F&C Global Smaller Companies Ord FCS

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1 Page 1 of 7 Morningstar Research Report Text as of 09/08/2018, Data as of 09/10/2018 Morningstar Benchmark MSCI World Small Cap NR USD Morningstar Category TM Global Small-Cap Equity Last Closing Price GBP 1, Last Closing NAV GBP 1, Discount/Premium % Latest Published NAV 1, Latest Published NAV Date 09/10/2018 Traded Currency GBX Yield 1.02 Dividend Frequency Semi-Annual Total Assets Mil Net Assets Mil Market Cap Mil Net Gearing % 3 Avg Daily Shares Traded Mil (3 month) 0.05 Inception Date 15/02/ k 80k 60k 40k 20k 10k Returns Price NAV Category Index 4k 5 Discounts Premium 0 Discount -5 Average Line YTD Performance % Fund Price Fund NAV /- Category /- Benchmark Morningstar Analyst: David Holder, Senior Analyst The conduct of Morningstar's analysts is governed by Morningstar's Code of Ethics, Securities Trading and Disclosure Policy, and Morningstar Manager Research Integrity Policy. For information regarding conflicts of interest, please click Executive Summary People: Peter Ewins has overseen the management of the trust since He began his investment career with smaller companies in 1989 and has been involved with this trust continually since Parent: Following a long period of change, F&C is in the process of finding its new identity. Board: The board comprises six non-executive directors with a broad range of backgrounds in investment, banking, and industry. They meet six times a year and all are shareholders. We like to see this alignment of interests with shareholders. Process: The process combines top-down and bottom-up stock analysis. Ewins sets the asset allocation and picks UK stocks. US and European stocks are selected by Patel and Cosh whilst Ewins utilises pooled investments for Asia, Japan, and emerging markets. Performance: The fund has performed well over the short, medium, and long term, outperforming its Morningstar Category by a healthy margin since Ewins' appointment in In addition risk has been well-managed during his tenure. Fees: The fees investors pay here are relatively competitive compared with peers'. The performance fee arrangement was removed in 2016 to create a simpler, more transparent fee schedule. Role in Portfolio The fund would be a good diversifier for investors who have a broadly spread portfolio. The focus on smaller companies in concert with gearing inevitably leads to a slightly higher risk profile than a fund focused on larger companies. However, the portfolio is very broadly spread in terms of holdings and the use of third-party funds in Asia, emerging markets, and Japan further mitigates risk. Morningstar Opinion 09 Aug 2018 The fund benefits from an extremely experienced and assured smaller company's manager. Peter Ewins has been in place since 2005 and his involvement with the trust dates back to After a period of uncertainty surrounding the wider investment team at BMO, the company appears to be on more stable ground. The investment approach is sensible, established, and well-executed. Ewins is well versed within the UK smaller companies space, but makes use of pooled investment vehicles for the more specialist and volatile areas of the universe (Asia & Emerging Markets (referred to as the rest of the world) and Japan) whilst US and European stocks are selected by in-house specialists. Ewins oversees the investment process and makes the asset-allocation decisions; although in truth, most value is added at the stock level, as that is the focus within the investment process. Macro considerations are taken into account but the decision to invest into a company will be taken on its individual merits. A key area of differentiation here is that the composite benchmark used for comparison purposes has 30% in the UK (July 2018 weighting: 26%), with the remaining allocation overseas. Thus, the fund has a distinct bias to the UK when compared with its peers and benchmark index. They respectively have 17 and 19 percentage points less exposure, which can lead to periods of divergent relative performance. Ewins believes that UK smaller companies offer investors access to a variety of sectors, global earnings, and good-quality companies within a framework of solid corporate governance, so it is likely that this bias will persist. The portfolio is diversified through around 180 companies, not including third-party funds, and as at July 2018, the fund's top-10 direct positions represented 10% of the portfolio. The use of third-party pooled funds substantially increases the true level of stock diversification within the fund. Our conviction in Ewins and the strategy employed here remains strong and the fund retains our of Silver.

2 Page 2 of 7 Morningstar Research Report Text as of 09/08/2018, Data as of 09/10/2018 People Manager Peter Ewins Manager Start 31/07/2005 Avg. Manager Tenure 13.2 Years Other Funds Managed Peter Ewins has been the manager since July 2005, with his involvement dating back to 1997 when he started reporting to the board. His investment career began with Municipal Mutual Insurance in 1989 in UK smaller companies, the investment unit was folded into the investment arm of Commercial Union, and in 1994 Ewins left there to join ESN Pension Management. This was acquired by F&C in 1996, and he joined the F&C small-cap team. Ewins is responsible for asset allocation, managing around a third of the UK portfolio (along with his UK small-cap equity specialists: Catherine Stanley and Patrick Newens) and for selecting the third-party funds used in Asia, Japan, and emerging markets. European stocks are selected by Sam Cosh, and the US portfolio by Nish Patel. Cosh began his career in 2000 as a European institutional analyst at Invesco before moving to Fortis Investments as a portfolio manager within their European smaller company team. He joined BMO in 2010 from BNP Investment Partners. Patel joined BMO in November 2007 from Deloitte, where he spent three years in the telecommunications, media, and technology audit division. Prior to this he was an intern at Goldman Sachs. The team as a whole numbers seven. The acquisition of F&C by BMO was potentially a distraction for the management of this trust, but it was evident from Ewins that his responsibilities and the resources available to him have been unimpaired and are arguably strengthened via BMO's resources in North America. Parent Fund Advisor Domicile Website F&C Asset Management UK F&C Investments is beginning to find a new identity as a part of BMO Global Asset Management. Following several years of corporate structural change, including a series of acquisitions and mergers and finally being taken over itself, F&C now seems to have a stable corporate outlook. The firm was formed out of a merger between IS- IS and F&C Group in In July 2009 the business demerged from former parent Friends Provident and was listed on the London Stock Exchange. In September 2010, F&C acquired the investment boutique Thames River Capital, and in early 2011 activist investor Sherborne built a significant stake in the business and embarked on a strategic review of the firm. As a result, F&C's chairman Nick MacAndrew was ousted and significant cost-cutting measures were announced, most notably affecting back-office operations. In May 2014, BMO Financial acquired the company and folded it into BMO Global Asset Management. In July 2015, F&C Investments was rebranded BMO Global Asset Management. Board of Directors Tender Offer Buyback Authorization No Yes The board of six meet six times a year and have average tenure of a little under eight years. Anthony Townsend is the chairman and was appointed to the board in September He was previously chairman of the Association of Investment Companies from 2001 to All of the directors are considered independent and five hold directorships on other investment trusts. All six board members hold shares which we like to see as we favour alignment of interest between board and investors. There have been three recent appointments: Jo Dixon in February 2015 and Anja Balfour and David Stileman in June Jo Dixon is an accountant and former commercial director of Serco and FD at Newcastle United, Anja Balfour has 20 years of fund-management experience, most latterly at AXA Framlington, and David Stileman was chairman of Standard Chartered Bank (Americas) up to The board's collective experience spans a wide range of relevant backgrounds including banking, education, fund management (including Investment Trusts), industry and charity. The board has a policy that any director serving for more than nine years is subject to annual re-election. The board meets formally every two months. It also has shareholder approval to buy back and issue shares, and they have been proactive on both fronts to keep the discount under control and meet the demand for shares when the fund trades at a premium.

3 Page 3 of 7 Morningstar Research Report Text as of 09/08/2018, Data as of 09/10/2018 Process: Investment Approach Investment Objective: To achieve high total return by investing in smaller companies worldwide. Hedging Policy Tactical Use of Cash NULL No Due to the nature of small-cap investing, Ewins places great emphasis on meeting with company management with around 300 meetings a year carried out by the UK small-cap team. They look for evidence that corporate strategy is sensible, well-executed, and backed by high-quality management. They also assess the reliability of cash flows, the quality of earnings, and a company's ability to access capital. The team aim to add value at the stock level but are aware of sector weightings within the benchmark when constructing the portfolio. At the stock level the process is bottom-up and is based on the fundamental attractiveness of the stocks on a combination of valuation and growth metrics. The sell discipline is based on valuation and Ewins, as an experienced small-cap manager, has learned that it is much better to sell stocks quickly when they disappoint. He also likes to keep the portfolio fresh by selling winners and reinvesting into new ideas. Winners can be run as they leave the Numis benchmark, but will not be held indefinitely as this is intended to be a small-cap portfolio. Third-party funds are selected in more niche areas where Ewins feels that the use of such vehicles is justified on diversification and specialization grounds. Likewise, he defers the European and US small-cap sleeves to his colleagues Sam Cosh, who is assisted by Lucy Morris and is supported by the wider European team, and Nish Patel who works with Gordon Happell, who joined from Henderson in Process: Portfolio Positioning Morningstar Holdings Based Style Map Deep Val Core Val Core Core Grw High Grw Giant Large Mid Small Micro World Regions Assets % Greater Europe United Kingdom Europe-Developed Europe-Emerging 0.00 Africa/Middle East 0.00 Americas North America Latin America 0.00 Greater Asia Japan 9.63 Australasia 0.02 Asia-Developed 1.91 Asia-Emerging 3.23 Not Classified 0.00 The objective is to achieve a high total return by investing in smaller companies worldwide. The portfolio's benchmark is 30% Numis UK Smaller Companies Index and 70% MSCI AC World ex UK Small Cap Index. The benchmark is set by the board, and manager Peter Ewins generally doesn't aim to deviate far from it. The benchmark was amended in 2010 to reduce the allocation to UK equities to 30% from 40%. Post-Brexit, Ewins thinks tactically it is possible that this allocation Asset Allocation Top 10 Holdings 31/08/2018 % Assets Long Short Net Cash Equity Bond Other % Assets Eastspring Inv Japan Smaller Coms C 4.81 Aberdeen Global Jpn SmlrComs I Acc 4.17 PineBridge Asia ex Japan Small Cap 2.98 Scottish Oriental Smaller Cos Ord 2.71 Utilico Emerging Markets Ord 1.88 Alleghany Corp 1.24 HSBC GIF Asia ex Jpn Eq Smlr Coms X 1.21 Vail Resorts Inc 1.11 Waste Connections Inc 1.10 STERIS PLC 1.06 may drop further from historical levels, but the fund will retain its UK bias as the UK has a very developed smaller-companies market, it has performed well, and the underlying profits are derived globally. Ewins draws upon strategists, wider contacts, and relative market valuation to determine the geographic asset allocation, but he does not seek to deviate materially from the benchmark in asset-allocation terms. Sector Weightings % Equity h Cyclical 48.2 r Basic Materials 7.3 t Consumer Cyclical 20.0 y Financial Services 14.9 u Real Estate 6.0 j Sensitive 35.4 i Communication Services 0.5 o Energy 3.5 p Industrials 20.3 a Technology 11.1 k Defensive 16.4 s Consumer Defensive 4.5 d Healthcare 10.9 f Utilities 1.0

4 Page 4 of 7 Morningstar Research Report Text as of 09/08/2018, Data as of 09/10/2018 NAV Performance Analysis Data as of Trailing Returns Price Total Rtn % +/- Bmark 3 month Month Year Year Ann Year Ann Since Ewins took charge at the end of July 2005 the fund has returned an annualised 12.6% to August 2018 vs 10.7% for the MSCI World Small Cap Index and 9.9% for the Morningstar category. Cumulative returns over three, five and 10 years are also ahead and performance over the past 12 months and year to date remains competitive. The performance over the past five years of the respective geographic sleeves has generally been ahead, with especially strong performance from the UK and Japan sleeves. Europe, Asia, and Emerging Markets have lagged. The UK sleeve has posted exceptional returns versus the Numis smaller companies index with Huntsworth, Craneware, and Dechra Pharmaceuticals being especially accretive. On a broader note, over the past five years the overweight allocation to the UK (relative to the category benchmark) has marginally detracted, but this has been more than offset by strong stock selection. Trailing Returns NAV Total Rtn % +/- Bmark +/- Cat %Rnk In Cat 3 month Month Year Year Ann Year Ann Calendar Total Returns Fund(price) Fund(NAV) YTD 0 Discount / Premium Data as of Discount / Premium % 6 Mo 1Yr 3Yr High Average Low Z-Statistic The board is committed to maintaining a discount control mechanism seeking to limit the discount in normal market conditions to around 5%. They have the ability to buy back shares and issue new shares in order to control the discount and premium, and it has historically used both tools proactively. The option to convert the convertible unsecured loan stock into equity has been a consistent source of new issuance. Over the past five years there has been net issuance of some 53 million shares. An additional layer of support for the share price is the existence of the F&C share saving plan, which maintains a steady stream of buyers for the trust and around 52% of the share capital is held through this scheme. The fund has tended to trade around par over the past five years. The current discount is 3% (August 2018). Risk & Return Data as of Morningstar Rating Return Risk Rating 3 Year Avg Avg QQQ 5 Year Avg Avg QQQ 10 Year Above Avg Avg Overall Above Avg Avg A principal risk comes from the fund's objective to invest in small companies, where business risk is inherently higher. Despite the element of gearing here, the fund's standard deviation (a statistical measure of risk) tends to be below that of peers and the MSCI World Small Cap index (category benchmark). In addition, the risk taken has also been used effectively here, as evidenced by the fund's Sharpe ratio. The fund's sensitivity to market movements or beta is in line with peers and the fund has historically had a decent participation in up markets whilst defending capital in weaker markets. The fund's tracking error is consistently and materially higher than peers; likewise its active share versus the category benchmark is 96%, illustrating the unconstrained nature of the portfolio. Volatility Ratios 3 Yr NAV 5 Yr NAV Standard Deviation Mean Sharpe Ratio Sortino Ratio Risk vs Index 3 Year 5 Year Alpha NAV Beta NAV R-Squared NAV Treynor Ratio NAV

5 Page 5 of 7 Morningstar Research Report Text as of 09/08/2018, Data as of 09/10/2018 Fees Management Fee % 0.50 Ongoing Charge ex Perf Fee % 0.59 Gearing Total Assets Mil Net Assets Mil Dividends Dividend History YTD Dividend Special Dividend Total The fee comprises an annual management fee, with the performance fee removed in When there was a performance fee in operation the base management cost was 0.4% (0.25% for the collective funds). In the interests of transparency, complexity, and reducing fee-level volatility, the board and BMO agreed with effect from May 2016 to remove the performance fee and increase the base fee on individual holdings to 0.55% (0.275% on collectives). Arguably with net assets of approximately GBP 880 million, investors should be sharing and benefitting from economies of scale here, to which a simple and effective solution would be to apply a tiered management rate. Notwithstanding these comments for fiscal 2018 the fund's ongoing charge was 0.83% (2017:0.86%) which represents a small cost saving when compared with the Morningstar Category median. There is gearing in the form of GBP 40 million of convertible unsecured loan stock (3.5%) which redeems in July The board believes that the use of leverage is likely to be beneficial over the long term for investors and so they arranged the borrowing and have set broad parameters for the use of the gearing with an effective limit of 20%. Ewins is in regular contact with the chairman to continually monitor the level of gearing in changing market conditions. Over recent years holders of the CULS have chosen to convert into ordinary shares and assets have increased, which has limited the scope for the trust to be anything more than modestly geared. With this in mind, in August 2018, the board increased the Revolving Credit Facility with RBS, that it has originally secured in September 2017 from GBP 30 million to GBP 50 million. Gearing has tended to range from 2% cash to 10% over the past 10 years with a broader range of 0%-20% permitted. The fund's current net gearing is 4% (August 2018). The board has stayed true to its commitment to provide a progressive dividend each year and 2018 saw the 48th year of consecutive dividend growth. It typically pays the annual dividend in two tranches and for fiscal 2018 the fund declared dividends of 14.40p (2017: 12.25p) on revenue per share of 15.2p (2017: 13.8p). There are revenue reserves available for over two years at current levels. The dividend has increased by a compound 11.5% over the past 10 years. The fund's current net yield is 1.1% (August 2018).

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