the path of US interest rates to name but a few. Jason Broomer Head of Investment Important Information This report is for the use of professional advisers only (who are deemed to be professional clients under the FCA rules). Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and investors may not get back the amount originally invested. The investment performance shown is net of the fund managers underlying charges only and is based on the identified share classes of the funds indicated. If these share classes are not available to the investment manager this will be reflected in the performance outcome experienced by the investor. The portfolio s benchmark is determined by each fund s exposure to the relevant IA sector. This report is issued and published by, and remains the copyright of, Square Mile Investment Services Limited ( SMIS ) which is authorised and regulated by the Financial Conduct Authority. SMIS makes no warranties or representations regarding the accuracy or completeness of the information contained herein. This information represents the views and forecasts of SMIS at the date of issue but may be subject to change without reference or notification to you. This report shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity. Should you undertake any investment activity based on information contained herein, you do so entirely at your own risk and SMIS shall have no liability whatsoever for any loss, damage, costs or expenses incurred or suffered by you as a result. SMIS does not accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Data provided by Financial Express Limited. 5