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Absolute return investing citiwire events screen (jl 04 december 2012) Absolute return investing citiwire events screen (jl 04 december 2012) Presentation Transcript

  • This communication is for investment professionals only and should not be distributed to, or relied upon by retail clients. Absolute return investing Citywire Event December 2012
  • “Uncertainty is the only certainty there is, and knowinghow to live with insecurity is the only security”John Allen PaulosProfessor of Mathematics at Temple UniversityPhiladelphia, USA
  • The Global Absolute Return Strategies FundObjective: • Cash* +5% per year (gross) performance target over rolling 3 years periods • Expected volatility range of between 4% - 8%Key Investment Themes:• Time Frame: 3 year investment outlook • Captures return more consistently from demonstrable market inefficiencies• Breadth: Broad investment freedom • A diverse array of strategies build a robust portfolio• Balance: Risk controlled implementation • Portfolio constructed for resilience & to maximise the range of scenarios that will provide a positive return * Cash here is defined as 6 month US Libor A proven track record in delivering the Fund objectives 3
  • GARS – the theory Target return a proxy for long term risk asset returns Path NOT solely GARS portfolio dependent on risk markets traditional Volatility significantly less than equity risk approach TimeBuilding a less volatile approach to generating positive investment returns 4
  • Global Absolute Return Strategies SICAVperformance Global Equities** Cash** Target Return (Gross) GARS* 170 165 Volatility 160 US$ GARS SICAV 6.0% 155 150 Global Equities 18.9% 145 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 06 07 08 09 10 11 12 06 07 08 09 10 11 n/ n/ n/ n/ n/ n/ n/ c/ c/ c/ c/ c/ c/ De De De De De De Ju Ju Ju Ju Ju Ju JuSource: Standard Life Investments, gross performance from 12/06/2006 to 31/10/2012* Source: Standard Life Investments converted $ performance of £, institutional pooled pension portfolio to the 07/06/2011. US$ GARS SICAVportfolio performance from the 08/06/2011. Volatility calculations based on monthly performance data** Source: Thomson Datastream, 6 month US$ LIBOR, MSCI World ($)Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®). The fund specific data presentedabove is supplementary information to the US GARS GIPS® composite report, which is enclosed in the Appendix for your reference 5
  • GARS combines traditional and advancedapproaches Traditional investments Market Returns Security Selection Outcomes • Allocation to a range of asset classes • Dynamic Allocation • Active security selection • Benefit from diversification • Long term risk premia e.g. • Conventional benchmarks Equities, Credit, Listed Real • Potential problems • Bottom-up, Focus on Change Estate process • Too constrained • Used only when we expect to be • No extra layer of cost to our • Too highly correlated rewarded fees Directional Relative Value Outcomes • A wider range of investment Advanced • Specific directional investment • Seek pairs of closely related strategies ideas markets or segments • Greater diversification • In markets with little or no long • Our view is that performance • Implemented through derivatives term risk premium will differ over 3 years • Highly liquid • With significant return potential • Profit from the difference in • Efficient risk management on a 3 year view performance irrespective of market direction GARS – a carefully chosen blend of traditional and advanced strategiesAiming to deliver low risk positive performance in all investment environments 6
  • Portfolio Outlook / Themes• Profit opportunities in areas of growth  US equity  US technology equity vs US small cap equity  Korean equity• Corporate balance sheet strength  US large cap equity vs US small cap equity  Investment grade and high yield credit• Fiscal advantages of resource-based economies  Mexican government bonds  Mexican Peso vs Australian Dollar  Russian equity  US Dollar vs Canadian Dollar• Challenging Eurozone resolution  US Dollar vs Euro  European Financials Capital Structure  European high dividend-yield equitySource: Standard Life Investments UK GARS portfolio, 30 September 2012 7
  • Building a true absolute return portfolio• Portfolio has to deliver positive and stable performance in a wide range of scenarios• Range of investment strategies implemented therefore have to reflect  Fragile economic recovery  Continuing spikes of volatility in the market  Surge in commodity prices  Collapse in commodity prices  Inflation becoming a major problem  Deflation fears growing  Emerging Markets growing ever faster  Emerging Markets bubble popping  ….and many more• Building a portfolio to allow for this range of eventualities is no easy task!Uncertainty is the only certainty there is 8
  • GARS – finding positive strategies in all markets Top 10 GARS contributors by calendar year Global equities -40% 2006 2007 2008 2009Long-term Japanese Interest Rates 1.8% Long-term Japanese Interest Rates 1.6% Long-term European Interest Rates 2.7% Investment Grade Corporate Bonds 5.4%UK Equity 1.3% Cash 1.4% Medium-term European Interest Rates 2.4% Long Sterling vs Euro 1.9%Security Selection 1.2% European Equity 1.3% German Equity vs UK Equity Relative Volatility 1.8% Global Equity 1.9%Global Equity 1.2% Security Selection 1.0% Cash 1.5% Long Brazilian Real vs Japanese Yen 1.7%European Equity 0.8% UK Large v Mid Cap UK equity 0.9% Long-term Japanese Interest Rates 1.5% Medium-term European Interest Rates 1.6%Investment Grade Corporate Bonds 0.6% UK Equity 0.8% European Short-term Interest Rates 1.4% UK Equity 1.5%Cash 0.5% Global Inflation-Linked Bonds 0.8% UK Short-term Interest Rates 1.2% European Equity 1.5%Global Inflation-Linked Bonds 0.3% UK Short-term Interest Rates 0.6% Financial Sector Credit 1.2% US Equity 1.2%Long Turkish Lira vs Sterling 0.2% Global Equity 0.5% Long US Dollar vs Euro 1.1% Short UK Inflation 1.1%European Equity Volatility 0.2% Investment Grade Corporate Bonds 0.3% Relative Variance Income 1.0% Long-term Japanese Interest Rates 0.9%GARS return 7.5% GARS return 8.4% GARS return -6.1% GARS return 19.4% Global equities -5% 2010 2011 2012Investment Grade Corporate Bonds 1.8% US Long Bond Yields (Forward-Start) 2.4% Investment Grade Corporate Bonds 1.9%Long-term European Interest Rates 1.6% Long Equity Variance 1.5% High Yield Credit 1.3%Broad vs Financial Sector Equity 1.3% Broad vs Financial Sector Equity 1.3% Mexican Government Bonds vs Euro 1.1%UK Short-term Interest Rates 1.1% Global Inflation-Linked Bonds 1.1% Broad vs Financial Sector Equity 0.9%Global Equity 1.1% Long Norwegian Krone vs Swiss Franc 0.8% Security Selection 0.7%European Equity 0.9% Australian vs US Short-rates 0.7% US Equity Technology vs US Equity Small Cap 0.6%UK Equity 0.8% Australian vs Japanese Medium Term Interest Rates 0.5% European Equity 0.5%Long US Dollar vs Euro 0.8% Swedish Short-term Interest Rates 0.5% Global Equity 0.3%Australian vs US Short-rates 0.7% Investment Grade Corporate Bonds 0.5% Global Inflation-Linked Bonds 0.3%Medium-term Australian Interest Rates 0.7% US Large vs US Small Cap Equity 0.4% European Bond Yield Steepener 0.3%GARS return 10.8% GARS return 3.4% GARS return 7.0% Source: Standard Life Investments, GARS returns in $ gross of fees Balance: building the portfolio for positive return in a wide range of different futures 9
  • 2 ways to use Absolute Returns in yourportfolio1. Diversify your Asset Allocation risk2. A more attractive ‘Alternative’ portfolio 10
  • Diversify your asset allocation risk Case study: Risk-based multi-asset funds• Standard Life Investments in consultation with external asset modelling consultants• Economic Scenario Generator stochastically models many economic and market variables, including:  Interest rates  Risk premium for asset classes  Volatility (short and long-term)  Exchange rate fluctuations  Correlation  Short-term market features that may impact long-term risk/reward• Constraints are applied to avoid “corner solutions” Significant issues in modelling Absolute Return Solution: Absolute Return to form 20% of the “Growth” portion across all styles 11
  • Risk-based FundsPortfolio Strategic WeightsRisk-based portfolio: 8.5%-12.0% volatility range Risk-based multi-asset portfolio Return-seeking asset classes 65.50% 100.0% Money Markets UK Equities 26.3% UK Gilts Absolute Returns 20.0% UK Index-linked Gilts UK Equities US Equities 16.5% UK direct property 12.2% Emerging Market Equities 7.9% European Equities 5.5% Sterling Corporate Bonds Asia Pacific Equities 4.3% Absolute Returns Japan Equities 3.7% High Yield bonds 3.7% Defensive asset classes 34.50% 100.0% Sterling Corporate Bonds 69.6% UK Index-linked Gilts 14.5% Hedged High-yield Bonds US Equities 13.0% Japan Equities UK Gilts Money Markets 2.9% Asia-Pacific Equities UK direct Property European Equities Emerging Market EquitiesModelled using Barrie & Hibbert’s Baseline Calibration, September 2011Baseline Calibration is used as it does not assume period specific initial conditions and so gives a stable asset allocation model.Expected Volatility is given as one standard deviation of annualised returns.Strategic asset allocations at 31/12/2011; reviewed quarterly 12
  • A more attractive ‘Alternative’ portfolioComparison of conventional multi-asset v hedge funds Conventional Hedge FundsCharacteristic Multi-asset Typical featuresInvestment Objective • Peer group / Strategic • Absolute Return benchmark relatedBreadth of strategies • Benchmark constituents • LargeRisk Analysis • Limited • Comprehensive risk metricsEconomic leverage • No • YesRegulatory oversight • High • LowAccessible for investment • Excellent • LimitationsLiquidity for disinvestment • Good • LimitationsPortfolio Transparency • High • LowFees • Modest • HighInvestment benefits of Hedge funds offset by considerable negatives 13
  • GARSBest Of Conventional And Hedge Funds Conventional Hedge FundsCharacteristic GARS Multi-asset Typical featuresInvestment Objective • Peer group / Strategic • Absolute Return • Absolute Return benchmark relatedBreadth of strategies • Benchmark • Large • Large constituentsRisk Analysis • Limited • Comprehensive risk • Comprehensive risk metrics metricsEconomic leverage • No • Yes • YesRegulatory oversight • High • Low • HighAccessible for • Excellent • Limitations • ExcellentinvestmentLiquidity for • Good • Limitations • GooddisinvestmentPortfolio Transparency • High • Low • HighFees • Modest • High • Modest 14
  • GARS – an alternative to hedge funds Standard Life GARS Fund of Hedge Fund Universe Median 20 15 10 5 % return US$ 0 2007 2008 2009 2010 2011 2012* ‐5 ‐10 ‐15 ‐20 YearSource: Mercer MPA, $ performance net of fees* Performance to 30 September 2012 15
  • 3 year annualised return range25.0% Best outcome20.0%15.0%10.0% Last 3 years to 31/10/20125.0%0.0% Worst outcome-5.0% Libor+5% GARS (gross) Global Equities Source: Standard Life Investments, 31/10/2012 Return ranges based on 3 years of monthly observations of rolling 3 year data 16
  • Progressive thinking of absolute return investing• Absolute return investing places full accountability on the fund manager for positive return• GARS produces a lower risk more consistent performance experience for investors• GARS is a fund with multiple applications in clients’ portfolios Increase the likelihood of ‘good’ outcomes for your portfolio and your clients 17
  • “Uncertainty is the only certainty there is, and knowinghow to live with insecurity is the only security”John Allen PaulosProfessor of Mathematics at Temple UniversityPhiladelphia, USA
  • Appendices
  • Philosophy• Active managers  Inefficient markets – ability to add value• Focus on change  Changes in micro/macro expectations drive pricing changes• A team approach to investing  Analysis, communicate, respond more effectively and quickly than the competition• Global process  Structured global micro and macro input (based on Focus on Change)• Discipline  Consistent portfolio structure, clear controlsObjective: consistent outperformance 20
  • GARS – stable performance in challenging times140 MSCI World** € GARS* Greek election Bankia135 Mubarak resigns Japan Tsunami bailout EFSF130 leverag Portugal seeks bailout e125 US Jackson Hole US debt speech US QE 2 loses AAA120 Greek debt problems115110105100 95 05-May 12-May 18-May 06-Jul 13-Jul 19-Jul 07-Oct 14-Oct 20-Oct 04-Mar 04-Apr 11-Mar 11-Apr 17-Mar 17-Apr 07-Nov 08-Dec 14-Nov 15-Dec 01-Jan 01-Feb 05-Jun 06-Aug 06-Sep 08-Jan 08-Feb 12-Jun 13-Aug 13-Sep 15-Jan 15-Feb 18-Jun 19-Aug 19-Sep 2010 2011 2012 * Standard Life Investments converted € performance of £ Fund to the 26/01/2011, GARS SICAV Fund performance from the 27/01/2011 ** Source: Thomson Datastream, MSCI World € Source: Standard Life Investments, gross € performance GARS Fund vs. MSCI € from 01/01/2010 to 31/10/2012 21
  • 1 year cumulative performance attribution Quarter Q4 11 Q1 12 Q2 12 Q3 12 Cumulative contribution over 1 -1.0% 0.0% 1.0% 2.0% 3.0% Number of strategies yearSecurity Selection 0.5% 0.2% 0.2% 0.1% 1.1%Investment Grade Corporate Bonds 0.3% 0.9% 0.1% 0.8% 2.1%High Yield Credit 0.6% 0.6% 0.0% 0.5% 1.7%US Equity 0.6% 0.4% -0.2% 0.1% 0.8%Global Equity 0.3% 0.7% -0.4% 0.1% 0.7%Global Inflation-Linked Bonds 0.3% 0.2% -0.2% 0.3% 0.6%Russian Equity 0.2% 0.4% -0.3% 0.2% 0.6%European Equity 0.1% 0.4% -0.2% 0.1% 0.5%Cash 0.1% 0.1% 0.1% 0.1% 0.3%UK Equity 0.0% 0.1% 0.0% 0.0% 0.0%Korean Equity 0.0% -0.4% 0.2% -0.3%Mexican Government Bonds vs Euro 0.3% 0.5% 0.3% 0.3% 1.4%Long US Dollar vs Euro 0.3% -0.3% 0.4% -0.1% 0.3%European Bond Yield Steepener 0.1% 0.1% 0.0% 0.1% 0.3%Long Norwegian Krone vs Euro 0.1% 0.1% 0.2%Long US Dollar vs Japanese Yen 0.0% 0.4% -0.2% -0.1% 0.2%Australian Short-term Interest Rates 0.0% 0.1% 0.1%US Long Bond Yields (Forward-Start) 0.1% -0.2% -0.2% 0.4% 0.1%Australian yield curve flattener 0.0% 0.0%Long Mexican Peso vs Australian Dollar 0.0% 0.0%UK Inflation Real Yield -0.1% 0.0% 0.0%Other FX 0.0% 0.0% 0.0% 0.0% 0.0%Long Equity Variance -0.1% -0.1%Long Equity Volatility 0.1% -0.1% -0.1% -0.2%Long Brazilian Real vs Czech Koruna -0.3% 0.0% -0.4%Long Brazilian Real vs Australian Dollar -0.4% 0.0% -0.5%Long US Dollar vs Canadian Dollar -0.1% -0.1% 0.1% -0.4% -0.5%Broad vs Financial Sector Equity 0.3% 0.0% 0.8% 1.2%Relative Variance Income 0.3% 0.3% -0.4% 0.2% 0.4%Financial Sector vs Broad Credit 0.0% 0.9% -0.5% 0.3%Australian vs US Short-rates 0.2% 0.2%UK Inflation vs Long Gilts 0.2% 0.2%European Financials Capital Structure -0.3% 0.4% 0.1%UK vs European Forward-Start Duration 0.1% 0.0% 0.1%US Equity Technology vs US Equity Small Cap -0.4% 0.7% -0.2% 0.1% 0.1%German vs French duration 0.0% 0.0%Chinese Yuan volatility vs Japanese Yen volatility 0.0% 0.0%China Equity vs UK Equity Volatility 0.1% -0.1% 0.0% 0.0% 0.0%Hang Seng vs S&P volatility -0.2% 0.1% -0.1%Swedish vs German Short-rates -0.2% 0.0% -0.2%US Large vs US Small Cap Equity -0.3% 0.0% 0.0% 0.1% -0.3%Korean Equity vs European Equity -0.1% -0.5% -0.5%Source: Standard Life Investments GARS SICAV portfolio, 30 September 2012 22
  • Multi-Asset Investment Team Average years at Standard Life MAI Team Members Staff Area Average years in industry Investments Idea Generation 5 Global & EM Strategy 22 14 Risk Investigation 5 Risk & Structuring 9 6 Idea Implementation 18 Portfolio Management 17 9 Size Strength Tenure Euan Munro FIA Head of Multi - Asset Investing and Fixed Income Global Strategy Multi Asset Risk Multi Asset Management Strategic Andrew Milligan Dr Brian Fleming Guy Stern CFA Investment Group CFA PRM Multi Asset Members from out-with the Portfolio Management Implementation MAIT Frances Hudson Dr Anne Friel PRM Ian Pizer Neil Richardson Jason Hepner CFA David Kirkpatrick Gwilym Satchell PRM Colette Conboy Scott Smith Stan Pearson Craig Hoyda Thad Quinn Dr Jens Kroeske Harry Smith Murray Forbes Julia Mikhniak Andrew Sutherland Global Economics Dr Robert de Roeck Adam Rudd Douglas Roberts Audrey Simpson Roger Sadewsky* Neil Matheson Multi Asset Business Management Alex Berry Alex Grassino Malin Nairn James Esland Richard House Jennifer Catlow SLI Canada Global Investment Specialist Team* Roger Sadewsky is included in the Portfolio Management TeamStrategic Investment Group members in boldSource Standard Life Investments, 06 November 2012Critical combination of skills and experience 23
  • GARS process Asset classIdea Generation Fundamenta team views Valuation Quantitative l economic and modelling modelling Investment analysis strategies Governance & Oversight Strategic Investment Group • Review Conviction • Independent Selection • Debate Diversity Risk Analysis • Ratify / Reject Liquidity • Counterparty Multi Asset Risk and Structuring Risk Pre-trade risk Diversification measurement Scenario Management Analysis • Investment Multi Asset Management governanceImplementation Strategy implementation Final position sizing ExecutionIntegrated with full skill set across Standard Life Investments 24
  • Strategy activity in prior quarters Q4 2011 Q1 2012 Q2 2012 Q3 2012 Altered Forward Starting US  Added US Large Cap volatility  Amended financials strategy to Duration – sold receiver swaption via VIX index create new European financials  Added Australian Yield Curve at 2.4% capital structure strategy to take Flattener, account of anticipated changes to - 10 year rates historically steep  Closed UK 5Y inflation creditor preference on a bank Altered Korean vs European failure equity relative value position by  Added German vs French 10 year  Closed Long Norwegian Krone vs  Closed Financial v implementing Korean and interest rates Euro Broad credit German equity index call options - worsening fundamentals in France v  Closed Broad v Germany leading to wider spreads  Added Long Brazilian Real vs Financial equity Altered Australian vs US short Czech Koruna term duration by closing US short  Added Chinese Renminbi vs leg  Added long UK vs Europe Japanese Yen currency volatility  Altered Financial vs Broad credit forward start duration strategy – European curve pricing in - Chinese currency to become more to take additional protection on Added US Dollar v Canadian Japan style recession volatile as it internationalises the Broad credit position Dollar  Amended Long Brazilian Real vs  Closed Australian Short Term  Added relative value volatility Australian Dollar to be long Mexican Closed Swedish v German short Rates position strategy – Hang Seng vs S&P Peso vs Australian Dollar term rates strategy equity volatility through put options  Assumed market exposure to Korean equities by closing the European side of Korean vs  Amended long Brazilian Real European equity relative value position to be versus Australian strategy Dollar from Czech Koruna  Added interest rate protection to Global Inflation-Linked bonds position Source: Standard Life Investments UK GARS portfolio, 30 September 2012 25
  • Risk management• Three stages of risk management:• (1) Independent risk modelling using APT system (ex-ante risk)  Daily risk reporting  Basis for pre-trade risk analysis• (2) Scenario analysis  Historical extreme events using RiskMetrics  Future extreme events modelled internally• (3) Realised volatility based on performance (ex-post risk) 26
  • GARS Strategy Implementation Group Strategy Jigsaw Implementation European Investment Grade Credit; Market returns Nominal bonds UK Investment Grade Credit Credit European Financials Capital Structure Relative value Credit default index swaps, equity futures High Yield Credit Market returns Nominal bonds, Credit default index swaps European Bond yield curve steepener Directional Interest rte swaptions US Long Bond Yields (forward start) Directional Bond futures, interest rate swaps and swaptions Duration Mexican Government Bonds vs Euro Directional Nominal bonds, FX forwards Australian interest rate flattener Directional Bond futures, interest rate swaps UK v European forward start duration Relative value Interest rate swaps German vs. French interest rates Relative value Bond futures European Equity; Global Equity; UK Equity Market returns Equity, equity futures Equities US Equity Market returns Equity, equity futures, equity options Russian Equity Market returns Equity (GDRs) Korean Equity Relative value Equity options US Equity Large vs Small Cap Relative value Equity futures US Tech vs Small Cap Long US Dollar; vs Euro, vs Canadian Dollar, vs Japanese Yen Directional FX forwards and swaps FX Mexican Peso vs Australian Dollar Directional FX forwards and swaps Inflation Global Inflation-Linked Bonds Market returns Index-linked bonds and swaptions Relative Variance Equity; China Equity vs UK Equity Volatility Relative value Variance swaps Hang Seng v S&P volatility Relative value Equity options Volatility Long Equity Volatility Directional VIX index options Chinese vs. Japanese currency volatility Relative value Currency call and put optionsSource: Standard Life Investments, GARS UT, GARS SICAV and GARS offshore funds, 30 September 2012 27
  • Risk profile of multi-market return strategy Stand-alone investment risks 20% • The portfolio is 18% Security selection exposed to multiple 16.5% diversified market 16% Relative value risksTotal stand-alone risk 14% • 16.5% is total Directional stand-alone 12% investment risk 10% Diversification benefits 12.8% chasing returns 8% • Equivalent equity Market returns volatility is 15.1% 6% • Independent risk 4% analysis shows the 2% Expected volatility benefits of 3.7% investment 0% diversification 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 • Each investment strategy measured on a like for like European Equity position has stand-alone risk of 0.9 % basis Source: Standard Life Investments GARS SICAV portfolio, 30 September 2012 28
  • Balanced blend of investment risksShare of market risk exposure Security Selection Market Returns Regional Equity and bond portfolios’ tracking error European Equity High Yield Credit Korean Equity Russian Equity Global Equity UK Investment Grade Credit Global Inflation-Linked Bonds UK Equity US Equity European Investment Grade Credit Relative Value Directional US Equity Technology Sector vs US Long US Dollar vs Canadian Dollar Equity Small Cap Long US Dollar vs Euro US Equity Large vs US Equity Small Cap US Long Bond Yields (Forward Start) European Financials Capital Structure Mexican Government Bonds vs Euro Relative Variance Income Long Mexican Peso vs Australian Dollar UK vs European Forward-Start Duration Long US Dollar vs Japanese Yen Hang Seng vs S&P Volatility Long Equity Volatility German vs. French interest rates FX Hedging China Equity vs UK Equity Volatility Australian interest rate flattener Chinese vs. Japanese currency volatility European Bond Yield SteepenerSource: Standard Life Investments GARS SICAV portfolio, 30 September 2012A portfolio built to deliver stable performance in a wide variety of outcomes 29
  • Diverse pool of return-seeking positions Share of physical A more Share of market allocation informative view risk exposure Security Selection US Equity 1.4%. Russian Equity 2.4% Chinese vs. Japanese currency volatility China Equity vs UK Equity Volatility Global Equity 3.2% German vs. French interest rates European Equity Hang Seng vs S&P Volatility Mexican Government Bonds 4.1% UK vs European Forward-Start Duration High Yield Credit Relative Variance Income Korean Equity UK Equity European Financials Capital 6.0% Structure Russian Equity EU Investment Grade Credit Cash & Other US Equity Large vs US Global Equity 7.0% Equity Small Cap 43.6% UK Investment Grade Credit UK Investment Grade Credit US Equity Technology Global Inflation-Linked Bonds 7.1% Sector vs US Equity Small Cap UK Equity European US Equity Equity European Bond Yield Steepener 7.4% Australian interest rate flattener European Investment Grade Credit FX Hedging High Yield Global Long Equity Volatility Credit 7.7% Inflation-Linked Long US Dollar vs Canadian Dollar Bonds Long US Dollar vs Japanese Yen 10.1% Long Mexican Peso vs Australian Dollar Long US Dollar vs Euro Mexican Government Bonds vs Euro US Long Bond Yields (Forward Start)Source: Standard Life Investments GARS SICAV portfolio, 30 September 2012 30
  • Dynamic diversification Security Selection 100% 90% 80% Relative Value 70% 60% Volatility 50% 40% Directional 30% 20% 10% 0% Market returns Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Mar-12 Jun-12 Sep-12Source: Standard Life Investments UK GARS portfolio, 31 December 2006 - 30 September 2012 31
  • Historical scenario analysis Black Monday 1987 Gulf War 1990 Rate Rise 94 Mexican Crisis 1995 Asian Crisis 1997 Russian/LTCM Tech Wreck (April 7-14, 2000) Sept 11th Equity Sell-Off (August 23 - October 9, 2002) Equity Rally (October 10 - November 27,2002) Gulf War 2 (March 1-23,2003) Bond Rally (May 1 - June 13, 2003) Bond Sell-Off (June 14 - July 31, 2003) Emerging Market Sell-Off 2006 (May 1 - June 8,2006) Subprime Debacle 2007 (July 15 - August 15, 2007)Bank Meltdown 2008 ( September 12 - October 15, 2008) -28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 % Move GARS SICAV Portfolio MSCI World (EUR) move over same period* * MSCI World Returns prior to 2000 denoted in European Currency Units, except for 1987 which is denoted in German Marks Source: GARS SICAV, RiskMetrics, 30/09/2012 32
  • From Historical To Future Scenarios China crisis Margin squeeze 120 120 100 100 80 80 Scenario count Scenario count 60 60 40 40 20 20 0 0 -6 -4 -2 0 2 4 6 -6 -4 -2 0 2 4 6 Return % Return %• Other potential future scenarios we consider “interesting”:• Quantitative Easing (QE) bubble• QE collapse• Germany leaves• Shale gasSource: Bloomberg, Standard Life Investments for illustrative purposes onlyCombining quantitative models and subjective judgement 33
  • Corporate Global Absolute Composite Report Composite Name: US GARS Creation Date: 07/01/2006 Firm: Standard Life Investments Currency: U.S. $ Report End Date: 12/31/2011 Report: 10 Year Report Benchmark / Sector: 1 Month US Libid Index / LIBOR Top Level (factset) Class Order: All stocks (0) Fees (%): 3-Yr St Dev 3-Yr St Dev Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 (%) to end Dec (%) to end Dec 2010 2011 Composite 7.92 8.36 -6.35 19.25 10.75 2.89 7.41 5.77 Weighted Average Benchmark 2.63 5.28 2.58 0.21 0.15 0.11 0.35 0.02 Weighted Average Composite 0.00 0.00 0.00 1.33 0.14 Dispersion Composite Final 61,396,573 480,921,603 1,193,805,120 3,555,802,495 10,897,493,192 16,448,902,409 Market Value 113,842,300,00 250,034,739,41 273,159,341,59 169,620,477,02 205,104,537,23 206,244,441,94 191,669,710,11 Total Firm Assets 73,201,000,000 82,468,000,000 93,581,500,000 0 3 1 2 8 2 8 Percentage of 0.02 0.18 0.70 1.73 5.28 8.58 Firms Assets Number of Funds 0 0 0 0 1 1 1 2 2 3Firm DisclosureA complete list and description of all of the firms composites are available from Standard Life Investments. The change from Process Date to Trade Date was made during 1999. No valuations are based on SettlementDate. There are no minimum asset levels set below which portfolios are not included in a composite. All performance calculations and returns have been calculated gross of management fees. All returns are presentedon an all-inclusive basis and as such all capital gains interest income and withholding taxes have been taken into account in market valuations and returns. All indices are on a gross of tax basis apart from FTSE UKindices which are net of Withholding Tax There are no Non-Fee-Paying portfolios included in any composite. The Daily True Time Weighted Rate of Return methodology has been used from 2001 apart from unitisedCash Property GARS and Myfolio products where NAV performance is used. Prior to this NAV performance was used for all products. Additional information regarding policies for calculating and reporting returns isavailable upon request Dispersion is calculated using high/low differenceReturns and market values in Irish punts prior to 1999 are converted from punts into Euros at the fixed conversion rat Standard Life Investments The Firm consists of all fee-paying funds managed by Standard LifeInvestments and its Subsidiaries which include Standard Life Investments (Mutual Funds) Limited SLTM Limited Standard Life Investments (Corporate Funds) Limited Standard Life Investments (USA) Limited andStandard Life Investments (Asia) Limited Past performance results from Standard Life Investments Limited UK Firm and Standard Life Investments Limited Irish Firm have been linked to form the performance record ofthe new firm Standard Life Investments. The new firm was created on 01/01/2008 Standard Life Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared andpresented this report in compliance with the GIPS standards. Standard Life Investments has been independently verified by Pricewaterhouse Coopers for the periods 1996 to 2011. The verification report is available uponrequest. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed tocalculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentationComposite DisclosureDerivatives may be used to vary exposure to markets and express views on the direction of currencies interest rates sectors and securities to enhance capital return limit downside volatility and preserve capital Includes 34part period return for 2006 from 01/07 The composite includes funds that invest in a highly diversified strategy including equities bonds and cash with a derivative overlay in options futures swaps and currency forwards todeliver a positive absolute return. The fund is benchmarked against 1 month US Libid The standard annual fee applicable to this composite is 1.00% but individual fees are negotiated on an account basis This compositeincludes GBP denominated funds that are converted into USD using 3 month USD Libor and 3 month GBP Libor rates
  • The information shown relates to the past. Past performance is not a guide to the future. The value of investment can go down as well as up.This type of absolute return strategy makes extensive use of financial derivative instruments for investment purposes.This material is for informational purposes only. This should not be relied upon as a forecast, research or investment advice. It does not constitute an offer, orsolicitation of An offer, to sell or buy any securities or an endorsement with respect to any investment vehicle. The opinions expressed are those of Standard LifeInvestments and are subject to change at any time due to changes in market or economic conditions.Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use byStandard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. Tothe extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compilingThird Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neitherthe Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings andassociated companies (whether direct or indirect) from time to time."Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL.Standard Life Investments are authorised and regulated by the Financial Services Authority.Calls may be monitored and/or recorded to protect both you and us and help with our training.www.standardlifeinvestments.com© 2012 Standard Life, images reproduced under licence 35