Standard Life Investments

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  • Monthly J:GROUPSInvestGlob Bus DevChris NicholsProductsGARSPerformance and analysis / GARS Graphs for Master Slides NEW (new brand) (Monthly Analysis tab) – use only to previous month Upside/downside: Monthly Analysis spreadsheet
  • This slide and the next are purely for illustrative purposes and the proportions used in this example should in no way be construed as a suggested allocation. All investments/clients should be assessed on an individual basis. The IMA Cautious Managed sector average asset allocation is simply used here as an example of a diversified portfolio. These slides look at the affect of adding GARS to such a portfolio, either as a replacement for an existing asset class or as an additional asset.
  • Through back-testing it can be seen that all three of the composite portfolios would have produced a higher return with similar or lower levels of volatility than the original diversified portfolio, in this case the IMA Cautious Managed sector. This suggests that adding GARS to a diversified portfolio can add value. Broadly speaking, replacing some equity exposure with GARS should reduce volatility. However, it is important to remember that, in the short term, absolute return funds are expected to under-perform equities in a bull rally. Please note that these calculations are done over a relatively short period of time. Furthermore, recent months have seen very unusual market behaviour, including heightened volatility. These months are not representative of normal conditions.
  • Standard Life Investments

    1. 1. New Model Adviser Conference A Standard Life Investments presentation January 2010 This communication is intended for investment professionals only and must not be relied on by anyone else. Michael Beveridge Head of Intermediary Sales Tam McVie Investment Director
    2. 2. <ul><li>In the coming year do you envisage using AR funds?… </li></ul><ul><ul><li>The same as last year </li></ul></ul><ul><ul><li>More than last year </li></ul></ul><ul><ul><li>Less than last year </li></ul></ul><ul><ul><li>Not at all – don’t use them </li></ul></ul><ul><ul><li>Considering using them </li></ul></ul>Question
    3. 3. <ul><li>What do you consider to be the biggest risk of using absolute return funds? </li></ul><ul><ul><li>Missing out on an equity bull market </li></ul></ul><ul><ul><li>Your understanding of how they work </li></ul></ul><ul><ul><li>Your clients understanding of how they work </li></ul></ul><ul><ul><li>Its another marketing spin from investment houses </li></ul></ul>Question
    4. 4. Global Absolute Return Strategies Fund <ul><li>Objective </li></ul><ul><ul><li>Cash benchmark </li></ul></ul><ul><ul><li>+5% Performance target over rolling 3 year basis </li></ul></ul><ul><li>Low volatility </li></ul><ul><ul><li>Expect 1/3 to 1/2 the risk of equity investment </li></ul></ul><ul><ul><li>Expected range: 4% to 8% </li></ul></ul><ul><li>Launched to the institutional market in June 2006 </li></ul><ul><li>Launched to the retail market May 2008 </li></ul><ul><li>AUM £2.2bn (as at 31/12/09) </li></ul><ul><li>Commonly asked questions </li></ul><ul><ul><li>What are the risk? </li></ul></ul><ul><ul><li>How does it work? </li></ul></ul><ul><ul><li>How does it fit into a portfolio? </li></ul></ul>
    5. 5. Absolute return and the investment journey
    6. 6. Global Absolute Return Strategies performance Source: Standard Life Investments (12/6/2006 to 1/1/2010) Fund performance is based on the institutional pooled pension fund gross of charges
    7. 7. Performance Monthly returns Source: Standard Life Investments and Thomson Datastream, gross performance, unless otherwise stated, to 1 January 2010 Up months 30/43 v’s 25/43 Upside Capture 39.0% Downside Capture 6.9%
    8. 8. What are the risks? <ul><li>Market risk </li></ul><ul><ul><li>the uncertainty of future returns on market securities </li></ul></ul><ul><li>Credit risk </li></ul><ul><ul><li>the uncertainty of the extent to which counterparties to transactions will meet their financial obligations </li></ul></ul><ul><li>Operational risk </li></ul><ul><ul><li>the uncertainty of future operational expenses </li></ul></ul>
    9. 9. Question <ul><li>Value at risk measures: </li></ul><ul><ul><li>The absolute maximum amount that could be lost </li></ul></ul><ul><ul><li>The expect monthly loss </li></ul></ul><ul><ul><li>The deviation from the benchmark </li></ul></ul><ul><ul><li>The value that might be lost during normal market conditions </li></ul></ul>
    10. 10. How does it work? <ul><li>Market Returns </li></ul><ul><li>Equities, Bonds & Property </li></ul><ul><li>Good long term return expectations </li></ul><ul><li>But can be negative returns over shorter periods </li></ul><ul><li>Relative Value </li></ul><ul><li>Seek highly correlated markets or segments </li></ul><ul><li>Where their relative valuation is strained </li></ul><ul><li>We exploit their realignment </li></ul>A broad range of approaches <ul><li>Stock Selection </li></ul><ul><li>Active stock selection </li></ul><ul><li>Added value through our approach </li></ul><ul><li>Overall contribution 1% </li></ul><ul><li>Opportunistic </li></ul><ul><li>Specific directional investment ideas </li></ul><ul><li>Aim to deliver positive return on 3 yr view </li></ul><ul><li>No required long term risk premium </li></ul>
    11. 11. Isolating a view Example The large companies will out perform the medium companies Which directions the equity markets will move We believe Don’t know
    12. 12. Question <ul><li>I believe that large companies will outperform medium sized companies, but I am unsure about the direction of the UK equity market. </li></ul><ul><li>Which trade will be most appropriate? </li></ul><ul><ul><li>Go overweight FTSE 100, underweight FTSE 250 </li></ul></ul><ul><ul><li>Buy the FTSE 100 future and sell the FTSE 250 future </li></ul></ul><ul><ul><li>Buy the FTSE 100 future </li></ul></ul><ul><ul><li>Sell the FTSE 250 future </li></ul></ul>
    13. 13. Maths When do you lose money on this position?
    14. 14. How does it fit into a portfolio? For illustrative purposes only Source: Lipper, 1 December 2009 Increase Alternatives exposure to 20% Reduce Fixed Interest exposure by 20% Reduce Equity exposure by 20% IMA Cautious Managed sector GARS Cash Alternatives Overseas Bonds UK Bonds Overseas Equities UK Equities
    15. 15. Risk v. return For illustrative purposes only Composite portfolios calculated using the following indices: FTSE All Share (UK Equities), MSCI World ex UK (Overseas Equities), Barclays Sterling Aggregate Bond (UK Bonds), JPM Traded World ex UK Bond (Overseas Bonds), Composite index comprising 1/3 FTSE All UK Property Index, 1/3 HFRX Global Hedge Fund Index and 1/3 Dow Jones AIG Index (Alternatives) and overnight sterling LIBOR (Cash). Source: Thomson Datastream, Lipper Hindsight and Standard Life Investments. Calculated using total returns, in sterling terms, monthly data points, for period 31/12//06 to 31/12/09. GARS performance is based on institutional pooled pension fund, net of charges.
    16. 16. <ul><li>Remember – past performance is no guarantee of future performance. </li></ul><ul><li>Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and cannot be guaranteed. </li></ul><ul><li>Standard Life Investments Limited, tel. +44 131 225 2345, a company registered in Scotland (SC 123321) Registered Office 1 George Street Edinburgh EH2 2LL. </li></ul><ul><li>The Standard Life Investments group includes Standard Life Investments (Mutual Funds) Limited, SLTM Limited, Standard Life Investments (Corporate Funds) Limited and SL Capital Partners LLP. Standard Life Investments Limited acts as Investment Manager for Standard Life Assurance Limited and Standard Life Pension Funds Limited. </li></ul><ul><li>Standard Life Investments may record and monitor telephone calls to help improve customer service. All companies are authorised and regulated by the Financial Services Authority. </li></ul><ul><li>©2010 Standard Life Investments. </li></ul><ul><li>www.standardlifeinvestments.com </li></ul>

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