European Fund Trends Survey February 2007

European Fund Trends Survey February 2007 Whither Emerging Markets? Summary of results:* Monthly Theme Our February 2007 European Fund Trends Survey asked managers for their perspective on emerging market valuations and risk levels. We conducted a nearly identical survey in April 2006, and the current results show at least one clear change in fund managers views on emerging markets. The most notable trend is the change in attitudes towards the valuations of Chinese equities. When asked which of Russia, China, India, or Brazil was most overvalued, only 5% of the respondents to our 2006 survey selected China, while 35% of the 2006 respondents said that none of the four markets was overvalued. In contrast, 33% of respondents to the question in the current survey said China is the most overvalued of the group, and only 10% said that none of the four markets is overvalued. Overall, India was selected most frequently (by 53% of respondents) as the most overvalued market, which is in keeping with responses to the 2006 survey. Respondents voiced the most concern with Russia and Emerging Europe. When asked whether Brazil, Russia, India or China would see its GDP growth weaken the most in the next three years, 50% of respondents selected Russia. China was a distant second, with 23% of respondents stating its GDP growth would weaken the most of the four markets. When asked whether Emerging Asia, Latin America, or Emerging Europe would deliver the worst equity returns over the next three years, 65% chose Emerging Europe. The 2006 survey elicited similar responses, but the percentage of respondents selecting Russia and Emerging Europe in these two questions increased significantly in 2007 relative to 2006. We also asked a new question about the biggest risk factors by region. Respondents appear to be alarmed by some of the past year s events in Russia: 60% cited political risk as the biggest risk of the four choices given (an interest rate rise in the U.S., a slowdown in China s growth rate, a rise in oil prices, and political factors). For Emerging Europe ex-russia, 35% selected political factors, but that was only marginally higher than the 30% who selected rising oil prices as the biggest risk factor for that regions. A slow-down in GDP growth in China was seen as the biggest threat to emerging Asia. Industry and Performance Trends A significant percentage of respondents (41%) think that absolute return funds will dominate new fund launches in their home markets over the next year. This is somewhat worrisome despite the safety implied by their names, such offerings encompass a wide range of strategies with varying degrees of risk, and tend to be high cost. Respondents appear uncertain about investment style: Although the vast majority believe large caps will outperform small caps over the next 12 months, respondents were nearly evenly split as to whether value, growth, or neither style would outperform in the same period. With regard to bonds, respondents still appear fairly conservative not surprising given the market environment: Most say they favour short-duration issues and developed-market government paper to outperform over the next year. Theme: Emerging Markets Selected Questions 1. Is the multi-year increase in emerging-market equity prices indicative of a 'bubble' environment? Yes 7% No..93% 2. Are current valuation levels in emerging-market equities sustainable? Not at all. We expect significant price declines....0% No. We expect moderate price declines...21% They are about right. 25% Yes. There is room for moderate price increases...46% Yes. There is room for significant price increases.... 7% 3. Which emerging market's equities are the most overvalued? Brazil..0% Russia..3% India..53% China..33% None..10% 4. Which of the following countries' GDP growth rates will increase/weaken the most over the next three years? Increase the Most Weaken the Most Brazil 39% 15% Russia 0% 50% India 26% 12% China 35% 23% 5. Which emerging region will deliver the best/worst equity investment returns over the next three years? Best Returns Worst Returns Emg. Asia 56% 12% Lat. Amer. 41% 23% Emg. Eur. 4% 65% 6. Which emerging market carries the most risk for equity investors at present? Emg. Asia..33% Lat. Amer..29% Emg. Eur..38% 7. Which of the following is the most significant risk factor for equity investors in each emerging region? Emg. Asia Lat. Amer. Interest rate increase in U.S. 21% 39% Decrease in China GDP growth 61% 18% Further increases in oil prices 11% 0% Political factors 7% 43% Emg. Eur. ex-russia Russia Interest rate increase in U.S. 26% 20% Decrease in China GDP growth 9% 12% Further increases in oil prices 30% 8% Political factors 35% 60% *This survey was completed prior to the downturn in global equity markets that commenced on Feb. 27. 2007 Morningstar Europe AB. All rights reserved. Morningstar and the Morningstar logo are trademarks of Morningstar Europe AB

2 Which asset class will dominate new fund launches in the next 12 months? Are you planning to launch new funds in the next 12 months? 70% 60% 50% 40% 30% 20% 10% 120% 100% 80% 60% 40% 20% 0% 0% Equity Funds Fixed Income Funds Balanced Funds Other Yes No What investment style (value or growth) will perform best over the next 12 months? What investment style (large cap or small cap) will perform best over the next 12 months? 50% 45% 40% 35% 90% 80% 70% 60% 30% 50% 25% 40% 20% 30% 15% 20% 10% 10% 5% 0% Value Growth Neutral 0% Large Cap Small Cap Neutral Which type of fixed income instrument (long or short) will perform best over the next 12 months? Which type of fixed income instrument (corporate or government) will perform best over the next 12 months? 19% 15% 33% 11% 67% 55% Long (3 - years) Short (1-3 years) Corporate, high yield Corporate, investment grade Government, developed market Government, emerging market

3 European Fund Industry Trends 1. Which asset class will dominate new fund launches in the next 12 months in your country? Equity Funds 46% 48% 62% 44% Fixed Income Funds 6% 0% 6% 0% Balanced Funds 27% 12% 15% 15% Other 21% 40% 18% 41% Respondents said that equity investments and absolute return funds ( other ) will dominate new fund launches in the next 12 months. 2. Are you (as a fund group) planning to launch new funds in the next 12 months? Yes 91% 83% 88% 100% No 9% 17% 12% 0% All respondents said they will launch new funds in the next 12 months. 3. Do you foresee an increased number of mergers between fund management groups in Europe in the next 12 months? Yes 63% 60% 53% 56% No 37% 40% 47% 44% 56% of fund groups said they foresee an increased number of mergers between fund management groups in Europe in the next 12 months.

4 European Fund Performance Trends 4. Which investment style, value or growth, will perform best in the next 12 months? Value 18% 24% 22% 32% Growth 38% 40% 44% 29% Neutral 44% 36% 33% 39% Some 39% of fund groups said they didn t believe either growth or value would outperform over the next 12 months. 5. Which type of equity, large-caps or small-caps, will perform best in the next twelve months? Large Cap 77% 84% 72% 79% Small Cap 3% 4% 14% 4% Neutral 21% 12% 14% 18% 79% of fund groups said large caps will perform best in the next 12 months. 6. Globally, how will equities perform over the next 12 months (i.e., MSCI World Index in USD)? Negative 0% 0% 6% 0% 0 5% 15% 24% 14% 30% 6 10% 53% 64% 56% 56% 11 15% 24% 4% 19% 15% More than 15% 9% 8% 6% 0% 71% of fund groups said equities will gain more than 5% in the next 12 months, of which 15% said equities will gain more than 10%. 7. Will long-duration or short-duration fixed-income instruments perform best over the next 12 months? Long Duration 38% 24% 31% 31% Short Duration 62% 76% 69% 69% A majority of fund management groups said that short-duration fixed income products will perform best in the next 12 months. 8. Which fixed-income sectors will perform best over the next 12 months? Corporate, high yield 18% 8% 12% 15% Corporate, investment grade 3% 4% 9% 11% Government, developed market 68% 48% 56% 56% Government, emerging market 12% 40% 24% 19% 56% of respondents said developed-market government bonds would perform best in the next 12 months.

5 9. What currency do you think will be the strongest/weakest in the next 12 months? January February Best Worst Best Worst Euro 40% 27% 50% 5% Sterling 3% 18% 0% 24% Dollar 11% 39% 8% 48% Yen 46% 15% 42% 24% Fund groups most frequently said the Euro would be the strongest currency in the next 12 months, with the Yen a close second. 10. What markets do you think will perform best/worst in the next 12 months? January February Best Worst Best Worst Europe (ex. UK) 31% 6% 37% 12% UK 0% 15% 0% 16% USA 17% 26% 11% 12% Japan 29% 15% 37% 32% Asia (ex. Japan) 9% 3% 11% 4% Latin America 11% 24% 4% 8% Emerging Europe 3% 12% 0% 16% Europe and Japan were expected by the greatest number of respondents to be the best performing markets over the next 12 months. However, Japan was also selected by a large number of respondents to be the worst performing market, suggesting considerable uncertainty among fund managers. 11. What stockmarket sectors do you think will perform best/worst in the next 12 months? January February Best Worst Best Worst Software 6% 3% 4% 0% Hardware 3% 7% 0% 5% Media 0% 7% 0% 5% Telecommunication 19% 13% 22% 19% Healthcare 19% 7% 9% 5% Consumer Services 9% 0% 4% 5% Business Services 0% 3% 9% 0% Financial Services 19% 10% 30% 14% Consumer Goods 6% 7% 0% 0% Industrial Materials 0% 10% 9% 14% Energy 16% 13% 13% 10% Utilities (ex-telecom) 3% 23% 0% 24% A significant percentage of respondents said financial services stock are the most likely to outperform over then next 12 months. Utilities stocks were deemed the likeliest to underperform.

6 About the survey Morningstar editors and analysts conducted this survey between 19 February and 28 February 2007. In total, 28 fund management groups participated in the survey [Benelux 4, Denmark 3, France 5, Germany 4, Italy 7, Spain 2, Sweden 2, and UK 1]. The companies surveyed are among the largest in each country [see list on page 7]. On average they manage some EUR 40 billion in retail fund assets and offer 117 retail funds. Unless otherwise noted, numbers are expressed as percentages of respondents to a given question. This survey (as well as all past surveys) is available in the News Room at: http://global.morningstar.com/uk/fundtrendssurveys About Morningstar Morningstar is a global investment research firm whose mission is to help investors make better decisions to reach their financial goals. The company provides investment information and analytical tools for a number of leading financial institutions, websites and media. Over the past 20 years, Morningstar has taken advantage of the technological progress that has revolutionised world financial markets. Morningstar is now one of the most recognised brands in the financial services industry in the world. Morningstar s goal is to revolutionise investing by providing investors with information, ideas, and tools that help them make sense of the extraordinary range of investment products available today. In the US, Morningstar has provided an outstanding range of fund information, analytical tools and investment guidance services since 1984. Synonymous with unbiased, comparable and easy-to-grasp information about shares and funds, the company has repeatedly turned innovative measuring principles and presentation forms into commonly accepted worldwide standards. Morningstar is the global standard for investment information with offices in: Australia, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the UK and the USA

7 Fund Groups in Survey Benelux ABN AMRO Aegon SNS Veer Palthe Voute Denmark Jyske Invest Nordea Invest Sydinvest France BNP Paribas CCR CM-CIC Crédit Agricole AM UFF Spain Ahorro Corporacion Gestion Sogeval Sweden AMF Pension Fondförvaltning AB Robur AB UK Invesco Germany Allianz Global Investors Cominvest Asset Management Frankfurt Trust Oppenheim Pramerica Italy Aletti Gestielle Banca Fideuram BG SGR BNL Gestioni Eurizon Capital SGR Monte Paschi AM Pioneer IM

8 Contact Details Denmark Karsten Henriksen Senior Fund Analyst, Morningstar Denmark Tel: +45 3318 6005 Email: karsten.henriksen@morningstar.dk Web: www.morningstar.dk France Frederic Lorenzini Editor-in-Chief, Morningstar France Tel: +33 (0) 1 53 40 92 03 Email: frederic.lorenzini@morningstar.fr Web: www.morningstar.fr Germany Natalia Siklic Fund Analyst, Morningstar Germany Tel: +49 (0) 89 41559 200 Email: natalia.siklic@morningstarfonds.de Web: www.morningstarfonds.de Italy Mariagrazia Briganti Fund Analyst, Morningstar Italy Tel: +39 02 303 01 225 Email: briganti@morningstar.it Web: www.morningstar.it Netherlands Freddy van Mulligen Senior Editor/Head of Research, Morningstar Benelux Tel: +31 (0) 20 311 90 94 Email: freddy.vanmulligen@morningstar.nl Web: www.morningstar.nl Norway Thomas Furuseth Analyst & Editor in Chief, Morningstar Norway Tel: +47 (0) 23 30 88 54 Email: Thomas.Furuseth@morningstar.com Web: www.morningstar.no Spain Fernando Luque Senior Editor/Head of Research, Morningstar Spain Tel: +34 (0) 91 702 25 94 Email: fernando.luque@morningstar.es Web: www.morningstar.es Sweden Jonas Lindmark Senior Editor/Head of Research, Morningstar Sweden Tel: +46 (0) 8 506 46 052 Email: jonas.lindmark@morningstar.se Web: www.morningstar.se United Kingdom Christopher Traulsen, CFA Director of Fund Research, Morningstar UK Tel: +44 (0) 20 3107 0061 Email: christopher.traulsen@morningstar.com Web: www.morningstar.co.uk