Moderately Adventurous Portfolio (Medium and Long Term)

Transcription

1 May 2015 Review prepared by Morningstar Investment Management Europe 1 Oliver s Yard, City Road, London EC1Y 1HQ Overview for Zurich Model Portfolios Moderately Adventurous Portfolio (Medium and Long Term)

2 Table of Contents 2 Table of Contents... 2 Introduction to Morningstar OBSR and the Model Portfolios... 3 Introduction... 3 About Morningstar Investment Management Europe Limited... 3 Moderately Adventurous Portfolio (Medium Term) - Overview... 4 Key Facts... 4 Asset Allocation (May 2015)... 4 Property... 5 Equity... 5 UK Equity... 5 North America Equity... 5 Europe Equity... 5 Japan Equity... 5 Fixed Income... 5 Moderately Adventurous Portfolio (Long Term) - Overview... 6 Key Facts... 6 Asset Allocation (May 2015)... 6 Property... 7 Equity... 7 UK Equity... 7 North America Equity... 7 Europe Equity... 7 Japan Equity... 7 Global Emerging Markets Equity... 7 Fixed Income... 7 Model Portfolios Fund Descriptions... 8 UK Property... 8 M&G Feeder of Property Portfolio*... 8 Threadneedle UK Property Trust... 8 Fixed Interest... 8 Government Bonds... 8 Allianz Gilt Yield... 8 BlackRock UK Gilts All Stocks Tracker... 8 Royal London UK Government Bond... 9 Corporate Bond... 9 Fidelity MoneyBuilder Income... 9 Kames Investment Grade Bond... 9 M&G Strategic Corporate Bond... 9 Equities... 9 UK All Companies... 9 AXA Framlington UK Select Opportunities... 9 BlackRock UK Special Situations CF Woodford Equity Income GLG Undervalued Assets Old Mutual UK Alpha North America Artemis US Select BlackRock North American Equity Tracker JPM US Schroder US Mid Cap Europe ex UK Henderson European Selected Opportunities Jupiter European Special Situations Japan Schroder Tokyo Global Emerging Markets Equity Fidelity Emerging Markets... 12

3 Introduction to Morningstar OBSR and the Model Portfolios 3 Introduction Morningstar Investment Management Europe Limited has been engaged by Zurich to advise upon the fund selection for a range of Model Portfolios. The Portfolios are available for use by UK authorised Intermediaries and are designed to suit differing risk appetites. evalue FE is the asset allocation provider and Morningstar Investment Management Europe advises upon the fund selection for the Model Portfolios, drawing from the Morningstar Rated fund universe. The asset allocation is provided to Morningstar Investment Management Europe by Zurich. While the Model Portfolios are continuously monitored, a formal quarterly review takes place following which updated Portfolios are sent to Zurich. Quarterly reports explaining the performance of the Models are made available on a quarterly basis. Any suggestions for fund changes are included and explained in the Change Rationale document. The model portfolio service is provided by Morningstar Investment Management Europe. About Morningstar Investment Management Europe Limited Morningstar OBSR is a trading name for Morningstar Investment Management Europe Limited which provides comprehensive investment advisory and portfolio management services for financial institutions, plans sponsors, and financial advisors. Morningstar Investment Management Europe Limited leverages the independent qualitative investment research undertaken by Morningstar Inc. analysts to provide asset allocation and portfolio construction consultancy services to life, pension, and fund-of-funds providers. The Morningstar group investment research approach has been in place since 1994 and is forward-looking in nature, which leads to a strong emphasis on the qualitative aspects of research. The aim is to recommend a relatively small number of funds that are of the highest quality and deliver risk and return outcomes that are commensurate with investment objectives. For more information about Morningstar Investment Management Europe, its people, philosophy and research approach, please visit For more information about Morningstar s Fund Ratings Services, please visit

4 Moderately Adventurous Portfolio (Medium Term) - Overview 4 Key Facts Asset Allocation (May 2015) The Zurich Model Portfolios were established in September Asset allocation is provided by Zurich and sourced from evalue FE. Morningstar Investment Management Europe populates the asset allocation with funds it considers appropriate and attractive as a result of its in-depth, qualitativelydriven research process. The objective is to deliver a risk and return profile in each of the asset classes that is commensurate with the underlying markets, whilst seeking outperformance over the long-term. evalue FE describes a potential investor in this Portfolio as follows: You are prepared to take more risks with your investment in return for the prospect of better longer term investment performance. You are looking for an investment that has the potential to produce above average longer term returns, which is likely to involve a high proportion of worldwide company shares. Europe Equity 8.4% North America Equity 27.3% Japan Equity 6.3% Property 10.0% UK Equity 29.0% Government Bonds 19.0% You appreciate that over some periods of time there can be sharp falls, as well as rises, in the value of your investment and you may get back less than you invest. Model Portfolio - May 2015 Asset Classes % Asset Allocation Property Fund Suggested Fund Weight (%) Morningstar Analyst Rating M&G Feeder of Property Portfolio* 6.00 n/a Threadneedle UK Property Trust 4.00 n/a Fixed Interest Government Bonds Allianz Gilt Yield 7.00 Bronze BlackRock UK Gilts All Stocks Tracker 5.00 Silver Royal London UK Government Bond Trust 7.00 Silver Equities UK Equity AXA Framlington UK Select Opportunities 5.00 Gold BlackRock UK Special Situations 4.00 Gold CF Woodford Equity Income 8.00 Bronze GLG Undervalued Assets 4.00 Bronze Old Mutual UK Alpha 8.00 Silver North America Equity BlackRock North American Equity Tracker 9.30 Gold Artemis US Select 7.00 Bronze JPM US 6.00 Silver Schroder US Mid Cap 5.00 Silver Europe Equity 8.40 Henderson European Selected Opportunities 5.20 Silver Jupiter European Special Situations 3.20 Silver Japan Equity 6.30 Schroder Tokyo 6.30 Gold

5 Moderately Adventurous Portfolio (Medium Term) Overview 5 Property For the property portion of the Portfolio, we have selected M&G Feeder of Property Portfolio* and Threadneedle UK Property. Both funds provide exposure primarily to the UK commercial property market. M&G Feeder of Property Portfolio is managed by PruPIM, the group s wellregarded property division. The team is extremely well-resourced and we believe it is a robust offering in this asset class. Threadneedle UK Property is also managed by experienced property practitioners. The fund was launched in February 2007, and is differentiated in that the managers are more yield focused than others, with the result that they look to identify higher yielding assets that fall just outside the prime real estate category. *In January 2013, the M&G Property Portfolio was reconstructed into the M&G Property Portfolio, a property authorised investment fund (PAIF), and the M&G Feeder of Property Portfolio, a linked feeder fund. PAIFs are a type of tax-efficient retail property fund which are beneficial for taxexempt investors. At the present time, Zurich s platform does not feature PAIFs and therefore only the M&G Feeder of Property Portfolio is available. This fund is directly linked to the same portfolio of underlying direct property assets as the PAIF. Due to different cash flows affecting the two funds, there are likely to be some differences in pricing. From a tax point of view, tax-exempt investors in the Feeder fund do not participate in the tax benefits of the PAIF structure but they are effectively in the same tax position as they were pre-conversion. Equity UK Equity For the UK Equity portion, five funds are suggested, namely CF Woodford Equity Income, Old Mutual UK Alpha, BlackRock UK Special Situations, AXA Framlington UK Select Opportunities and GLG Undervalued Assets. Overall within the UK Equity blend, we are seeking to provide exposure to a range of different mandates and management styles. The CF Woodford Equity Income fund is managed by Neil Woodford who typically runs a defensively positioned low beta portfolio. Historically, his fund has provided better drawdowns through a combination of astute top-down calls and a robust valuation discipline. However, his long-term positions can lead to a performance profile which is markedly different from the underlying benchmark. The Old Mutual UK Alpha fund is managed by Richard Buxton. The fund tends to have a strong bias to large-cap companies and he builds a concentrated portfolio with position sizes being determined by his level of conviction. He typically favours investing in companies that appear underpriced relative to their growth prospects. The manager s long-term approach can lead to extended periods of performance and risk outcomes that can differ from that of the market. The AXA Framlington UK Select Opportunities fund is managed by a very experienced fund manager, Nigel Thomas, and he considers top-down factors carefully when constructing the portfolio. The fund provides exposure to companies from across the market cap scale and usually has a strong focus on mid-and small-cap companies, as well as an overall growth bias. The BlackRock UK Special Situations fund is strongly biased towards mid- and small-cap companies and is based upon meticulous stock selection. The managers are skilled both in identifying smaller companies with potential whilst acknowledging the inherent risk in this strategy within the portfolio construction, tilting its aggregate positioning as they deem appropriate for the market conditions. Finally, the GLG Undervalued Assets fund is managed by Henry Dixon, who seeks to identify two types of companies, those where the market is undervaluing a stock s asset base and those where the market is undervaluing a stock s return on assets. The fund s disciplined investment process leads it to have a high turnover and significant biases down the market cap scale. From an investment style perspective, the fund tends to hold a value bias and therefore complements the blend further as it gains exposure to different parts of the UK market. North America Equity For the North America Equity portion four funds are suggested. The blend is composed of one passively managed fund, namely BlackRock North American Equity Tracker and three active funds, namely JPM US, Artemis US Select and Schroder US Mid Cap. Overall within the North American Equity blend, we are also seeking to provide exposure to a range of different mandates and management styles. The BlackRock North American Equity Tracker fund is held within the blend to provide index-like returns. This holding is supplemented by the other actively managed funds. The JPM US fund can be regarded as reasonably core in nature and it provides broad exposure to the North American equity market through a portfolio biased towards large cap companies. The fund is managed using the company s behavioural finance quantitative process, although it should be noted that the model tends to struggle in trendless markets. The Artemis US Select fund complements the blend further as it provides style diversification through focusing on companies with growth attributes. Artemis US Select is managed by Cormac Weldon, who is supported by a wider team comprising fund managers and analysts. The fund offers investors a high conviction US equity fund, which typically has a slight growth bias, however the approach is dynamic and the team aims to be responsive to the prevailing environment with a view to generating strong performance across the investment cycle. The Schroder US Mid Cap fund is invested primarily in mid and smaller companies in the US market and as such can be seen as a higher risk offering. However, our view is that the manager s experience and innate risk-awareness makes this fund appropriate for use in a blend and an attractive long-term holding for US equities. Europe Equity In the European Equity portion of the Portfolio, we have suggested Henderson European Selected Opportunities and Jupiter European Special Situations. The Henderson European Selected Opportunities fund is a larger cap orientated offering run by experienced manager, John Bennett. Whilst being cognisant of the benchmark, the manager is prepared to express high conviction, longer-term stock specific views in the portfolio. The Jupiter European Special Situations fund is an actively managed stock-picking fund, which is not constrained by the benchmark but is more responsive to market dynamics. The fund has been run by experienced manager, Cédric de Fonclare since 2005, who has a natural bias towards high quality companies. Bottom-up stock selection tends to drive the portfolio; however the manager recognises the need to be alert to macroeconomic trends and will make sector decisions based upon his assessment of changes to the economic environment. Japan Equity In the Japan Equity portion of the Portfolio, we have suggested Schroder Tokyo. The Schroder Tokyo fund offers investors a large-cap orientated equity fund run by an experienced manager, Andrew Rose, who is supported by a wellresourced team. The investment style is flexible however the manager favours established profitable companies with attractive relative valuations. Fixed Income We have suggested three funds for the UK government bond portion of the Portfolio, the BlackRock UK Gilts All Stocks Tracker fund, the Royal London UK Government Bond fund and the Allianz Gilt Yield fund. The BlackRock fund is a passively managed fund that seeks to track closely the performance of the FTSE-A UK Gilts All Stock index while the Royal London and Allianz funds are actively managed funds that seek to generate attractive relative performance through duration, yield curve positioning and stock selection. For the allocation to UK corporate bonds, we have suggested a sole holding in the Fidelity MoneyBuilder Income fund. The Fidelity fund has a relatively conservative mandate, with limited exposure to high yield bonds and duration exposure that is close to the index.

6 6 Moderately Adventurous Portfolio (Long Term) - Overview Key Facts Asset Allocation (May 2015) The Zurich Model Portfolios were established in September Asset allocation is provided by Zurich and sourced from evalue FE. Morningstar Investment Management Europe populates the asset allocation with funds it considers appropriate and attractive as a result of its in-depth, qualitativelydriven research process. The objective is to deliver a risk and return profile in each of the asset classes that is commensurate with the underlying markets, whilst seeking outperformance over the long-term. Japan Equity 7.35% Global Emerging Markets Equity 6.00% Property 10.00% Corporate Bonds 14.00% evalue FE describes a potential investor in this Portfolio as follows. You are prepared to take more risks with your investment in return for the prospect of better longer term investment performance. Europe Equity 9.80% You are looking for an investment that has the potential to produce above average longer term returns, which is likely to involve a high proportion of worldwide company shares. You appreciate that over some periods of time there can be sharp falls, as well as rises, in the value of your investment and you may get back less than you invest. North America Equity 31.85% UK Equity 21.00% Model Portfolio - May 2015 Asset Classes % Asset Allocation Property Fund Suggested Fund Weight (%) Morningstar Analyst Rating M&G Feeder of Property Portfolio 6.00 n/a Threadneedle UK Property Trust 4.00 n/a Fixed Interest Corporate Bonds Fidelity MoneyBuilder Income 5.00 Gold Kames Investment Grade Bond 5.00 Silver M&G Strategic Corporate Bond 4.00 Gold Equities UK Equity AXA Framlington UK Select Opportunities 5.00 Gold CF Woodford Equity Income 5.50 Bronze GLG Undervalued Assets 5.00 Bronze Old Mutual UK Alpha 5.50 Silver North America Equity BlackRock North American Equity Tracker Gold Artemis US Select 8.00 Bronze JPM US 7.00 Silver Schroder US Mid Cap 6.00 Silver Europe Equity 9.80 Henderson European Selected Opportunities 5.90 Silver Jupiter European Special Situations 3.90 Silver Japan Equity 7.35 Schroder Tokyo 7.35 Gold Global Emerging Markets Equity 6.00 Fidelity Emerging Markets 6.00 Bronze *Feeder fund of the M&G Property Portfolio (PAIF)

7 Moderately Adventurous Portfolio (Long Term) Overview 7 Property For the property portion of the Portfolio, we have suggested M&G Feeder of Property Portfolio* and Threadneedle UK Property. Both funds provide exposure primarily to the UK commercial property market. M&G Feeder of Property Portfolio is managed by PruPIM, the group s wellregarded property division. The team is extremely well-resourced and we believe it is a robust offering in this asset class. Threadneedle UK Property is also managed by experienced property practitioners. The fund was launched in February 2007, and is differentiated in that the managers are more yield focused than others, with the result that they look to identify higher yielding assets that fall just outside the prime real estate category. *In January 2013, the M&G Property Portfolio was reconstructed into the M&G Property Portfolio, a property authorised investment fund (PAIF), and the M&G Feeder of Property Portfolio, a linked feeder fund. PAIFs are a type of tax-efficient retail property fund which are beneficial for taxexempt investors. At the present time, Zurich s platform does not feature PAIFs and therefore only the M&G Feeder of Property Portfolio is available. This fund is directly linked to the same portfolio of underlying direct property assets as the PAIF. Due to different cash flows affecting the two funds, there are likely to be some differences in pricing. From a tax point of view, tax-exempt investors in the Feeder fund do not participate in the tax benefits of the PAIF structure but they are effectively in the same tax position as they were pre-conversion. Equity UK Equity For the UK Equity portion, four funds are suggested, namely CF Woodford Equity Income, Old Mutual UK Alpha, AXA Framlington UK Select Opportunities and GLG Undervalued Assets. Overall within the UK Equity blend, we are seeking to provide exposure to a range of different mandates and management styles. The CF Woodford Equity Income fund is managed by Neil Woodford who typically runs a defensively positioned low beta portfolio. Historically, his fund has provided better drawdowns through a combination of astute top-down calls and a robust valuation discipline. However, his long-term positions can lead to a performance profile which is markedly different from the underlying benchmark. The Old Mutual UK Alpha fund is managed by Richard Buxton. The fund tends to have a strong bias to large-cap companies and he builds a concentrated portfolio with position sizes being determined by his level of conviction. He typically favours investing in companies that appear underpriced relative to their growth prospects. The manager s long-term approach can lead to extended periods of performance and risk outcomes that can differ from that of the market. The AXA Framlington UK Select Opportunities fund is managed by a very experienced fund manager, Nigel Thomas, and he considers top-down factors carefully when constructing the portfolio. The fund provides exposure to companies from across the market cap scale and usually has a strong focus on mid-and small-cap companies, as well as an overall growth bias. Finally, the GLG Undervalued Assets fund is managed by Henry Dixon, who seeks to identify two types of companies, those where the market is undervaluing a stock s asset base and those where the market is undervaluing a stock s return on assets. The fund s disciplined investment process leads it to have a high turnover and significant biases down the market cap scale. From an investment style perspective, the fund tends to hold a value bias and therefore complements the blend further as it gains exposure to different parts of the UK market. North America Equity For the North America Equity portion four funds are suggested. The blend is composed of one passively managed fund, namely BlackRock North American Equity Tracker and three active funds, namely JPM US, Baillie Gifford American and Schroder US Mid Cap. Overall within the North American Equity blend, we are also seeking to provide exposure to a range of different mandates and management styles. The BlackRock North American Equity Tracker fund is held within the blend to provide index-like returns. This holding is supplemented by the three actively managed funds. The JPM US fund can be regarded as reasonably core in nature and it provides broad exposure to the North American equity market through a portfolio biased towards large cap companies. The fund is managed using the company s behavioural finance quantitative process, although it should be noted that the model tends to struggle in trendless markets. The Baillie Gifford American fund complements the blend further as it provides style diversification through focusing on companies with growth attributes. The fund is run by lead manager Ian Tabberer, who became manager following the announcement that Mick Brewis is due to retire in May He utilises the same investment philosophy and process as the previous fund manager. The approach is long-term in nature and the portfolio is typically concentrated with a focus on stock selection, as such it can diverge significantly from the benchmark. The Schroder US Mid Cap fund is invested primarily in mid and smaller companies in the US market and as such can be seen as a higher risk offering. However, our view is that the manager s experience and innate risk-awareness makes this fund appropriate for use in a blend and an attractive long-term holding for US equities. Europe Equity In the European Equity portion of the Portfolio, we have suggested Henderson European Selected Opportunities and Jupiter European Special Situations. The Henderson European Selected Opportunities fund is a larger cap orientated offering run by experienced manager, John Bennett. Whilst being cognisant of the benchmark, the manager is prepared to express high conviction, longer-term stock specific views in the portfolio. The Jupiter European Special Situations fund is an actively managed stock-picking fund, which is not constrained by the benchmark but is more responsive to market dynamics. The fund has been run by experienced manager, Cedric de Fonclare since 2005, who has a natural bias towards high quality companies. Bottom-up stock selection tends to drive the portfolio however the manager recognises the need to be alert to macroeconomic trends and will make sector decisions based upon his assessment of changes to the economic environment. Japan Equity In the Japan Equity portion of the Portfolio, we have suggested Schroder Tokyo. The Schroder Tokyo fund offers investors a large-cap orientated equity fund run by an experienced manager, Andrew Rose, who is supported by a wellresourced team. The investment style is flexible however the manager favours established profitable companies with attractive relative valuations. Global Emerging Markets Equity For the Emerging Markets allocation, we have selected Fidelity Emerging Markets. The Fidelity Emerging Markets fund s investment process is predominantly bottom-up, with some macro themes incorporated into the portfolio and the focus here is on quality growth companies. Strong execution of the process has historically served investors well under the current manager s tenure. Fixed Income For the allocation to UK corporate bonds, we have suggested three funds, namely the Fidelity MoneyBuilder Income fund, the Kames Investment Grade Bond fund and the M&G Strategic Corporate Bond fund. This blend of funds provides a range of differing mandates and styles to provide diversified exposure primarily to investment grade corporate bonds. All three suggested funds are led by experienced managers and backed by well-resourced teams. The Fidelity fund has a relatively conservative mandate, with limited exposure to high yield bonds and duration exposure that is close to the index. The Kames and M&G funds have greater flexibility in their mandates and are permitted to invest in high yield bonds to a greater extent should the managers deem appropriate.

8 Model Portfolios Fund Descriptions 8 The below provides further information about the funds that have been suggested for the Model Portfolios. UK Property M&G Feeder of Property Portfolio* Aims to maximise long-term total returns through an actively managed UK commercial property portfolio and is diversified by both property and industry. Note: The fund provides feeder access into the main fund which has a PAIF structure. Fiona Rowley is an experienced investor and has worked in the property team at Prudential Property Investment Managers (PruPIM) since She was joined by co-manager Justin Upton, who has more than 10 years of experience in property, in January The managers also have access to a well-resourced property team at M&G. The investment process combines market forecasts, research views on valuations, rental growth, and levels of risk premium with detailed market knowledge. This enables the formation of coherent views on the prospective performance of property markets and assets based on current valuations. The manager has demonstrated strong ability, investing prudently in commercial property over multiple market cycles. *In January 2013, the M&G Property Portfolio was reconstructed into the M&G Property Portfolio, a property authorised investment fund (PAIF), and the M&G Feeder of Property Portfolio, a linked feeder fund. PAIFs are a type of tax-efficient retail property fund which are beneficial for tax-exempt investors. The Feeder fund is directly linked to the same portfolio of underlying direct property assets as the PAIF. Due to different cash flows affecting the two funds, there are likely to be some differences in pricing. From a tax point of view, tax-exempt investors in the Feeder fund do not participate in the tax benefits of the PAIF structure but they are effectively in the same tax position as they were pre-conversion. At the present time, some platforms are unable to support PAIFs. Threadneedle UK Property Trust Aims to provide a total return comprising income and capital growth, by investing in a diversified portfolio of predominantly UK commercial property. Don Jordison has run the mandate since launch in February He leverages off the wider resources of Threadneedle s well-experienced property team, including property management and investment professionals. The fund focuses on higher yielding assets, often outside the prime real estate category, where the manager believe the greatest performance potential exists. Risk is mitigated by diversification, and by investing predominantly in existing buildings, keeping property development risk to a minimum. Cash management is an important part of the process, for instance following its launch in 2007; the manager maintained a low exposure to the property market until 2009, when he began to purchase assets through the bottom of the market. The fund is considered to be a high quality proposition in this specialist area given the backing of an experienced team who have a wealth of knowledge and expertise in this niche area of the market. Fixed Interest Government Bonds Allianz Gilt Yield Offers investors exposure to a portfolio of UK government bonds and is benchmarked against the FTSE Gilts All Stocks Index. The fund manager seeks to outperform this benchmark in a consistent manner and to limit the extent to which the portfolio and its performance deviates from this benchmark. Mike Amey is an experienced investor who is adept at shaping and implementing PIMCO's investment process for a government bond fund such as this. He is supported by a dedicated sterling fixed income team, with access to wider resources and expertise at PIMCO. The fund is managed by PIMCO, a wholly owned subsidiary of Allianz, who are renowned for their expertise in bond fund management. The factors which determine the fund's performance profile over time are the performance of UK government bonds and any investment decisions taken around future interest rate changes as well as the decision of whether or not to hold inflation-linked gilts and government guaranteed non-sovereign bonds, as these are not held within the fund's benchmark. BlackRock UK Gilts All Stocks Tracker To replicate the performance of the FTSE UK Gilts All Stocks, providing the investor with exposure to a broad range of conventional bonds issued by the UK government. A full replication strategy is applied to achieve this objective, purchasing every index constituent at its benchmark weight. The fund is managed by an experienced and stable team that is responsible for sterling-based government bond portfolios. The named manager, Panayotis Ferendinos, has 19 years investment experience, with 15 of those at BlackRock. The firm itself has a strong reputation for its cutting-edge risk analytics and its models are used to set risk parameters that all managers must follow, passive and active. The manager seeks to physically replicate the UK government bond benchmark as closely as possible, but derivatives and forward transactions will be used for efficient portfolio management. In addition, the portfolio managers will utilise a number of techniques to ensure the returns of the fund follow the reference benchmark as closely as possible. For example, the team seeks to generate value via optimised trading opportunities and a securities lending programme, where they earn fees from other market participants. The fund has proven its ability to track the benchmark closely and we believe the highly automated and tightly risk controlled process give confidence that this is repeatable. Lastly, the clean share class is very competitively priced at 16 basis points.

9 Model Portfolios Fund Descriptions 9 Royal London UK Government Bond The investment objective of the fund is to maximise total investment return (income and capital growth) over the medium to long term by investing mainly in UK government bonds. The fund's benchmark is the FTSE Gilts All Stocks index. The fund has been managed by Paul Rayner since 2005 and he was subsequently joined by co-manager Craig Inches, who was hired from SWIP in January Both of these experienced managers have demonstrated the ability to combine macroeconomic analysis with an understanding of the dynamics of the UK government bond market and have worked together successfully. The fund aims to achieve modest outperformance of the benchmark through a combination of duration and yield curve position trades directly within the UK gilt market, as well as more sophisticated relative value strategies within the broader global fixed income markets. The managers will also consider the relative value merits of including off-benchmark bets in overseas government bonds and UK government guaranteed corporate bonds, with the latter limited to 5%. The fund's interest rate sensitivity is managed closely in-line with the benchmark and is unlikely to deviate significantly. Corporate Bond Fidelity MoneyBuilder Income Offers investors a diversified portfolio of primarily investment grade bonds, the management of which is underpinned by thorough quantitative and qualitative credit research. There is also a limit of 5% on the fund s exposure to high yield. Ian Spreadbury has managed the fund since launch in September 1995 and his long tenure at the helm of this fund is testament to the prudence of his process, which manifests itself in a consistent return profile with relatively low volatility compared to many of its peers. The manager is ably assisted by a team of dedicated credit analysts. The manager seeks to generate incremental returns with low volatility through a methodical and prudent portfolio construction process that incorporates a range of non-correlated strategies. The fund is diversified and interest rate sensitivity is controlled tightly as it is viewed to be a less predictable source of outperformance. The manager's considered approach is supported by the rigour of his macroeconomic analysis, which seeks to consider all potential scenarios and their likely impact on the fund. Kames Investment Grade Bond The fund invests primarily in investment grade bonds, with the flexibility to hold a maximum of 20% in high yield and cash. A minimum of 80% of the fund will be hedged back to sterling. The fund has been co-managed by Stephen Snowden and Euan McNeil since Despite this relatively short management tenure, the managers are experienced fixed income practitioners and benefit from a very well resourced and established team, which encompasses fund managers and specialists covering a broad range of fixed income asset types. The team work in a strongly collegiate fashion and are committed to detailed analysis which helps them to unearth opportunities. The process is a combination of top-down strategy together with bottom-up stock picking. The team are active in constantly assessing the relative value within the market and adjusting the portfolio accordingly. They appraise the potential for added value from six factors-- duration, yield curve, asset allocation, sector allocation, stock selection, and rating preference. M&G Strategic Corporate Bond The fund is predominantly a portfolio of investment grade corporate bonds but it has the flexibility to hold up to 20% in gilts, high yield bonds and other fixed interest securities. The fund has been managed by Richard Woolnough since its launch in He has considerable experience in the management of corporate bond funds and a proven track record in successfully assessing the macroeconomic cycle and positioning the fund accordingly. We also believe that he benefits substantially from the expertise of the other portfolio managers and from the credit analyst team at M&G. The fund resides in the IA Corporate Bond sector. The manager combines macroeconomic assessment, which determines the portfolio s duration and broad asset allocation, with market judgement, which takes into account default risk, liquidity and supply. At the individual company level, he is able to draw upon the large credit analyst team at M&G. The key factors in the analysis of each company are assessments of: its business and the industry in which it operates; cash flow and the ability to service debt after all liabilities have been met; susceptibility to event risk; and the structure and covenant protection of each bond. The fund s duration is typically between years and it must have a minimum of 80% GBP exposure. Equities UK All Companies AXA Framlington UK Select Opportunities Aims to achieve long-term capital growth by investing in a portfolio of predominantly UK equities. In performance terms the fund seeks to outperform the FTSE All-Share index. Nigel Thomas joined Framlington in 2002 and has built up a strong track record both at AXA Framlington and previously at ABN AMRO where he managed both the UK Growth fund and the UK Select Opportunities fund. Thomas is an experienced and pragmatic investor and has demonstrated a willingness to modify his portfolio to suit the prevailing market environment. The portfolio typically has a growth bias, however the manager seeks to invest in opportunities that can have a mixture of recovery, growth or value characteristics. The fund tends to be invested across the market-cap range and as such has a strong bias to mid-and small-cap companies when compared to the index. While bottom-up stock selection is the main driver of returns, the manager's thematic and sector preferences are also important.

10 Model Portfolios Fund Descriptions 10 BlackRock UK Special Situations Aims to achieve long-term capital growth through investing primarily in UK equities and in performance terms seeks to outperform the FTSE All Share index. Richard Plackett has managed this fund since June 2004 however his experience dates back over two decades having joined BlackRock in He is supported by Roland Arnold who was promoted to co-manager in Plackett took a six-month sabbatical in 2014 and on his return relinquished a number of his responsibilities to focus solely on the management of this fund, a move we think is positive. Over time Plackett has demonstrated an intuitive grasp of market dynamics which has reaped strong rewards for investors. The manager looks to invest in companies that are undervalued relative to their growth potential or have recovery prospects. Typically he looks for companies with the following characteristics: a strong market position demonstrating some barriers to entry; are cash generative, ideally with free cash flow yields at least equivalent to gilts; have positive earnings momentum in both the short and long term; strong management and balance sheet strength. The portfolio typically has a strong bias to mid- and small-cap companies. CF Woodford Equity Income Aims to achieve a rising income with capital growth from investments primarily in the shares of UK companies, with up to 20% being invested in international companies. In practice, the fund aims to achieve a minimum income yield target of 110% of the dividend yield on the FTSE All- Share Index, but not if this is at the expense of an investor's capital. In pursuing the investment objective, the manager may also include less liquid equity investments such as unquoted companies. Neil Woodford, who founded Woodford IM in 2014, has been managing UK equity income funds since 1988 and is one of the longest serving managers within the industry. He has consistently demonstrated an ability to combine an overall appraisal of economic prospects with well-informed stock-picking. This is evidenced by a track record of strong returns over market cycles, using his long-term approach and his consideration of investments from an absolute perspective. The manager invests in companies that he thinks are undervalued but can sustain dividend growth over the medium term. The portfolio is constructed with little regard to the benchmark and at the sector level the fund s weightings may deviate significantly from those of the FTSE All-Share Index. Investors should therefore be aware that short term relative performance can be volatile as a result of the manager s macro views however he has demonstrated an excellent long-term track record in the management of income portfolios. GLG Undervalued Assets The objective of the fund is to achieve long-term capital growth through investing predominately in UK equities. In performance terms, the fund aims to outperform the FTSE All-Share index through a market cycle. Henry Dixon has managed the fund since inception in November 2013 and it utilises the same investment process developed and used by Dixon in the management of the FP Matterley Undervalued Assets fund since Dixon was one of the original founders of Matterley and prior to that worked at New Star Asset Management. He is supported by assistant portfolio manager Jack Barrat. The fund offers investors a valuation conscious approach which is actively managed and is biased to stocks lower down the market-cap scale. The manager seeks to identify companies which are considered to be undervalued relative to their asset base and to the returns on capital the companies are generating. The investment process has been applied consistently over time. Old Mutual UK Alpha Invests in a portfolio of UK equities and aims to add value over the investment cycle through a concentrated, high-conviction portfolio invested primarily in large-cap companies. In performance terms it aims to outperform the FTSE All Share Index. Richard Buxton joined Old Mutual Global Investors from Schroders in June He has however managed this fund since December 2009, having previously managed it as a segregated mandate on behalf of the group. Buxton has applied the same process and philosophy for over ten years first at Schroders and this fund continues to be managed in the same fashion. In constructing the portfolio, the manager considers the economic environment in which companies operate in addition to the prospects for individual sectors and companies. He aims to generate positive returns over the long-term through the identification of stocks that he believes will rise in value by at least 10-20% for the ensuing three years. Moreover, he remains true to his philosophy even in the face of shorter-term adversity and this helps build conviction in his ability as he has a record of generating strong long-term returns, although investors should be prepared for relative performance variability over shorter-term periods.

11 Model Portfolios Fund Descriptions 11 North America Artemis US Select Offers investors exposure to a concentrated portfolio of US equity stocks. Whilst this is an all cap fund, it does tend to have a mid cap bias. In performance terms the manager seeks to outperform the S&P 500 index over the long term. Manager Cormac Weldon moved to Artemis in May 2014 from Threadneedle where he was head of US equities. Weldon brought the majority of his Threadneedle team with him to Artemis. His US team includes four analysts and two further portfolio managers in Stephen Moore and William Warren. Moore is the deputy manager on Weldon s funds and is an experienced investor, having started his career in He joined Threadneedle in 2002 and has worked with Weldon since that date. Research responsibilities are spread across the team, with all except Moore having sector responsibilities. The investment process combines a top-down view of the overall economic environment as well as a view on each of the sectors within the US equity market with bottom-up company research. Company meetings are supplemented with external broker research to ensure a thorough understanding of key growth drivers, while both up and down price targets are set for each stock and form the basis of stock-level decisions. The approach is dynamic and the team aims to be responsive to the prevailing environment with a view to generating strong performance across the investment cycle. BlackRock North American Equity Tracker Aims to achieve capital growth for investors by tracking closely the performance of the FTSE World North America index. Derivatives and forward transactions may be used for the purpose of efficient portfolio management but the team's main aim is to replicate the benchmark as fully as possible by investing in companies in the index. The fund is managed by Nimish Patel who is a senior portfolio manager within BlackRock's Institutional Index Equity team. Patel, whose investment experience dates back to 1997, joined the Group in The process is managed through a sophisticated dashboard that receives a nightly download of the index and calculates deviations between the portfolio and the benchmark; only a small tolerance in position sizes is permitted although Berkshire Hathaway may be larger as the two lines of stock are treated as interchangeable and invested according to liquidity. The fund has tracked the benchmark closely over time and we believe it is likely to continue to do so, given the dedicated process that is used to replicate index returns. JPM US Offers investors exposure to a blend of large-cap US equities and in performance terms is benchmarked against the S&P 500 index. The fund typically holds between 75 and 150 stocks This fund is run by a management team of Jason Alonzo, Dennis Ruhl, and Paves Vaynshtok. Ruhl is head of the US behavioural finance team and heads the portfolio management team and the group s quantitative research effort. He started his career at JPM and initially worked as a quantitative equity research analyst in the trading team before becoming a member of the behavioural finance team in 2001 The investment process leverages off the JP Morgan's long-standing behavioural finance philosophy that seeks to capitalise on valuation and momentum anomalies. The belief is that stock markets are not efficient, as stocks trade not only on perceived valuation but also on emotion, with persistent anomalies occurring within the market due to predictable behavioural biases on the part of investors. The investment process has been tested through a variety of market environments and as a general rule, tends to be less effective in trendless markets or when inflection points emerge, but over the longer-run the process works well. It has the benefit of objectivity and discipline, combined with a degree of qualitative oversight that ensures that the conclusions of the quantitative process are reasonable. Schroder US Mid Cap Offers investors exposure to a US equity portfolio that is invested in midand small-cap stocks using a bottom-up, stock-picking process. In performance terms the fund aims to outperform the Russell Mid Cap Index. Jenny B Jones is based in New York and has managed the fund since April She also manages the Schroder US Smaller Companies fund, a fund she has managed since While Jones has overall responsibility for this fund, she has built her team carefully over time and they work as a close unit. The manager believes that by focusing predominantly on stock selection and blending both qualitative and quantitative research inputs, she and her team are able to identify stocks that will generate higher than average returns on invested capital and outperform the benchmark over the long-term. In particular, the team looks for three types of companies: superior growth companies which are unattractively priced; steady growers; and, turnaround situations. The manager is also mindful of the need to protect investors' capital and is willing to hold above average levels of cash if she perceives the opportunity set to be limited. Consequently the fund may lag the benchmark in periods where markets rally strongly and tends to outperform in periods of weakness. Europe ex UK Henderson European Selected Opportunities Offers investors exposure to a large-cap biased portfolio of European stocks. It is benchmarked against the FTSE World Europe ex UK Index, and although the fund s positioning can deviate significantly from the benchmark the manager maintains an overall focus on the benchmark as the fund s reference point. John Bennett joined Gartmore (later acquired by Henderson), in January 2010 from GAM where he spent the previous 17 years. He is assisted by a close-knit team of analysts. Bennett is an experienced investor and is willing to be pragmatic and flex the fund's positioning as he sees fit. The manager s focus is on companies with attractive track records, deviating from their fair value, and with the ability to surprise in the future. He looks for turning points and situations where fundamentals are either improving or have the potential to do so in the future. In constructing the portfolio, the manager seeks to reflect his understanding of market sentiment and the business cycle.

12 Model Portfolios Fund Descriptions 12 Jupiter European Special Situations Invests in European equities that the manager believes are undervalued. The investment process focuses primarily on stock selection and has a bias to investment in quality companies. The fund will typically comprise stocks and aims to outperform the FTSE World Europe Ex UK Index. Cédric de Fonclare is an experienced manager who benefits from a high quality European team, while also retaining the freedom within the organization to run the fund as he deems appropriate. The manager has extensive knowledge of his European equity universe and makes full use of his skills on this offering. The manager tends to favour investment in companies whose profits and free cash flows are growing and feature good visibility. While the primary focus is on stock selection he recognises the need to be alert to the overall economic environment and will make sector decisions based upon his assessment of changes within the broader economy. Although he has no restrictions when choosing stocks, he always seeks to maintain a diverse portfolio. Japan Schroder Tokyo The fund offers investors core exposure to a diversified portfolio of Japanese equities, with the aim to outperform the Topix Index over the long term. The fund has been managed since 2004 by Andrew Rose, an experienced investor who has been managing Japanese equity portfolios since the 1980's, making him one of the most experienced managers in the UK retail space. He is supported by a well-resourced team of analysts and portfolio managers based in Tokyo, a team which Rose used to head up before moving back to London. The manager adopts a flexible approach and has a preference for investing in companies where the market has taken a short-term negative view but he believes the potential for earnings surprise in the next 2-3 years is present. Whilst the approach is primarily bottom-up, the manager has a good grasp of market sentiment and his disciplined approach to valuations and fundamentals have served him well in that regard. The manager is mindful of his exposures relative to the index and aims not to take too much risk relative to the benchmark, thereby making this fund a good option as the mainstay of an investor's Japanese allocation. The fund tends to profile a consistent performance profile compared to the index. Global Emerging Markets Equity Fidelity Emerging Markets Aims to generate long-term capital growth by investing in emerging market (EM) companies, with the aim of outperforming the MSCI EM benchmark over the long term. The final portfolio typically includes 70 to 130 stocks. Nick Price has managed the fund since July 2009, having joined Fidelity as a pan- European analyst in He is supported by a well-resourced team of portfolio managers and analysts who are responsible for providing him with their best stock ideas within their respective regions. The team works well together and the manager has made good use of the resources available to him. The investment process is predominantly focused on stock selection. The team focuses primarily on investment in quality growth companies, defined by companies that generate sustainable returns and are able to fund their own growth without relying on excessive debt or growth through acquisition. The manager is willing to take large positions and move away from the benchmark, which may lead to returns deviating significantly from the benchmark from time-to-time. 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