Asset allocation achieving the right mix

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3 Asset allocation achieving the right mix Learning outcomes The objective of the presentation is to help develop your understanding of: The benefits and drawbacks of a range of asset allocation styles The use of asset allocation as a key element of the investment process Why thinking and behaving differently can offer a better outcome for investors Current and upcoming market opportunities 3

4 Source: Datastream, as at 31 December returns in GBP. Property to Q

5 Key investment strategy: Fully invested throughout the market cycle Closely aligned to the benchmark Benefit: Has the ability to outperform the benchmark in a rising market Compromise: At times can be more volatile than the benchmark Benchmark aware fund IMA Mixed Investment 20-60% Shares Source: Lipper, total return, bid to bid with net income reinvested, net of fees, as at 31 December For illustrative purposes only and not a recommendation to buy or sell shares 5

6 Key investment strategy: Tracking a benchmark Benefit: Unlikely to fall very far short of the benchmark Compromise: Guaranteed to underperform over the medium and long term FTSE 100 TR FTSE 100 Tracker Standard Source: Lipper, total return, bid to bid with net income reinvested, net of fees, as at 31 December For illustrative purposes only and not a recommendation to buy or sell shares 6

7 Key investment strategy: Flexible approach targeting risk adjusted returns (and a high Sharpe ratio) Benefit: Ability to outperform through the market cycle, with lower volatility Compromise: A contrarian approach which at times requires patience IMA Mixed Investment 20-60% Shares Schroder MM Diversity Income A Acc Source: Lipper, total return, bid to bid with net income reinvested, net of fees, as at 31 December For illustrative purposes only and not a recommendation to buy or sell shares 7

8 Philosophy Compounding: Asymmetry: Asset Allocation Contrarian: Patience: Managing downside risk is crucial to compounding returns over the long-term Participate in gains when the market rises to a greater extent than you participate in losses when it falls A willingness to be different The fact that something s cheap doesn t mean it s going to appreciate tomorrow and the fact that something s overpriced certainly doesn t mean it ll fall right away Fund selection Disciplined: Buy low. Sell high Portfolio construction Flexible: Our mandates afford us the flexibility to have high cash positions if other asset classes look relatively unattractive 8

9 Artemis European Growth Fund BUY SELL /01 04/02 06/03 07/04 09/05 10/06 12/07 01/09 02/10 04/11 05/12 07/13 08/14 Artemis European Growth R Acc Fidelity Special Situations Fund BUY BUY IMA Europe Excluding UK SELL /08 03/09 03/10 04/11 05/12 06/13 07/14 Legg Mason Capital Management Opportunity Fund /10 04/11 05/12 06/13 07/14 IMA North America BUY GLG Japan Core Alpha Fund SELL Legg Mason Opportunity Pr Acc USD BUY /10 03/11 05/12 06/13 07/14 Fidelity Special Situations A Acc IMA UK All Companies GLG Japan CoreAlpha Equity D H USD (FX Hedged) IMA Japan Source: Lipper, total return, bid to bid with net income reinvested, net of fees, as at 31 August 2014 The securities shown are for illustrative purposes only and not a recommendation to buy or sell shares 9

10 Return Schroder MM Diversity Fund Schroder MM Diversity Income Fund Schroder MM Diversity Balanced Fund Schroder MM Diversity Tactical Fund Schroder MM UK Growth Fund Schroder MM International Fund Higher Neutral position Neutral position Neutral position Neutral position 80 Neutral position 10 0 Neutral position Lower Parameters Lower Risk Higher Equities to 33.33% 30 to 60% 50 to 85% 1 to 98% 90 to 100% 90 to 100% Fixed Income and cash to 43.33% 30 to 60% 1 to 50% 1 to 98% 0 to 10% 0 to 10% Alternatives to 33.33% 5 to 40% 1 to 50% 1 to 98% - - On-going charges 1.15% 1.22% 1.24% 1.31% 1.46% 1.49% Source: Distribution Technology, Schroders. The fund risk profiles are accurate as at 31 January Ongoing charges are for the Z Acc share class. 10

11 Fund Performance Risk Sharpe ratio Quartile rankings 1 year 3 years 5 years (*or since launch) Quartile rankings 3 year 5 years (*or since launch) 3 years (*or since launch) Rank Quartile Schroder MM Diversity Fund (116) 1 Schroder MM Diversity Income Fund 4 1 1* 1 1* 4(116) 1 Schroder MM Diversity Tactical Fund (119) 1 Schroder MM Diversity Balanced Fund 4-2* - 1* 6(144) 1* Schroder MM International Fund (230) 1 Schroder MM UK Growth Fund (264) 1 Source: FE Analytics, bid to bid with net income reinvested, net of fees in GBP, main unit share class, as at 31 August Quartile rankings within UK IMA universe. Prior to 24 March 2014, the Schroder Multi-Manager Diversity range was called the Cazenove Multi-Manager Diversity range. There has been no change to the way the funds are managed. For details of the individual fund name changes please see the Important Information at the end of this presentation *Since launch position shown when five year track record is unavailable. Fund launch dates: Cazenove Multi-Manager Diversity, 1 September 2005; Cazenove Diversity Income, 15 December 2010; Cazenove Multi-Manager Diversity Tactical, 22 May 2005; Cazenove Multi-Manager Diversity Balanced, 2 April 2012; Cazenove Multi-Manager Global ex UK and Cazenove Multi-Manager UK Growth, 22 May

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13 Jan 1998 Feb 1999 Mar 2000 Apr 2001 May 2002 Jun 2003 Jul 2004 Sep 2005 Oct 2006 Nov 2007 Dec 2008 Jan 2010 Feb 2011 Mar 2012 May 2013 Jun ,100 1,900 1,700 1,500 1,300 1, S&P500 Index US 10 Year Treasury Bond Yield Source: Bloomberg, at 31 August

14 Rising risk QE High grade govt Low grade govt + mortgage IG corp + IG EM govt + low β equities Flow of money Junk corp + low grade EM govt + high β equities Money trickles down the fountain When the Fed stops QE $80bn of bond buying power must be redirected from higher risk assets Source: Majedie 14

15 US corporate cash holdings at the lowest levels in 15 years relative to corporate debt Non-financial business: Corporate cash holdings divided by corporate bonds outstanding % % Source: Deutsche Bank Research, as at April

16 Rated debt maturing by year (HY and IG) ($bn) Fed hikes? Investment grade Speculative grade Source: Standard and Poors, Zero Hedge, as at July Forecast risk warning: Please refer to the important information slide at the end of this presentation 16

17 31/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/ new S&P highs year to date Q IPOs highest since internet bubble 74% of these companies had no earnings 66 month bull market Record low for bearish investors (15%) Source: Robert Shiller, Yale University, as at 20 June 2014 Pre 1999, the current level only observed in Robert Shiller cyclically-adj. PE Historical average +/- s.d. 17

18 Europe: Shiller price to earnings (latest EUR = 14.7, UK = 14.1) FTSE All-Share MSCI Europe UK average Europe average Source: MSCI, Datastream, Morgan Stanley Research as at July Note Shiller P/E defined as inflation adjusted price to 10Y average EPS 18

19 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 TOPIX index relative to S&P (10) (20) (30) (40) (50) (60) (70) (80) (90) (100) (110) S&P 500 TR Topix TR2 Source: Lipper IM, as at 31 August

20 Bonds and cash $ Cash Corporate debt Government debt Alternatives Absolute equity, absolute macro Currency Property Equities Japan, Europe UK, Asia Pacific Emerging markets, US For illustrative purposes only and not a recommendation to buy or sell 20

21 Asset allocation achieving the right mix Learning outcomes The objective of the presentation is to help develop your understanding of: The benefits and drawbacks of a range of asset allocation styles The use of asset allocation as a key element of the investment process Why thinking and behaving differently can offer a better outcome for investors Current and upcoming market opportunities 21

22 For professional advisers only. This material is not suitable for retail clients Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and these may change. The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors FTSE International Limited ( FTSE ). FTSE is a trade mark of the London Stock Exchange Group of companies and is used by FTSE International Limited under licence. All rights in the FTSE indices vest in FTSE and/or its licensors. Neither FTSE not its licensors accept any liability for any errors or omissions in the FTSE indices or underlying data. No further distribution of FTSE data is permitted without FTSE s express written consent Schroder Multi-Manager Range: Investment in these funds will not be suitable for all investors. Any investment should be considered against an investor s investment needs and attitude to risk. Currency fluctuations may adversely affect the value of the funds investments and the income thereon. Investing in emerging markets, which can be extremely volatile, involves a higher than average risk compared with investing in established markets. The levels and basis of, and reliefs from, taxation may change. Investors should obtain professional advice on taxation where appropriate before proceeding with any investment. Details of the terms and risk warnings are contained in the Prospectus and Key Investor Information documents Please note that as of 24 March 2014, the Cazenove Multi-Manager Range has changed names. Cazenove Diversity Income Fund has become Schroder MM Diversity Income Fund, Cazenove Multi-Manager UK Growth Fund has become Schroder MM UK Growth Fund, Cazenove Multi-Manager Global Fund has become Schroder MM International Fund, Cazenove Multi-Manager Diversity Fund has become Schroder MM Diversity Fund, Cazenove Multi- Manager Diversity Balanced Fund has become Schroder MM Diversity Balanced Fund and Cazenove Multi-Manager Diversity Tactical Fund has become Schroder MM Diversity Tactical Fund Issued in September 2014 by Schroder Unit Trust Limited, 31 Gresham Street, London EC2V 7QA. Registered No: England. Authorised and regulated by the Financial Conduct Authority. UK