PowerPoint Presentation

A (BL-Global) Flexible Approach to InvestingMay 2015#1Structural brakes on growth

Nominal growth of the global economy remains low by historic standards

Excess debt, demographics, technological disruption and gap of aggregate demand relative to aggregate supply are deflationary forces

Massive monetary response to avert deflation + financial repression: interest rates will remain low

No historic precedent for short-term rates remaining unchanged for over 60 months into an economic recovery

Economic and financial environment#US nominal GDP growthLower and lower#Too much debt

World debt much higher than before the financial crisis#Low interest rates

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Low interest rates#What is risk ?

1. Volatility (mark-to-market): Equities are risky

2. Loss of purchasing power (inflation): Cash is risky

3. Permanent (or near permanent) loss of capital

bankruptcy: Bonds can be risky buying at too high a price: Bonds and equities can be risky not handling the emotional pressure of a big decline: Equities are risky

4. Missing opportunities (Risk of not taking enough risk) : Cash is risky

- In a normal environment, using volatility as the way of defining risk is appropriate (equities are more risky than bonds). In the current environment, this is no longer trueAre equity risky ? #General Motors 7,25% 3/7/2013Risk 3: Illustration#8Cisco SystemsRisk 3: Illustration#9More than half of all government bonds in the world yield less than 1%

Search for yield has created an unstable bond market. Spreads are within historic lows and corporate financial health has deteriorated

Priority should still be given to equities. There has however been a substantial rerating of equities over the last 3 years

Focus on quality companies. The merits of profitable, well-managed businesses are more than usually compelling when economic growth is fragile (market share gains) and interest rates are close to all-time lows (higher multiples).

Dividends are important and a big part of equity returns in the years to come.

Where to invest ?#Government bond yields are very lowTen-year government bond yields (mid-May 2015)#Equities attractive when compared to bondsSource : Morgan StanleyMSCI Europe - Dividend Yield - Bond Yield (Latest = 205bp)#

Equities attractive when compared to bonds#

Companies are big buyers of equities#Need for incomeSource: Environnement conomique

Demographic trends favouring income#Quelle: Morgan Stanley

Low interest rates mean that income has to come from dividends#Dividend of Nestle (in CHF)Contrary to stock prices, dividends are not volatile#17Diversified portfolio:

Equities as centre-piece

Partial hedging of equity risk to manage volatility

Long-term government bonds as a hedge against recession / deflation

Gold as a hedge against a loss of control of the central banksBL-Global Flexible: Investment philosophy#18Equities: 77%

Quality at a reasonable price

Dividends

Defensive sector allocation

Partial hedging through futures (26%)BL-Global Flexible: Asset Allocation#19Allocation by regionAllocation by sectors(1): 16% hedged(2): 11% hedgedBL-Global Flexible: Asset Allocation#Health Care2000-2010 : derating (lower multiples)2011- ? : rerating (higher multiples)Stable / rising dividends

Consumer Staples

Earnings visibilityLow cyclicalityCompetitive advantages ( brands, distribution network, )Stable / rising dividends

BL-Global Flexible: Sector Allocation#LuxuryRising incomes in developing countriesLimited supplyStrong brandsInternet: more power to producers

TechnologyStrong balance sheetsReturn of capitalHigher levels of recurring revenueAsia

Huge competitive advantage through long term relationshipsRising middle class in developing countriesSuperior corporate governanceStrong balance sheets

BL-Global Flexible: Sector Allocation#Quality company in a bear market : KAO (Japan)#Bonds: 12 %

Long-Term U.S. Treasuries with hedging of dollar risk

Quality bonds in BRL and MXN with favourable risk / return characteristics (opportunistic purchases)

BL-Global Flexible: Asset Allocation#24Low bond yields reflect low nominal growth

#Gold: 7.5 %

Insurance

Currency (which cannot be arbitrarily created by a central bank)

Demand / supply situation remains favourable in the long run

Investment through gold companies:

Leverage on gold priceChange in strategy by gold producers (from production growth to profitability)Focus on royalties companies

BL-Global Flexible: Asset Allocation#26

Gold#27Gold priceGold#GoldIndex Gold Miners#ROYALTY COMPANIES

Superior business model:

little exposure to operating risk

upside potential from resource growth and mine expansions

high free cash flow generation

=> lower risk exposure to goldGold#Before hedgingAfter hedgingBL-Global Flexible: Currency Allocation#31* min (purchases, sales) / average of net assets** under restricted scheme

Operational data#BLI - Banque de Luxembourg Investments7, boulevard du Prince Henri - L-1724 LuxembourgPhone: (+352) 26 26 99-1Fax: (+352) 26 26 99 33 33E-mail: info@bli.luGuy WAGNER

Chief Investment Officer

Phone: (+352) 26 26 99 - 3317E-mail:guy.wagner@bli.lu

Contacts Matthieu BOACHON

Sales Manager

Phone: (+352) 26 26 99 - 3700E-mail:matthieu.boachon@bli.lu

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