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Schroder US Small & Smid Cap Product Review
Representing Schroders:
Jenny B. Jones, Head of U.S. Small and Mid Cap Equities
Frederick Schaefer, Product Manager
May 8, 2013
| For professional investors only. This material is not suitable for retail clients
Supported by: 3 traders; 1 product executive; 1 portfolio management assistant, and 1 additional support staff
Jenny Jones Portfolio Manager
33 years of experience Insurance, Capital Goods
Robert Starbuck Research Director 35 years of experience Energy, Materials
John Helfst 18 yrs experience Banks, Brokers,
Specialty Finance
Steve Kirson, CFA 29 yrs experience
Technology
Cezary Nadecki, CFA 14 yrs experience Utilities, Telecom
Fred Schaefer 25 yrs experience
Product Mgr.
Peter Wen 18 yrs experience
Health Care
Average analyst experience: 21 years
Team
1
Robert Kaynor 19 yrs experience
Consumer
Joanna Wald 12 yrs experience
Consumer
Photo Not Available
Source: Schroders, as at 6 May 2013
David Speyer, CFA 8 yrs experience
Consumer
People – portfolio manager supported by an experienced team
Schroder US Small & Smid Cap Equity
2
Leading our Consumer work; January joiner
Robert Kaynor, CFA Type of Experience
2013 Schroders, Equity Analyst Long-only US equity
2010 Ballast Capital Group, Chief Investment Officer,
Managing Member
Long/short US equity
2003 Ramius Capital Group, Managing Director/Portfolio
Manager, Analyst
Long/short equity; portion of
multi-strategy fund
2000 Barbary Coast Capital Management, Partner/Analyst Long/short US equity
1994 RCM Capital Management, Analyst/Assistant Portfolio
Manager
Long-only US equity
Education: Southern Methodist University, BS
Has held a series of progressively more senior investment roles
Experience with both long-only and long/short investing
19 years of fundamental research and investment experience
Joined US Schroders US Small and Mid Cap in January 2013
Schroder ISF US Small & Mid Cap Equity Portfolio Positioning and Performance Attribution
Performance Pattern
We tend to outperform in flat to modestly rising markets and negative markets
We are less likely to outperform in strongly rising markets, given our emphasis on quality and our tendency to
avoid momentum oriented stocks.
Smid – Clear performance pattern Why diversification of alpha sources is important
Source: Schroders; Monthly observations for the composite, gross of fees, between 31 December 2004 and 31 March 2013.
Market environment: Number of months
Number of months Schroders
outperformed
Percentage of months
outperforming
Strongly rising (index >3% in a month) 35 5 14%
Moderately rising (index between 0 and 3%) 27 14 52%
Falling (Less than 0%) 37 30 80%
4
0
10
20
30
40
50
60
70
Dec-
05
Mar-
06
Jun
-06
Sep-0
6
Dec-
06
Mar-
07
Jun
-07
Sep-0
7
Dec-
07
Mar-
08
Jun
-08
Sep-0
8
Dec-
08
Mar-
09
Jun
-09
Sep-0
9
Dec-
09
Mar-
10
Jun
-10
Sep-1
0
Dec-
10
Mar-
11
Jun
-11
Sep-1
1
Dec-
11
Mar-
12
Jun
-12
Sep-1
2
Dec-
12
Mar-
13
Mispriced Growth Steady Eddie Turnaround
Schroder ISF US Small & Mid Cap Equity Diversified alpha sources – historical allocations (weighted)
36%
58%
6%
Source: Schroders, FactSet as at 30 April 2013.
5
Portfolio vs. index
Schroder US ISF Small & Mid Cap Equity Sector weights – April 30, 2013
6
Source: FactSet as of April 30, 2013. Sector weights for the account and the Benchmark Index are subject to change and should not be viewed as an investment recommendation.
13.311.9
14.8
16.6
10.8
14.2
15.9
25.7
1.5
3.2
9.7
5.3
17.6
10.4
3.0
6.37.7
5.9
0
5
10
15
20
25
30
Te
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He
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Ca
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Ma
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&
Pro
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Util
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En
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Schroder US SMID Cap Russell 2500
% REITs are 9.2% of the
index
Performance Attribution LUX-SISF SMID vs. Russell 2500
12/31/2012 to 3/28/2013
U.S. Dollar
LUX-SISF SMID Russell 2500 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
Russell Sectors Extended Weight Return To Return Weight Return To Return Effect Interaction Effect
Health Care 11.89 19.68 2.24 10.18 15.51 1.56 0.03 0.43 0.47
Energy 6.38 14.92 0.95 6.20 11.41 0.71 0.02 0.20 0.22
Producer Durables 12.99 16.76 2.17 14.45 14.98 2.13 -0.02 0.21 0.19
Financial Services 16.90 15.57 2.61 25.18 14.16 3.53 -0.10 0.22 0.12
Utilities 3.01 11.84 0.35 5.97 11.66 0.69 0.04 0.01 0.05
Technology 14.27 9.93 1.46 11.29 8.89 1.03 -0.11 0.13 0.02
E T Fs & Futures 1.07 7.06 0.12 -- -- -- -0.00 -- -0.00
Consumer Staples 1.18 12.25 0.13 2.94 17.29 0.50 -0.08 -0.08 -0.16
Materials & Processing 10.10 7.14 0.75 8.12 7.76 0.66 -0.10 -0.09 -0.18
Consumer Discretionary 14.73 10.21 1.55 15.65 12.94 2.03 -0.01 -0.29 -0.31
[Cash] 7.46 0.03 0.00 -- -- -- -0.93 -- -0.93
Total 100.00 12.33 12.33 100.00 12.85 12.85 -1.26 0.74 -0.52
Schroder US ISF Small & Mid Cap Equity Performance attribution - 1Q 2013
Source: Schroders, FactSet., Gross of fees in USD
+ Stock selection adds most value in health care, producer durables and financial services
+ Value added from underweight utilities and overweight health care
– Poor stock selection detracts in materials & processing and consumer discretionary
– Overweight cash and technology detract
7
Schroder US ISF Small & Mid Cap Equity Top and bottom performers - 1Q 2013
8 Source: FactSet, gross of fees in USD. Stock examples are for illustrative purposes only and are not a recommendation to buy or sell
Performance Attribution
LUX-SISF SMID vs. Russell 2500
12/31/2012 to 3/28/2013
U.S. Dollar
LUX-SISF SMID Russell 2500 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
High/Low - Total Effect Weight Return To Return Weight Return To Return Effect Interaction Effect
10 Highest 11.25 31.26 3.19 0.61 32.74 0.18 1.82 -0.13 1.69
Life Technologies Corp. 1.41 31.82 0.46 -- -- -- 0.27 -- 0.27
Alaska Air Group Inc. 0.82 48.43 0.36 0.12 48.43 0.05 0.23 -- 0.23
Spirit Airlines Inc. 0.87 43.03 0.32 0.03 43.03 0.01 0.20 -- 0.20
PAREXEL International Corp. 1.12 33.63 0.34 0.07 33.63 0.02 0.19 -- 0.19
Universal Health Services Inc. Cl B 1.28 32.21 0.38 0.17 32.21 0.05 0.18 -- 0.18
CareFusion Corp. 1.70 22.43 0.36 -- -- -- 0.14 -- 0.14
VeriSign Inc. 1.60 21.77 0.36 -- -- -- 0.14 -- 0.14
Brinker International Inc. 0.74 11.50 0.19 0.08 22.18 0.02 0.12 -- 0.12
Questar Corp. 1.21 24.03 0.27 0.14 24.03 0.03 0.11 -- 0.11
Kansas City Southern 0.50 33.12 0.15 -- -- -- 0.08 -- 0.08
Other 72.26 13.31 9.65 98.54 12.71 12.53 0.04 0.40 0.44
[Cash] 8.49 0.03 0.00 -- -- -- -1.04 -- -1.04
10 Lowest 8.00 -5.88 -0.50 0.85 16.81 0.14 0.45 -2.06 -1.61
Waste Connections Inc. 1.67 6.78 0.15 0.14 6.78 0.01 -0.09 -- -0.09
Amdocs Ltd. 1.64 7.04 0.12 -- -- -- -0.09 -- -0.09
Elizabeth Arden Inc. 0.54 -10.58 -0.06 0.04 -10.58 -0.00 -0.12 -- -0.12
Children's Place Retail Stores Inc. 0.80 1.20 -0.04 0.04 1.20 0.00 -0.13 -- -0.13
Netflix Inc. -- -- -- 0.29 104.43 0.19 -0.16 -- -0.16
Cabot Corp. 0.64 -13.58 -0.10 0.08 -13.58 -0.01 -0.17 -- -0.17
NII Holdings Inc. 0.27 -35.76 -0.16 0.03 -39.34 -0.02 -0.18 -- -0.18
Royal Gold Inc. 0.49 -18.77 -0.15 0.16 -12.49 -0.02 -0.18 -- -0.18
Yamana Gold Inc. 0.88 -10.42 -0.12 -- -- -- -0.24 -- -0.24
Life Time Fitness Inc. 1.07 -13.07 -0.13 0.07 -13.07 -0.01 -0.25 -- -0.25
Total 100.00 12.33 12.33 100.00 12.85 12.85 1.27 -1.79 -0.52
Performance Attribution LUX-SISF SMID vs. Russell 2500
12/31/2012 to 4/30/2013
U.S. Dollar
LUX-SISF SMID Russell 2500 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
Russell Sectors Extended Weight Return To Return Weight Return To Return Effect Interaction Effect
Health Care 11.86 22.33 2.50 10.24 16.68 1.68 0.04 0.56 0.60
Producer Durables 14.15 15.83 2.21 14.52 11.78 1.73 -0.01 0.52 0.50
Consumer Discretionary 14.33 16.37 2.34 15.54 16.89 2.57 -0.00 0.03 0.02
Energy 6.24 8.05 0.51 6.14 7.82 0.51 0.01 -0.00 0.01
E T Fs & Futures 0.79 7.06 0.12 -- -- -- -0.00 -- -0.00
Utilities 3.02 17.49 0.51 6.04 17.46 1.02 -0.11 0.01 -0.10
Technology 14.04 7.21 1.05 11.17 6.73 0.80 -0.19 0.06 -0.13
Consumer Staples 1.22 14.07 0.16 2.97 19.79 0.57 -0.11 -0.08 -0.19
Financial Services 17.09 14.64 2.47 25.34 15.58 3.87 -0.17 -0.15 -0.32
Materials & Processing 9.97 3.14 0.41 8.04 4.92 0.45 -0.14 -0.20 -0.34
[Cash] 7.29 0.03 0.00 -- -- -- -0.95 -- -0.95
Total 100.00 12.29 12.29 100.00 13.20 13.20 -1.65 0.74 -0.91
Schroder US ISF Small & Mid Cap Equity Performance attribution – YTD to 30 April 2013
Source: Schroders, FactSet., Gross of fees in USD
+ Stock selection adds most value in health care and producer durables
+ Value added from overweight health care and energy
– Poor stock selection detracts in materials & processing and financial services
– Overweight cash and technology detract
9
Schroder US ISF Small & Mid Cap Equity Top and bottom performers - YTD to 30 April 2013
10
Source: FactSet, gross of fees in USD. Stock examples are for illustrative purposes only and are not a recommendation to buy or sell
Performance Attribution
LUX-SISF SMID vs. Russell 2500
12/31/2012 to 4/30/2013
U.S. Dollar
LUX-SISF SMID Russell 2500 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
High/Low - Total Effect Weight Return To Return Weight Return To Return Effect Interaction Effect
10 Highest 11.91 35.84 3.78 0.76 36.69 0.25 2.20 -0.11 2.10
Life Technologies Corp. 1.36 50.30 0.61 -- -- -- 0.40 -- 0.40
Spirit Airlines Inc. 0.85 50.59 0.36 0.03 50.59 0.01 0.24 -- 0.24
Universal Health Services Inc. Cl B 1.29 37.84 0.44 0.17 37.84 0.06 0.23 -- 0.23
PAREXEL International Corp. 1.17 38.39 0.39 0.07 38.39 0.02 0.23 -- 0.23
Ross Stores Inc. 1.91 22.50 0.47 -- -- -- 0.20 -- 0.20
Alaska Air Group Inc. 0.88 43.05 0.32 0.13 43.05 0.05 0.20 -- 0.20
Brinker International Inc. 0.95 15.20 0.24 0.08 26.24 0.02 0.16 -- 0.16
Questar Corp. 1.25 29.43 0.33 0.14 29.43 0.04 0.15 -- 0.15
Hanesbrands Inc. 0.80 40.03 0.29 0.13 40.03 0.05 0.15 -- 0.15
VeriSign Inc. 1.46 18.68 0.32 -- -- -- 0.12 -- 0.12
Other 72.50 12.59 9.10 98.30 12.97 12.77 0.06 -0.29 -0.23
[Cash] 8.05 0.03 0.00 -- -- -- -1.06 -- -1.06
10 Lowest 7.54 -6.24 -0.59 0.95 20.39 0.19 0.48 -2.20 -1.72
Elizabeth Arden Inc. 0.54 -9.02 -0.05 0.03 -9.02 -0.00 -0.12 -- -0.12
Arrow Electronics Inc. 1.21 3.02 0.04 0.14 3.02 0.00 -0.12 -- -0.12
Amdocs Ltd. 1.58 5.41 0.09 -- -- -- -0.12 -- -0.12
Dresser-Rand Group Inc. 1.17 -2.19 -0.01 0.15 -0.94 -0.00 -0.13 -- -0.13
Cabot Corp. 0.60 -5.09 -0.05 0.08 -5.09 -0.00 -0.13 -- -0.13
Royal Gold Inc. 0.36 -18.77 -0.15 0.15 -31.31 -0.06 -0.15 -- -0.15
Life Time Fitness Inc. 1.09 -6.16 -0.04 0.06 -6.16 -0.00 -0.17 -- -0.17
NII Holdings Inc. 0.20 -35.76 -0.16 0.03 22.02 0.01 -0.20 -- -0.20
Netflix Inc. -- -- -- 0.30 133.36 0.24 -0.21 -- -0.21
Yamana Gold Inc. 0.81 -28.22 -0.26 -- -- -- -0.38 -- -0.38
Total 100.00 12.29 12.29 100.00 13.20 13.20 1.68 -2.59 -0.91
Schroder ISF US Small & Mid Cap Equity Performance – Net of fees
11
Periods ending 31 March 2013 (%) (Periods greater than one year are annualized)
Source: Schroders. ‘C‘ Class shares, net of fees in USD; index lagged.
Source: Schroders. ‘C’ Class shares, net of fees in USD; index lagged
Calendar year performance (%)
2012 2011 2010 2009 2008 2007 2006
SISF US Small & Mid Cap 9.1 -2.4 17.0 36.7 -34.4 12.0 16.3
Russell 2500 15.2 -2.6 25.9 40.0 -38.9 1.2 16.2
Outperformance -6.2 +0.2 -8.9 -3.3 +4.5 +10.8 +0.1
1Q13 1 Year 3 Years 5 Years Since incept.
SISF US Small & Mid Cap 12.2 10.7 10.3 6.9 8.1
Russell 2500 14.5 17.2 14.2 9.1 7.6
Outperformance -2.3 -6.5 -3.9 -2.2 +0.5
Source: Schroders. Performance shown is past performance. Past performance is not necessarily a guide to future performance. The value of investments can go down as well as up and is not guaranteed. Please see the important composite disclosures at end of presentation.
Schroder ISF US Small Cap Equity Portfolio Positioning and Performance Attribution
Performance pattern
We tend to outperform in flat to modestly rising markets and negative markets
We are less likely to outperform in strongly rising markets, given our emphasis on quality and our tendency to
avoid momentum oriented stocks.
Small – Clear performance pattern Why diversification of alpha sources is important
Source: Schroders; Monthly observations for the composite between 31 January 2003 and 31 March 2013.
Market environment: Number of months
Number of months Schroders
outperformed
Percentage of months
outperforming
Strongly rising (index >3% in a month) 47 8 17%
Moderately rising (index between 0 and 3%) 31 17 55%
Falling (less than 0%) 45 40 89%
13
Schroder ISF US Smaller Companies Fund Diversified alpha sources – historical allocations
Source: Schroders, FactSet as at 30 April 2013
64%
30%
6%
14
0
10
20
30
40
50
60
70
80
Ja
n-0
9
Apr-0
9
Ju
l-09
Oct-0
9
Ja
n-1
0
Apr-1
0
Ju
l-10
Oct-1
0
Ja
n-1
1
Apr-1
1
Ju
l-11
Oct-1
1
Ja
n-1
2
Apr-1
2
Ju
l-12
Oct-1
2
Ja
n-1
3
Apr-1
3
Mispriced Growth Steady Eddies Turnarounds
Portfolio vs. index
Schroder ISF US Smaller Companies Sector weights – April 30, 2013
15
Source: FactSet as of April 30, 2013. Sector weights are based on a Schroder ISF US Smaller Companies Fund
Sector weights for the account and the Benchmark Index are subject to change and should not be viewed as an investment recommendation.
10.8 11.3
18.5
15.4
13.1 13.4
15.3
25.0
3.54.9
8.7
4.4
16.4
12.8
3.24.3
7.25.8
0
5
10
15
20
25
30
Te
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Schroder ISF US Smaller Companies Russell 2000
% REITs are 8.8% of the
index
Performance Attribution LUX-SISF Small vs. Russell 2000
12/31/2012 to 3/28/2013
U.S. Dollar
LUX-SISF Small Russell 2000 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
Russell Sectors Extended Weight Return To Return Weight Return To Return Effect Interaction Effect
Producer Durables 17.70 15.76 2.70 13.85 14.35 1.95 0.08 0.21 0.29
Financial Services 15.04 15.61 2.25 24.36 13.35 3.23 -0.07 0.30 0.24
Utilities 4.54 15.39 0.68 4.12 9.59 0.40 -0.01 0.24 0.23
Consumer Discretionary 14.64 12.91 1.87 14.91 12.62 1.88 0.01 0.04 0.05
Consumer Staples 2.56 12.98 0.33 3.08 12.25 0.37 0.01 0.02 0.02
Energy 4.92 11.82 0.58 5.91 11.60 0.69 0.02 -0.01 0.01
E T Fs & Futures 1.46 11.69 0.22 -- -- -- 0.00 -- 0.00
Health Care 11.51 14.85 1.68 12.51 14.74 1.83 -0.02 0.00 -0.02
Materials & Processing 9.11 6.41 0.61 7.54 8.47 0.66 -0.06 -0.20 -0.26
Technology 11.47 5.78 0.68 13.72 9.84 1.38 0.05 -0.46 -0.41
[Cash] 7.05 0.02 0.00 -- -- -- -0.95 -- -0.95
Total 100.00 11.60 11.60 100.00 12.39 12.39 -0.95 0.15 -0.80
Schroder ISF US Smaller Companies Performance attribution - 1Q 2013
Source: Schroders, FactSet., Gross of fees in USD
+ Stock selection adds most value in producer durables, financial services and utilities
+ Value added from underweight technology and overweight producer durables
– Poor stock selection detracts in technology and materials & processing
– Overweight cash and underweight financial services detract
16
Schroder ISF US Smaller Companies Top and bottom performers - 1Q 2013
Source: FactSet, gross of fees in USD.
17
Performance Attribution
LUX-SISF Small vs. Russell 2000
12/31/2012 to 3/28/2013
U.S. Dollar
LUX-SISF Small Russell 2000 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
High/Low - Total Effect Weight Return To Return Weight Return To Return Effect Interaction Effect
10 Highest 7.39 41.11 2.57 0.66 38.76 0.22 1.45 0.13 1.58
PAREXEL International Corp. 1.56 33.63 0.47 0.16 33.63 0.05 0.25 -- 0.25
Fifth & Pacific Companies Inc 0.74 51.65 0.35 0.14 51.65 0.06 0.21 -- 0.21
Spirit Airlines Inc. 0.83 43.03 0.32 0.07 43.03 0.03 0.20 -- 0.20
Redwood Trust Inc. 0.90 38.92 0.31 0.12 38.92 0.04 0.17 -- 0.17
Brown & Brown Inc. 1.24 26.26 0.29 -- -- -- 0.15 -- 0.15
Primoris Services Corp. 0.56 47.21 0.22 0.04 47.21 0.02 0.14 -- 0.14
HFF Inc. Cl A 0.66 33.76 0.20 0.04 33.76 0.01 0.12 -- 0.12
EnPro Industries Inc. 1.06 25.11 0.25 0.07 25.11 0.02 0.11 -- 0.11
Brinker International Inc. 0.61 11.50 0.16 -- -- -- 0.11 -- 0.11
NYF-ICE RUSSELL 2000 MINI -0.78 -- -- -- -- -- 0.11 -- 0.11
Other 79.23 12.27 9.65 98.76 12.20 12.07 0.04 0.02 0.05
[Cash] 7.95 0.02 0.00 -- -- -- -1.07 -- -1.07
10 Lowest 5.42 -10.78 -0.63 0.58 17.93 0.10 0.20 -1.56 -1.36
Alaska Air Group Inc. -- -- -- 0.28 48.43 0.12 -0.08 -- -0.08
Group 1 Automotive Inc. 0.70 -2.84 -0.02 0.11 -2.84 -0.00 -0.09 -- -0.09
ScanSource Inc. 0.46 -11.17 -0.05 0.07 -11.17 -0.01 -0.09 -- -0.09
Fairchild Semiconductor
International Inc. 0.70 -1.81 -0.01 -- -- -- -0.10 -- -0.10
NetScout Systems Inc. 0.63 -5.46 -0.04 0.07 -5.46 -0.00 -0.10 -- -0.10
Laredo Petroleum Holdings Inc. 0.77 0.72 -0.00 -- -- -- -0.10 -- -0.10
PetroQuest Energy Inc. 0.32 -14.95 -0.08 0.02 -10.30 -0.00 -0.12 -- -0.12
Cabot Corp. 0.49 -13.58 -0.07 -- -- -- -0.14 -- -0.14
Standard Parking Corp. 0.78 -5.87 -0.05 0.03 -5.87 -0.00 -0.15 -- -0.15
Pretium Resources Inc 0.57 -40.05 -0.30 -- -- -- -0.38 -- -0.38
Total 100.00 11.60 11.60 100.00 12.39 12.39 0.61 -1.41 -0.80
Performance Attribution LUX-SISF Small vs. Russell 2000
12/31/2012 to 4/30/2013
U.S. Dollar
LUX-SISF Small Russell 2000 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
Russell Sectors Extended Weight Return To Return Weight Return To Return Effect Interaction Effect
Producer Durables 17.79 14.93 2.56 13.74 10.66 1.48 -0.05 0.68 0.63
Utilities 4.60 20.90 0.91 4.15 14.87 0.60 0.01 0.24 0.26
Consumer Discretionary 14.83 16.77 2.37 14.94 15.46 2.25 0.02 0.16 0.19
Financial Services 15.32 15.77 2.28 24.55 13.76 3.32 -0.13 0.26 0.13
Consumer Staples 2.76 15.55 0.41 3.10 15.36 0.47 0.02 -0.00 0.01
E T Fs & Futures 1.07 11.69 0.22 -- -- -- 0.01 -- 0.01
Energy 4.84 8.15 0.42 5.88 9.13 0.55 0.04 -0.06 -0.02
Materials & Processing 9.05 4.78 0.51 7.46 4.13 0.36 -0.10 0.03 -0.07
Health Care 11.49 14.99 1.68 12.60 16.01 1.98 -0.03 -0.11 -0.15
Technology 11.33 1.24 0.15 13.57 6.73 0.97 0.11 -0.62 -0.51
[Cash] 6.91 0.02 0.00 -- -- -- -0.93 -- -0.93
Total 100.00 11.53 11.53 100.00 11.98 11.98 -1.04 0.58 -0.45
Schroder ISF US Smaller Companies Performance attribution – YTD to 30 April 2013
Source: Schroders, FactSet., Gross of fees in USD
+ Stock selection adds most value in producer durables, financial services and utilities
+ Value added from underweight technology and energy
– Poor stock selection detracts in technology and health care
– Overweight cash and underweight financial services detract
18
Schroder ISF US Smaller Companies Top and bottom performers – YTD to 30 April 2013
Source: FactSet, gross of fees in USD.
19
Performance Attribution
LUX-SISF Small vs. Russell 2000
12/31/2012 to 3/28/2013
U.S. Dollar
LUX-SISF Small Russell 2000 Attribution Analysis
Average Total Contribution Average Total Contribution Allocation Selection + Total
High/Low - Total Effect Weight Return To Return Weight Return To Return Effect Interaction Effect
10 Highest 7.39 41.11 2.57 0.66 38.76 0.22 1.45 0.13 1.58
PAREXEL International Corp. 1.56 33.63 0.47 0.16 33.63 0.05 0.25 -- 0.25
Fifth & Pacific Companies Inc 0.74 51.65 0.35 0.14 51.65 0.06 0.21 -- 0.21
Spirit Airlines Inc. 0.83 43.03 0.32 0.07 43.03 0.03 0.20 -- 0.20
Redwood Trust Inc. 0.90 38.92 0.31 0.12 38.92 0.04 0.17 -- 0.17
Brown & Brown Inc. 1.24 26.26 0.29 -- -- -- 0.15 -- 0.15
Primoris Services Corp. 0.56 47.21 0.22 0.04 47.21 0.02 0.14 -- 0.14
HFF Inc. Cl A 0.66 33.76 0.20 0.04 33.76 0.01 0.12 -- 0.12
EnPro Industries Inc. 1.06 25.11 0.25 0.07 25.11 0.02 0.11 -- 0.11
Brinker International Inc. 0.61 11.50 0.16 -- -- -- 0.11 -- 0.11
NYF-ICE RUSSELL 2000 MINI -0.78 -- -- -- -- -- 0.11 -- 0.11
Other 79.23 12.27 9.65 98.76 12.20 12.07 0.04 0.02 0.05
[Cash] 7.95 0.02 0.00 -- -- -- -1.07 -- -1.07
10 Lowest 5.42 -10.78 -0.63 0.58 17.93 0.10 0.20 -1.56 -1.36
Alaska Air Group Inc. -- -- -- 0.28 48.43 0.12 -0.08 -- -0.08
Group 1 Automotive Inc. 0.70 -2.84 -0.02 0.11 -2.84 -0.00 -0.09 -- -0.09
ScanSource Inc. 0.46 -11.17 -0.05 0.07 -11.17 -0.01 -0.09 -- -0.09
Fairchild Semiconductor
International Inc. 0.70 -1.81 -0.01 -- -- -- -0.10 -- -0.10
NetScout Systems Inc. 0.63 -5.46 -0.04 0.07 -5.46 -0.00 -0.10 -- -0.10
Laredo Petroleum Holdings Inc. 0.77 0.72 -0.00 -- -- -- -0.10 -- -0.10
PetroQuest Energy Inc. 0.32 -14.95 -0.08 0.02 -10.30 -0.00 -0.12 -- -0.12
Cabot Corp. 0.49 -13.58 -0.07 -- -- -- -0.14 -- -0.14
Standard Parking Corp. 0.78 -5.87 -0.05 0.03 -5.87 -0.00 -0.15 -- -0.15
Pretium Resources Inc 0.57 -40.05 -0.30 -- -- -- -0.38 -- -0.38
Total 100.00 11.60 11.60 100.00 12.39 12.39 0.61 -1.41 -0.80
Schroder ISF US Smaller Companies Performance
Periods ending 31 March 2013 (%) (Periods greater than one year are annualized)
Source: Schroders. ‘C’ Class shares, net of fees in USD.
Annual periods (%) Calendar years
2012 2011 2010 2009 2008 2007 2006
Schroder ISF US Smaller
Companies 11.2 -4.8 20.0 36.6 -35.0 10.3 21.3
Russell 2000 13.4 -4.4 26.2 33.3 -36.5 -1.7 18.6
Outperformance -2.2 -0.4 -6.2 +3.3 +1.5 +12.0 +2.7
1Q 2013 1 Year 3 Years 5 Years Since incept.
Schroder ISF US Smaller Companies 12.0 14.0 10.8 6.9 13.6
Russell 2000 14.6 15.9 13.1 8.4 9.0
Outperformance -2.6 -1.9 -2.3 -1.5 +4.6
Source: Schroders. ‘C’ Class shares, net of fees in USD; index lagged.
20
Schroder US Small & Smid Cap Equity Berry Plastics – a recent addition
Key elements:
• History as private company
• Recent IPO; private equity
firm (Apollo) retains a stake
• Strong management team
• Solid experience and record
• Recurring revenue stream
• Growth potential
misunderstood by market
• Rising margins and ROIC
• Management of input costs
• Exciting new products
• Value added packaging, at
lower costs to end market
21
Berry Plastics Corporation is a leading global producer of “value
added” consumer packaging and engineered materials, with a
broad range of products for food & beverage, health care,
household, retail, personal care and industrial end markets
Consumer Ideas
Schroder US Small & Smid Cap Equity Consumer Framework
• General principle: Invest in stocks with multiple ways to win
• Understand opportunities for margin improvement, operational leverage
• Unsustainable value (catalysts)
• Current approach: Who are beneficiaries of the US recovery?
• Asset relation favors homeowners, 401k holders et al.
• Housing recovery related stocks
• Auto industry beneficiaries of inflection points
23
Company Business
Brinker Casual dining restaurant company; owns, operates
and franchises Chili’s Bar and Grill and Maggiano’s
Little Italy restaurant brands
Fortune Brands &
Home Security
Manufactures home and security products.
Plumbing accessories, windows, doors, cabinets
and security devices and systems.
Dean Foods Full line of dairy and dairy related products. Fresh
Dairy unit distributes branded and private label dairy
products to retailers. WhiteWave manufactures and
sells plant based foods and beverages
KAR Auction Services Vehicle auction services in North America. It offers
auction services for sellers of used or whole car
vehicles and salvage vehicles.
Consumer Example holdings
Source: FactSet; company annual reports
24
Health Care Change is in the Air
25
Health Care – impact of “Obamacare” ACA creates a significant increase in the insured population
Source: Kaiser Family Foundation, “The Uninsured, A Primer” October 2012
• 30 million people (estimated) will be added to the pool of insured
• This represents an enormous opportunity for health care companies
26
56%
17%
18%
9%
58%
10%
12%
20%
0% 10% 20% 30% 40% 50% 60% 70%
Employer sponsored insurance
Private non-group insurance
Medicaid
Uninsured
Health Insurance Coverage: pre- and post-ACA implementation Percentage of non-elderly population
2011 2016 (est)
Schroder US Small & Smid Cap Equity Health Care Ideas
• Opportunities created by the Affordable Care Act (ACA or “Obamacare”)
• Beneficiaries of new demand/volume generated by an increase in the
insured population
• Value creation through reducing health care cost
• Reduction of waste and error; detection of fraud/abuse
• Impact of Moore’s law (exponential increases in computing power)
• Ability to innovate product at lower cost with better performance
• Recurring revenue models with economies of scale
• Consumable products with high frequency of usage
27
Health Care Example holdings
Source: FactSet; company annual reports
28
Company Business
CareFusion Hospital supply company, focusing on medical drug
dispensing, IV pumps, respiratory equipment and
infection control.
• Benefits from increased healthcare usage (ACA)
• Also helps clients (hospitals) to be more efficient
and save money
Life Technologies Global life sciences and biotechnology company. A
leader in genome sequencing devices.
• Genome sequencing has become faster and
cheaper (Moore’s law)
• Company has been object of a bidding war;
Thermo Fisher Scientific
United Health
Services
Owner and operator of hospitals and behavioral health
centers.
• Beneficiary of ACA – expansion of insured
population and behavioral health services
Market Environment
Schroder US Small & Smid Cap Equity Market environment: summary
• Strong quarter for US equities
• Global concerns (Cyprus, Italy) have no impact
• Valuations rising
• Highest beta stocks lagged
• Strongest sectors:
• Consumer staples: +17.3%
• Health Care: +15.5%
30
Schroder US Small & Smid Cap Equity Market environment: US Equity markets surge
Source: Schroders, FactSet as at 31 March 2013.
31
• Strength in the US Equity markets
• Russell 2500 and S&P 500 reach all time highs during Q1
• Large advance from mid-November until end of March
Russell 2500 S&P 500
1Q 2013 2Q 2012 2Q 2012 3Q 2012 3Q 2012 4Q 2012 4Q 2012 1Q 2013
Schroder US Small & Smid Cap Equity Market environment: Low rates, falling gold price, strong dollar
Source: Schroders, FactSet as at 31 March 2013.
32
• Interest rates have remained quite low
• Gold declining since October
• Strengthening USD (not shown)
10-year US Treasury yield Gold – spot price
5.0
10.0
15.0
20.0
25.0
1Q79 1Q83 1Q87 1Q91 1Q95 1Q99 1Q03 1Q07 1Q11
Absolute Trailing P/E*
.
33
Russell 2500 valuations ticking up Still near long-term average on forecast earnings
Source: Bank of America Merrill Lynch. Data to 31 March 2013. *P/E excludes negative earnings
Lehman Crash of ‘87
Internet Bubble
5.0
10.0
15.0
20.0
25.0
30.0
1Q79 1Q83 1Q87 1Q91 1Q95 1Q99 1Q03 1Q07 1Q11
Absolute Forecast P/E
0.5
0.7
0.9
1.1
1.3
1.5
1Q79 1Q83 1Q87 1Q91 1Q95 1Q99 1Q03 1Q07 1Q11
Relative Forecast P/E
0.5
0.8
1.1
1.4
1.7
1Q79 1Q83 1Q87 1Q91 1Q95 1Q99 1Q03 1Q07 1Q11
Relative Trailing P/E*
34
Relative valuations modestly favor Large Cap On trailing and forecast earnings
Source: Bank of America Merrill Lynch. Data to 31 March 2013. *P/E excludes negative earnings
Russell 2500 vs. Russell 1000 Valuations
Smid Caps Expensive
Smid Caps Cheap
Smid Caps Cheap
Smid Caps Expensive
Appendix
35
Market Liquidity Volume has decreased by 47% in 5 years
Source: FactSet, NYSE
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
200.00
Jan-0
7
Apr-
07
Jul-
07
Oct-
07
Jan-0
8
Apr-
08
Ju
l-0
8
Oct-
08
Jan-0
9
Apr-
09
Jul-
09
Oct-
09
Jan-1
0
Apr-
10
Jul-
10
Oct-
10
Jan-1
1
Apr-
11
Jul-
11
Oct-
11
Jan-1
2
Apr-
12
Jul-
12
Oct-
12
Jan-1
3
NYSE Volume has declined by 47% between 2007 and 2012
Average monthly volume Linear (Average monthly volume)
Team biographies
37
Jenny B. Jones – Portfolio Manager
2002 Schroders, Head of US Small & SMID Cap Equity
1996 Morgan Stanley Investment Management, Portfolio Manager
1990 Oppenheimer Capital LP, Head of Small Cap Value Department
1983 Mutual of America Life Insurance Co., Portfolio Manager, Investment Department
1982 Shearson/American Express, Institutional Options Sales, Financial Consultant
1980 Drexel Burnham, Sales Liaison/Assistant Options Strategist
New York University, MBA
Yale University, BA (honors)
33 years of investment experience
10 years with Schroders
Experienced portfolio manager
Team biographies
38
US Small & Mid Cap Equity Analysts
Robert Kaynor, CFA – Analyst
2013 Schroders, Equity Analyst
2010 Ballast Capital Management, Managing Member, Chief Investment Officer
2003 Ramius Capital Group, Managing Director/Portfolio Manager, Analyst
2000 Barbary Coast Capital Management, Partner/Analyst
1994 RCM Capital Management, Analyst/Assistant Portfolio Manager
Southern Methodist University, BS
19 years of fundamental equity research and investment experience
<1 year with Schroders
Robert F. Starbuck – Head of US Small and SMID Cap Research
2003 Schroders, Director of US Small & SMID Cap Research
2000 Bramwell Capital Management, Senior Vice President, Investment Research
1997 Equinox Capital Management, Senior Vice President, Investment Research
1992 The Bank of New York, Vice President, Investment Research
1984 Axe Houghton Management, Research Analyst and Portfolio Manager
1978 General American Investors, Research Analyst
1977 The Bank of New York, Assistant Vice President, Investment Research
1974 General Foods Corporation, Senior Financial Analyst and Accounting Supervisor
Columbia University, MBA, BA
35 years of investment experience
10 years with Schroders
Team biographies
39
US Small & Mid Cap Equity Analysts
John Helfst – Analyst
2005 Schroders, Equity Analyst
2003 Endeavour Capital Advisers, Hedge Fund, Equity Analyst
1999 SalomonSmithBarney, Equity Research Associate
1998 PaineWebber & Co., CMBS Underwriter
1994 PNC Bank, Credit Analyst and Real Estate Lender
New York University, MBA
Colgate University, BA
18 years of fundamental equity research and credit analysis experience
8 years with Schroders
Steven Kirson, CFA – Analyst
2005 Schroders, Equity Analyst
2002 Astral Securities Research, LLC, Founder/ Research Analyst
1989 Putnam Investments, Analyst/Portfolio Manager
1984 Equitable Bank, N.A., Credit Analyst
University of Pennsylvania, MBA
University of Miami, FL, BA
29 years of investment experience
8 years with Schroders
Team biographies US Small & Mid Cap Equity Analysts
40
Cezary Nadecki, CFA – Analyst
2004 Schroders, Equity Analyst
2002 FactSet Research Inc, Senior Consultant
2001 General Re, Statutory Filing Coordinator
1999 Eli Lilly, Financial Business Manager, Warsaw, Poland
1997 Charles Schwab, Registered Trading Representative
Thunderbird, American Graduate School of International Management, MIM
Arizona State University, MBA
University of Arizona, BS
15 years of investment experience
9 years with Schroders
Peter Wen, CFA – Analyst
2010 Schroders, Equity Analyst
2004 Director and Health Care Sector Analyst, Angelo Gordon Asset Management
1999 Warburg Pincus Global Health Sciences Fund, Analyst/Portfolio Manager
1994 Lynch & Mayer, Health Care Research Analyst
University of Pennsylvania, MBA
Harvard University, BA
18 years of investment experience
3 years with Schroders
Team biographies US Small & Mid Cap Equity Analysts
41
David Speyer, CFA – Analyst 2013 Schroders, Junior Equity Analyst
2009 Schroders, Fund Management Assistant – U.S. Small & Mid Cap Equities
2007 J.P. Morgan Asset Management, Analyst - Client Portfolio Management
2005 Merrill Lynch, Registered Client Associate – Global Private Client
Indiana University, BS
8 years of investment experience
4 years with Schroders
Joanna Wald – Analyst 2013 Schroders, Equity Analyst
2010 Ballast Capital Management, Equity Analyst
2008 Ramius Capital Group – Equity Analyst
2006 Trivium Capital Management – Senior Analyst
2001 Century Capital Analyst – Equity Analyst
1999 Liberty Mutual Insurance Company, Financial Analyst
1998 Ernst & Young LLP, Actuarial Analyst
University of Pennsylvania, MBA
Boston University, BA
12 years of investment experience
<1 year with Schroders
Photo Not
Available
Team biographies Product Management
Frederick Schaefer – Client Portfolio Manager
2007 Schroders, Client Portfolio Manager
1987 Evaluation Associates, Senior Consultant and Principal
1979 Greenwich Associates, Research Manager
BA, University of Notre Dame
26 years of investment experience
6 years with Schroders
Sarah Bratton – Product Executive
2011 Schroders, Product Executive
2010 JP Morgan Asset Management , Senior Analyst Investment Performance
2007 JP Morgan Chase, Associate – Client Service
BA, BS, St. Francis College
6 years of investment experience
2 year with Schroders
42
Philosophically, we believe in:
Schroder US Small & Mid Cap Equity Philosophy
43
Bottom-up, fundamental research – creates an
information edge
Flexibility across sources of alpha -
creates an attractive
risk/return profile
Entry price/valuation
matters – overpaying
detracts from return potential
Understanding your risks –
what you don’t know can hurt
you
Understand the business model
Is it sustainable?
What is the size of the addressable market?
Barriers to entry? Competitive advantages?
Scrutinise the financials
Special attention paid to cash flows and balance sheets
Analyse valuations; calculate target price
Must use two separate methodologies to derive target price
Business model
Financials Valuations
Ideas
Approach
44
Information sources:
Meetings with management
What are their plans?
Good steward of capital?
What does it take to succeed in the industry?
Financial statements
Cash flow and balance sheet analysis important
Discussion with competitors, customers
Talk to sell side analysts:
Understand the industry
Find the negative case
Schroder US Small & Smid Cap Equity Building the mosaic
45
Leveragability of Business
Model
Barriers to Entry
Sales/Earnings Growth Patterns
Management Quality
Competitive Advantage
Cash Flow
Dynamics
Goal: Understand company
and the business model
Initial
research
Portfolio
holding
In-depth
research
Ongoing
inquiry
Schroder US Small & Smid Cap Equity Research-driven process
Idea generation Deep fundamental research Final stock selection
Sources of new ideas:
― Analyst generates new idea
― Brief write-up with supporting materials
― Reviewed by Fund Manager or Research
Director
― Key question: does this stock have a
reasonable chance of getting into the portfolio?
― If yes, proceed with full analysis
Thorough fundamental analysis of:
― Business model
― Cash flows and financials
― Management track record
― Competitors
― Other relevant factors
― Valuation and Target price
Portfolio manager decides:
— Buy, don’t buy or defer
— Position sizing
Source: Schroders,*Represents general market cap but is subject to change
46
Viable Candidate?
No
Yes
Buy?
No
Ideas Bin
Discard
Yes
Distinguishing characteristics
Mispriced growth (50-60% of portfolio)
Companies experiencing a period of growth due to industry or company factors
Resulting in solid growth in top and bottom lines
Price understates: sales growth OR incremental margin growth OR rising cash flow return on investment
Tend to lead our portfolio in rising markets as investors seek growth opportunities
Steady eddies (20-50% of portfolio)
Companies with stable growth characteristics
Low variability in revenue/earnings; consistency in meeting earnings expectations
Strong free cash flow, good balance sheet
Provide the ‘ballast’ for difficult markets as investors seek consistency
Turnarounds (0-20% of portfolio)
Companies whose growth engine has broken. This can be due to an accounting, management or product issue
Catalysts in place with evidence that growth is returning
Riskiest category, outperformance is driven by specific risk
Diversified sources of alpha
47
Single period correlations: January 2006 – March 2013
Competitive advantage
Mispriced growth Steady eddie Turnaround
Mispriced growth 1.00
Steady eddie -0.12 1.00
Turnaround -0.04 -0.39 1.00
Source: FactSet, Schroders
Correlations are based on historical performance. Past performance is not necessarily a guide to future performance. The value of investments can go down as well as up and is not
guaranteed. Based on the US Smid Composite
Proof statement: our alpha sources deliver returns at different times
48
Performance pattern: truncating the return distribution Diversification of alpha sources creates a lower risk portfolio
49
We truncate the left (negative) tail
By giving up a portion of the right tail
This trade-off is valuable - consider the nature of compounding:
In an extreme case if your portfolio declines 50% you need a 100% return to be made whole
Managing the downside is important for the long-run compounding of wealth
Schroder ISF US Small & Mid Cap Equity Top ten holdings– 30 April 2013
Source: FactSet. Securities mentioned are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Please note that portfolio holdings can change at any time. Holdings may vary between accounts with in the same strategy.
Company Description % of Fund
Ross Stores Inc. Off-price retail apparel and home fashion stores 2.0
Gardner Denver Inc. Designs, manufactures, and markets engineered industrial machinery and related parts 1.7
Apartment Investment &
Management Co. A REIT concentrated on multi-family housing 1.7
Sealed Air Corp. Engaged in food safety and security, facility hygiene and product protection business 1.7
CareFusion Corp. Global medical technology company 1.6
Denbury Resources Inc. An independent oil and natural gas company 1.6
Vantiv Inc Provider of electronic payment processing services 1.6
Brinker International Inc. Owns, develops, operates, and franchises the Chili’s Grill & bar and Maggiano’s restaurant
brands 1.6
PartnerRe Ltd. International reinsurance holding company 1.6
Crown Holdings, Inc. Manufacturer of packaging products for consumer goods 1.5
Total 16.6
50
Schroder ISF US Small Cap Equity Top ten holdings– 30 April 2013
Source: FactSet. Securities mentioned are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Please note that portfolio holdings can change at any time. Holdings may vary between accounts with in the same strategy.
Company Description % of Fund
NorthWestern Corp. Electricity and natural gas distributor 1.9
Finish Line Inc. Cl A Retailer of athletic shoes, apparel and accessories 1.5
Brinker International Inc. Owns, develops, operates, and franchises the Chili’s Grill & bar and Maggiano’s restaurant
brands 1.5
PTC Inc. Develops and sells product lifecycle management software 1.4
PAREXEL International Corp. Biopharmaceutical services company 1.4
Alterra Capital Holdings Ltd. Insurance holding company 1.4
Applied Industrial
Technologies Inc. North American industrial distributor 1.3
Brown & Brown Inc. Diversified insurance agency 1.3
Cleco Corp. Public utility holding company 1.2
EnerSys Inc. Manufacturer, marketer, and distributor of industrial batteries 1.2
Total 14.1
51
Schroder ISF US Small & Mid Cap Equity Characteristics
Source: Schroders, Bank of New York Mellon as of March 31, 2013..
*Based on composite data.
Portfolio holdings characteristics, except where otherwise indicated, are based on Representative account or the Benchmark Index, and are shown as of March 31, 2013. Tracking error,
Information ratio and Sharpe ratio are based on the composite. Performance shown is past performance. Past performance is not necessarily a guide to future performance. The value of
investments can go down as well as up and is not guaranteed. Please see the important composite disclosures at end of presentation.
Schroders US SMID Cap Equity Russell 2500
Market cap – Weighted median ($bn) 5.1 3.4
Market cap range $819 million – 17.6 billion $24 million – 11.1 billion
P/E (excluding neg. earnings) 16.8x 18.7x
P/B 2.3x 2.1x
Dividend Yield 1.1% 1.4%
1 Year Forecast Growth (I/B/E/S Medians) 9.6% 10.9%
% in top 10 stocks 16.5% 3.0%
Beta* 0.81 1.00
Tracking error (actual, 5yrs)* 5.72 --
Information ratio (5yrs)* -0.13 --
Sharpe ratio (5yrs)* 0.41 --
52
Schroder ISF US Smaller Companies Characteristics
Source: Schroders, Bank of New York Mellon as of March 31, 2013.
*Based on composite data.
Portfolio holdings characteristics, except where otherwise indicated, are based on Representative account or the Benchmark Index, and are shown as of March 31, 2013. Tracking error,
Information ratio and Sharpe ratio are based on the composite. Performance shown is past performance. Past performance is not necessarily a guide to future performance. The value of
investments can go down as well as up and is not guaranteed. Please see the important composite disclosures at end of presentation.
Schroders US Small Cap Equity Russell 2000
Market cap – Weighted median ($bn) 2.3 1.5
Market cap range $196 million – 17.6 billion $24 million – 5.6 billion
P/E (excluding neg. earnings) 19.7x 19.2x
P/B 2.3x 2.0x
Dividend Yield 1.1% 1.4%
1 Year Forecast Growth (I/B/E/S Medians) 16.7% 16.4%
% in top 10 stocks 14.0% 2.6%
Beta* 0.84 1.00
Tracking error (actual, 5yrs)* 5.4% --
Information ratio (5yrs)* 0.01 --
Sharpe ratio (5yrs)* 0.38 --
53
Important information
Risk Warnings:
Investments in equities are subject to market risk and, potentially, to currency exchange rate risk. This fund may use financial derivative instruments as a part
of the investment process. This may increase the fund’s price volatility by amplifying market events
Important Information:
This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the
“Company”). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares
Subscriptions for shares of the Company can only be made on the basis of its latest prospectus together with the latest audited annual report (and
subsequent unaudited semi-annual report, if published), copies of which can be obtained, free of charge, from Schroder Investment Management
(Luxembourg) S.A.
An investment in the Company entails risks, which are fully described in the prospectus
Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get the
amount originally invested
Schroders has expressed its own views and opinions in this document and these may change
This document is issued by
Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA.
54