Fund Guide. UK Equity Income Unconstrained Fund. October 2015

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1 Fund Guide UK Equity Income Unconstrained Fund October 2015 This document is for investment professionals only and should not be distributed to or relied upon by retail Usage statementclients. It is only intended for use in jurisdictions where the relevant funds are authorised for distribution or This communication where is no intended such authorisation UK Equity for Income investments is required. Unconstrained professionals Fund 101

2 About Standard Life Investments Standard Life Investments is a leading asset manager with an expanding global reach. Our wide range of investment solutions is backed by our distinctive Focus on Change investment philosophy, disciplined risk management and shared commitment to a culture of investment excellence. As active managers, we place significant emphasis on rigorous research and a strong collaborative ethos. We constantly think ahead and strive to anticipate change before it happens, ensuring that our clients can look to the future with confidence. As at 30 June 2015, Standard Life Investments managed 250 billion on behalf of clients worldwide. Our investment capabilities span equities, fixed income, real estate, private equity, multi-asset solutions, fund-of-funds and absolute return strategies. Headquartered in Edinburgh, Standard Life Investments employs 1,500 talented individuals. We maintain offices in a number of locations around the world including Boston, Hong Kong, London, Beijing, Sydney, Dublin, Paris and Seoul. In addition, we have close relationships with leading domestic players in Asia, including HDFC Asset Management in India and Sumitomo Mitsui Trust Bank in Japan. Our parent, Standard Life plc, was established in A leading provider of long-term savings and investments, Standard Life went public on the London Stock Exchange in 2006 and is now a FTSE 100-listed company. Standard Life Investments launched as a separate company in 1998 and has quickly established a reputation for innovation in pursuit of our clients investment objectives. Our investors rank among some of the world s most sophisticated and high-profile institutions. They include pension plans, banks, mutual funds, insurance companies, fund-of-fund managers, endowments, foundations, charities, official institutions, sovereign wealth funds and government authorities. Contents 1 Introducing the UK Equity Income Unconstrained Fund 2 What is our investment approach? 3 What is our investment expertise? 4 Find out more 102 UK Equity Income Unconstrained Fund

3 Introducing the UK Equity Income Unconstrained Fund Managed by Thomas Moore, the UK Equity Income Unconstrained Fund is ideal for those investors seeking a high level of income, alongside the potential for capital growth over the longer term. In line with IMA sector requirements, the Fund aims to deliver a yield of 110% of the FTSE All- Share Index yield over a rolling three-year period. The Fund s unconstrained mandate allows Thomas to broaden his investable universe beyond the income stalwarts found in more traditional UK equity income funds. The Fund s best ideas focus enables Thomas to take concentrated (but diversified) positions in his strongest stocks, regardless of their benchmark weightings. Thomas manages the Fund using a total return approach which means that he seeks to capture stocks with attractive dividend growth potential alongside holdings that deliver a premium yield to that of the market. He therefore selects stocks for inclusion in the portfolio not solely for their yield characteristics, but also because of their ability to generate capital gains, to pay special dividends and/or to increase their payouts. Another benefit of our flexible mandate is the ability Thomas has to adapt the portfolio to take advantage of stock opportunities right across the market capitalisation and style spectrum as they arise. The chart below highlights the benefits of adopting this unconstrained approach to income investing. Analysis of dividend payout levels across FTSE 250 constituent stocks versus those of FTSE 100 constituent stocks suggests that it is the mid-cap index that exhibits a more robust track record of dividend growth. Indeed, over the 29 years since the FTSE 250 came into existence it has reported a rate of dividend growth significantly in excess of the FTSE 100. The importance of an unconstrained approach to dividend investing Reasons to choose UK equity income Through changing macroeconomic conditions, dividends may prove an increasingly important component of the total return on offer from equity investments. UK equity dividends currently offer an attractive yield premium over both cash and government bonds. Many companies enjoy positive cash positions, giving management teams considerable autonomy on how best to deploy their cash. Against this backdrop, many companies have been increasing payout levels significantly, resulting in further strong dividend growth. Reasons to take an unconstrained approach An unconstrained mandate broadens the investable universe beyond the usual income stalwarts that dominate the UK market. This broader approach to income investing limits excessive exposure to these typically lower-growth companies, enhancing total return potential. Many large-cap income stocks face the prospect of disappointing earnings growth and low dividend cover, raising the prospect of high-profile dividend cuts in the years ahead. The unconstrained process gives us the flexibility to avoid these areas and focus on high-conviction ideas with the potential for rapid dividend growth FTSE 100 dividend growth FTSE 250 dividend growth Sources: Datastream & Standard Life Investments, 1 September 2015 UK Equity Income Unconstrained Fund 1

4 What is our investment approach? The UK Equity Income Unconstrained Fund marries the benefits of an unconstrained fund structure with significant research resources and Standard Life Investments differentiated investment process. Thomas believes that this combination enables him to add significant value through active stock selection. Our Focus on Change philosophy is the bedrock of Standard Life Investments process. We recognise that different factors drive markets at different times in the investment cycle. The philosophy is not inherently growth or value biased, nor is it momentum driven, providing opportunities to outperform throughout the economic cycle. We enforce discipline around the philosophy s application by adhering to a common investment language. This consists of five questions that we apply to all our investment decisions, from stock selection and asset allocation to macroeconomic analysis. Analysis What are the drivers? What is changing? What is priced in? Judgement Why will the market change its mind? What is the trigger? Putting the process to work At Standard Life Investments, we deploy a high conviction, bottom-up approach to identify stocks where we believe the consensus opinion is wrong. To do this, we examine a wide range of indicators, including company visits, quantitative research and traditional valuation measures. As a research-intensive investment house, we place face-to-face meetings at the heart of our process. Each year, our UK equity managers hold more than 1,000 meetings with the senior management of companies in which we are considering investing or whose shares we already hold. Our equity research capability spans the full FTSE 350 Index and beyond, thanks to our well-established smaller companies team. And because we manage 33.2 billion* in UK equities, we have access to the most senior company management. The insights gained from these extensive company meetings are supplemented by the Matrix, our proprietary screening tool. It assists our stock selection process and helps us to identify companies with improving or deteriorating characteristics. The Matrix focuses on companies within the FTSE 350 and small-cap index, all of which are screened on an ongoing basis, and has been proven to add value to our investment process. Effective cross-team communication is the final cornerstone of our investment process. The research of our UK equities team is enhanced by working closely with our colleagues in our global equity, corporate bond and corporate governance teams, to best exploit the synergies that lead to long-term rewards. *Source: Standard Life Investments, as at 30 June UK Equity Income Unconstrained Fund

5 What is our investment expertise? Standard Life Investments reputation as a leading investment manager is based on the exceptional quality of its people. We have never embraced a star fund manager mentality. Our UK equities team is testament to the benefits of this team-based approach actively sharing ideas across asset classes, business areas and worldwide locations. This co-ordinated way of working creates the ideal balance between the team s collective efforts and individual talents. Pooling the knowledge, skills and resources of all of our people is critical to generating the investment insights that make the difference. With an average 15 years industry experience, our 18-strong UK equities team maintains comprehensive coverage of the UK investment universe. Our portfolio managers have been with Standard Life Investments for an average of nine years, creating an environment of stability and consistency across the team. Each team member is a specialist in a particular sector. In addition, our fund managers carry out the dual role of fund manager and analyst, which means they are always close to the companies in which their funds invest. Our collaborative approach ensures that we harness our best stock-picking ideas to our clients utmost advantage. Thomas Moore Fund Manager Meet the manager Thomas Moore is an Investment Director in the UK equities team. He began his career in 1998 as an Assistant Fund Manager, UK Equities, with Schroder Investment Management. He joined Standard Life Investments in 2002 as an Investment Analyst, managing EMEA portfolios before moving to the UK equities team in He has managed the UK Equity Income Unconstrained Fund since Thomas also manages the Standard Life UK Equity Income Trust and analyses the banks and financial services sectors. UK Equity Income Unconstrained Fund 3

6 Find out more For further information, including on different shareclasses and charges, please read the Prospectus and Key Investor Information Document (KIID). You can find these in the literature section of our website Risk and reward profile Through our unconstrained approach, we offer investors exposure to our best capital and income ideas right across the UK market. We employ a total return approach that seeks to capture stocks delivering a yield at a premium to the market alongside dividend growth opportunities that generate capital appreciation. The Fund benefits from the research and ideas of our experienced UK equities team, which can also call on the expertise of our UK smaller companies specialists. We manage the Fund according to our robust, repeatable and proven Focus on Change investment philosophy and process. Risk and reward profile For the risk and reward profile, please refer to the KIID. Contact details For further details on the UK Equity Income Unconstrained Fund, please speak to your Standard Life Investments Sales Manager or Standard Life Account Manager. Visit us online standardlifeinvestments.com This material is for informational purposes only. This should not be relied upon as a forecast, research or investment advice. It does not constitute an offer, or solicitation of an offer, to sell or buy any securities or an endorsement with respect to any investment vehicle. The opinions expressed are those of Standard Life Investments and are subject to change at any time due to changes in market or economic conditions. Past performance is not a guide to future performance. The price of shares in the Fund and the income from them may go down as well as up and cannot be guaranteed. An investor may receive back less than their original investment. 4 UK Equity Income Unconstrained Fund

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8 6 UK Equity Income Unconstrained Fund standardlifeinvestments.com Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training Standard Life, images reproduced under licence INVBBRO_12_0562_UK_Equity_Income_Unconstrained_Fund_Guide_TCM 0915