F&C Investment Trust...150 years of history Classification: only to be shown if not public 4 • World’s oldest investment trust • A dividend paid every year since 1868 • 48

Classification: only to be shown if not public

F&C

Investment

Trust

For professional investors only

CM19414 UK

March 2019


Classification: only to be shown if not publicInvestment risk

The value of investments and income derived from them can go down as well as up as a result of market

or currency movements and investors may not get back the original amount invested.

Classification: only to be shown if not public150 years of history

4

• World’s oldest investment trust

• A dividend paid every year since 1868

• 48 years of consecutive dividend rises*

• 11 managers in 150 years, three since 1969

• Started investing in bonds, 95% equity by 1965

• First equity investments in 1925 (Shell)

• Investing in private markets since 1942

• Over 100,000 investors, 90%+ retail holders

• £3.7bn market cap, net assets £3.7bn

Past performance should not be seen as an indication of future performance.

Source: BMO Global Asset Management as at 28-Feb-19. For illustrative purposes only. *Inclusive of proposed 2018 dividend


I. 2018 Results

5

Classification: only to be shown if not publicFinal results to 31 December 2018

6

• Share price total return of -0.6%, ahead of market benchmark of -3.4%

• NAV total return of -3.3%

• Discount ended 2018 at 1.5% - lowest year end level for over twenty years

• Premium to NAV achieved and first share issuance since 1959

• Net revenue return per share up by 9.8% year on year to 12.8p

• Proposed 5.8% dividend increase for 2018 to 11.0p – 151st annual dividend and 48th consecutive

annual increase. Dividend again fully covered by 2018 earnings

• Private equity produced strong cash flows (£69.1m net from historic holdings) and substantially

exceeded returns from listed equity markets

• 18% reduction in OCF from 0.79% to 0.65%, revised management fee arrangement from 1 January

2019

Source: BMO Global Asset Management as at 31-Dec-18. NAV = Net Asset Value; P = Pence

Classification: only to be shown if not public2018 total shareholder return of -0.6%

7

Source: BMO Global Asset Management as at 31-Dec-18. NAV = Net Asset Value

Past performance should not be seen as an indication of future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

-2.2%-2.6%

-3.1% -3.3%

-0.6%

-0.4% 0% -0.1%

-0.4%-0.2%

2.7%

-0.6%

-3.4%

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

Classification: only to be shown if not publicPerformance in 2018

8

• Sharp falls in markets over the second half of the year led to a decline of -3.3% in NAV for the full

year – the first negative return since 2011. Portfolio return of -2.2%, ahead of benchmark (-3.4%)

• Private equity delivered returns of 19.7%, well ahead of listed equity returns and continue to exceed

listed market returns over longer time periods

• Mixed performance from underlying listed portfolio strategies. North America and Emerging Markets

exposure produced strong relative returns while Europe was the main laggard

• North American managers produced strong relative returns in 2018. T Rowe Price (+9.1%) exceeded

both market index and growth indices and Barrow Hanley (+0.3%), while lagging the market,

outperformed the value index

• Emerging Markets (-5.3%) produced good relative returns over the year

• Global Strategies (-4.0%) slightly lagged benchmark returns due to underperformance of small cap

(-5.7%) exposure against large cap indices

• Europe (-15.1%) dropped significant relative performance in the latter part of the year while Japan

(-10.0%) also lagged

Source: BMO Global Asset Management as at 31-Dec-18.

Classification: only to be shown if not publicUnderlying performance in 2018

9

Source: BMO Global Asset Management as at 31-Dec-18. *MSCI Emerging Markets Benchmark Return. © 2019 MSCI ESG Research Inc. Reproduction by permission. FTSE International Limited (“FTSE”) © FTSE 2019.


Allocation to

strategy

%

Underlying

allocation

%

Benchmark

weighting

%

Portfolio

performance

%

Benchmark

performance

%

North America 42.0 53.4 56.0 4.7 0.8

Europe inc UK 14.4 22.4 19.6 -15.1 -9.9

Japan 8.6 9.9 8.4 -10.0 -7.6

Emerging Markets 10.5 11.9 12.0 -5.3 -8.9

Developed Pacific 2.4 4.0 -5.6

Global Strategies 16.6 -4.0 -3.4

Private Equity 7.9 19.7

Classification: only to be shown if not publicUnderlying performance over 1,3 and 5 years

10

Source: BMO Global Asset Management as at 31-Dec-18. *MSCI Emerging Markets Benchmark Return. © 2019 MSCI ESG Research Inc. Reproduction by permission. FTSE International Limited (“FTSE”) © FTSE 2019.


1 Year, % 3 Year, % 5 Year, %

Return Index Return Index Return Index

North America 4.7 0.8 55.1 50.4 101.5 89.5

Europe inc UK -15.1 -9.9 15.6 26.4 26.2 34.0

Japan -10.0 -7.6 31.4 29.7 66.8 56.7

Emerging Markets -5.3 -8.9 50.8 52.6 47.8 43.8

Global Strategies -4.0 -3.4 43.7 42.4

Private Equity 19.7 58.0 111.7

Classification: only to be shown if not publicPrivate equity

11

• Strong returns (19.7%) in 2018 add to the long term record of outperformance over listed markets

• Historic holdings from Pantheon and Harbourvest realized £69.1m in cashflow and delivered a return

of 20.1%

• Recent commitments gained 18.8% on the year

• Syncona had another strong year, gaining 34%

• £198.4m of new commitments made in 2018 and broadening of our exposure across primary and

secondary funds as well as co-investments


Classification: only to be shown if not publicPrivate equity

12

• 2018 was an encouraging start from our newer investments

• Year end valuation of £106.6m on recent investments, TVPI of 1.17 and 22% IRR, reflecting robust

performance in the early stage of the investment programme

• Highlights from 2018 include;

– 50% uplift on Wavecrest, a co-investment into Tier1 CRM

– Uplift in value of NEM Impresse III, an Italian secondary fund

– Good progress in US lower middle market (Graycliff) and growth fund holdings (Centana)

– Uplift in Warburg Pincus China and some of our other co-investments


Classification: only to be shown if not publicPortfolio activity

13

• Merger of UK equity mandate into a pan-European approach – more focus with a better historic return

profile

• Closure of Multi-Manager component of Global Strategies (incepted in 2014) – more focus and

reduction in costs

• Funding of a BMO managed US growth strategy to complement T Rowe Price exposure and added to

existing value exposure managed by BMO

• Implementation of £100m of long sterling positions (in two tranches when spot was trading around

1.275 vs USD) through forwards to mitigate risks surrounding a ‘positive’ Brexit outturn


Classification: only to be shown if not publicRevenue and dividends

14

• Proposed dividend of 11.0p, an increase

of 5.8%

• 9.8% rise in net revenue return per share

in 2018 to 12.8p

• Special dividends contribution to revenue

rose to £3.9m

• Revenue reserve of 18.8p per share as

at 31 December 2018 (£102.2m)

• Intention to deliver another real rise in

dividends in 2019

Revenue and dividends per share (p)

0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018

Revenue per share Dividend per share


Classification: only to be shown if not publicCompany rating, buybacks and issuance

15

• No buybacks in 2018

• Good progress in rating – average discount

of 1.3% for 2018. Year end discount of 1.5%

• Premium reached for first time since 1995

• First issuance of shares since 1959, first ever

issuance at a premium

• 1.4m issued so far in 2019

• Board committed to use buybacks to

enhance shareholder value and in pursuit of

a sustainably low discount in normal market

conditions

Annual buybacks (millions of shares)


0

10

20

30

40

50

60

70

80

90

100

Classification: only to be shown if not publicOCF and management fees

16

• 18% reduction in OCF from 0.79%

to 0.65%

• Benefit of decline in charges through maturing

of private equity holdings, reduced allocation to

funds and reduced management fees

• Change in BMO fee arrangement from 36.5bp

on market cap to a tiered approach from 1

January 2019;

– 35bp on first £3bn

– 30bp on £3-4bn

– 25bp above £4bn

Ongoing charges figure


0.50%

0.60%

0.70%

0.80%

0.90%

2014 2015 2016 2017 2018

Classification: only to be shown if not publicLook-through exposure

17

21.6%

18.7%

14.2%

13.2%

11.2%

10.1%

4.2%

3.5%

1.9%

1.4%

Financials

Consumer Services

Technology

Healthcare

Industrials

Consumer Goods

Oil & Gas

Basic Materials

Utilities

Telecommunications

North America 51.8%

Europe ex UK 15.6%

Emerging Markets 11.5%

Japan 9.6%

UK 6.1%

Developed Pacific 2.3% Liquidity

3.1%

Fund weight by region (inc. Private Equity) Listed equity sector exposure


Classification: only to be shown if not publicPerformance overview – end December 2018

18

Source: BMO Global Asset Management, Datastream, Morningstar, Association of Investment Companies (AIC) as at 31-Dec-18. © 2019 Morningstar. All Rights Reserved. Benchmark: FTSE All World Total Return Index. Peer Group: Association of Investment Companies Global. Net of fees. NAV = Net Asset Value; YTD = Year-to-Date.


FCIT

shareholder

return

AIC

quartile

FCIT NAV

return

AIC

quartile

Open ended

funds

return

Market

benchmark

(gross)

3m -12.2% 3 -10.8% 2 -11.5% -10.5%

6m -8.0% 2 -6.8% 1 -8.2% -5.5%

1 year -0.6% 1 -3.3% 1 -6.2% -3.4%

3 years pa 14.2% 2 11.8% 2 10.0% 12.5%

5 years pa 13.0% 1 10.6% 2 8.1% 10.5%

Since July

201414.4% 2 11.6% 2 8.6% 11.0%

Classification: only to be shown if not publicDiscrete performance

19

Source: BMO Global Asset Management as at 31-Dec-18. The discrete annual performance table refers to 12-month periods, ending at the date shown. Performance shown is net of fees. Benchmark: FTSE All World Total Return Index.


Percentage growth 12m to December 2018 2017 2016 2015 2014

F&C Investment Trust Share Price TR -0.6 21.0 23.7 9.0 13.5

F&C Investment Trust NAV -3.3 16.7 24.0 7.6 9.7

Benchmark -3.4 13.8 29.6 4.0 11.3


II. The (recent) evolution of FCIT

20

Classification: only to be shown if not public1. More global

21

Source: BMO Global Asset Management, Bloomberg as at 31-Dec-18.

Global vs UK equity returns

100

120

140

160

180

200

220

240

2013 2014 2015 2016 2017 2018

Global Equities

UK Equities

Classification: only to be shown if not public2. Active approach

22


Strategy Primary Manager Approach % Allocated Holdings Active Share %

Regional

US Growth Growth 19.6 121 70

US Value Value 16.3 45 82

EuropeFundamental

quality value14.4 41 88

Japan Quality GARP 8.6 52 72

Emerging Markets Long-term quality 10.0 36 97

Global

IncomeSystematic income

GARP11.1 60 90

Smaller Companies Core quality growth 5.5 76 97

Private Equity

Funds Fund of funds 4.3 16 n/a

Direct Direct 3.6 25 n/a

https://micacareerfair.wordpress.com/2013/02/08/employer-profile-t-rowe-price-2/

http://www.bnpparibas-ip.com.au/our-investment-solutions/our-partners/barrow-hanley/

http://www.recommunity.com/mobile/leadership.php

http://pantheon.com/


Diversification

benefit

3. Diversified across strategies

23

Risk contribution by strategy



£263min

4. Recommitment to private equity

24


Focused &

opportunistic

Primarily

invested

directly

Assessed using

BMO global

resources

Significant ‘agent’ cost savings as we run off existing holdings

Classification: only to be shown if not public5. Gearing costs reduced

25

• 0-20% permitted gearing, varied between 6-14% since 2012

• Net gearing of £233m, 6.6% of net assets

• Weighted average cost of debt down from 7.1% at end 2013 to 2.85%

Source: BMO Global Asset Management as at 31-Dec-18. RCF = Revolving Credit Facility.

.

Gross debt at market value outstanding: £331m

2019

$80m at 4.00%

Y6600m at

2.50%

2022

€72m at 1.69%

2028

£25m at

2.80%

2031

£50m at 3.16%

2048

£75m at

2.92%

Perp

£0.6m at

4.25%

Classification: only to be shown if not public6. Dividend and revenue progression

26

• Focus on total return – balance income needs

with capital considerations

• Significant shift from UK to overseas equities

created revenue challenge

• Benefited from strong underlying income

growth, reduced interest costs, cashflow from

PE (for reinvestment)

• Commitment to continue real rises in dividends

Net revenue return and div per share (p)



0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018

Revenue per share Dividend per share


40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

SharePrice TR

NAV TR FTSE AW VanguardETF

IA Median

FCIT since 2014

27

Returns vs comparators (from July 2014) Discount progression (year-end levels)



-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2009 -13

2014 2015 2016 2017 2018

Dis

co

un

t %

AIC Median

Classification: only to be shown if not publicAttractive risk-adjusted returns

28

3-years NAV return/volatility 5-years NAV return/volatility

Source: BMO Global Asset Management, Bloomberg as at 31-Dec-18.

ATST = Alliance Trust

BNKR = Bankers Investment Trust

BTEM = British Empire Securities and General Trust

FCIT = F&C Investment Trust

JPGI = JPMorgan Overseas Investment Trust

MNKS = Monks Investment Trust

MNP = Martin Currie Global Portfolio Investment Trust

SCIN = Scottish Investment Trust

SMT = Scottish Mortgage Investment Trust

WTAN = Witan Investment Trust

5-year Index and Competitor NAV Return/Volatility

ATSTBNKR

BTEMFCIT

JPGIMNP

MNKS

SCIN

SMT

WTAN

FTSE

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

10% 12% 14% 16% 18% 20%

NA

V P

erf

orm

ance

Volatility

ATSTBNKRBTEM

FCIT

JPGIMNP

MNKS

SCIN

SMT

WTAN

FTSE

20%

40%

60%

80%

100%

120%

140%

10% 12% 14% 16% 18% 20%

NA

V P

erf

orm

ance

Volatility

0.00

0.20

0.40

0.60

0.80

1.00


III. Market backdrop

29

Classification: only to be shown if not publicKey questions

30

Are we headed for recession?

Where next for US monetary policy?

How serious is the US-China trade war?

Market outlook for 2019

Classification: only to be shown if not publicGlobal production has stalled

31

Global PMI and industrial production

Source: Bloomberg, Datastream as at Jan-19. PMI = Purchasing Managers' Index.

-40

-30

-20

-10

0

10

20

30

35

40

45

50

55

60

(% 3

m c

ha

ng

e a

nn

ualis

ed

PM

I In

dex

Global Purchasing Managers’ Index (Manufacturing)

[LHS]

Global Industrial

Production [RHS]

Classification: only to be shown if not publicThe interest rate cycle has turned up

32

Central Bank policy rates

Source: Minack Advisers, BMO Global Asset Management as at Dec-18.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

2006 2008 2010 2012 2014 2016 2018 2020

Europe*

Post- GFC DM Hikers ‡

Japan

US§

PPP GDP-WEIGHTED AVERAGES. *ECB, DENMARK, NORWAY, SWITZERLAND, SWEDEN, UK ‡ CANADA, AUSTRALIA, NEW

ZEALAND, SOUTH KOREA, DENMARK, NORWAY, SWEDEN § FED FUND CEILING/TARGET RATE

Classification: only to be shown if not publicBut the Fed has shifted

Market implied probability of a higher/lower fed funds rate in December 2019

Source: Bloomberg as at Jan-19.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019

Cut No Change Hike

Classification: only to be shown if not publicThe US PMI leads again; big falls in Europe

34

Source: BMO Global Asset Management, Bloomberg as at January 2019. PMI = Purchasing Managers’ Index, Markit for all save China which is NBS

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

42

44

46

48

50

52

54

56

58

US China Japan UK Eurozone Germany France Italy

Ne

t ch

an

ge la

st 1

2 m

on

ths

PM

I

Latest Composite PMI Change last 12 months

Classification: only to be shown if not publicGlobal inflation is not too hot, not too cold

35

Source: Minack Advisors as at Dec-18. OECD = Organisation for Economic Co-operation and Development.

Number of OECD countries with low core inflation

0

5

10

15

20

25

30

35

1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

Nu

mb

er

of co

un

trie

s

Number of Countries in Sample

Inflation Under 2%

Deflation

Inflation Under 1%

Classification: only to be shown if not publicWages are gently accelerating in the US

36

Employment cost index (%, YoY)

Source: Bloomberg as at Jan-19.

Percent change, year ago

1

1.5

2

2.5

3

3.5

4

4.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Classification: only to be shown if not publicDespite recent setback, the US has outperformed ….

37

Source: Minack Advisers, BMO Global Asset Management as at Jan-19.

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

220.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Ind

ex

ed

Ja

nu

ary

20

07

=1

00

MSCI All Country Ex-US

S&P 500

Classification: only to be shown if not public… because US earnings have outperformed

38

Trailing EPS (Indexed to January 2007)

Source: Minack Advisers, BMO Global Asset Management as at Dec-18.

40

60

80

100

120

140

160

180

200

220

40

60

80

100

120

140

160

180

200

220

2007 2009 2011 2013 2015 2017 2019

EP

S In

de

x J

an

ua

ry 2

00

7=

10

0

ROLLING 12M EPS. OPERATING EARNINGS

S&P500

MSCI All Country Ex-US

Classification: only to be shown if not publicProfits are very high in the US: will they mean revert?

39

Listed profits as a share of GDP

Source: BMO Global Asset Management, Minack Advisers as at Dec-18.

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

% o

f G

DP

Long-run

average

10 year

Long-run average

10 year

average

United States MSCI

BASED ON TRAILING PE; MSCI SERIES, % OF GDP

* EARNINGS AS A SHARE OF OECD GDP LESS US GDP

Developed markets ex-US*

Classification: only to be shown if not publicLabour costs still drive margins

40

Corporate margins and labour costs


56

58

60

62

64

66

6822

24

26

28

30

32

34

50 55 60 65 70 75 80 85 90 95 00 05 10 15 20

Ind

ex (In

ve

rted

)%

Ma

rgin

NIPA DOMESTIC NON-FINANCIAL CORPORATE SECTOR DATA * REAL UNIT LABOUR COSTS (SELLING PRICE DIVIDED BY NOMINAL UNIT LABOUR COSTS). SERIES

INVERTED. † EARNINGS GROSS OF INTEREST, TAX & DEPRECIATION.

Labour Cost

[Inverted]*

China joins WTO

EBITDA Margin † (LHS)

Classification: only to be shown if not publicWages are accelerating in the US … but only gently

41

Goldman Sachs’ US Wage Tracker

Source: Department of Labor, Federal Reserve Bank of Atlanta, Goldman Sachs Global Investment Research as at 15-Jan-19. The Goldman Sachs ‘Wage Tracker’ attempts to extract the ‘common movement’ from five data series. Formally, it is the first principle component of the five series. One series, the Atlanta wage Tracker is adjusted. ECI = employment cost index .

Percent change, year on year Percent change, year ago

Classification: only to be shown if not publicEmployment plans are very strong

42

Private payrolls and PMI employment indices


-9

-7

-5

-3

-1

1

3

5

7

32

36

40

44

48

52

56

60

64

1997 2000 2003 2006 2009 2012 2015 2018

3M

% S

AA

R

Ind

ex

Private payrolls †

*WEIGHTED AVERAGE OF EMPLOYMENT INDICATORS FROM MANUFACTURING AND NON-MANUFACTURING ISM .

† PRIVATE NF PAYROLLS 3M SAAR %.

Hiring plans (LHS)

Classification: only to be shown if not publicProfits are high but investment is low …may extend the cycle

43

US profits and net investment as share of GDP


-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

% o

f G

DP

Net Investment†

* AFTER-TAX PROFITS, CCA/IVA ADJUSTED † BUSINESS INVESTMENT NET OF DEPRECIATION RECESSIONS SHADED

Profits*

Classification: only to be shown if not publicThe Earnings Picture

44

MSCI World EPS Growth and Total Return Single Digit EPS Growth in 2019

Source: Bloomberg as at 28-Feb-19.

-5

0

5

10

15

20

% g

row

th (

ye

ar

/ ye

ar)

Date forecast made

2012 +14.69%

-30

-20

-10

0

10

20

30

40

50

2014 2015 2016 2017 2018E 2019E

% g

row

th (

ye

ar

/ ye

ar)

Regional EPS Growth

US EUxUK Japan UK PxJ EM

2013 +23.65%

2014 +4.82%

2015 -0.88%

2016 +7.24%

2019

2018 -9.11%

2017 +20.21%

Classification: only to be shown if not publicThe yield curve and credit: it’s different this time (maybe)

45

Yield curve and bank lending attitude

Source: Bloomberg as at 28-Feb-19.

-40

-20

0

20

40

60

80

100-300

-200

-100

0

100

200

300

400

1990 1994 1998 2002 2006 2010 2014 2018

Net b

ala

nceS

pre

ad

BP

* 10YR-2YR YIELD, LEADING BY 12M. † FED SENIOR LOAN OFFICER SURVEY: BALANCE BANKS TIGHTENING CREDIT FOR LARGE/MED FIRMS. T

IGH

TE

R S

TA

ND

AR

DS

Bank attitude † [INV]

Yield curve* (LHS)

Classification: only to be shown if not publicIndex of financial conditions very different to Fed funds rate

46

Goldman Sachs’ US Financial Conditions Index

Source: Goldman Sachs as at 15-Jan-19. The index is a weighted average of the Federal funds rate, 10 year US Treasury yields, the credit spread on BBB rate corporate bonds, the log of the S&P 500 index and the log of the USD trade weighted exchange rate index.

Percent change, year ago

Classification: only to be shown if not publicHigh RoE has meant good performance in the past

47

S&P500 return on equity by ROE rank

Source: BMO Global Asset Management, Minack Advisers as at 31-Dec-18.

-20

-10

0

10

20

30

40

50

60

70

80

90

-20

-10

0

10

20

30

40

50

60

70

80

90

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

5 y

ea

r cu

mu

lative

pe

rfo

rma

nce

%

5 YEAR AVERAGE RETURN ON EQUITY WITH LINEAR TREND LINES. CURRENT S&P500 CONSTITUENTS ONLY. GROUPS RE-SORTED EACH YEAR.

Top 10%

Second 30%

Bottom 30%

Third 30%

Classification: only to be shown if not public…and top companies don’t invest

48

Investment/Sales, by company ROE Rank


0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

5Y

R C

ap

ex/S

ale

s %

Bottom 90%

5 YEAR AVERAGE CAPEX/SALES LINEAR TREND LINES, BY EACH COMPANY'S 2017 ROE RANK. CURRENT S&P500 CONSTITUENTS ONLY.

Top 10%

Classification: only to be shown if not publicChina has a credit problem

49

Chinese credit outstanding

Source: BMO Global Asset Management, Minack Advisers as at 31-Dec-18 shaded areas are US recessions.

0

50

100

150

200

250

300

0

50

100

150

200

250

300

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

% O

F G

DP

Non financial corporates

Households

Total

Classification: only to be shown if not publicChina slowdown is inevitable

50

China: potential growth, productivity & population


-6

-4

-2

0

2

4

6

8

10

12

14

-6

-4

-2

0

2

4

6

8

10

12

14

1960 1970 1980 1990 2000 2010 2020 2030 2040

5Y

R A

ve

rage

yo

y%

Fall due to 27% GDP

decline in 1961

* 5YR AVERAGE CHANGE IN GDP/WORKER † 5YR CHANGE IN 15-65 YEAR-OLDS. WITH UN FORECASTS

Working-age population†

Productivity*

Potential GDP

Classification: only to be shown if not public…services are the future for China

51

China share of GDP


5

10

15

20

25

30

35

40

45

50

55

5

10

15

20

25

30

35

40

45

50

55

1960 1966 1972 1978 1984 1990 1996 2002 2008 2014 2020

% S

ha

re

Agriculture

* MINING, MANUFACTURING, CONSTRUCTION & UTILITIES.

NOMINAL SHARE OF VALUE ADD. US RECESSIONS SHADED

Industry*

Services

Classification: only to be shown if not public….and the consumer is set to spend more

52

China household saving & dependency ratio


0.3

0.4

0.5

0.6

0.7

0.8

0.90

5

10

15

20

25

30

35

40

45

1970 1980 1990 2000 2010 2020 2030 2040 2050

Ra

tio [In

ve

rted

]%

of h

ou

se

ho

ld inco

me

Dependency ratio * [Inverted]

(RHS)

* RATIO OF NON-WORKING AGE POPULATION TO WORKING-AGE POPULATION (15-65 YEAR OLDS). WITH UN FORECASTS.

Household saving rate (LHS)

Classification: only to be shown if not publicDefensive stimulus in China

53

China total social financing (MoM % annualised, 3MMA)

Source: Bloomberg as at 31-Dec-18. PMI = Purchasing Managers' Index.

-0.05

0

0.05

0.1

0.15

0.2

Apr 2017 Aug 2017 Dec 2017 Apr 2018 Aug 2018 Dec 2018

Total Social Financing

RMB Loans

TSF ex-loans

46

48

50

52

54

56

58

2010 2012 2014 2016 2018

Manufacturing PMI

Caixin Manufacturing PMI

SpaceKnow Satellite Manufacturing Index

Classification: only to be shown if not publicChina will move further away from dependence on US

54

China exports to US (as a % of GDP)

Source: Bloomberg, as at Sep-18

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Classification: only to be shown if not publicEurope: reasons to be negative

55

Italian industrial production, % YoY business sentiment

Source: Bloomberg as at Sep-18.

-30

-25

-20

-15

-10

-5

0

5

10

15

20

2000 2003 2006 2009 2012 2015 2018

-4

-3

-2

-1

0

1

2

2000 2003 2006 2009 2012 2015 2018

Classification: only to be shown if not publicThe flow show

56

Net non-resident portfolio flows into EM assets ($billion, 28-day moving average)

Source: BMO Global Asset Management, IIF as at Feb-19.

-1.00

-0.50

0.00

0.50

1.00

Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19

EM Debt EM ex-China Equities Chinese Equities Total Flows

Classification: only to be shown if not publicWhy are Japanese equities so unpopular?

57

Trailing US$ EPS, by market


-100

-50

0

50

100

150

200

250

300

350

400

-100

-50

0

50

100

150

200

250

300

350

400

1980 1985 1990 1995 2000 2005 2010 2015 2020

Ind

ex 2

00

4=

10

0

MSCI INDICES. US$ TRAILING EPS, INDEX 2004=100

World

ex-Japan

Japan

Classification: only to be shown if not publicOutlook

58

• Global economy has slowed, risks higher but recession worries are overstated and macro is

supportive

• No early end to the UK’s post-Brexit woes

• Better equity valuations but more volatility

• Europe demonstrating worrying inability to sustain earnings growth and now worse fundamentals

• Emerging Markets more interesting

• ‘Value’ to benefit selectively from rising rates while ‘Growth’ retains secular advantages

• Credit costs should rise – long-term borrowings remain attractive for Trusts

• Assumption of reversion in corporate profits is misplaced. Next downturn/rising wages will strengthen

position of current dominant corporates

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