FOR IMMEDIATE RELEASE 11 DECEMBER 2013 AIC FUND MANAGER POLL 2014: WEST IS BEST?

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1 FOR IMMEDIATE RELEASE 11 DECEMBER 2013 AIC FUND MANAGER POLL 2014: WEST IS BEST? MANAGERS FAVOUR EUROPE, UK AND SMALLER COMPANIES BUT BLUE CHIPS ARE BACK IN VOGUE TOO - See page 3 for fund manager views The Association of Investment Companies (AIC) 11 th annual fund manager poll finds managers optimistic about the outlook for markets next year, with 84% of managers expecting markets to rise in The AIC received responses from fund managers representing 22bn of assets under management, a fifth of the industry. UK comes in from the cold On the whole, managers are more bullish than they were last year and have even regained an interest in commercial property after a long absence (see page 2). Over half of managers (58%) think the FTSE 100 could break 7,000 by the end of 2014, a dramatic change from last year, when no managers expected the FTSE 100 to break 7,000. So it is perhaps not surprising to see that the UK has come in from the cold this year and is the second most widely tipped sector to outperform next year amongst 19% of managers, compared to last year, when no managers expected the UK to outperform. Where do you think markets will close at end of 2014? Under % 0% 0% 0% 5% 5% 32% 58% Europe still most favoured sector Europe is the region most widely expected to outperform in 2014 amongst 24% of managers for the second year in a row. The UK is in second place (19%), with the US in joint third place with Asia Pacific Excluding Japan (14%). Despite the strong performance of Japan in 2013, it is only expected to be the best performing region next year by 10% of managers, compared to 8% last year. Smaller companies & blue chips divide managers Interestingly, whilst smaller companies sectors have dominated performance tables over the last year, managers are divided on whether this strong run of performance can continue, with 50% of managers believing it can, and 45% disagreeing. Even so, smaller companies are the most widely anticipated sector to outperform amongst 38% of managers next year, followed by blue chips (24%) and, in joint third place, commercial property and financials,

2 each with 10%. Blue chips have had a remarkable turnaround, being the least favoured sector amongst managers last year (only 4% of managers expected blue chips to outperform in last year s poll). Property back on the radar? It is interesting to see that fund managers have rediscovered something of an appetite for property. This year is the first time a manager has favoured commercial property as the sector most likely to outperform since Even back in 2007, only 3% of managers were favouring property as the sector most widely expected to outperform, compared to 10% this year. What are the risks? Of course managers are not without their concerns. For example, 20% feel that speculation about potential interest rate rises could spook markets next year, and a further 20% worry that equities are perhaps not as good value as they have been. Some 15% of managers think that tapering of US quantitative easing could be a potential cloud on the horizon next year, 10% cite geopolitical instability and 10% of managers also think high inflation could be a potential risk. Cause for optimism Manager cause for optimism was many and varied, but the most widely held views were as follows. Some 25% of managers were buoyed by better economic growth than expected, 15%, in equal turn, were encouraged by an improving US economy, equities still believed to be good value, and increase in earnings. Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: The West is very much in vogue with fund managers, perhaps not surprisingly given the volatility we have seen in Emerging Markets this year. Fund managers have chosen Europe as the top performing region for the second year in a row and the UK is back in favour, in sharp contrast to last year when it scored no votes with managers. Smaller companies are tipped as the top performing sector but blue chips are hot on its heels, reflecting managers division on this. Whilst none of us are blessed with a crystal ball, and no manager would ever claim to be able to predict the future direction of markets, it s interesting to gauge manager views in the here and now. However, investment companies have weathered many ups and downs over the years, and will continue to do so in the future. Investors need to take a long-term view and have a balanced portfolio.

3 Manager comments: GLOBAL GROWTH/ GLOBAL GROWTH & INCOME Andrew Bell, Chief Executive, Witan Investment Trust said: 2014 may be the first year for some time when economic growth is better than expected but it may prove harder going than 2013 for equity markets. This is partly because rallies in 2013 have raised hopes and partly that better news on economic growth will lead to (possibly exaggerated) fears that monetary policy will be tightened. Rather as the antelope on the Serengeti can sense coming rainfall long before it falls on their heads, financial markets tend to look ahead and may already have factored in the good news. Crowded trades, like crowded plains, can be vulnerable to disappointment (lions). Katherine Garrett-Cox, Chief Executive, Alliance Trust PLC said: It has been very welcome to see western economies start to show signs of recovery from the long bleak winter following the credit crunch in Many of the ongoing issues; Greece and the Euro; the Fiscal Cliff in the US and lower GDP growth in China, may have a lower profile today, but they continue to have the capacity to cause upset. To last year s list we have also added the potential impact on growth of any tapering of Quantitative Easing by the Federal Reserve in the US, both in the US and elsewhere. We continue to see a range of investment opportunities as we focus on what a company does and where it operates, rather than simply where it is listed. We also are confident that the longer the recovery is sustained, the better its chances of weathering any such challenges. Jeremy Thomas, Co-Manager of the Brunner Investment Trust said: The year ahead will be one of the challenges we can anticipate, such as the need for companies to deliver the profit growth to justify the markets rise in 2013 and the easing back of loose monetary policy. There will also be unexpected challenges and these will come against a backdrop of rising confidence and higher valuations. We must remember to be fearful when others are greedy and construct portfolios accordingly. Tom Walker, Manager, Martin Currie Global Portfolio said: With deflation a more immediate worry than inflation in the real economy (excluding selective asset inflation), central banks are unlikely to kick the QE habit in the year ahead. While money remains abundant and the global economy sluggish, equities are the likely beneficiary. Alan Porter, Manager, Securities Trust of Scotland said: Global, high yielding companies, with sustainable and persistent dividends, continue to trade at a discount to the

4 broader market. This fact and the attractive absolute and relative dividend yield of equities should provide support to equity markets in Alex Crooke, Manager, Bankers Investment Trust said: Equity markets are in a transition. In recent years we have been witness to global markets propelled by sentiment; 2014 should usher in change as they switch to become driven by fundamentals anchored in the business cycle revival. Manager comments: EUROPEAN SMALLER COMPANIES Sam Cosh, Manager, European Assets Trust, F&C Investments said: We think that European equities remain good value and are generating strong cash flows. We expect this to be the biggest determinant of future returns from our asset class, so we are optimistic. The rise in markets over the last two years is really a function of the excessive stress before. Valuations are now not at excessively cheap levels but, with the Euro break up off the agenda, we can look at fundamentals again, and on this basis valuations are attractive on a long-term view. Any mean reversion for European earnings could potentially be a powerful driver of improving markets and could set today s valuations in a favourable context. Manager comments: NORTH AMERICAN SMALLER COMPANIES Don San Jose, Manager, JPMorgan US Smaller Companies Investment Trust said: As the US equity market flirts with new highs, we continue to believe that equities can go higher. Stocks look fairly valued to us and we would expect that investors will still earn a reasonable return from these levels. The relative valuation gap between equities and fixed income remains intact and for us could be a key catalyst for equity performance from some asset class rotation. Additionally, there is enough growth in the US to keep earnings moving ahead. While year-over-year earnings growth will be slower than we've seen in the recovery phase that started in 2009, it is still positive growth. This will also be supportive for equity markets to move higher. A continuation of the economic recovery with many of the domestic headwinds becoming tailwinds is a positive, hopefully lifting investor psychology. One thing we are not seeing is irrational exuberance. The crisis is still very fresh in people s minds. Companies, governments and consumers are all being more prudent and disciplined with their cash, and all of that tells us that this recovery still has more legs.

5 With less overwhelming macro trends, company fundamentals should emerge as critical factors in driving stock performance. We remain focused on finding companies with durable franchises, good management teams and stable earnings that trade at a discount to their intrinsic value. Manager views: LATIN AMERICA Will Landers, Manager, BlackRock Latin American said: We entered the last two months of the year having increased exposure to Brazil and reducing exposure to Mexico. Brazil continues to offer the better bottom up stories we find in the region at the most attractive valuation levels. Third quarter earnings so far have been in line to better than expected, employment figures remain stable and annual wage negotiations indicate another year of a small real increase in wages all favouring our overweight position to domestically oriented companies, especially banks, education, and selected retailers. Meanwhile, the Mexican economic recovery story was pushed back into early 2014, fiscal reform was modest at best, and discussions around political and energy reform are at risk to being extended into 2014 none of which is supportive for Mexico s above average valuation levels. We continue to look for opportunities to increase exposure to Peru and Colombia, maintaining a large underweight in Chile ahead of presidential election, with the second round taking place in December. Overall, the fact that Latin America is a consensus underweight in most portfolios bodes well for next year s performance. -Ends- For further information, please contact: Annabel Brodie-Smith Jemma Jackson Lisa Flounders Communications Director PR Manager PR and Marketing Executive AIC AIC AIC Follow us on Notes to Editors 1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs. The AIC s members believe that the industry is best served if it is united and speaks with one voice. The AIC s mission statement is to help Members add value for shareholders over the longer term. The AIC has 342 members and the industry has total assets of approximately 111 billion. 2. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.