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Threadneedle Investment Conference Threadneedle UK Equities Simon Brazier February 2012

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Page 1: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Threadneedle Investment ConferenceThreadneedle UK Equities

Simon Brazier February 2012

Page 2: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Agenda / Contents

01 Threadneedle UK team

02 What has changed?

03 How are we responding?

04 Conclusion

AP Appendix

2

Page 3: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Threadneedle UK team

01

Page 4: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

4

Well resourced

4PT/11/00258

Source: Threadneedle as of January 20121 Stephen is attached to the Global Equity Team2 Daniel is attached to the Commodities TeamSupport services and Industrials are split between fund managers

Jonathan BarberUtilities, Property, Chemicals

21 years’ experience

Mark WestwoodTravel & Leisure, Telecoms and

Food Retailers13 years’ experience

Aamod MishraTobacco

1 year’s experience

Dan VaughanSmall Caps

17 years’ experience

Simon HainesConstruction, Other Financials,

Housebuilders, Industrials13 years’ experience

Daniel Belchers2

Mining9 years’ experience

Richard ColwellHealthcare, Media

21 years’ experience

James ThorneSmall Caps

13 years’ experience

Chris KinderBanks, Oil Services, Aerospace

10 years’ experience

Stephen Thornber1

Global Oil24 years’ experience

Benjamin MaloneDedicated UK Trader19 years’ experience

Christopher FoxDedicated UK Trader14 years’ experience

Neil FinlayInvestment Specialist10 years’ experience

Cathrine de Coninck-SmithGovernance & SRI Analyst

3 years’ experience

Leigh HarrisonHead of Equities

28 years’ experience

Simon BrazierHead of UK Equities13 years’ experience

Fionnuala O’GradyJunior Governance & SRI Analyst

Blake HutchinsInsurance, Consumer Staples,

Media4 years’ experience

Stacey CassidyMid Cap Oil, General Retailers,

Technology3 years’ experience

Page 5: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

5UK Equities Team – retail product range

Strategy Fund Manager

Core � UK Fund � Simon Brazier

High Alpha � UK Select � Mark Westwood

Income

� UK Equity Income Fund� UK Monthly Income� UK Monthly Extra Income� UK Growth & Income

� Leigh Harrison, Richard Colwell, Jonathan Barber

Income High Alpha � UK Alpha Income Fund � Leigh Harrison, Richard Colwell

Mid / Small Cap � UK Mid 250� UK Small Companies Fund

� Simon Haines� James Thorne

Absolute Alpha � UK Absolute Alpha � Chris Kinder, Mark Westwood

Extended Alpha � UK Extended Alpha � Chris Kinder, Simon Haines

5

Page 6: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

UK Equities Team – Investment process

� Experience� Company meetings� External research� Broad macroeconomic,

thematic and sector views

Idea generation

� Rigorous fundamental analysis

� Evaluation of stock in cycle

� Collaboration and discussion

� Valuation assessment� Analysts grade stocks

Company research

� Stock conviction� Individual stock risk� Sector / thematic

stance� Competition for capital

Portfolio construction

� Analysis of downside stock risk

� Daily risk reports� External checks and

analytics

Monitoring and risk control

6

Page 7: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

UK Equity Team – performance

Asset class and IMA sector Fund name Quartile performance1

1 year 3 years 5 years Since FM start

UK All Companies

Threadneedle UK Fund 1 2 1 1 30.04.10

Threadneedle UK Extended Alpha 1A 3 1 1 30.11.10

Threadneedle UK Select Fund 1 3 1 1 31.10.06

Threadneedle UK Mid 250 Fund 3 1 1 1 31.01.05

Threadneedle UK Growth & Income 1 2 1 1 31.12.09

UK Smaller Companies Threadneedle UK Smaller Companies Fund 3 3 2 2 30.04.10

UK Equity Income

Threadneedle UK Equity Alpha Income Fund 1 3 1 1 31.05.06

Threadneedle UK Equity Income Fund 1 2 1 1 28.02.06

Threadneedle UK Monthly Income Fund 1 2 1 1 28.06.02

UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 1 1 1 1 31.12.09

Absolute Returns Threadneedle UK Absolute Alpha Fund 1 - - 1 29.10.10

Source: Morningstar as at 31 December 2011. Fund data is bid to bid and net of basic rate tax. All fund returns are based in £1 Quartile ranks of all funds are shown within their respective peer group sector from within the UK Unit Trust / OEICs UniverseA Performance since inception. Extended Alpha fund launched 30 November 2010

7

7

PT/11/00756

Strong performance across a full range of products

Page 8: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

What has changed?

02

Page 9: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Markets do not go up in straight lines

Decade Annualised market period return Positive vs. negative return years

1900s 4.90%

1910s -3.80%

1920s 7.80%

1930s 4.30%

1940s 3.80%

1950s 12.90%

1960s 4.40%

1970s -2.30%

1980s 15.60%

1990s 10.70%

2000s -1.20%Source: Equity Gilt Study of 10 February 2011. UK real returns on equities – gross income reinvested. Average annual rates of return between year ends

9

Page 10: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Distribution of real annual equity returns

Source: Equity Gilt Study of 10 February 2011

Volatility is not something new

0

1

2

3

4

5

6

7

8

9

-50 -40 -30 -20 -10 0 10 20 30 40 50 60

Freq

uenc

y (n

umbe

r of

yea

rs)

10

Annual return (%)

Page 11: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

No more Mr NICE guy

CoalitionInflationSovereigndebt contagion

Globalslowdown

Monetary policy

Fiscal policyUK

economy

Crisis critical

Promised land

Double dip recession

PL06/11/107 11

Page 12: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

The owners of the market are changingN

et F

low

s £b

n

Net flows £bn

Source: Citigroup, as of 9 June 2011

-30

-24

-18

-12

-6

0

6

12

18

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

Life Pension Unit Trusts

PL06/11/107 12

Page 13: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

With index funds not taking a stock view

Tracker funds as a % of Equity AUM

Source: IMA, as of April 2011

5%

6%

7%

8%

9%

10%

11%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PL06/11/107 13

Page 14: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

And hedge funds taking one every day

Average holding period (months) – FTSE 350

Source: Citigroup, as of 9 June 2011. Stock holding period calculated on a 12 month rolling basis.

5

10

15

20

25

30

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

PL06/11/107 14

Page 15: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

15

UK companies overseas earnings split (%)

Source: Citigroup, October 2011

Although we have now become global investors

Australia / NZ2%Japan

2%

Asia Pacific12%

Europe ex UK21%

UK30%LatAm

3%

CEEMEA6%

N.America24%

15PT/11/00344

Page 16: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

What has changed?

� Volatility is here to stay

� The economic outlook is full of risks

� The ownership of the market will continue to change

� These owners are more short term in their outlook

� UK equity is really global equity listed in London

PL06/11/107 16

Page 17: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

How are we responding?

03

Page 18: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

We have become more long term as the market becomes more short term

� Balance sheet� P&L� Cash flows� Returns on capital� Margin trends

Financial model

� Stock graded A to D with at least 12-month price target

� Risk / reward

Target price and downside risk assessed

Refine

Debate

Discuss

� Industry demand/supply� Economic data� Industry capital cycle� Regulation� Environmental, Social and

Governmental drivers

Business model

� Corporate Governance� Experience� Alignment of interest with

shareholders� Capital allocation record

and strategy

ManagementValuation – what is it worth?

� Dependent on the industry and business model� Price / free cashflow� Price / earnings � Yield

� EV / sales � Price / book� DCF

18

A robust investment process based on valuation

Page 19: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

19

We have increased our resource base to stay close to companies

19PT/11/00258

Source: Threadneedle as of January 20121 Stephen is attached to the Global Equity Team2 Daniel is attached to the Commodities TeamSupport services and Industrials are split between fund managers

Jonathan BarberUtilities, Property, Chemicals

21 years’ experience

Mark WestwoodTravel & Leisure, Telecoms and

Food Retailers13 years’ experience

Aamod MishraTobacco

1 year’s experience

Dan VaughanSmall Caps

17 years’ experience

Simon HainesConstruction, Other Financials,

Housebuilders, Industrials13 years’ experience

Daniel Belchers2

Mining9 years’ experience

Richard ColwellHealthcare, Media

21 years’ experience

James ThorneSmall Caps

13 years’ experience

Chris KinderBanks, Oil Services, Aerospace

10 years’ experience

Stephen Thornber1

Global Oil24 years’ experience

Benjamin MaloneDedicated UK Trader19 years’ experience

Christopher FoxDedicated UK Trader14 years’ experience

Neil FinlayInvestment Specialist10 years’ experience

Cathrine de Coninck-SmithGovernance & SRI Analyst

3 years’ experience

Leigh HarrisonHead of Equities

28 years’ experience

Simon BrazierHead of UK Equities13 years’ experience

Fionnuala O’GradyJunior Governance & SRI Analyst

Blake HutchinsInsurance, Consumer Staples,

Media4 years’ experience

Stacey CassidyMid Cap Oil, General Retailers,

Technology3 years’ experience

Page 20: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Valuation analysis allowed us to invest in BP below 320p

2-year absolute performance

Source: DataStream as 31 January 2012, in local currency

PL06/11/107

� Global energy company, engaged in the exploration and production of oil and petrochemicals

� Recovering from the Deepwater Horizon oil spill event, where market valuation overly discounted the US operation and remediation costs

� Litigation issues ongoing and capex forecast to rise, but capex to be re-focused, cash flow generation is strong and dividend growth also anticipated

� Beneficiary of weak sterling (dividends denominated in USD)

20

250

300

350

400

450

500

550

600

650

700

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Pric

e (p

)

Page 21: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Managing risk is more important than ever

PortfolioStock idea

� Mandate restrictions

� Sector guidelines

Benchmark risk

� Position size

Business risk

� Diversification� Unintended risk

Portfolio risk

� On-going consideration of stock conviction

� Constant analysis of fundamentals and valuation

� Continuous weighing up of competing ideas and competition for capital

21PT/11/00258

Page 22: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Limiting downside risk

� Valuation support

� Excellent management

� Conservative balance sheet structure

� Tangible and saleable assets

� Clear accounting policies

� Focus on cash flow generation

� Organic rather than acquired growth

� Shareholder value creation focus

PL06/11/107 22

Page 23: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

We are innovating in our product range….

Market Cap

(diminishing)

Benchmark WeightBenchmark weight

Port

folio

Wei

ght

Mutual fund active underweight capability

PL06/11/107 23

In a more volatile world capturing downside alpha is just as important

Page 24: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

…and so have launched our UK Extended Alpha fund

Market Cap

(diminishing)

Benchmark Weight

Benchmark weight

Mutual fund overweight capability

Port

folio

Wei

ght

Extended underweight capability

Mutual fund active underweight capability

PL06/11/107 24

Page 25: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Conclusion

04

Page 26: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

ConclusionHow are we responding?

We are

� using an investment process that is able to profit from inefficiencies

� focusing on stock selection

� maintaining our resource base to stay ahead

� understanding how to manage risk in this environment

� making sure we have the right products to benefit from this new era

� leveraging our global approach in UK stock selection

PL06/11/107 26

Page 27: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

APAppendix

Page 28: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

UK equity growth at ThreadneedleAn extensive offering

Broad capabilities

Source: Threadneedle. as at 31 December 2011. Benchmark quoted is UK Unit Trust / OEICs Universe peer group median. Fund data is in £ and is quoted on a bid–bid basis with net income reinvested at bid. Fund data is net of fees. 1: Launch date is 1st October 2010. 2: Launch date of this strategy is 30th November 2010. The information contained in this presentation reflects Threadneedle’s current ideas and thinking but is subject to change and regulatory approval

Fund Investment approach IMA sector Performance objective Fund Manager Fund size

Typical number of

stocksCore

UK Fund Diversified UK equity market exposure

UK All Companies

Top quartile over rolling 3 year period Simon Brazier £1,045m 50-90

UK Select Fund High alpha UK equity exposure

UK All Companies

Top quartile over rolling 3 year period Mark Westwood £214m 30-50

Small and Mid Cap

UK Mid 250 Fund High conviction UK Mid 250 exposure

UK All Companies

Top quartile over rolling 3 year period Simon Haines £80m 35-50

UK Smaller Companies Fund

High conviction UK smaller company exposure

UK All Companies

Top quartile over rolling 3 year period James Thorne £147m 65-90

UCITS III

UK Absolute Alpha Fund1

Absolute return target throughout the cycle

Absolute Return

Achieve an absolute return, irrespective of market conditions

Mark Westwood / Chris Kinder £43m 60-90

UK Extended Alpha Fund2

UK long fund with ability to use shorting to add alpha

UK All Companies

Top quartile over rolling 3 year period

Chris Kinder / Simon Haines £18m 50-80

28

Page 29: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

UK Fund - consistent long term performance

2929

Fund performance vs. FTSE All Share

Source: FactSet as at 31 December 2011. Performance is in £. Fund data For OEICS from 01.04.2010 fund returns are calculated in Factset using daily official Global Close valuations and daily cash flows. From 01.01.08 until 31.03.2010 returns are based on Global Close (prior to this date official noon prices have been used). . Fund data is gross of tax and T.E.R to facilitate comparison with the indices. 3 and 5 year returns are annualised. Since manager start returns are cumulative. Manager start date corresponds to the start of Simon Brazier’s tenure as UK Fund manager (30 April 2010).

-5

0

5

10

15

20

3 months 1 year Since manager start 3 years 5 years

UK Fund FTSE All Share

Relative: +1.0% +2.2% +3.2%+1.9% +6.5%

PT/11/00792

Page 30: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

30UK Fund performance

Consistent monthly returns30

Performance relative to FTSE All Share index

Source: Threadneedle as at 31 December 2011. Performance is in £. Fund data For OEICS from 01.04.2010 fund returns are calculated in Factset using daily official Global Close valuations and daily cash flows. From 01.01.08 until 31.03.2010 returns are based on Global Close (prior to this date official noon prices have been used). Fund data is gross of tax and T.E.R to facilitate comparison with the indices. Fund managed by Simon Brazier from 30 April 2010 to 31 December 2011

0.2%

1.8%

0.6%

-0.2%

0.7%

-0.4%

0.8%1.0%

0.5% 0.4%

-0.3%

0.9%0.7%

-0.4% -0.4% -0.4%

0.8%0.5%

-0.3%

0.0%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct-11 Nov-11 Dec-11

PT/11/00792

Page 31: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

UK Select Fund

3131

Fund performance vs. FTSE All Share

Source: Threadneedle. Performance is in £. Fund data For OEICS from 01.04.2010 fund returns are calculated in Factset using daily official Global Close valuations and daily cash flows. From 01.01.08 until 31.03.2010 returns are based on Global Close (prior to this date official noon prices have been used). Fund data are gross of tax and T.E.R to facilitate comparison with the index. Fund returns as at 31 December 2011.

-40-30-20-10

010203040

2011 2010 2009 2008 2007

UK Select Fund FTSE All Share

Relative: +2.9% -3.2% +8.9%+3.5% +2.0%

Page 32: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Threadneedle UK Mid 250 Fund - industry leading performance

Consistent outperformance

Source: Morningstar/Factset. Data as at 30 December 2011 in £. Inception date: 30 September 2003. 1: Fund data quoted on a bid-bid basis with net income re-invested at bid. Fund data netof fees. Performance for periods greater than one year is annualised. Peer group is UK IMA- UK All Companies. 2: Fund Returns Gross of TER and Tax for comparison with indices, basedon global close prices. Performance for periods greater than one year is annualised. Fund manager start date 31 January 2005

Net performance1 2005 2006 2007 2008 2009 2010 2011 Since FM start

UK Mid 250 Fund 23.0% 28.6% 6.0% -30.5% 38.0% 27.1% -8.8% 9.3%

Peer group median 21.0% 16.7% 3.2% -30.4% 28.8% 15.6% -6.3% 5.3%

Relative return +1.6% +10.2% +2.7% -0.2% +7.1% +10.0% -2.7% 3.8%

Quartile 1 1 2 3 1 1 3 1

Gross performance2 2005 2006 2007 2008 2009 2010 2011 Since FM start

UK Mid 250 Fund 25.2% 30.8% 7.9% -30.0% 41.5% 29.1% -7.1% 11.2%

FTSE 250 ex. Inv Trust Index 29.7% 32.1% -3.7% -38.4% 52.8% 28.4% -10.3% 8.7%

Relative return -3.5% -1.0% +12.0% +13.6% -7.4% +0.5% +3.6% 2.3%

32Threadneedle UK Mid 250

Page 33: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Threadneedle UK Absolute Alpha Fund9% return, net of fees, since inception

33PT/11/00713

Fund price vs. FTSE All Share Index

Source: Threadneedle as at 31 December 2011. Fund price based on retail net accumulation units

90

95

100

105

110

115

4-Oct-10 18-Nov-10 2-Jan-11 16-Feb-11 2-Apr-11 17-May-11 1-Jul-11 15-Aug-11 29-Sep-11 13-Nov-11 28-Dec-11

UK Absolute Alpha FTST All Share (total return)

Page 34: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

UK Extended Alpha Fund

3434

Fund performance vs. FTSE All Share

Source: Threadneedle/Factset. Performance is in £ using daily official Global Close valuations and daily cash flows. Fund data are gross of tax and T.E.R to facilitate comparison with the index. Fund returns as at 31 December 2011. 1Inception date of the fund is 30 November 2010.

-6-4-202468

101214

3 Months 1 Year Since Inception1

UK Extended Alpha Fund FTSE All Share

Relative: +3.4% +4.7%+4.2%

Page 35: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Portfolio strategy 2012

� Fiscal consolidation underway, a large positive

� At the stock level valuation focus is key with opportunities across all sectors

� Including finding value in domestic cyclical stocks

� Very real exogenous risks (Regulation, global growth shock, sovereign debt crisis, cost push inflation)

� Minimising downside risk both at the stock and sector level

� M&A to remain a dominant feature

� Longer-term, more positive on the UK market than on the underlying UK economy

Focusing on stocks, not sectors35PL11/10/036

Page 36: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

36UK equity themes for 2012

Themes Portfolio strategy Examples

Strong franchises / unique assets

� Market leaders � Strong finances/management� Barriers to entry

� Pearson, Johnson Matthey, Imperial Tobacco, Experian

Restructuring / recovery� New management strategy� Improving returns� Value creation

� Wolseley, Melrose, Housebuilders

Quality cyclicals � Growth potential� Overseas earnings� Strong finances

� Weir Group, Amec, Rolls-Royce, Smiths Group

Contrarian views / hidden gems

� Strong valuation support� Out of favour growth options � Stagecoach, Aviva, Carillion, Booker

Undervalued megacaps� Strong global franchises� High cash yields / dividends� Attractive total return outlook

� GlaxoSmithKline, BT, BG, BP, Compass

Source: Threadneedle as at January 2012

36PL11/10/036

Page 37: Threadneedle Investment Conference Threadneedle UK ... · 31/12/2011  · UK Equity and Bond Income Threadneedle Monthly Extra Income Fund 11 1 131.12.09 Absolute Returns Threadneedle

Important informationFor Investment Professionals use only, not to be relied upon by private investors.Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus and the latest annual or interim reports, which can be obtained free of charge on request.

Past performance is not a guide to future performance. The value of investments can fluctuate. The dealing price may include a dilution adjustment where the fund experiences large inflows and outflows of investment. Further details are available in the Prospectus.

Index returns assume reinvestment of dividends and capital gains and unlike fund returns do not reflect fees or expenses. The index is unmanaged and cannot be invested in directly.

The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice.

The Threadneedle UK Equity Alpha Income Fund may deduct the annual management charge from capital rather than from income. This may erode capital or reduce the potential for capital growth over time. The Fund has a concentrated portfolio (holds a limited number of investments) and if one or more of those investments declines or is otherwise adversely affected, it may have a pronounced effect on the Fund’s value. As such, it is aimed at the more experienced investor.

The Threadneedle Monthly Extra Income Fund, Threadneedle UK Equity Income Fund, Threadneedle UK Monthly Income Fund, Threadneedle UK Growth & Income Fund and Threadneedle Managed Income Fund may deduct the annual management charge from capital rather than from income. This may erode capital or reduce the potential for capital growth over time.

The Threadneedle UK Select Fund has a concentrated portfolio (holds a limited number of investments) and if one or more of those investments declines or is otherwise adversely affected, it may have a pronounced effect on the Fund’s value. As such, it is aimed at the more experienced investor.

The Threadneedle UK Smaller Companies Fund and Threadneedle UK Mid 250 Fund invest in smaller companies. Smaller companies can be more volatile and less liquid than their larger counterparts.

The mention of any specific shares or bonds should not be taken as a recommendation to deal.

The information provided in this presentation is for the sole use of those intermediaries attending the presentation. It may not be reproduced in any form without the express permission of Threadneedle and to the extent that it is passed on, care must be taken to ensure that this is in a form that accurately reflects the information presented here.

For Investment Professional Use Only

(Not for onward distribution to,or to be relied upon by,

private investors)

Threadneedle Investment Services Limited, 60 St Mary Axe, London EC3A 8JQ, Registered no. 3701768.

Authorised and regulated in the UK by the Financial Services Authority. Threadneedle is a brand name, and both the Threadneedle name and logo are trademarks or registered trademarks of the Threadneedle group of companies

37