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  1. AROUND THE WORLD IN 80 MINUTES UK Equities Threadneedle For professional advisers only

  2. Agenda • The bigger picture • Strategies to take advantage of the environment • Three ways to profit

  3. The Bigger Picture

  4. How much have we borrowed? More debt in more sectors in more countries than ever

  5. No more Mr NICE guy Globalslowdown Sovereign debt contagion Inflation Coalition Monetary policy Fiscal policy UK economy Double dip recession Crisis critical Promised land

  6. Although we have now become global investors 5

  7. UK equity market valuation …not expensive 28 26 24 22 20 18 16 Trend P/E (x) 14 12 10 8 6 4 2 Trend P/E (7% p.a. growth, Apr. '78 base) Ave. post - 73 + 1 SD - 1 SD

  8. Corporate balance sheets • In much better position than 2008 • So dividend yields are better indicator of value forecasts Source: Morgan Stanley Research, 31 December 2011 Source: Morgan Stanley Research, 13 January 2012 forecasts Rolling 12m aggregate UK buybacks £bn Source: Morgan Stanley Research, 31 December 2011 Source: Morgan Stanley Research, 13 January 2012 All data above based on companies within the MSCI UK Index

  9. Dividends – A key part of the total returns • In the long-run (reinvested) dividends boost equity returns by around 4% • In a lower growth world, dividends and their reinvestment could account for an even greater percentage of real returns than the historic 80%

  10. Volatility 9

  11. Volatility – part of everyday life? If dividend cover were to normalize, then the yield jumps to nearly 5% theoretically. But companies are wisely retaining more profits for a rainy day!

  12. Markets do not go up in straight lines Source: Equity Gilt Study of 10 February 2011. UK real returns on equities – gross income reinvested. Average annual rates of return between year ends

  13. Volatility is not something new Annual return (%)

  14. Strategies to take advantage

  15. UK Equities Team – Investment process Idea generation Company research Portfolio construction Monitoring and risk control • Experience • Company meetings • External research • Broad macroeconomic, thematic and sector views • Rigorous fundamental analysis • Evaluation of stock in cycle • Collaboration and discussion • Valuation assessment • Analysts grade stocks • Stock conviction • Individual stock risk • Sector / thematic stance • Competition for capital • Analysis of downside stock risk • Daily risk reports • External checks and analytics

  16. We have increased our resource base to stay close to companies Leigh Harrison Head of Equities 28 years’ experience Simon Brazier Head of UK Equities 13 years’ experience Richard Colwell Healthcare, Media 21 years’ experience Stephen Thornber1 Global Oil 24 years’ experience Jonathan Barber Utilities, Property, Chemicals 21 years’ experience Dan Vaughan Small Caps 17 years’ experience James Thorne Small Caps 13 years’ experience Chris Kinder Banks, Oil Services, Aerospace 10 years’ experience Aamod Mishra Tobacco 1 year’s experience Daniel Belchers2 Mining 9 years’ experience Simon Haines Construction, Other Financials, Housebuilders, Industrials 13 years’ experience Stacey Cassidy Mid Cap Oil, General Retailers, Technology 3 years’ experience Mark Westwood Travel & Leisure, Telecoms and Food Retailers 13 years’ experience Blake Hutchins Insurance, Consumer Staples, Media 4 years’ experience Neil Finlay Investment Specialist 10 years’ experience Benjamin Malone Dedicated UK Trader 19 years’ experience Christopher Fox Dedicated UK Trader 14 years’ experience Cathrine de Coninck-Smith Governance & SRI Analyst 3 years’ experience Fionnuala O’Grady Junior Governance & SRI Analyst Source: Threadneedle as of January 2012 1 Stephen is attached to the Global Equity Team 2 Daniel is attached to the Commodities Team Support services and Industrials are split between fund managers

  17. Valuation analysis has enabled us to invest at the right price We bought here We bought here We bought here

  18. Lessons from football transfer market!Buy players with personal problems at a discount

  19. Building material and lumber product distributor in the US, UK and France 2009 was a very tough year as end markets collapsed and the company needed to rebuild its balance sheet with a rights issue With a rebuilt balance sheet, Wolseley is now a turnaround story with a focus on improving margins and returns on capital. It is not a call on US construction recovery Management is undertaking action to refocus the group on high return areas and to improve low return areas for eventual sale Exiting the downturn Wolseley should demonstrate high operational gearing and strong cash generation Restructuring / recoveryWolseley

  20. Lessons from football transfer market!Identify and abandon ‘sight-based prejudices’ Is BAE the next Peter Crouch?! He’ll never go anywhere because he doesn’t look like a league ball player”Michael Lewis, ‘Moneyball’

  21. Self-help story, with the potential for uncorrelated returns and earnings enhancing net cost savings for many years to come Market has been overly concerned about pension deficit, Global Services outlook and fixed line competition Current valuation still overly depressed as a result and, whilst performance has improved, does not yet fully reflect management’s successful cost cutting program and BT’s pricing power Fibre roll-out and ability to bundle dramatically improving competitive position Strong dividend yield with the potential for further growth BT

  22. Three ways to profit

  23. Threadneedle UK FundInvestment philosophy Aim • First quartile over rolling three year periods • Risk and reward drives all investment decisions • Reward derived from valuation and profit opportunity • Focus on low business risk rather than index risk • Portfolio risk reduced by diversification Philosophy • Index unaware • Stocks across the market capitalisation spectrum • Maximise the Threadneedle research advantage Characteristics

  24. UK Fund performance 23 Consistent monthly returns

  25. UK Income investment approach Objective • Yield greater than 110% of FTSE All Share yield • Steadily growing distribution • Capital growth • Plain vanilla • Manage for total return • Construct yield at portfolio level • Diversification to manage risk Philosophy • Focus on effective combination of top down and bottom up • Search for durable investment themes • Fundamentally based stock views • Invest with conviction, not index constrained Characteristics

  26. Performance overviewThreadneedle UK Equity Income Fund

  27. UK Absolute Alpha fund performance – net of fees9% return since inception

  28. Deteriorating Overloved SHORT Expensive Short stock opportunity – car insurance company • Claims inflation finally beginning to impact combined ratio • Governmental investigation into industry business practices could undermine supernormal profits • Balance sheet does not have resilience due to historic policy of over-distribution • Failure in overseas markets and price comparison websites ignored • Persistent market share gainer with excellent historic track record • Financial metrics consistently better than industry competitors • Charismatic CEO 1.00 140 120 0.75 100 80 0.50 60 40 0.25 20 0.00 0 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 • Stock was on 20x peak EPS when position was initiated • High dividend yield will prove to be unsustainable • Insurance companies have historically traded on low valuations

  29. UK Equity Team – performance 29 Source: Morningstar as at 29 February 2012. 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 Universe Strong performance across a full range of products

  30. Important information For Investment Professionals use only, not to be relied upon by private investors. Past performance is not a guide to future performance. The value of investments and any income from them can go down as well as up. Threadneedle Investment Funds ICVC (“TIF”) and Threadneedle Specialist Investment Funds ICVC (“TSIF”) are open-ended investment companies structured as umbrella companies, incorporated in England and Wales, authorised and regulated in the UK by the Financial Services Authority (FSA) as a UCITS scheme. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document or Simplified Prospectus, as well as the latest annual or interim reports, which can be obtained free of charge on request, and the applicable Terms & Conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The following key risks apply to the equity funds: Market Risk: The value of investments can fall as well as rise and investors might not get back the sum originally invested, especially if investments are not held for the long termCurrency risk: Where investments are made in assets that are denominated in foreign currency, changes in exchange rates may affect the value of the investments.Volatility risk: The fund may exhibit significant price volatility. In addition, the following key risks apply to the Threadneedle UK Smaller Companies Fund and Threadneedle UK Absolute Alpha Fund: Liquidity risk: The fund invests in assets that are not always readily saleable without suffering a discount to fair value. The portfolio may have to lower the selling price, sell other investments or forego another, more appealing investment opportunity.No capital guarantee: Positive returns are not guaranteed and no form of capital protection applies.

  31. Important information cont. 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 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. 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