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How does one invest in an era of low rates?

How does one invest in an era of low rates?. Cofunds Economic Forum Carl Stick, 28 th September 2011. Cofunds conference. Agenda: What is the problem? What is the solution? A value oriented investment process. Rathbone Income Fund. What is the problem?.

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How does one invest in an era of low rates?

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  1. How does one invest in an era of low rates? Cofunds Economic Forum Carl Stick, 28th September 2011

  2. Cofunds conference Agenda: • What is the problem? • What is the solution? • A value oriented investment process. • Rathbone Income Fund

  3. What is the problem? “Investing consists of exactly one thing: dealing with the future. And because none of us can know the future with certainty, risk is inescapable.” The Most Important Thing, Howard Marks, 2011 Low returns High risk

  4. What is the problem? • Where is the value in today’s market? Where can one find decent returns without taking on undue risk? • How does one save for one’s retirement? How does one guarantee an adequate income stream? And when? • How does one save for healthcare... • ...Education – university fees? • Bears prefer bonds, but with yields so low, there is substantial inflation risk. Does one target sub-investment grade? • Commodities? Cash? Property? • Equities?

  5. What is the problem? • “Question: How does one invest in an era of low rates? Answer: One invests poorly, because the available investment options are themselves often impoverished?” – James Grant, Interest Rate Observer, Apr 2005

  6. What is the solution?A value investment process The Analysis of Risk Good OutcomeBad Outcome Good Process Deserved Success Bad Break Bad Process Dumb Luck Poetic Justice Process is more important than Outcome!

  7. Place your vote now….. • Heads • Tails

  8. What is the solution?A value investment process • The Analysis of Risk • Volatility, illiquidity, and deviations from a benchmark are not risks. • Price Risk • Business / Fundamental Risk resulting in loss of capital • Financing Risk • Benchmark / Career Risk – not a true risk. Can we kill the company?

  9. A value oriented investment process • Identifying value • The crucial importance of a value discipline: if you pay a low enough price for a stock, you build in a margin of safety... Source: Thomson Datastream

  10. Rathbone Equity Income as a solution? • What can investors expect? • Strict adherence to a risk and value oriented investment discipline. • Focus on the consistent rather than the spectacular – investment rather than speculation. • We do something different. We make positive investment decisions, aggressively overweight or underweight industry sectors, and content to hold strong small and mid-cap positions. • Strength of business models, balance sheets, and free cash flow. • Sustainable and increasing dividends – this means that our distributions are similarly robust. • Stable, committed and long-serving management team.

  11. The Rathbone Income FundPerformance since January 1st, 2000. InvescoPerp Income 1 / 52   InvescoPerp High Income 2 / 52   Rathbone Income Inc 3 / 52   SJP UK High Income 4 / 52   Royal Bank of Scot Eqty Inc. 5 / 52 Source: Bloomberg Finance, September 2011 Performance data: Financial Express, bid to bid, total return.

  12. IMPORTANT INFORMATION • The information contained in this presentation is for use by investment advisers and is not intended for circulation to private clients or the general public • Past performance should not be seen as an indication of future performance. The value of investments and the income from them may go down as well as up and you may not get back your original investment. Authorised and regulated by the Financial Services Authority and a member of the IMA. Rathbone Unit Trust Management Limited : Registered Address 159 New Bond Street, London, W1S 2UD Registered No. 2376568 - A Member of the Rathbone Group

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