1

What’s the

investment problem

no-one’s talking

about?

IFP Conference 2015

Marcus Brookes | Head of Multi-Manager

October 2015 | For professional advisers only. This material is not suitable for retail clients

Cautious funds

are no longer

cautious

2

3

Myth 1: Bonds offer diversification Traditional methods of portfolio diversification no longer work

4

Source: Lipper IM, 31 August 2015. Barclays Global Agg Bond; IA Property; MSCI ACWI Commodity Producers; MSCI World

-0.7%

-1.3%

-5.4%

-19.3%

-30.00

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15

Global Bonds IA Property Commodities MSCI World

3

Myth 2: Bonds provide an income Government debt valuations are at threat when interest rates begin to rise

5

Source: Lipper IM, as at 31 July 2015

0

2

4

6

8

10

12

14

89 89 90 91 92 93 94 94 95 96 97 98 99 99 00 01 02 03 04 04 05 06 07 08 09 09 10 11 12 13 14 14

5.5%

Financial crisis -11%

-25%

Record low yields provide little cushion against rising interest rates

3.3%

1.8%

Total

return:

US $m US $m

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Jul 01 Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14

6

Source: JP Morgan Asset Management, as at March 2015

Delusion of liquidity is underappreciated

Dealer inventories (LHS)

Corporate debt outstanding (RHS)

Financial crisis

Market size has

doubled since crisis

Dealer inventories have dropped by 85%

Myth 3: Bonds provide liquidity The delusion of liquidity is underappreciated

4

Recent market

performance

2015 is proving volatile UK Gilts and corporate bonds have begun to underperform (in line with equities!)

8

Source: Lipper IM, 31 July 2015. BoA Merrill Lynch Sterling Corp Bond TR. FTSE A British Govt All Stocks

-3.00

0.00

3.00

6.00

9.00

12.00

14

Ap

r 1

5

21

Ap

r 1

5

28

Ap

r 1

5

05

Ma

y 1

5

12

Ma

y 1

5

19

Ma

y 1

5

26

Ma

y 1

5

02

Ju

n 1

5

09

Ju

n 1

5

16

Ju

n 1

5

23

Ju

n 1

5

30

Ju

n 1

5

07

Ju

l 1

5

14

Ju

l 1

5

21

Ju

l 1

5

28

Ju

l 1

5

Corporate Bonds UK 10 year Gilts MSCI AC World

5

2015 is proving volatile But they are still some way off being good value

9

Source: Lipper IM, 31 July 2015

-3.00

0.00

3.00

6.00

9.00

12.00

31 Dec 14 31 Jan 15 28 Feb 15 31 Mar 15 30 Apr 15 31 May 15 30 Jun 15 31 Jul 15

Corporate Bonds UK 10 year Gilts MSCI AC World

It’s not just sovereign and corporate bonds Emerging Markets and high yield has also begun to struggle (in line with equities!)

10

Source: Lipper IM, 31 July 2015. JPM EMBI Global. Markit iBoxx USD Liquid High Yield TR

-3.00

0.00

3.00

6.00

9.00

12.00

10

Ap

r 1

5

17

Ap

r 1

5

24

Ap

r 1

5

01

Ma

y 1

5

08

Ma

y 1

5

15

Ma

y 1

5

22

Ma

y 1

5

29

Ma

y 1

5

05

Ju

n 1

5

12

Ju

n 1

5

19

Ju

n 1

5

26

Ju

n 1

5

03

Ju

l 1

5

10

Ju

l 1

5

17

Ju

l 1

5

24

Ju

l 1

5

31

Ju

l 1

5

Emerging Market Bonds High Yield MSCI World

6

It’s not just sovereign and corporate bonds But they are also still no better value than at the start of the year

11

Source: Lipper IM, 31 July 2015. JPM EMBI Global. Markit iBoxx USD Liquid High Yield TR

-3.00

0.00

3.00

6.00

9.00

12.00

31 Dec 14 31 Jan 15 28 Feb 15 31 Mar 15 30 Apr 15 31 May 15 30 Jun 15 31 Jul 15

Emerging Market Bonds High Yield MSCI World TR USD

Market thoughts

7

-50

-40

-30

-20

-10

0

10

20

30

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

We favour Europe over the US in equities And within Europe there are still clear divergences

13

Source: Majedie, Morgan Stanley and Robert Shiller, July 2015

Premium of US over European equities (Shiller P/E) % Relative P/E of EZ periphery vs. wider EZ market

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

01

Nov 7

9

01

Nov 8

1

01

Nov 8

3

01

Nov 8

5

01

Nov 8

7

01

Nov 8

9

01

Nov 9

1

01

Nov 9

3

01

Nov 9

5

01

Nov 9

7

01

Nov 9

9

01

Nov 0

1

01

Nov 0

3

01

Nov 0

5

01

Nov 0

7

01

Nov 0

9

01

Nov 1

1

01

Nov 1

3

40

60

80

100

120

140

160

180

200

05 Jan 07 05 Jan 08 05 Jan 09 05 Jan 10 05 Jan 11 05 Jan 12 05 Jan 13 05 Jan 14 05 Jan 15

MSCI AC World ex US S&P 500

The effect of US on global markets

14

Source: Bloomberg, MSCI. NBER: Minack Advisers, as at August 2015

Index January 2007 = 100

8

MSCI Eurozone and MSCI US 12 month Forward Earnings Per Share (EPS)

European earnings remain depressed… for now Significant upside potential relative to US earnings that are peaking

15

Source: JPMorgan, Bloomberg as at June 2015. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell

25

35

45

55

65

75

85

95

105

115

125

2

4

6

8

10

12

14

16

18

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

MSCI Eurozone 12m Fwd EPS (€) MSCI US 12m Fwd EPS (rhs)

Cyclical differences prompt policy divergence The US cycle is mature

16

Source: Bloomberg, 30 June 2015

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Mar 01

Nov 01

Jul 02

Mar 03

Nov 03

Jul 04

Mar 05

Nov 05

Jul 06

Mar 07

Nov 07

Jul 08

Mar 09

Nov 09

Jul 10

Mar 11

Nov 11

Jul 12

Mar 13

Nov 13

Jul 14

Mar 15

2

3

4

5

6

7

8

9

10

11

US Unemployment (lhs inverted) US (ECI) Private Sector Wages and Salaries YoY%

9

Alternatives

Property

Currency

Absolute equity, absolute macro

Current asset allocation views

17

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell

Bonds and

cash $ Cash

Corporate debt

Government debt

Japan, Europe

UK, Asia Pacific

Emerging markets, US

Equities

-8

-4

0

4

8

12

Apr 13 Apr 13 Apr 13 Apr 13 May 13 May 13 May 13 May 13 Jun 13 Jun 13 Jun 13 Jun 13

Morgan Stanley Diversified Alpha Plus in 2013

Traditional diversification no longer works A solution: Strategies offering negative correlation to equities and bonds

18

Source: Lipper IM, as at June 2013

Ben Bernanke announced

QE could end

IA UK Gilt FTSE All-Share TR

IA Mixed Investment 20 – 60% Shares Morgan Stanley Diversified Alpha Plus ZH GBP

10

MM Diversity range alternative holdings Uncorrelated ideas that can take advantage of market anomalies

19

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell

Majedie Tortoise

International equity long short strategy

Modest net currently

Long Europe/Short US

Artemis Strategic Assets

Multi-Asset long/short

Long equities, short bonds

Currency overlay

Sanditon European Select

European equity long/short

Modest net

Exploitation of relative value

opportunities within this divergent

asset class

Morgan Stanley DAP

Multi-Asset long/short

Modest net currently

Long Eurozone recovery, short China

boom and global yield bubble

A suite of low-cost, flexible managed funds

20

Source: Distribution Technology, Schroders. The fund risk profiles are accurate as at 31 July 2015. Ongoing charges are for the Z Acc share class

Equities 28.33 to 33.33% 30 to 60% 50 to 85% 1 to 98% 90 to 100% 90 to 100%

Fixed Income and cash 33.33 to 43.33% 30 to 60% 1 to 50% 1 to 98% 0 to 10% 0 to 10%

Alternatives 28.33 to 33.33% 5 to 40% 1 to 50% 1 to 98% – –

On-going charges 1.26% 1.29% 1.32% 1.38% 1.45% 1.44%

Parameters

Lower

Risk Higher

Higher

Retu

rn

Lower

Neutral

position

Schroder MM

International

Fund

Neutral

position

Schroder MM

Diversity

Income Fund

Neutral

position

Schroder MM

Diversity

Balanced Fund

Neutral

position

Schroder MM

Diversity Tactical

Fund

Neutral

position

Schroder MM

UK Growth Fund

Neutral

position

Schroder MM

Diversity Fund

33.3 40

5

10

33.3 33.3 40 20

25

65

15

80

100

100

11

Our process Overview

21

Multi-manager team

Marcus Brookes Head of

Multi-Manager

Joe Le Jéhan

Fund Manager

Robin McDonald

Fund Manager

Asset allocation views

Portfolio construction

Fund selection (5,000 funds)

Review Independent strategists

(GaveKal, Gluskin Sheff, CLSA)

External fund managers

(300 – 400 meetings a year)

Broker research

(BAML, GS, MS)

External resources

Schroders strategy team

(Keith Wade)

Schroders fund managers

Matt Hudson (UK)

James Sym (Europe)

Robin Parbrook (Asia)

Andrew Rose (Japan)

Peter Harvey (Credit)

Internal resources

Joe Tennant Product

Specialist

What makes us different? Key principles

22

Philosophy

Compounding: Manage downside risk to compound returns over the long-term

Asymmetry: Participate in gains when the market rises to a greater extent than we participate

in losses when it falls

Asset allocation

Contrarian: A willingness to be different

Patience: The fact that something’s cheap doesn’t mean it’s going to appreciate tomorrow and

the fact that something’s overpriced certainly doesn’t mean it’ll fall right away

Fund selection

Disciplined: We buy on the way down, and we sell on the way up

Portfolio construction

Flexible: Our mandates afford us the flexibility to have high cash positions if other asset

classes look relatively unattractive

12

We look and perform differently to our peers Schroder MM Diversity – #1 in sector, August 2015

23

Source: Lipper, bid to bid with net income reinvested, net of fees in GBP, main unit share class, from fund launch 31 July 2015 to 31 August 2015

-6

-5

-4

-3

-2

-1

0

1

2

31

Ju

l 1

5

31

Au

g 1

5

Schroder MM Diversity Z Acc IA Mixed Investment 20–60% Shares TR Peer 1 Peer 2 Peer 3

-2.49%

-1.03%

-2.70%

-3.63%

-2.77%

We don’t just say we’re different…

24

Source: Lipper IM. As at 31 August 2015. Schroder MM Diversity Z Acc share class used from 2011 onwards. Previous data is based on Schroder MM Diversity A

Acc units

Year Positioning Schroder MM

Diversity

IA Mixed

Investment 20 – 60

2008 Bearish on property and equities -9.63% -16.38

2009 Added to credit holdings (bond funds) 16.30 15.78

2010 Bearish on EM 7.18 8.68

2011 Still bearish on EM… 0.88 -2.06

2012 Added to out of favour markets – Europe 9.76 8.24

2013 Underweight US, overweight Europe and Japan 11.31 8.87

2014 Growing cautious on valuations. Underweight

bonds and US equity 1.64 4.77

2015 YTD Bearish on US/Asia/EM equity, favouring Europe

and Japan. Underweight bonds 0.55 -0.22

13

Performance Market leading risk-adjusted returns

25

Source: Lipper, bid to bid with net income reinvested, net of fees in GBP, Z Acc share class, as at 31 August 2015. †A Acc has been used where Z Acc data is

missing. Sharpe Ratio source: Lipper, bid to bid with net income reinvested, net of fees in GBP, A Acc share class , as at 31 August 2015. Quartile rankings within

UK Investment Association universe. *Since launch position shown when five year track record is unavailable. Fund launch dates: Schroder MM Diversity Income

Fund, 15 December 2010

21/10/2015 15:36:19

Fund Performance

Quartile rankings

6

months

2015

YTD

1 year 3 years 5 years

(*or since

launch)

Schroder MM Diversity Fund 1 1 2 3 2

Schroder MM Diversity

Income Fund 2 3 3 2 1†*

Schroder MM Diversity

Balanced Fund 1 1 1 1 2

Schroder MM Diversity

Tactical Fund 1 1 1 1 1†

Schroder MM UK Growth Fund 3 3 3 3 3†

Schroder MM International Fund 1 1 2 1 1†

Sharpe ratio

Rank and quartile

3 years 5 years

(*or since

launch)

1 1

1 1*

1 1

1 1

2 2

1 1

For professional advisers only. This material is not suitable for retail clients

This presentation is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not

intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be

relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Unit Trusts

Limited (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for error of fact or opinion. This does not

exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time

to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual

investment and/or strategic decisions

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down

as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and these may change. The

data contained in this document has been sourced by Schroders and should be independently verified before further publication or use

The forecasts included in this presentation should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts

are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to

provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors

Source for ratings: Defaqto, Square Mile, Fund Calibre, Rayner Spencer Mills, Citywire and Morningstar, as at 31 August 2015

FTSE International Limited (“FTSE”). “FTSE” is a trade mark of the London Stock Exchange Group of companies and is used by FTSE International

Limited under licence. All rights in the FTSE indices vest in FTSE and/or its licensors. Neither FTSE not its licensors accept any liability for any errors

or omissions in the FTSE indices or underlying data. No further distribution of FTSE data is permitted without FTSE’s express written consent

Schroder Multi-Manager Range: Investment in these funds will not be suitable for all investors. Any investment should be considered against an

investor’s investment needs and attitude to risk. Currency fluctuations may adversely affect the value of the funds’ investments and the income

thereon. Investing in emerging markets, which can be extremely volatile, involves a higher than average risk compared with investing in established

markets. The levels and basis of, and reliefs from, taxation may change. Investors should obtain professional advice on taxation where appropriate

before proceeding with any investment. Details of the terms and risk warnings are contained in the Prospectus and Key Investor Information

documents

Issued in September 2015 by Schroder Unit Trust Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 4191730 England. Authorised and

regulated by the Financial Conduct Authority. UK09897

Important information

26