1 David Fuller, David Brown, Iain Little Q22015 ”MARKETS NOW” 15 th JUNE 2015 1.How is «Trusts In Focus» Doing? 2.How Do Investors Play Bonds In a Rising.

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David Fuller, David Brown, Iain Little

Q22015

”MARKETS NOW”15th JUNE 2015

1. How is «Trusts In Focus» Doing?2. How Do Investors Play Bonds In a Rising

Yield World?

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Important Notice

THIS IS AN IMPORTANT PERSONAL ANNOUNCEMENT MADE BY IAIN LITTLE. THE OPINIONS, DATA AND INFORMATION IN THIS DOCUMENT AND PRESENTATION ARE MINE AND MINE ALONE.

EUROPEAN WEALTH GROUP PLC AND P&C GLOBAL WEALTH MANAGERS SA IN SWITZERLAND, MY EMPLOYERS, HAVE NOTHING TO DO WITH THE PERSONAL IDEAS EXPRESSED.

Q22015

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The Trusts In Focus («TIF») Service Universe c300 closed end (mainly UK) investment trusts monitored Approx 12 equally-weighted trusts in Trusts In Focus (TIF) If we sell an investment trust, we must replace it, so fully invested Changes to 12 MP trusts recorded (1.25% trading costs B/S) Research available to «Markets Now» attendees

3rd party adviser researchFullerTreacy Money one of 20+ 3rd party advisersIn-House Cooking/ P&C research

Performance review / indecent striptease every «Markets Now»

Q22015

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How Is Trusts In Focus Doing?

Beat bogey by +10% over one year

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Most recent action (Jan 12th) we….. …..Added European Assets Trust

Q22015

• Draghi «Printathon»• Undervalued Europe versus outperforming USA• Geared performance through «small cap effect»• 5.1% yield (bought on 23/2/15 on a 5.8% yield)

Paid 10.25p

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How Are We Doing: Trusts In Focus?Performance So Far (since 7/3/14)

Q22015

Name Ticker SectorCore/

SatelliteDate

Price then

Price Now

Pr/(Disc)NAV

Yield (%)

GBP Performance

General equities

Scottish American Inv Trust SCAM:LN General, global Core 09.05.2014 2.49 2.67 -1.0% 3.9% 7.3%BlackRock Income Strategies Tr BIST:LN UK + Rest of Wld Core 09.05.2014 1.40 1.37 -5.0% 4.7% -2.0%British Empire Securities BTEM:LN General, global Core 09.05.2014 4.95 5.39 -10.0% 2.0% 8.9%Scottish Mortgage Inv Trust SMT:LN General, global Core 09.05.2014 1.93 2.68 2.0% 1.1% 39.1%

European Assets Trust EAT:LN Europe (mid/small) Core 23.02.2015 10.25 11.36 1.0% 5.1% 10.8%Baillie Gifford Shin Nippon Tr BGS:LN Japanese Small equ Satellite 10.11.2014 3.11 3.78 -1.0% 0.0% 21.5%

Emerging, Frontier, Growth

JP Morgan Emerging Mkts Tr JMG:LN Developing markets Satellite 07.03.2014 5.05 6.16 -11.0% 0.9% 22.0%New India Investment Trust NII:LN India Satellite 07.03.2014 2.00 3.21 -11.0% 0.0% 60.7%Aberdeen Asian Smaller Cos Tr AAS:LN Asian smaller cos Satellite 07.03.2014 8.02 8.70 -11.0% 1.2% 8.5%

Mines, Gold, Res, Hard Assets

Blackrock World Mining Trust BRWM:LN Mining companies Satellite 07.03.2014 4.92 3.14 -11.2% 6.7% -36.1%

Alternative/ sectoral

Personal Assets Trust PNL:LN General, gold bias Core 09.05.2014 332 354 1.3% 1.6% 6.6%Polar Capital Technology PCT:LN Global technology Satellite 08.01.2015 5.85 5.86 -3.3% 0.0% 0.2%Impax Environmental Mkts IEM:LN Water and Ecology Satellite 07.03.2014 1.50 1.62 -12.0% 0.9% 7.7%

Average Yield (not inc in perf): 2.2%

% Performance (before dividends): 12.0%% Estimated performance (after dividends): 14.1%

% FTSE 100 (7/3/14 to now): 4.4%

TRUSTS IN FOCUS

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«How Do Investors Play Bonds In a Rising Yield World?»

PERSONAL THOUGHTS FROM A NON SPECIALIST…

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Bonds in a rising yield worldThe Problem…

Q22015Lose half

my money?

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Bonds in a rising yield worldThe Problem…

Q22015

Why Hold Bonds At All?

• Portfolio income (future liabilities)• Portfolio insurance. Largest fall last 30 years:

• 100% UK bond portfolio -6.27% 1994• 100% UK equity portfolio -29.93% 2008

• Portfolio diversification (co-variance matrix)

But….. “Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.”

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Bonds in a rising yield worldThe Problem…

Q22015

Bonds have 6 major types of risk:

RISK TYPE OF RISK

YIELD RISE?

1) Interest rate Capital Capital Loss

2) Reinvestment (Call) Income Income Gain (no calls)

3) Inflation Capital, Income Capital, Income Loss

4) Credit/default Capital, Income Increased Risk

5) Rating downgrade Capital Increased Risk

6) Liquidity Capital Increased Risk

Holding bonds to maturity reduces most risks

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Bonds in a rising yield worldThe Problem…

Q22015

Most fixed income investments lose out….FIXED INCOME TYPE YIELD RISE?

Short term sovereign bonds Small capital loss

Long term sovereign bonds Large capital loss

Corporate and EM bonds Small capital loss (high yield) but large credit risk

Bond Funds Duration fixed; no safe harbour, forced sales bad

Cash Low returns or none (but «$ Averaging» pick up)

Index-linked bonds OK if inflation rises or cheap v theoretical price

No easy solutions

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Bonds in a rising yield world3 Solutions…Defined Maturity Bd Fund

Q22015

1. Bonds In Drag

• Bonds dressed in fund «drag»!• Future maturity date fixed (pref <5 years)• 6.2% p.a. for 3 year corporate high yield debt• Pick up yield (eg +4-5%) via corporate bonds• Yet…reduced credit risk via 70-100 holdings• Some small reinvestment risk exists, but…..• …«Laddering»: investors can plan redemptions

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Bonds in a rising yield world3 Solutions…Defined Maturity Bd Fund

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Bonds in a rising yield world3 Solutions…Defined Maturity Bd Fund

Q22015

Major Risks

• Yields lower for longer => reinvestment risk• Yield return exceeded by fund costs• Bad deflation, à la 1930s => corporate defaults

• NB if a portfolio of 80 bonds yields 3% > conventionals (6% v 3%), 2 bonds (2-3% of total) must default to reduce yield to conventional bond yields

• Our fund manager: no history of bond defaults at all

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Bonds in a rising yield world3 Solutions…Defined Maturity Bd Fund

Q22015

25 50 75 100 150 200xxxxxx Bond Opp. L 4.65% 1.42 -0.36% -0.71% -1.07% -1.42% -2.13% -2.84%

0.9 1.8 2.7 3.7 5.5 7.3xxxxxx Bond Short Duration 3.03% 0.73 -0.18% -0.37% -0.55% -0.73% -1.10% -1.46%

0.6 1.2 1.8 2.4 3.6 4.8xxxxxx Bond Opp. Europe 18 6.18% 2.12 -0.53% -1.06% -1.59% -2.12% -3.18% -4.24%

1.0 2.1 3.1 4.1 6.2 8.2HY EUR 4.34% 4.13 -1.03% -2.07% -3.10% -4.13% -6.20% -8.26%

2.9 5.7 8.6 11.4 17.1 22.8IG EUR 0.96% 5.10 -1.28% -2.55% -3.83% -5.10% -7.65% -10.20%

15.9 31.9 47.8 63.8 95.6 127.510Y Gov. Bond Europe 0.16% 9.54 -2.39% -4.77% -7.16% -9.54% -14.31% -19.08%

175.6 351.2 526.7 702.3 1053.5 1404.7xxxxxx Bond Opp. US 17 6.22% 2.25 -0.56% -1.13% -1.69% -2.25% -3.38% -4.50%

1.1 2.2 3.3 4.3 6.5 8.7HY US 5.74% 5.03 -1.26% -2.52% -3.77% -5.03% -7.55% -10.06%

2.6 5.3 7.9 10.5 15.8 21.0IG US 2.94% 6.98 -1.75% -3.49% -5.24% -6.98% -10.47% -13.96%

7.1 14.2 21.4 28.5 42.7 57.010Y Gov. Bond US 2.00% 8.91 -2.23% -4.45% -6.68% -8.91% -13.36% -17.81%

13.3 26.7 40.0 53.3 80.0 106.7

EUROPE

USA

Sensitivity Analysis Bond Funds vs. Indices (30/04/2015)

Security Mod. Duration

Rise in Interest RatesYTM

Ex: For a rise in rates of 100 bps, Short Duration fund would lose 0.73%, which represents 2.4 months of "carry" (YTM of 3.03%). For the same rise in rates, the Investment Grade EUR index would lose 5.10% , or the equivalent of 63.8 months of "carry" (YTM of 0.96%.) The German 10 year Bund would lose 9.54% or the equivalent of 702.3 months of "carry" (YTM of 0.16%)

Defined

Maturity

6.1

8%

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Bonds in a rising yield world3 Solutions…Cash

Q22015

2. Cash

Dollar averaging cash deposits, egYear 1: 1% paYear 2: 3% paYear 3: 5% pa=>3 Year avg: 3.1% pa

1% 3%5%

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Bonds in a rising yield world3 Solutions…Equities

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3. Equities

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P&C People

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The P&C Investment Team: 75 years global experience and research expertise

Bruce Albrecht (Investment Manager and Partner P&C) 40 years experience asset allocating and managing global institutional equity

and bond portfolios. Ex CIO Pictet London and Global CIO Rothschilds, Senior Manager Abu Dhabi Investment Authority, Group Head of Asset Management Butterfield Bank Group. Work experience includes London, Abu Dhabi. Special interest:: quantitative / systematic analysis. Educated: Emory University, Manchester Business School.

Iain Little (Investment Manager and Partner of P&C). 35 years experience managing global private client portfolios and ex head

Pictet London UK private clients (asset allocation / fund selection). Recently MD Butterfield Asset Management (Switzerland). Work experience includes Tokyo, Geneva, London, Edinburgh, “French-speaking Africa” and Hong Kong. Special interest: undervalued frontier markets and undiscovered managers. Educated: Cambridge University (MA)

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P&C and Contact Details:

For further information, please contact:

Q22015

Iain LittlePartner

P&C

P&C Global Wealth Managers S.A.Tel: +41-44-390-1561Fax: +41-44-390-1562Email: [email protected]

Bruce AlbrechtPartner

P&C

P&C Global Wealth Managers S.A.Tel: +41-44-390-1561Fax: +41-44-390-1562Email: [email protected]