STRATEGY INSIGHT JAPAN LONG/SHORT

STRATEGY INSIGHT JAPAN LONG/SHORT FEBRUARY 2018 FOR PROFESSIONAL CLIENTS ONLY In today s markets, investors are increasingly seeking greater stability in returns and managed volatility as well as a focus on capital preservation. Our equity long/short strategies specifically aim to achieve these objectives. www.martincurrie.com

Japan is an ideal market for this investment approach. Primarily a manufacturing economy, its stock market can experience taller peaks and deeper troughs when compared to other markets. In addition, with over 3,500 listed companies, Japan offers a large and liquid opportunity set with a range of pricing inefficiencies for skilled investors to exploit. The Martin Currie Japan long/short strategy aims to take advantage of these opportunities by seeking to participate in the upside, as the market grows, while defending investor capital when markets turn negative. Our long/short strategy allows the managers to flex exposure to the market by managing the portfolio s gross and net positions. This helps smooth out the inherent volatility for investors whilst enabling attractive long-term returns to be delivered. MANAGERS OUR APPROACH TO LONG/SHORT INVESTING Generating long-term outperformance with lower volatility is our goal. By applying a stockpicking approach we seek to generate alpha on both the long and short book. We aim to limit drawdowns and deliver lower volatility through active balance sheet management and disciplined risk management. JAPAN EQUITY LONG/SHORT TEAM Martin Currie has been investing in Japan long/short strategies since 2000. Paul Kirkby, in his role as Head of Japan is lead manager of the strategy. Paul has 36 years industry experience including over 32 years investing in Japanese equities. He is supported by portfolio managers Paul Smith and Christopher Taylor who are highly experienced Japanese equity managers in their own right. Paul and his team joined Martin Currie on 31 December 2015. At the same time Martin Currie acquired the assets and business of PK Investment Management LLP. Together, our dedicated team of three Japanese specialists, two of whom are Japanese linguists, have over 100 years experience investing in this unique market. Paul Kirkby Head of Japan 37 years' experience Paul Smith Portfolio Manager 33 years' experience Christopher Taylor Portfolio Manager 33 years' experience MARTIN CURRIE HAS BEEN INVESTING IN JAPAN LONG/SHORT STRATEGIES SINCE 2000. PAUL KIRKBY, IN HIS ROLE AS HEAD OF JAPAN IS LEAD MANAGER OF THE STRATEGY. PAUL HAS 37 YEARS INDUSTRY EXPERIENCE INCLUDING OVER 33 YEARS INVESTING IN JAPANESE EQUITIES. 02

INVESTMENT PROCESS We believe that a flexible approach to investing, employing a combination of top-down and bottom-up analysis, is the best response to volatile markets and ultimately to achieving capital appreciation. Constant monitoring and evaluation of both the global economy and factors influencing the domestic Japanese market provides a thorough understanding of the prevailing market conditions. This provides a strategic framework for constructing the most appropriate portfolio. Narrowing the investment universe enables our team to deploy their stock-picking skills in areas where they have the highest conviction. STOCK SELECTION UTILISING QUANTITATIVE AND QUALITATIVE ANALYSIS TOP-DOWN ANALYSIS Liquidity screen applied reduces investible universe from over 3,500 companies to between 2000 2500 companies. Macro themes identified help set the research agenda and sets the optimal tone for the portfolio in current market backdrop. COMPANY RESEARCH Use of meetings, market data feeds, broker research, press coverage and sell-side research to identify and investigate investment opportunities. DETAILED ASSESSMENT Assessment of a company s best or worst case potential with due consideration to the sector and economic environment. VALUATION Apply a company specific valuation to the business model. Additional analysis on management track record, market and industry position and balance sheet. INVESTMENT DECISION Position size determined by the level of conviction in the investment thesis and the risk it adds to the overall portfolio. UNIVERSE SCREENING There are over 3,500 listed companies in Japan. In order to find the most compelling investment ideas, the team take a two-step approach. Firstly, the universe is reduced to between 2000 2500 companies on a market capitalisation basis thus ensuring we are investigating companies with sufficient liquidity to meet the needs of our process. Generally speaking, we look to research companies with a market cap of 50 billion on the long-side (although we may consider opportunities as low 20 billion) while on the short side we favour companies over 100billion in size. Secondly, we assess the macro economic environment, seeking a clear top-down viewpoint which can be used to define our stock research agenda. TOP-DOWN ANALYSIS With a growing proportion of listed company profits being generated outside Japan, and the international investor community being significant owners of the stock market, it is important to take a view on the macro environment at both a domestic and global level. We use our views on the macro environment to guide the tone and shape of the portfolio and to influence the scale of the balance sheet and the net long position. By having a strong understanding of the surrounding environment that companies operate in we can focus our research expertise on the right sectors. This maximises the efficient use of our stock-picking skills focussing efforts on maximum alpha generation, risk mitigation and capital preservation. JAPAN LONG/SHORT 03

BOTTOM-UP RESEARCH Each member of our team is responsible for research and idea generation. We take a generalist approach rather than having sector responsibility, encouraging a collegiate nature, where discussion and debate is central. This approach creates a flexible environment and fully capitalises on the vast and varied research experience of each team member. The team will utilise many sources of information to help their research process: EXTERNAL METRICS AND NEWSFLOWS Ongoing screening: Macro indicators Corporate announcements Market structure data Share price COMPANY MEETINGS Conduct over 500 meetings per year with Japanese companies SELL-SIDE RESEARCH We use sell-side research for: Company updates Identifying sector trends Analyst insights COMPANY MEETINGS VALUATION At the heart of our approach is our belief that we can add value through direct company analysis. We undertake extensive quantitative and qualitative research as we seek to build an in-depth understanding of the companies we invest in and the valuation opportunity available. We identify both long and short opportunities by examining the connections between companies, their suppliers, peers and customers. We use meetings with company management to help gain insight and build conviction in an idea. Engagement with company management occurs in a number of ways. We meet senior management in person at our offices in London and Edinburgh, through conference calls and when members of our team visit company premises while on research trips to Japan. AT THE HEART OF OUR APPROACH IS OUR BELIEF THAT WE CAN ADD VALUE THROUGH DIRECT COMPANY ANALYSIS. We have a bias toward Growth at a Reasonable Price (GARP) on the long side, which includes tenets of both growth and value investing. Through this we seek companies demonstrating consistent earnings growth, which are not trading on unreasonably high valuations. Although we favour GARP, experience has taught us that a one-size fits all approach to valuation does not work. We will always consider the characteristics of the business in question, assessing their individual merits and applying the most appropriate valuation methods in order to generate best ideas for the portfolio. SHORTING Our investment process for taking a short position mirrors our process for taking a long position. When selecting a stock for shorting we look for: balance sheet distress overvaluation sector change negative structural trends that are yet to play out cyclical stocks that are vulnerable to weakening global demand but are supported by the weak Yen 04

PORTFOLIO CONSTRUCTION Each stock idea is sponsored by a member of the team and then subjected to scrutiny, debate and challenge by the group. Paul Kirkby, in his role of lead Portfolio Manager, is the ultimate decision maker on what is included in the portfolio. Should a stock warrant inclusion in the portfolio, the weight will be determined by the level of conviction in the investment thesis and the risk this adds to the overall portfolio. Once a stock is included in the portfolio the team will continue to monitor it to ensure the initial investment hypothesis remains intact. The number of stocks will vary over time but will tend to lie between 60 120 stocks with the absolute number driven by the breadth of ideas generated and the underlying liquidity of the stocks selected. This range also enables flexibility to include a stock without first having to sell when an opportunity arises. In the first instance we will look for direct long and short stock positions for both alpha generation and risk reduction. However, this strategy also utilises future and options, where attractively priced, to implement exposures and for risk reduction purposes. A control policy for using derivatives is monitored by the Japan equity long/short team and the portfolio risk management team. For some of the portfolios within the strategy, the managers may undertake active currency hedging decisions to further enhance the potential returns. This does not apply to the UCITS regulated portfolios where all currency risk is fully hedged. TURNOVER We have a medium to long-term outlook to our stock selection. Long stock positions will typically be held between six and 24 months although many have a longer term trading horizon. Short positions, where the duration of the idea is generally shorter, are normally held for up to 12 months but may be held longer depending on our conviction in the investment thesis. PORTFOLIO CHARACTERISTICS Japan long/short strategy Gross equity exposure +60 to +200% Net equity exposure -30 to +100% JGB maximum gross exposure +50% (UCITS +15%) JGB net exposure range -50% to +50% (UCITS -15% to +15%) Net industry limit 25% Long book normal position size 1.5 2.5%, maximum position size 7% Short book normal position size 0.75-1.5%, maximum position size 5% Portfolio holdings Range 60 120 Currency hedging vehicle specific Futures/options permitted vehicle specific These are representative account limits and differ per vehicle. Please contact us for vehicle specific limits. We recognise that short positions inherently carry more risk than the long ones. Even a moderation in the momentum of negative change can trigger short covering. We will not hold a short position where we identify a specific risk of a corporate takeover or merger. JAPAN LONG/SHORT 05

RISK MANAGEMENT Our approach to risk management emphasises the following factors: Value at risk (VaR). We aim to limit VaR to <7.5% (defined as 95% probability of such a move in the portfolio over a two week period). We monitor carefully the contribution of each position to VaR. Stock correlations. We aim to build a portfolio with a wide range of share price drivers and avoid concentrations of correlated positions, particularly when such stocks exhibit high volatility. We use heat maps to monitor correlations across the entire portfolio. Macro factor sensitivity and stress testing. We employ a reverse stress testing approach to monitor portfolio sensitivity to a large number of factors. We apply more than 150 independent shocks to individual factors such as countries, sectors, economic indicators, styles and currencies. Using our core risk model (SunGard APT), we shock each factor by 1 standard deviation and calculate the expected return of the portfolio in both absolute terms and relative to the market. This gives us an indication of what would hurt the portfolio the most. These stress tests are performed every day as part of our regular risk profile monitoring. Liquidity. We assess liquidity daily, based on the average volume traded in each of the portfolio s positions over the previous 60 days, assuming we can participate in up to one-quarter of this average daily volume. We set limits over four liquidity hurdles (10, 20, 40 and 100 days) for each of our strategies, and a portfolio is deemed to be in soft breach if it exceeds one of the limits. RISK MANAGEMENT Liquidity Most stocks between US$2bn and US$10bn market cap Can liquidate 89% of the portfolio in ten days * VaR Internal soft limit maximum two-week VaR 7.5% (95% confidence level) UCITS hard VaR limit maximum 10 day VaR 8.5% (95% confidence level) Past performance is not a guide to future returns. Source: Martin Currie and SunGard APT as at 28 February 2017. Data calculated for the representative Martin Currie Japan Long/Short account. *Figure calculated from daily numbers. In our view, the above factors give a more meaningful picture of the fund s risk profile than do traditional measures based on net or gross exposure at the sector, country or portfolio level. WE AIM TO BUILD A PORTFOLIO WITH A WIDE RANGE OF SHARE PRICE DRIVERS AND AVOID CONCENTRATIONS OF CORRELATED POSITIONS, PARTICULARLY WHEN SUCH STOCKS EXHIBIT HIGH VOLATILITY. WE USE HEAT MAPS TO MONITOR CORRELATIONS ACROSS THE ENTIRE PORTFOLIO. 06

FIND OUT MORE For further information on Martin Currie please visit our website www.martincurrie.com You can find your local contact at www.martincurrie.com/contact_us Alternatively please call our global offices, press office or global consultant team on the numbers below: Edinburgh (headquarters) 44 (0) 131 229 5252 Global consultants 44 (0) 131 479 5954 London 44 (0) 20 7065 5970 New York 1 (212) 805 6000 Asia and Australia (61) 3 9017 8640 Media 44 (0) 131 479 5892 IMPORTANT INFORMATION This information is issued and approved by Martin Currie Investment Management Limited ( MCIM ). It does not constitute investment advice. For Investors in the USA, the information contained within this document is for Institutional Investors only who meet the definition of Accredited Investor as defined in Rule 501 of the United States Securities Act of 1933, as amended ( The 1933 Act ) and the definition of Qualified Purchasers as defined in section 2 (a) (51) (A) of the United States Investment Company Act of 1940, as amended ( the 1940 Act ). It is not for intended for use by members of the general public. Any distribution of this material in Australia is by Martin Currie Australia Limited ( MCA ). Martin Currie Australia is a division of legg Mason Asset Management Australia Limited (ABN 76 004 835 849). Legg Mason Australia Limited holds an Australian Financial Services Licence (ASFL No. AFSL240827) issued pursuant to the Corporations Act 2001. The information contained has been complied with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice. This document may not be distributed to third parties and is intended only for the recipient. Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis that it is longest running US$ account for the strategy. This account is an existing account managed by Martin Currie, within the strategy referred to in this document. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought ahead of any planned investment. The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information. Risk warnings Investors should also be aware of the following risk factors which may be applicable to the strategy. This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the portfolio s value than if it held a larger number of investments. Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment. Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile. Investors should be aware that any currency hedging strategy employed may mitigate the currency exchange risk, but may substantially limit shareholders from benefitting if the portfolio currency falls against the reference currency. The strategy may invest in derivatives (Options, Futures, CFDs (Swaps) and FX forwards) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives can be difficult to purchase or sell in certain market conditions. Martin Currie Investment Management Limited, registered in Scotland (no SC066107) Martin Currie Inc, incorporated in New York and having a UK branch registered in Scotland (no SF000300), Saltire Court, 20 Castle Terrace, Edinburgh EH1 2ES Tel: (44) 131 229 5252 Fax: (44) 131 222 2532 www.martincurrie.com Both companies are authorised and regulated by the Financial Conduct Authority. Martin Currie Inc, 620 Eighth Avenue, 49th Floor New York, NY 10018 is also registered with the Securities Exchange Commission. Please note that calls to the above number may be recorded.