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Omam

  1. 1. For professional clients only in the UK Not for distribution to retail clientsUK mid cap opportunitiesRichard Watts, Old Mutual UK Select Mid Cap Fund
  2. 2. Mid caps have been a great place to invest 400 Old Mutual UK Select 350 Mid Cap 300 Fund 186% 250 200 FTSE 250 128% 150 100 FTSE All 50 Share 50% 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 A lost decade for equities, but not for mid caps!Source: Morningstar. Data to 30/09/112 UK mid cap opportunities
  3. 3. Where has the performance come from? 9.1% Capital return is key to mid cap performanceSource: Datastream. Data since launch 28/02/2002 to 09/09/113 UK mid cap opportunities
  4. 4. It’s mainly been driven by earnings growth… 12 month trailing earnings400 400 FTSE 250350 350 FTSE All Share300 300250 250200 200150 150100 100 50 50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 FTSE 250 earnings growth substantially outperformedSource: Thomson Reuters Datastream4 UK mid cap opportunities
  5. 5. …whilst valuations have fallen sharply 25 12 month forward P/E ratio 25 FTSE 250 FTSE UK All Share 20 2012m fwd P/E 15 Long term average: 13-14x 15 10 10 5 5 02 03 04 05 06 07 08 09 10 11 UK equities have gone from being “expensive to cheap”Source: Thomson Reuters Datastream as at 16/09/11 5 UK mid cap opportunities
  6. 6. Are equities currently cheap enough? FTSE 100 P/E trough multiples* in past recessions / crises Event Trough date 12m fwd P/E Early 90s recession Oct-90 9.0 Asian crisis Jun-97 15.3 2001 recession Sep-01 15.3 Credit crunch Oct-08 6.6 Current IBES estimates 8.6 *IBES 12 month forward P/E Current valuation consistent with recession lows but not a “Lehman type event” in EuropeSource: Thomson Reuters Datastream as at 07/10/116 UK mid cap opportunities
  7. 7. But what about earnings? FTSE 100 peak-to-trough earnings estimates* in past recessions / crises Trough Peak-to- Event Peak date trough decline Early 90s recession Apr-99 Apr-91 -34% Asian crisis Dec-97 Apr-99 -11% 2001 recession May-01 Mar-02 -33% Credit crunch Sep-08 Jun-09 -43% Current IBES estimates Sep-11 0.0% *IBES 12 month forward earnings estimates No real change to earnings estimates so far; can this be right?Source: Thomson Reuters Datastream as at 07/10/117 UK mid cap opportunities
  8. 8. 2008/9 experience of economists forecasts CY09 consensus GDP estimate changes 5 4 3GDP (Annual YoY%) 2 1 0 -1 -2 Eurozone GDP Forecast -2.50 -3 UK GDP Forecast -3.90 -4 US GDP Forecast -4.60 -5 Jan-08 Apr-08 Jul-08 Oct-08 Feb-09 May-09 Aug-09 Dec-09 Worst financial crisis since the Great Depression of the 1930’sSource: Bloomberg as at 05/10/20118 UK mid cap opportunities
  9. 9. Significant deterioration in economic sentiment… Citigroup Economic Sentiment Index 200 Eurozone US 150 100 50 0 -50 -100 -150 -200 -250 2007 2008 2009 2010 2011 …but improvement suggests GDP forecasts should stabiliseSource: Bloomberg as at 10/10/20119 UK mid cap opportunities
  10. 10. GDP downgrades much lower than in 2008/9 CY12 consensus GDP estimate changes 4.00 Eurozone GDP Forecast UK GDP Forecast 3.50 US GDP Forecast 3.00 2.50 GDP (Annual YoY%) +2.2 2.00 +1.7 1.50 1.00 +1.0 0.50 0.00 Jun2010 Sep2010 Dec2010 Feb2011 May2011 Jul2011 Oct2011 …which should be supportive to earningsSource: Bloomberg as at 05/10/201110 UK mid cap opportunities
  11. 11. Buying the FTSE 250 at market bottoms has usually beenrewarded…Rebased to 100 FTSE 250 relative to FTSE 100 following market bottoms 140 140 Credit crunch (05/03/09 low) 2001 Recession (18/07/02) Asian crisis (15/01/98) Recent underperformance 130 Early 90s recession (15/11/90) 130 120 2001 recession 120 110 2007-2009 recession 110 100 100 Early 90s recession 90 90 Asian crisis 80 80 D31 D192 D453 D683 Days since market lowSource: Thomson Reuters Datastream11 UK mid cap opportunities
  12. 12. …and mid caps have outperformed 70% of the time Returns of FTSE 250 vs. All Share FTSE 250 underperformance FTSE 250 outperformance 400 350 Observations: 6,442Frequency of observations Mid Caps outperformed: 4,406 (68%) 300 Average outperformance: 3.1% 250 200 150 100 50 0 -23.0% -16.0% -9.0% -2.0% 5.0% 12.0% 19.0% 26.0% 33.0% 40.0% 1-year holding period excess return since 1986Source: Datastream12 UK mid cap opportunities
  13. 13. An investment approach that adds value in all marketenvironments • Our process is a combination of top-down analysis and bottom-up stock picking • Top-down key at economic turning points: − cyclical vs. defensive − growth vs. value • Stock picking always important13 UK mid cap opportunities
  14. 14. Stocks can perform well in a difficult market… +2.7% active weight +2.6% active weight 1350 560 1300 1250 540 1200 1150 520 1100 1050 500 1000 950 480 900 850 460 800 750 440 Dec-10 Mar-11 May-11 Jul-11 Sep-11 Dec-10 Mar-11 May-11 Jul-11 Sep-11Source: Bloomberg as at 15/09/2011. Active weights as at 31/08/201114 UK mid cap opportunities
  15. 15. …whilst market weakness can present opportunitiesMarket conditions often present opportunities +1.4% active weight +1.6% active weight 220 430 200 410 180 390 370 160 350 140 330 120 310 100 290 80 270 Dec-10 Mar-11 May-11 Jul-11 Sep-11 Dec-10 Mar-11 May-11 Jul-11 Sep-11Source: Bloomberg as at 15/09/11. Active weights as at 31/08/201115 UK mid cap opportunities
  16. 16. Fund performanceCumulative performance UK Select Mid IMA UK All FTSE All SharePeriod Cap Fund (%) Companies (%) FTSE 250 ex ITs (%) (%) Quartile rankSince launch* 185.9 45.6 50.5 132.0 1Year to date -15.4 -12.2 -13.6 -10.9 41 year -5.1 -5.1 -4.6 -4.4 33 years 28.2 19.6 38.2 19.2 25 years 17.1 -0.0 13.6 4.0 1Discrete period performance UK Select Mid IMA UK All FTSE All Share 12 months to Cap Fund (%) Companies (%) FTSE 250 ex ITs (%) (%) Quartile rank 30/09/11 -5.1 -5.1 -4.6 -4.4 3 30/09/10 13.5 12.2 18.5 12.5 2 30/09/09 18.9 12.3 22.3 10.8 1 30/09/08 -23.1 -24.4 -26.9 -22.3 3 30/09/07 18.8 10.5 12.3 12.2 1Source: Morningstar (see important information). Bid to bid, net income reinvested, sterling terms. Returns to 30/09/2011. *Fund launchdate 25/02/0216 UK mid cap opportunities
  17. 17. Summary• Markets fearing the worst but a lot of bad news priced in• It’s not all negative; focus has been on Europe but US data has been getting better• Mid caps typically perform well following market bottoms and have outperformed 70% of the time• Our robust investment process has added significant value over and above the mid cap benchmark since launch17 UK mid cap opportunities
  18. 18. Important informationThis investment presentation is for professional clients only.Please remember that the value of an investment and the income from it can go down as well as up and that you may not get back the full amount invested. Past performance is not aguide to future performance. Exchange rate fluctuations can affect both capital and income values.Data Source - © 2009 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied ordistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any useof this information. Past performance is no guarantee of future results.FTSE® is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited (FTSE) under licence. All-World®, All-Share® and All-Small® are trade marks of FTSE. The FTSE 250 ex Its, FTSE All-Share, FTSE Mid 250, FTSE 100, FTSE small cap indices are calculated by FTSE. FTSEdoes not sponsor, endorse or promote this product and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading.OMAM has no house market view and opinions expressed are the views of individual fund manager(s) as at the time of writing. Information and opinions have been compiled or arrivedat by Old Mutual Asset Managers (UK) Limited (OMAM) from sources believed to be reliable, but neither OMAM nor Old Mutual Fund Managers Limited (OMFM) accepts liability for anyloss arising from the use hereof nor makes any representation as to their accuracy or completeness. Any underlying research or analysis has been procured by OMAM for its ownpurposes and may have been acted on by OMAM or an associate for its or their own purposes.This information is being communicated only to persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services andMarkets Act 2000 (Financial Promotion) Order 2001, as amended (the Order) and to persons to whom it may otherwise be lawful to communicate it to (all such persons being referredto as relevant persons). Other persons should not rely or act upon this document or any of its contents. The recipient should not use the information in this document in any waywhich would constitute market abuse.This document does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, anysecurities nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. No representation or warranty, express orimplied, is or will be made by OMAM, its advisors or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document and anyreliance you place on them will be at your sole risk.OMAM is the appointed investment adviser for Old Mutual Fund Managers in-house funds.Old Mutual Asset Managers (UK) Limited (OMAM) is the investment manager of the Funds and is authorised and regulated by the Financial Services Authority.Issued by: Old Mutual Asset Managers (UK) Limited, 2 Lambeth Hill, London EC4P 4WR, England. Registered in England No. 2949554. 09/11/U603818 UK mid cap opportunities

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