New Model Adviser Conference
January 2010
A Standard Life Investments presentation
This communication is intended for investment professionals only and must not be relied on by anyone else.
Michael BeveridgeHead of Intermediary Sales
Tam McVieInvestment Director
Standard LifeInvestments
In the coming year do you envisage using AR funds?…
a) The same as last year
b) More than last year
c) Less than last year
d) Not at all – don’t use them
e) Considering using them
Question
Standard LifeInvestments
What do you consider to be the biggest risk of using absolute return funds?
a) Missing out on an equity bull market
b) Your understanding of how they work
c) Your clients understanding of how they work
d) Its another marketing spin from investment houses
Question
Standard LifeInvestments Global Absolute Return Strategies Fund
• Objective Cash benchmark +5% Performance target over rolling 3 year basis
• Low volatility Expect 1/3 to 1/2 the risk of equity investment Expected range: 4% to 8%
• Launched to the institutional market in June 2006
• Launched to the retail market May 2008
• AUM £2.2bn (as at 31/12/09)
• Commonly asked questions What are the risk? How does it work? How does it fit into a portfolio?
Standard LifeInvestments Absolute return and the investment journey
6
Standard LifeInvestments
Global Absolute Return Strategies performance
Source: Standard Life Investments (12/6/2006 to 1/1/2010)Fund performance is based on the institutional pooled pension fund gross of charges
70
80
90
100
110
120
130
140
Cash (Libor) Target Return GARS (Gross) Global Equities (Gross)
* Source: Datastream (net of tracker fund fee) (12/6/2006 to 1/1/2010)Fund performance is based on the institutional pooled pension fund gross of charges
Standard LifeInvestments Performance
Monthly returns
Source: Standard Life Investments and Thomson Datastream, gross performance, unless otherwise stated, to 1 January 2010
-15%
-10%
-5%
0%
5%
10%
15%
Jun-
06
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb-
07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep
-09
Oct
-09
Nov
-09
Dec
-09
GARS (net) Libor Global Equities
Up months
30/43 v’s 25/43Upside Capture
39.0%Downside Capture
6.9%
Standard LifeInvestments What are the risks?
Market risk the uncertainty of future returns on market securities
Credit risk the uncertainty of the extent to which counterparties to
transactions will meet their financial obligations
Operational risk the uncertainty of future operational expenses
Standard LifeInvestments Question
Value at risk measures:
a) The absolute maximum amount that could be lost
b) The expect monthly loss
c) The deviation from the benchmark
d) The value that might be lost during normal market conditions
Standard LifeInvestments How does it work?
Market Returns
• Equities, Bonds & Property
• Good long term return expectations
• But can be negative returns over shorter periods
Relative Value
• Seek highly correlated markets or segments
• Where their relative valuation is strained
• We exploit their realignment
A broad range of approaches
Stock Selection
• Active stock selection
• Added value through our approach
• Overall contribution 1%
Opportunistic
• Specific directional investment ideas
• Aim to deliver positive return on 3 yr view
• No required long term risk premium
Standard LifeInvestments Isolating a view
Example
Don’t know We believe
Which directions the equity markets will move
The large companieswill out perform
the medium companies
Standard LifeInvestments Question
I believe that large companies will outperform medium sized companies, but I am unsure about the direction of the UK equity market.
Which trade will be most appropriate?
a) Go overweight FTSE 100, underweight FTSE 250
b) Buy the FTSE 100 future and sell the FTSE 250 future
c) Buy the FTSE 100 future
d) Sell the FTSE 250 future
Standard LifeInvestments Maths
When do you lose money on this position?
-30%
-20%
-10%
0%
10%
20%
30%
FTSE 100 FTSE 250-30%
-20%
-10%
0%
10%
20%
30%
Long FTSE 100 Short FTSE 250 Profit
-30%
-20%
-10%
0%
10%
20%
30%
Long FTSE 100 Short FTSE 250 Profit
-30%
-20%
-10%
0%
10%
20%
30%
FTSE 100 FTSE 250
Standard LifeInvestments
For illustrative purposes only
Source: Lipper, 1 December 2009
UK Equities Overseas Equities
UK Bonds Overseas Bonds
Alternatives Cash
GARS
Increase Alternatives exposure to 20%
Reduce Fixed Interest exposure by 20%
Reduce Equity
exposure by 20%
11.7%
8.0%
18.2%
24.6%
9.3%
8.2%
20.0%
23.5%
16.2%
18.2%
24.6%
9.3%
8.2%
23.5%
16.2%
9.7%13.1%
9.3%
8.2%
20.0%
20.7%
14.3%
16.1%21.7%
9.3%
7.2%
10.7%
IMA Cautious Managed sector
How does it fit into a portfolio?
Standard LifeInvestments Risk v. return
For illustrative purposes only
Composite portfolios calculated using the following indices: FTSE All Share (UK Equities), MSCI World ex UK (Overseas Equities), Barclays Sterling Aggregate Bond (UK Bonds), JPM Traded World ex UK Bond (Overseas Bonds), Composite index comprising 1/3 FTSE All UK Property Index, 1/3 HFRX Global Hedge Fund Index and 1/3 Dow Jones AIG Index (Alternatives) and overnight sterling LIBOR (Cash).
Source: Thomson Datastream, Lipper Hindsight and Standard Life Investments. Calculated using total returns, in sterling terms, monthly data points, for period 31/12//06 to 31/12/09. GARS performance is based on institutional pooled pension fund, net of charges.
IMA Cautious Managed sector
IMA Balanced Managed sector
IMA Active Managed sector
Portfolio 1
Portfolio 2
Portfolio 3
GARS
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Ann. Standard Deviation
An
n.
Ret
urn
Standard LifeInvestments
Remember – past performance is no guarantee of future performance.
Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and cannot be guaranteed.
Standard Life Investments Limited, tel. +44 131 225 2345, a company registered in Scotland (SC 123321) Registered Office 1 George Street Edinburgh EH2 2LL.
The Standard Life Investments group includes Standard Life Investments (Mutual Funds) Limited, SLTM Limited, Standard Life Investments (Corporate Funds) Limited and SL Capital Partners LLP. Standard Life Investments Limited acts as Investment Manager for Standard Life Assurance Limited and Standard Life Pension Funds Limited.
Standard Life Investments may record and monitor telephone calls to help improve customer service. All companies are authorised and regulated by the Financial Services Authority.
©2010 Standard Life Investments.
www.standardlifeinvestments.com