Twist or stick? The outlook for global economies & markets in 2012 & beyond .

1. Isle of Man Presentation – 17 May 2012 Twist or stick? The outlook for global economies & markets in 2012 & beyond. AnatoleKaletsky | Tristan Hanson | Derry Pickford Ashburton | A part of the FirstRand Group

2. Isle of Man Presentation – 17 May 2012 What should really worry investors? Anatole Kaletsky Chief Economist GaveKal Research Co-Chairman GK Dragonomics Ashburton | A part of the FirstRand Group

3. Where is the next big risk? • The euro: collapse or resolution? • China and EMs: hard landing or steady growth? • US: stagnation or recovery? • Financial bubbles: equities or bonds?

4. End of the risk-on/risk-off reflex trades

5. Bond yields could double, even with Fed on hold

6. Is “new normal” so different from old?

7. Oil and commodities a dwindling threat

8. Necessary conditions for euro survival • Fiscal federalism: joint responsibility for sovereign debts • Political federalism: centralised control of tax and spending • Monetary federalism: ECB underwrites government debt

9. ECB liquidity creation has surpassed Fed

10. US private sector is growing 4%

11. US broad money points to boom, not bust

12. Equity investors should buy on dips

13. Tristan Hanson Asset Management Funds Section One Section Two Section Three Examples Current views Ashburton Asset Management Funds Ashburton | A part of the FirstRand Group

14. Asset Management Funds 1 2 3 • Global Tactical Asset Allocation Funds • Actively managed, diversified approach • Benchmark unconstrained • Process: valuation-led process combined with fundamental medium-term macro analysis. Behavioural analysis used to identify short-term tactical opportunities • Portfolio construction: combination of (i) medium-term themes; (ii) short-term tactical opportunities • Target return: outperform cash+3% on 3-year rolling basis (net) • Target volatility: 4-10% 3

15. Why Ashburton for Multi Asset? 1 2 3 • Specialist expertise in global asset allocation • 20-year track record • 5-person team with over 70 years combined experience • Flexible & dynamic approach • Liquid underlying investments & daily fund liquidity • Multiple awards

16. Fund restrictions 1 2 3 • Derivatives - used for hedging purposes and efficient portfolio management • Highly liquid assets - 95% directly-held equities, bonds, futures, options

17. External recognition 1 2 3 Replica Euro Asset Management Fund named ‘Best offshore global asset allocation fund’ – for 3 years running Morningstar has graded our Replica Euro Asset Management Fund the maximum 5 star rating • Replica Euro Asset Management Fund named top fund for Global Asset Allocation. • 3 out of 5 of Ashburton’s Asset Management Funds received amaximum 5 PlexCrown rating.

18. Attractive risk-adjusted returns 1 2 3 Source: Morningstar

19. Performance as at 30 April 2012 1 2 3 Performance – year-on-year (%) Growth Source: Morningstar Direct, *retail share classes net of fees

20. Philosophy 1 2 3 • Inefficient markets: the case for active asset allocation • Asset prices: the market’s estimation of the present value of uncertain future payments • The future is highly uncertain • The economic system is complex • Markets populated by humans subject to fluctuating emotional biases Asset Price Inefficiencies • Forecasting errors • Misperception of risk • Excess volatility • Gross under/over-valuation • Behavioural biases often explain errors in forecasts of investment returns • > e.g. myopia, availability bias, herd psychology & feedback loops Source: Ashburton

21. Perceptions of risk are not rational 1 2 3 3

22. Which is the riskier entry point? 1 2 3 German DAX equity index Source: Bloomberg 09/09/2011

23. Be greedy when others are fearful 1 2 3 Source: Bloomberg 13/02/2012

24. Process 1 2 3 Strategic Tactical

25. Portfolio construction 1 2 3

26. Robust approach in volatile markets 1 2 3 Source: Bloomberg

27. Multi Asset Investing Section Two Section One Section Three Ashburton’s Multi Asset Funds Examples Current views Ashburton | A part of the FirstRand Group

28. Examples 1 2 3 Medium-term theme: European dividend futures European Dividends: An alternative way to get exposure to the underlying performance of European companies • Rationale: Dec 2011 • Structured products often based on price return not total return from an equity index. Hence supply of non-price sensitive dividends. • Traditionally bought by banks but limited capacity in proprietary book • Limited appetite given concerns about the European economy in Q4 2011 • Euro-Stoxx50 2020 dividend future pricing in the nominal level of 2020 dividends to be 54% below 2008 levels. • This represented a bigger fall than seen in the US during the 1930s and implied both deflation and poor economic growth • ECB announced LTRO: balance sheet expansion limited the probability of deflation. Source: Bloomberg

29. Examples 1 2 3 Medium-term theme: Dividends Tend to Be Less Volatile than Equities 8 US dividends (1900 -2011) 7 6 5 DPS (log scale) 4 3 2 Dec 1909 Dec19 Dec 29 Dec 39 Dec 49 Dec 59 Dec 69 Dec 79 Dec 89 Dec 99 Dec 2009 Source: Robert Shiller, Ashburton

30. Examples 1 2 3 Medium-term theme: European dividend futures • Rationale: Dec 2011 • Even if dividends fell another 40% as implied by the curve the strategy would still return cash. • Low/negative dividend growth environments historically associated with rising dividend yields, suggesting that such a scenario would imply losses to equity investors. • A more attractive risk/return trade off than direct exposure. Source: Bloomberg, DB

31. Examples 1 2 3 Short-term trade: Brazil 10yr international bond • Rationale: Sep 2011 • Contagion from EU crisis was overdone • Internationally-held Brazilian debt had overreacted compared to locally-held debt • Investing in currency that has just dropped c.20% at a yield close to 10% Source: Bloomberg

32. Examples 1 2 3 Medium-term trade: EM Currencies • Rationale: May 2012 • Over the 2000s a diversified basket of emerging market currencies gives equity like returns at lower volatility • Versus USD the return over the last 10 years has been cash + 8.1% with an annual standard deviation of 5.7% • EM currencies now seen as a source of “Alternative Beta” Source: Bloomberg

33. Examples 1 2 3 Medium-term trade: EM Currencies • Rationale: May 2012 • In the long-term we expect real appreciation from EM currencies: the “Harrod-Balassa-Samuelson” effect. • Developed markets have become “submerging” markets. Long-term deleveraging of financial systems soften through unconventional monetary policy measures. • Many EM economies have low leverage. • Currencies are cheap in absolute purchasing parity terms. Source: Bloomberg

34. Examples 1 2 3 Medium-term trade: EM Currencies v USD • Rationale: May 2012 • The Economist Big-Mac Index suggests Asian and EM Currencies on the whole cheap.... Source: The Economist, Ashburton, IMF, Bloomberg

35. Examples 1 2 3 Medium-term trade: EM Currencies • Rationale: May 2012 • Negative real interest rates in the developed world look set to remain. • EM Currencies continue to offer positive real rates Source: Bloomberg

36. Multi Asset Investing Section Three Section One Section Two Ashburton’s Multi Asset Funds Examples Current views Ashburton | A part of the FirstRand Group

37. Valuations favour equities & credit 1 2 3 *Assumes equity Earnings Yield is a reasonable representation of expected real return on equity; G4=weighted average of US, Japan, EU, UK; Cash and bond composites averaged by nominal GDP; Corporate yields deflated by 5yr market implied inflation rates (BarCap indices) **EM govt local = GDP weighted average of real yields on 2020-2023 inflation-linked bonds in Brazil, Mexico, Korea, SA, Turkey, Poland, Thailand, Colombia. The EM US$ aggregate includes the same set of countries ex-Thailand. Source: Bloomberg, Barclays Capital, MSCI, Ashburton

38. Current views • US economy is growing at a moderate pace. Fiscal issues will be a focus in 2013. We see QE3 odds at 30-40%. • Euro area economy likely to suffer prolonged crisis under fiscal tightening. If Greece exits the euro, we expect considerable action from EU/ECB to counter contagion risks. • Chinese growth to rebound in H2 2012 supported by looser fiscal and monetary policy. 1 2 3

39. Asset Allocation 1 2 3 Source: Ashburton

40. Summary 1 2 3 • 20-year track record in global asset allocation • Multi award winning approach • Robust and repeatable process • In a low-yield world, tactical asset allocation success/failure will play a large role in determining future investment returns

41. Appendix

42. Global expertise shared by Ashburton Investment Team Peter Bourne Managing Director Equities Bespoke Asset Allocation J Schiessl Investment Manager Tristan Hanson Head of Asset Allocation Nicholas Lee Investment Director Dennis Phillips Investment Director Portfolio Management Americas Europe Far East Global Equities R Robinson Investment Manager J Schiessl Investment Manager N Skiming Investment Manager Money Market Funds Derry Pickford Macro Analyst Luke Gale Manager Bonds & Currencies V Pechlaner Investment Manager A Le Maistre Asst Investment Manager J Aldrich-Blake Investment Manager C Farley Investment Manager S Finch Asst Investment Manager Alexander Ellis Asst Investment Manager Anthony Teixeira Asst Investment Manager