Kames Strategic Global Bond Fund

October 2013

David Roberts – Head of Fixed Income

The Great Rotation?

2

Then and now – is history repeating itself?

Source: BoA Merrill Lynch, Morgan Stanley, FTSE, S&P, Bloomberg, Kames Capital as at 31 August 2013

-25

-20

-15

-10

-5

0

5

10

15

20

EM

$ d

eb

t

EM

Equ

ity

FT

SE

10

0

Gilt

s

US

Ts

US

Corp

s

US

HY

S&

P 5

00

1994 Total return

-25

-20

-15

-10

-5

0

5

10

15

20

EM

$ d

eb

t

EM

Equ

ity

FT

SE

10

0

Gilt

s

US

Ts

US

Corp

s

US

HY

S&

P 5

00

Is history repeating?

1994 returns to end August 2013 returns to end August

3

Bond market in forward looking shocker

Source: Bloomberg, Kames Capital as at 30 August 2013

-1

0

1

2

3

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

Yie

ld %

The US yield curve is very steep

4

Kames Strategic Global Bond Fund – Flexibilities

5

What we own and will own

Government bonds

Investment grade corporate bonds

High yield bonds

Emerging market bonds

Index-linked bonds

Asset backed securities

Cash

What we haven’t owned and won’t own

Foreign Exchange

Ordinary Equity

Private Placement Debt

Convertible Bonds

6

2013 – Volatility and divergent returns

Source: Bloomberg, Kames Capital and BoA Merrill Lynch as at 31 July 2013

Asset type Total return

%

Drawdown

%

US Corporates -3.2 -5.0

US Treasuries -3.3 -6.4

Emerging Market Debt -9.3 -11.3

US TIPS -8.7 -10.7

Kames Strategic Global Bond 0.2 -3.9%

-11%

-9%

-7%

-5%

-3%

-1%

1%

3%

Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

To

tal re

turn

%

Kames Strategic Global Bond US Treasuries

Emerging Market Debt US TIPS

US Corporates

Kames Strategic Global Bond Fund performance

Source: Lipper as at 30 September 2013. NAV to NAV, income re-invested. Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future.

7

67.2%

30.9%

-10

0

10

20

30

40

50

60

70

80

Sep

08

No

v 0

8

Ja

n 0

9

Ma

r 0

9

Ma

y 0

9

Ju

l 09

Sep

09

No

v 0

9

Ja

n 1

0

Ma

r 1

0

Ma

y 1

0

Ju

l 10

Sep

10

No

v 1

0

Ja

n 1

1

Ma

r 1

1

Ma

y 1

1

Ju

l 11

Sep

11

No

v 1

1

Ja

n 1

2

Ma

r 1

2

Ma

y 1

2

Ju

l 12

Sep

12

No

v 1

2

Ja

n 1

3

Ma

r 1

3

Ma

y 1

3

Ju

l 13

Sep

13

% g

row

th

Cumulative 5 year medians

Kames Strategic Global Bond B Inc USD Lipper Global - Bond Global median

Strong risk adjusted performance

Source: Lipper Hindsight, Kames Capital as at 28 June 2013. Kames Strategic Global Bond Fund B (Inc) USD, returns, volatility and sharpe ratio are calculated on a monthly basis (annualised).

Volatility is standard deviation.

Key

Kames Fund

Median Fund

Sector

rangeQuartile

range

3 y

ea

rs

Return Return volatility Sharpe ratio

5 y

ea

rs

2.4

12.4

-2.9

5.2

-5

0

5

10

15

4.0

13.3

1.5

6.5

0

2

4

6

8

10

12

14

0.3

1.8

-0.6

0.9

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

3.6

14.7

-0.2

7.9

-5

0

5

10

15

20

6.7

15.6

2.2

9.9

0

5

10

15

20

0.4

1.5

-0.3

0.8

-0.5

0.0

0.5

1.0

1.5

2.0

8

Kames Strategic Global Bond Fund positioning

Source: Kames Capital as at 31 July 2013

9

Asset allocation Dec 2007 – Jul 2013

Min (%) Max (%)

Cash -3.90 17.60

Government 0.00 48.00

Index-Linked 0.00 1.91

Investment Grade 35.40 85.00

High Yield 4.20 32.50

US RMBS 0.00 5.57

Emerging Markets 0.00 3.39

0

10

20

30

40

50

60

70

80

90

100

Nov 0

7

Fe

b 0

8

Ma

y 0

8

Aug

08

Nov 0

8

Fe

b 0

9

Ma

y 0

9

Aug

09

Nov 0

9

Fe

b 1

0

Ma

y 1

0

Aug

10

Nov 1

0

Fe

b 1

1

Ma

y 1

1

Aug

11

Nov 1

1

Fe

b 1

2

Ma

y 1

2

Aug

12

Nov 1

2

Fe

b 1

3

Ma

y 1

3

% o

f a

sse

ts

Active asset allocation

Cash Govt Index Linked IG HY US RMBS Emerging Markets

Kames Strategic Global Bond Fund duration allocation

Source: Kames Capital as at 31 July 2013

-4

-2

0

2

4

6

8

No

v 0

7

Ja

n 0

8

Ma

r 0

8

Ma

y 0

8

Ju

l 08

Se

p 0

8

No

v 0

8

Ja

n 0

9

Ma

r 0

9

Ma

y 0

9

Ju

l 09

Se

p 0

9

No

v 0

9

Ja

n 1

0

Ma

r 1

0

Ma

y 1

0

Ju

l 10

Se

p 1

0

No

v 1

0

Ja

n 1

1

Ma

r 11

Ma

y 1

1

Ju

l 11

Se

p 1

1

No

v 1

1

Ja

n 1

2

Ma

r 1

2

Ma

y 1

2

Ju

l 12

Se

p 1

2

No

v 1

2

Ja

n 1

3

Ma

r 1

3

Ma

y 1

3

Ju

l 13

Mo

dif

ied

du

ratio

n (se

mi a

nn

ua

l)

Duration by currency bloc excluding high yield

AUD CAD EURO GBP NZD SEK CHF USD YEN Grand Total

10

Asset class flexibility is key

11

Asset class Current environment Strategy

Government

bonds

• Monetary cycle turned in the US

• Rest of the world not immune

• A large part of the move already in the price

Remain underweight interest rate

risk, but temper position

Investment

grade

• Valuations still attractive on a long-term basis

• Avoid re-leveraging event risk

Core part of strategic bond funds.

Capture spread and manage

duration risk

High yield

• Total return prospects attractive

• Preference for US High Yield over European High

Yield

Stick to higher quality high yield

Emerging

markets

• Sell-off brings some realism back to markets

• Fund outflows mean it is too early to catch the falling

knife

Selected exposure to stock specific

corporates, too early to buy

RMBS

• US housing market strong even with increasing

mortgage rates

• Supportive technicals

Non Agency RMBS (Option ARM

sub-segment ) offers value and

diversification

• FOMC: “exceptionally low levels…

at least through late 2014”

• ECB: “we will do all that it takes (to

save the Euro)”

• SNB: now own more than 10% of

the entire stock of Bunds*

• BoE: QE program at £375billion and

forward guidance

• BoJ: ¥140 trillion of planned asset

purchases over two year period

Ignore technicals at your peril

Source: Central Bank websites as at 31 March 2013. *SNB assumes 50% of CHF 400bn+ balance sheet. Ignores ECB covered bonds €70bn, US MBS $1.5trn

12

0

200

400

600

800

1000

1200

1400

1600

Fed BoE ECB SNB BoJ

$ b

illio

ns

Quantifying quantitative easing

Investment grade strategy

Source: Barclays as at 31 July 2013

0

100

200

300

400

500

600

700

800

900

Ja

n 0

7

Ap

r 0

7

Ju

l 07

Oct 0

7

Ja

n 0

8

Ap

r 0

8

Ju

l 08

Oct 0

8

Ja

n 0

9

Ap

r 0

9

Ju

l 09

Oct 0

9

Ja

n 1

0

Ap

r 1

0

Ju

l 10

Oct 1

0

Ja

n 1

1

Ap

r 11

Ju

l 11

Oct 11

Ja

n 1

2

Ap

r 1

2

Ju

l 12

Oct 1

2

Ja

n 1

3

Ap

r 1

3

Ju

l 13

Be

nch

ma

rk s

pre

ad

(sa

)

Non-Gov A rated BBB rated Financials

13

High yield: cheap relative to any realistic default scenario

Source: Left hand chart - Moody’s Investors Service, Merrill Lynch and Kames Capital as at 31 July 2013. Right hand chart - Deutsche Bank, Kames Capital, data as at 30 June 2013, average

recovery rates and default experiences since 1970

14.2%

30.1%

44.8%

15.2%

29.5%

39.3%

5.8%

23.0%

41.1%

1.9%

10.1%

25.0%

0%

10%

20%

30%

40%

50%

BB

B

BB B

5 y

ear

cum

ula

tive d

efa

ult rate

Credit Rating

Implied default rates vs actual experiences

Implied 5yr cumulative default rate, 40% recovery rate EUR

Implied 5yr cumulative default rate, 40% recovery rate USD

Actual 5yr cumulative default rates (since 1970) worst

Actual 5yr cumulative default rates (since 1970) average

0

500

1,000

1,500

2,000

0%

5%

10%

15%

20%

Jan 8

5

Sep

86

May 8

8

Jan 9

0

Sep

91

May 9

3

Jan 9

5

Sep

96

May 9

8

Jan 0

0

Sep

01

May 0

3

Jan 0

5

Sep

06

May 0

8

Jan 1

0

Sep

11

May 1

3

Sp

read

bp

s

Defa

ult ra

te %

High yield spreads and default rates

Global Speculative DR

Average DR

Projected Global Speculative DR

HY Spreads

Average Spread

14

• Growing list of problems:

– Over-owned asset class

– Fed “Tapering”

– EM currency depreciation

– Slower Chinese GDP

• Inevitable result:

– Outflows and wider spreads...

– ….prompting more outflows?

Emerging Markets – the perfect storm

Source: EPFR Global, Thomson Reuters Datastream, HSBC

15

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

0

100

200

300

400

500

600

700

800 2007 2008 2009 2010 2011 2013 2012

EMBI GI Spreads (rhs) 4wma flows to EXD funds (lhs)

% A

UM

bp

s

• US housing market is recovering

– Non Agency RMBS a great way of gaining exposure to this

– Specifically the sub-sector Option ARMs (Adjustable Rate Mortgages)

Non Agency RMBS – very attractive fixed income asset class

Desired attribute Benefit

High original mortgage balance c.$500k House still has some value, aids recovery

Preference for non-judicial states i.e. California over Florida

Speeds up any repossession process

Selected original underwriters Relatively better quality of borrowers and assets

2006/07 vintages with fast amortisation Capital payback opportunity greatest

Super senior tranches only, with lots ranking below you Subordinated bonds absorb losses first

16

• Strategic global bond portfolio

– Total return fixed income fund

– Managed fixed income solution; delegate your fixed income strategy

– €/$/£/¥/CHF/SGD – track your clients’ needs

Kames Strategic Global Bond Fund

Source: Lipper as at 30 September 2013. NAV to NAV, income re-invested. Total return, local currency, B Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future.

17

1 year 2 years 3 years 4 years 5 years

Fund 2.64% 15.20% 14.61% 29.02% 67.21%

Median -0.38% 6.96% 7.11% 15.31% 30.89%

Quartile 2 1 1 1 1

Outperformance 3.02% 8.24% 7.50% 13.71% 36.32%

Kames Strategic Global Bond Fund

Launch date 8 November 2007

Fund manager David Roberts and Philip Milburn

Support manager Colin Finlayson

Investment policiesInvests across fixed income universe, ranging from AAA government bonds through to

high yield and emerging market corporate bonds in any currency.

Primary performance targetSecond quartile over rolling 12 months and top quartile over a rolling 3 year periods in

the Lipper global bond global sector.

Secondary performance targetTo outperform the Barclays Capital global aggregate index by +2% p.a. over rolling 3

year periods.

Asset allocation ranges

Investment grade corporate bonds 0-100%

Government bonds 0-100%

High yield bonds 0-100%

Emerging market bonds 0-100%

Unhedged currency 0-10%

Cash 0-20%

Base currency US Dollar

Hedged share classes Sterling, Euro, US Dollar, Yen, Swiss Franc, Singapore Dollar

18

This document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon

by, private investors.

All data in this presentation is sourced to Kames Capital unless otherwise stated.

The views expressed in this document represent our understanding of the current and historical positions of the market. They should not be

interpreted as a recommendation or advice. Past performance is not a guide to future performance. The value of investments and the income

from them may go down as well as up and is not guaranteed.

This document is accurate at the time of writing but can be subject to change without notification. Kames Capital Investment Company (Ireland)

plc, is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number 442106),

registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby

(Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland. Kames

Capital is an Aegon Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital

Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3

Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Conduct Authority, (FCA reference

no: 144267). Kames Capital plc is the Investment Manager and Marketing Agent for Kames Capital Investment Company (Ireland) plc. Kames

Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an Aegon company,

whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (PRA/FCA reference no: 165548).

The Kames Strategic Global Bond Fund is registered in the UK, Channel Islands, Ireland, Netherlands, Switzerland, Luxembourg, Germany,

Malta, Austria and Spain. Not all available shareclasses are registered in every country. Refer to the full prospectus for details.

For Investors in Spain - Kames Capital Investment Company (Ireland) plc is a UCITS collective investment scheme registered in Spain by the

Comisión Nacional del Mercado de Valores (Spanish Securities Market Commission). The Prospectus, Supplement and Key Investor Information

for Kames Capital Investment Company (Ireland) plc are available free of charge from Allfunds C/ Estafeta nº 6 (La Moraleja) Complejo Pza. de

la Fuente- Edificio 3 28109 Alcobendas (Madrid). Tel: Tel: 00 34 91 274 64 00

Important information

19

FPID: 2013/16654