You are asked to pick a number between 0 and 100 . The winner will be the person whose number is closest to 2/3 of th

2. ‘The Beauty contest’ Quiz You are asked to pick a number between 0 and 100. The winner will be the person whose number is closest to 2/3 of the average. Please write your name & number choiceon a piece of paper for collection.

3. Tom Zambon Ashburton Multi Asset Funds - update September 2011

4. Ashburton Multi Asset Fund Range • Derivatives may be used for hedging purposes and efficient portfolio management across all funds.

5. Ashburton Multi Asset Funds • Global tactical asset allocation Funds • We seek to deliver superior risk-adjusted returns by exploiting financial market inefficiencies that occur at the macro level • Active asset allocation across multiple asset classes and currencies • Independent thinking - not benchmark constrained • Absolute return mindset

6. Performance – Multi Asset Funds - as at end August 2011 Source: Lipper

7. Attractive risk-adjusted returns over long-term Sterling Asset Management: 1992-Aug 2011 Source: Morningstar

8. Asset Management Fund: performance during bear markets Source: Morningstar

9. Tristan Hanson Balancing risk vs. reward: asset allocation update September 2011

10. Expect the unexpected “The fox knows many things but the hedgehog knows one big thing” Isaiah Berlin “The test of a first-rate intelligence is the ability to hold two opposing ideas in the mind at the same time, and still retain the ability to function” F. Scott Fitzgerald Both quotations taken from Expert Political Judgement by Philip Tetlock (2005)

11. US bond/equity correlation

12. Risks for 2011 – a slide from February’s presentation

13. Key obstacles to good judgement • Our collective preference for simplicity • Our aversion to ambiguity & dissonance • Our need to believe we live in an orderly world • Our ignorance of the laws of chance • from Expert Political Judgement by Philip Tetlock (2005)

14. Laws of probability are counterintuitive • Example: HIV testing • ‘False positive’ error: 0.2% chance • ‘False negative’ error: 2% chance • Prevalence: 0.1% of the population • Given a positive test result, what is the probability the patient really is HIV positive? • Answer: 33%

15. Bayes theorem application • ‘False positive’ error: 0.2% chance • ‘False negative’ error: 2% chance • Prevalence: 0.1% of the population • P (HIV | +test) = {P(+test | HIV) x P (HIV)} / P(+test) • = (0.98 x 0.001) / {(0.98 x 0.001) + (0.002 x 0.999)} • = 0.00098 / {0.00098 + 0.001998} • = 0.00098 / 0.002978 • = 0.329

16. Philosophy Inefficient markets: the case for tactical asset allocation • Asset prices: the market’s estimation of the present value of uncertain future payments Asset Price Inefficiencies • Forecasting errors • Misperception of risk • Excess volatility • Gross under/over-valuation • The future is highly uncertain • The economic system is complex • Markets populated by humans subject to fluctuating emotional biases • Behavioural biases often explain errors in forecasting & risk mispricing > e.g. myopia, availability bias, herd psychology & feedback loops Source: Ashburton

17. Perceptions of risk are not rational

18. Which is the riskier entry point?

19. Investment process • Global valuation & “expected returns” analysis • Macroeconomic views formed • Assessment of sentiment and consensus beliefs used to identify existence of behavioural biases. • Inter-market inconsistencies are sought to identify relative value opportunities. • Identify: • asset prices that appear inconsistent with macro fundamentals • opportunities resulting from behavioural biases

20. Macro views – September 2011 • Low growth / low interest rate environment likely to persist in developed markets • Policymaking has been poor in 2011 and contributed negatively to economic outlook • Indications suggest limited scope for effective policy action looking ahead • US could surprise positively given current pessimism; China should be able to achieve soft landing; European recession quite likely • EU poses greatest risk globally

21. A challenging economic backdrop *Portugal, Italy, Ireland, Greece, Spain (weighted by GDP, 10yr bond spread) Source: Bloomberg, Ashburton

22. Europe poses the greatest risk Source: Bloomberg

23. US baseline view: low growth, no recession • Temporary factors held back H1 growth (Japan, oil) • US corporations in strong financial condition • Money and credit indicators picking up • Durables/housing/investment spending already depressed • Obama’s ‘Jobs Act’

24. China: approaching the peak in tightening cycle Source: Bloomberg

25. Equity already priced for economic weakness Source: Factset

26. Rates expected to remain very low Source: Bloomberg, Ashburton

27. Bonds pricing negative real returns Source: Ashburton, Bloomberg, Factset

28. Johnson & Johnson – dividends per share Source: Bloomberg

29. Vodafone – dividends per share Source: Bloomberg

30. McDonalds – dividends per share Source: Bloomberg

31. Canon – dividends per share Source: Bloomberg

32. Expected returns Source: Ashburton

33. Portfolio Themes – September 2011

34. Asset Allocation Update September 2011

35. Ashburton Asset Management Fund Asset Allocation (Sept 2011) 8 Equities US 6 Equities EU 26 3 Equities Japan 7 Equities Asia ex Jap Corporate Bonds DM Government Bonds 18 DM Inflation - Protected Bonds 20 EM Government Bonds 6 Cash/Equivalents 6 Asset Allocation – September 2011 Currency exposure Asset Management Fund Source: Ashburton

36. ‘The Beauty contest’ Quiz And the winner is…