OMNIS INVESTMENT BULLETIN MARCH 2015

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1 OMNIS INVESTMENT BULLETIN MARCH 2015 The Omnis Investment Committee oversees all aspects of the Omnis investment offering. The Committee met recently to discuss the Omnis funds and the performance of the external fund managers who have managed them since launch on 3 rd March This bulletin summarises the principal discussion points from that meeting and is the fourth in a series of regular updates from the Committee, which takes seriously its responsibility to ensure the funds are properly managed at all times. OPENWORK GRAPHENE MODEL PORTFOLIOS The Openwork Graphene Portfolios each offer a blend of seven Omnis funds. These funds, discussed individually below, have been designed specifically to complement each other within the Openwork Graphene Portfolios, with allocations determined by the Investment Committee in line with Openwork s approved asset allocation (see Figure 1). Figure 1: Strategic Asset Allocation of the Model Portfolios Cautious Balanced Adventurous The Openwork Graphene Portfolios will automatically rebalance twice a year, enforcing the discipline of buying low and selling high. Though it is too early in the life of the Openwork Graphene Portfolios for the benefits to be apparent, rebalancing is expected to add real value over the medium- to long-term. While the thirteen months since launch is not sufficient time to judge the success of the portfolios, the initial results have been encouraging. Though the returns generated by each of the Adventurous, Balanced and Cautious Model Portfolios 1 over the period are comparable, the volatility of these returns has been noticeably different. While the Adventurous Model Portfolio has enjoyed periods of steeper gains and suffered periods of sharper losses, the path steered by the Cautious Model Portfolio has been much smoother, with the pattern of returns from the Balanced Model Portfolio falling in between the two (see Figure 2). 1 The Openwork Graphene Model Portfolios assume initial investment on 28 th February 2014, with auto-rebalancing occurring each 31 st August and 28 th February thereafter. All distributions are reinvested. No account is made for platform or advisor fee. The total return displayed should be viewed as indicative only: investor experience will differ depending on the date of the investment and any additional charges.

2 Figure 2: Openwork Graphene Model Portfolios, Total Return Since Launch Graphene Adventurous Model Portfolio Graphene Balanced Model Portfolio Graphene Cautious Model Portfolio Source: Omnis Investments, Financial Express Analytics, 28 th February 2014 to 31 st March 2015 It is perhaps surprising that the Balanced Model Portfolio has generated marginally higher returns than either the Adventurous or Cautious Model Portfolios since launch. This is a result of the somewhat unusual situation in which the highest returns have been generated by the asset classes at either end of the risk spectrum; at the higher risk end of the spectrum, US and global emerging equity markets have enjoyed strong gains, while the lower risk UK and global bond markets have also risen markedly (in sterling terms). The Prospectus, Key Investor Information Document and factsheets are available from the Omnis website at ECONOMIC AND MARKET CONTEXT The first quarter of 2015 witnessed the amplification of the great divergence in global macroeconomic conditions. Following months of speculation, the European Central Bank ( ECB ) confirmed in January that it would embark upon a substantial programme of quantitative easing. This policy, designed to further lower the cost of borrowing, ward off deflation and resuscitate the moribund European economy, was finally initiated in early March. Meanwhile, the central banks of the US and, to a lesser extent, the UK, have been focused on signs of economic strength and preparing investors for an increase in interest rates. The ramifications of this divergence in economic outlook and central bank policy have been felt across global financial markets. The most striking impact has been seen in currency markets. By mid-march, the dollar had gained close to 17% against the euro since the start of the year (see Figure 3).

3 Figure 3: The US Dollar Vs Sterling and the Euro Source: Bloomberg Finance L.P., 31 st December 2012 to 31 st March 2015 However, expectations for the divergence of global economic and monetary policy conditions have, over the final few weeks of the quarter, been reassessed. Firstly, fears of deflation in the eurozone have been soothed by improving economic data and the recognition that last year s sharp fall in oil prices will exert only a temporary and exogenous influence on prices. Secondly, the appreciation of the dollar against the euro has acted as a natural counterbalance; a weak euro makes European producers more competitive and effectively imports inflation to the eurozone, while a strong dollar makes US companies less globally competitive and serves to temper inflationary pressures in the US. The most recent economic data suggests growth in the US has slowed sharply, reducing the pressure on the Federal Reserve ( Fed ) to raise interest rates. While the divergence of global economic and monetary conditions remains a reality, the likely pace and magnitude of the separation appear less severe than previously thought. Nonetheless, the great divergence will continue to exert significant and varying influences on global financial markets. In this environment, a carefully considered, risk-appropriate, diversified portfolio should prove a prudent approach to investment. OMNIS UK EQUITY FUND, MANAGED BY SCHRODER INVESTMENT MANAGEMENT The UK equity market has been buffeted by significant top-down winds over the first quarter of the year. Unusually, sentiment among UK investors has been affected both by fears that the historic period of low interest rates may be drawing to a close, and by fears that Europe s economic malaise may undermine the domestic recovery and bring about a period of deflation. This latter concern has been exacerbated by the falling oil price, which has, in turn, undermined the UK equity market which contains significant exposure to the energy sector. Nonetheless, the FTSE All-Share Index ended the quarter some 3.70% higher than it started 2. The Omnis UK Equity Fund has not been immune to the fall in oil prices. However, losses suffered in the energy, industrials and resources sectors have been offset by astute stock selection elsewhere. Most noticeably, overweight allocations to life assurers including Prudential and Friends Life, together with stock selection in the travel and leisure sector, have proved beneficial. 2 Source: Bloomberg Finance L.P.

4 OMNIS US EQUITY FUND, MANAGED BY THE BOSTON COMPANY ASSET MANAGEMENT The returns earned by investors in the US equity markets over the first quarter have been heavily influenced by changes in exchange rates. At the more fundamental level, the international earnings of US companies have been eroded by the dollar s strength, raising questions over the sustainability of the US economic recovery and the valuation of the domestic equity market relative to those earnings. However, for sterlingbased investors, the associated volatility has been largely overshadowed by simpler consequences of the strengthening dollar: while the S&P 500 index rose just 0.44% in dollar terms over the quarter, once translated into sterling, the index gained 5.43% over the period 3. The Omnis US Equity Fund, which is denominated in sterling, certainly benefited from currency-derived gains over the quarter. However, performance was, to a degree, held back by a second consequence of the central bank policy; the global search for yield. Yields on government bonds have been pushed to extraordinarily low levels across the globe, forcing income-seeking investors to venture further afield. Many have invested in the equities of large US companies in stable industries such as utilities pushing their stock to excessive valuations. TBCAM do not regard these companies as attractive investments at such elevated valuations and have therefore remained underweight to these sectors. While this positioning has detracted from performance thus far, it may yet prove perceptive as demand for expensive sources of income should be expected to fall as the Fed moves towards higher interest rates. OMNIS DEVELOPED MARKETS (EX UK, EX US) EQUITY FUND, MANAGED BY THOMAS WHITE INTERNATIONAL Economic conditions in Japan and Europe have created a challenging environment for Thomas White International. While both the Bank of Japan ( BoJ ) and the ECB are now engaged in significant monetary easing, the timing, scale and perceived efficacy of these policies have had an overbearing influence on Japanese and European equity markets. Within the first quarter of 2015, this influence has been markedly positive: Japan s Topix index gained 9.63% in yen terms, while the FTSEurofirst 300 ex UK index rose 18.49% in euro terms. However, when translated into sterling, the return from European equities was just 9.60% 4 thanks to the scale of the euro s ECB-engineered depreciation. The Omnis Developed Markets (ex UK, ex US) Equity fund has long been positioned in anticipation of large scale quantitative easing in the eurozone. Due to the delays and uncertainty surrounding the ECB s introduction of this extraordinary monetary support, this stance has proved a meaningful drag on performance over the period since launch. Nonetheless, with quantitative easing now fully underway in the eurozone, Omnis expects a marked improvement in the fund s performance. OMNIS EMERGING MARKETS EQUITY FUND, MANAGED BY JUPITER ASSET MANAGEMENT Though the epicentre of the great divergence lies within the developed markets, its implications certainly spread to the emerging markets. The strength of the dollar has ramifications for those economies running current account deficits and those burdened by high levels of dollar-denominated debt. Sentiment among emerging market investors has also been dented by domestic issues in Brazil (corruption at the state-owned oil producer Petrobras) and Russia (the impact of western sanctions in response to Russia s annexation of Ukraine). Nonetheless, the MSCI Emerging Markets index gained 7.36% over the first three months of as supportive policy from Chinese authorities and continuing signs of reform in India offset the aforementioned concerns. Furthermore, investors have been attracted by the recognition that, as measured by the price/earnings ratio, emerging market equities currently trade at a significant discount to developed equities (see Figure 4). 3 Bloomberg Finance L.P. 4 Ibid 5 Ibid

5 Figure 4: MSCI World Estimated Price/Earnings Ratio Vs MSCI Emerging Markets Estimated Price/Earnings Ratio Source: Bloomberg Finance L.P., 31 st December 2006 to 31 st March 2015 These developments have provided a demanding and changeable context for the Omnis Emerging Markets Fund. In broad terms, the fund performed well in the first half of the quarter, benefiting from exposure to the Indian market and to Chinese financials. Some of these gains were subsequently relinquished in the second half of the quarter as deteriorating sentiment undermined the fund s Brazilian holdings. While macroeconomic winds from western economies will continue to buffet the emerging markets, conditions are favourable for the manager s stock selection process. The manager is finding many investment opportunities underpinned by attractive valuations, where the potential for positive change is being underestimated by the market. OMNIS UK BOND FUND, MANAGED BY COLUMBIA THREADNEEDLE INVESTMENTS In the wake of an extraordinary year in 2014, the first quarter of 2015 proved more volatile and more testing for investors in the UK bond market. The benchmark 10-Year Gilt yield (which moves inversely to price) started the year at 1.76%, fell to 1.33% over January, rose to 1.95% by early March and finally fell back to 1.58% by the end of the quarter 6. This volatility has been caused by uncertainty over the outlook for the UK economy, rapidly shifting expectations for inflation and consequent attempts by the Bank of England ( BoE ) to guide those expectations. Increased volatility has demanded a more nuanced approach from UK bond fund managers. Whereas returns in 2014 were primarily determined by a manager s exposure to falling gilt yields, returns over the first quarter of 2015 were influenced by allocations to corporate bonds. The Omnis UK Bond Fund enjoyed strong returns over this period from an overweight position in corporate bonds. The manager has recently taken profits from selected corporate bonds and used the proceeds to increase allocations to UK gilts. With volatility likely to remain a fixture of the UK bond market for the foreseeable future, the Omnis UK Bond Fund s ability to actively allocate between government and corporate bonds should prove valuable. 6 Bloomberg Finance L.P.

6 OMNIS GLOBAL BOND FUND, MANAGED BY SCHRODER INVESTMENT MANAGEMENT The introduction of quantitative easing in the eurozone has, unsurprisingly, had a significant impact on the region s bond markets. Sovereign bond yields (which move inversely to prices) have marched ever lower, with the yield on 10-year German government debt standing at just 0.18% by the end of March 2015 (see Figure 5). Figure 5: German, Italian, Portuguese and Spanish 10-Year Government Bond Yields Source: Bloomberg Finance L.P., 31 st December 2013 to 31 st March 2015 The great divergence offers an abundance of opportunities to the Omnis Global Bond Fund. While the fund has benefited from allocations to European bonds, gains have also been made through exposure to the rising US dollar and through selective investment in UK and US corporate bonds. Noting increasingly diverse valuations among UK and US corporate bonds, the fund manager is uncovering particularly interesting investment opportunities in these markets. OMNIS ALTERNATIVE STRATEGIES FUND, MANAGED BY OCTOPUS INVESTMENTS Octopus Investments utilise a variety of tools in seeking to generate positive absolute returns regardless of the prevailing economic and market conditions. Though one such tool access to a broad range of specialist alternative investment strategies accounts for a sizeable proportion of the fund s investments, another the ability to actively allocate between asset classes has been particularly beneficial over the past three months. In deriving the fund s asset allocation, the manager seeks to identify inconsistencies between the macroeconomic environment and the scenarios implied by the valuation and pricing characteristics of each asset class. Thus, in late February, allocations to bonds were increased following a marked increase in yields perceived by the manager to be excessive, given the lack of inflationary pressures evident in the global economy. This active allocation proved profitable as bond yields subsequently retreated (i.e. bond prices rose) to levels more consistent with the benign outlook for inflation. The fund has generated meaningful positive returns since launch, fulfilling its absolute return mandate. Equally importantly, it has done so while managing risk in a conservative, prudent and proactive manner.

7 OMNIS MULTI-ASSET INCOME FUND, MANAGED BY NEWTON INVESTMENT MANAGEMENT Following extensive due diligence and a rigorous investment manager selection process, The Omnis Multi- Asset Income Fund was launched at the start of March 2015 under the management of Newton Investment Management. Newton is an industry leader in multi-asset management and a pioneer of global thematic investment. The Omnis Multi-Asset Income fund targets an attractive, relevant and sustainable level of income, together with the potential for real capital growth over the long term. Investing directly in equities and bonds, together with a range of alternative asset classes including infrastructure, the managers are able to target the most attractive point in a company's capital structure and to ensure that pursuit of the yield objective does not subject investors capital to undue risk. OMNIS MULTI-MANAGER FUNDS, MANAGED BY OCTOPUS INVESTMENTS The Omnis Multi-Manager range comprises of the Omnis Advanced, Balanced, Cautious and Distribution funds. As with the Omnis Alternative Strategies Fund, Octopus actively allocates between asset classes seeking close control of investors exposure to specific risks. Within the past quarter, asset allocation changes have included a reduction of US equity in favour of increased European equity weightings and a reduction of long-only UK bond allocations in favour of strategic bond funds. In addition to managing risk through asset allocation, the portfolios can be further refined by Octopus careful selection of beset-of-breed third party fund managers. Octopus has recently been increasing allocations to more active, contrarian investment managers who are seeking to identify attractive opportunities at the stock level. OMNIS MANAGED FUNDS, MANAGED BY COLUMBIA THREADNEEDLE INVESTMENTS The Omnis Managed range Comprises of the Omnis Managed Advanced, Balanced and Cautious funds. Threadneedle adopts a measured, medium-term view to asset allocation. Consequently, the composition of the portfolios was held relatively constant throughout the three months to the end of November, despite the volatility in the markets. At the end of March, the Advanced, Balanced and Cautious funds held 97.57%, 73.38% and 45.16% of net assets in equities respectively 7. The Omnis Managed funds are funds of funds that is, they invest in a range of other investment funds. This range is limited to other funds managed by Columbia Threadneedle Investments. In this way, the Omnis Managed funds are able to benefit from the stock selection skills of well-regarded specialist fund managers such as Leigh Harrison, manager of the Threadneedle UK Equity Alpha Income and Threadneedle UK Equity Income funds that feature among the largest holdings of the Omnis Managed funds. For more information about Omnis, including fund factsheets, as well as up to date information and factsheets for the Openwork Graphene Model Portfolios, please contact us on or through the website at 7 Source: State Street Bank and Trust Company as at 31 st March 2014.

8 Disclaimer Omnis Investments Limited is registered in England and Wales under Company Number , with its registered office at Washington House, Lydiard Fields, Swindon, SN5 8UB. Omnis Investments Limited is authorised and regulated by the UK Financial Conduct Authority (Firm Reference Number ). Omnis Investments Limited does not provide and nothing contained within this document should be deemed to constitute the provision of financial, investment, tax or any other professional advice in any way. This document does not constitute or form part of any offer to issue or sell, or any solicitation of an offer to subscribe or purchase any investment nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract therefore. Retail Clients (as defined in the rules of the Financial Conduct Authority) should seek the assistance of a Financial Advisor. The information contained in this document is strictly confidential. The content of this document, including but not limited to text and graphics are the copyright of Omnis Investments Limited and may not be copied, distributed, uploaded, re-published, decompiled, disassembled or transmitted in any way without the prior written consent of Omnis Investments Limited. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by Omnis Investments Limited or any of its directors or employees and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained in this document. Past performance is no guide to future performance and may not be repeated. The value of your investment, and any income derived from it, may go down as well as up and you may not get back the full amount invested.