Our investment capabilities Fixed income

www.kamescapital.com Our investment capabilities Fixed income For professional advisers only Fixed Income Onshore page 1

Contents Why invest in fixed income? 2 Meet the fixed income team 3 Our philosophy, process and style 4 Our range of funds 6 A long track record in fixed income 8 Find out more 9 Fixed Income Onshore page 2

Choose Kames Capital for fixed income We are recognised as one of Europe s leading fixed income fund managers. There are five factors that we believe set us apart from our peers when it comes to successfully managing fixed income investments. 1. People: our strongest assets are our people. The senior members of our fixed income team have worked together here for many years, and collectively bring hundreds of years of. Their diverse financial backgrounds from investment banking, equity management and corporate finance ensure a rounded perspective. 2. Culture: we have a collegiate, open culture. We actively encourage individuals to express their views, and challenge consensus thinking. We value the opinions of all of our staff, and encourage them to contribute to the ongoing debate. 3. Process: we have a robust, scalable investment process, combined with a focused research framework. This underpins our performance track record. Our performance is derived from six sources duration, asset allocation, yield curve positioning, rating selection, sector selection and stock selection each of which comes to the fore at different stages in the market cycle. 4. Global: investors benefit from the expertise of our investment teams based in local centres around the world. Our UK-based team leads the decision-making process for UK clients. They draw upon the knowledge of our fixed income professionals in the US and the Netherlands, who provide a local perspective that we apply to our funds, primarily through a programme of monthly strategy discussions. 5. Service: Our client service is highly regarded. The team regularly receives excellent feedback on the quality and proactivity of its service. It is also supported by our online services, where investors and their advisers can keep up to date with Kames Capital s latest views in our market views, factsheets and audiocasts. Fixed Income Onshore page 1

Why invest in fixed income? Diversification Fixed income is an excellent core investment for adding diversification to a balanced portfolio. This is beneficial to investors who want to lower the volatility of their portfolio. Positive returns through the cycle Fixed income is an asset class for all seasons. Such is the diversity of investments under the banner of fixed income, it is possible to find fixed income investments that perform well in different economic conditions. For example, high yield bonds normally perform well in an economic recovery phase, gilts typically provide investors with protection in a recession, and index-linked bonds fare well in periods of anticipated high inflation. The chart below illustrates this over the past six years. IMA average annual sector returns (%) 2006 2007 2008 2009 2010 2011 2012 Gilts -1.0 3.4 11.7-2.3 6.1 15.4 1.6 Investment Grade -0.5-0.3-10.3 15.1 7.9 4.7 13.3 High Yield 6.6 0.0-27.9 48.6 12.2-3.4 20.0 Inflation Linked 1.9 7.5 2.8 5.9 8.1 21.3 0.3 Best to Worst 7.6 7.7 39.6 50.9 6.0 24.7 19.6 Source: Lipper Hindsight, Basis, NAV to NAV, Net Total Return. Income An important feature of fixed income is in its name. As fixed income securities pay a regular coupon, they are useful investments for income seekers such as retirees or parents with school fees. Stability Fixed income can offer a more stable investment than many other asset classes notably stock markets. Of course, that should not be taken for granted. Bonds are not immune from volatility or loss of value, as recent s in some European bond markets illustrate. Fixed Income Onshore page 2

Meet the fixed income team We work as a team. But what sets us apart is our willingness to share and challenge views within and across sectors. David Roberts Head of Fixed Income 25 years of industry Euan McNeil Investment grade credit 16 years industry Melanie Mitchell High yield 25 years industry Philip Milburn High yield 16 years industry Colin Finlayson Government bonds 13 years industry Claire McGuckin High yield 19 years industry Stephen Snowden Investment grade credit 19 years industry Iain Buckle ABS 16 years industry We believe our approach to team working underpins our success. We combine the roles of fund manager and analyst. This ensures fund managers remain close to their investments. It also ensures research and idea generation are efficiently implemented into client portfolios, allowing for timely action and clear, practical decision-making. This approach is only possible because of the team s depth of and diversity of skills. We work hard to find skilled individuals with a flair for fixed income investing. It is then important to harness their ideas for the benefit of investors. We do this by giving them the time and resources to analyse thoroughly their areas of expertise, and generate investment ideas. These ideas are then rigorously debated and challenged by other team members to ensure the thinking is robust. We achieve this through a series of regular formal and informal meetings, which involve not just the fixed income teams in the UK, but also those in the Netherlands and the US. The result of all of this is an extremely stable team, in which the senior members have worked together for around 10 years on average. We believe this is reflected in the performance of our fixed income funds over the long term. Individual accountability. Whilst the entire fixed income team contributes to, and agrees with, our overall fixed income strategy, the individual fund managers are accountable for their own funds. They must ensure the funds they manage are positioned in line with the team s strategy. Therefore, it is important that we have d and skilled individuals in key positions. Fixed Income Onshore page 3

Our philosophy, process and style We believe much of our competitive advantage lies in our ability to interpret markets. Our investment team follows a process that ensures ideas are consistently analysed and rigorously debated. Our philosophy Our fixed income specialists are guided in their research and fund management duties by a three-pronged philosophy. Markets are inefficient. We can exploit this through robust research and active management. It is vital to identify, analyse and manage risk. Investment strategies should be transparent and clearly communicated. How we invest Our flexibility to allocate between high yield markets in the US, Europe and the UK helps us diversify portfolios and exploit tactical opportunities. We are one of the few European-based managers actively doing this. Our fixed income process - blending top-down and bottom-up analysis Top-down Strategy Meeting Analysis, challenge and decision Macro positioning Portfolio construction Duration, yield curve and asset allocation Top-down credit strategy Credit rating and sector preferences Bottom-up Strategy Meeting Bottom-up credit strategy Issuer and issue selection Active style Our investment style is highly active, drawing upon the best ideas from our detailed analysis of economies, markets, industries and companies. We run relatively concentrated portfolios, ensuring we back our conviction with meaningful positions. Stock selection is critical In our high yield portfolios we typically target around 70-80% of our performance from stock selection, with the rest driven by asset allocation, for example between European and US high yield. Portfolio with conviction We have the skills, and confidence to manage concentrated portfolios that include only our best investment ideas. We manage portfolios on a benchmark agnostic basis. This ensures we seek to add maximum value from stock selection through identifying the bonds of undervalued companies. Fixed Income Onshore page 4

For some strategies, different drivers play a more important role. In high yield investing, for example, bottom-up stock selection drives the significant majority of the performance. For multi-asset funds, asset allocation and duration management are as important as stock selection. All of our funds are managed following the same investment philosophy and strategy process, built on the foundation of our Quadrant Analysis Framework. This template ensures consistency. We use the same four quadrants to assess all bond opportunities, whether these are government or corporate bonds, sterling or overseas bonds, investment grade or high yield. Quadrant Analysis Framework Fundamentals Valuations Sentiment Technicals Risk factors We believe our fund managers should be fully responsible and accountable for the risks taken within their funds. In addition, we have built an independent oversight framework to ensure appropriate risks are taken, and compliance with regulatory requirements. There are four facets to our Risk Control Framework, as illustrated below. On Desk Philosophy Identification, analysis and understanding of risk is essential Utilise multiple sources of alpha, none to dominate Fund manager responsibility with independent oversight Review discipline Analytics On desk resource to aid idea generation, testing and sizing UBS Delta quantitative risk analysis system Independent Risk Management Team monitors risks taken Daily VaR reporting Controls Portfolio limits set in thinkfolio front office system Trades require separate fund manager authorisation Centralised independent dealing team Independent Risk Control Team monitors positions taken Governance Monthly meeting with CIO assessing performance and risks Regular off desk fund reviews with peer challenge Investment Management Portfolio Risk & Control Committee Off Desk Fixed Income Onshore page 5

Our range of funds Kames Investment Grade Bond Fund The award-winning team behind this Fund adds value across the fixed income spectrum aiming to exploit our six sources of performance. The Fund also builds on our sterling corporate bond, with the ability to invest in investment grade bonds anywhere in the world. Together, this means the Fund is not reliant on a single source of performance. Kames High Yield Bond Fund The Fund can pay a monthly income, and invests across the global high yield market, not just in one of Europe, the US or the UK. Run by a stable team, the Fund has developed a first-class performance record and a string of awards. Kames Strategic Bond Fund The Kames Strategic Bond Fund is an ideal solution through which you can delegate fixed income asset allocation. The team s record shows it adds value across the spectrum of fixed income investments making us an ideal manager for a multi-asset bond fund. Because we have skills across the bond universe, we take the best ideas from each area to build a best ideas fund that delivers throughout the cycle. Kames Ethical Corporate Bond Fund Our Morningstar OBSR-rated ethical corporate bond fund gives investors access to a portfolio of investment grade corporate bonds that meet our ethical criteria, with an allowance of up to 10% of the assets in high yield. Our Fund is towards the dark green end of the spectrum, meaning our screening criteria are more demanding and transparent than some others. Our performance record demonstrates that this does not mean compromising on returns. Kames Absolute Return Bond Fund The Kames Absolute Return Bond Fund aims to generate positive absolute returns over a rolling 3-5 year period irrespective of market conditions. By combining traditional fixed income vehicles and derivatives, the Fund aims to achieve its performance target within strict risk parameters and with a low level of volatility. The Fund should sit at the low end of the fixed income risk spectrum. Kames Sterling Corporate Bond Fund We are highly rated for managing sterling corporate bonds. This Morningstar OBSR-rated fund invests mainly in investment grade corporate and government bonds, but the fund managers can invest up to 10% of the assets in high yield debt. Fixed Income Onshore page 6

The diagram below shows how different subsectors of the fixed income asset class typically perform well at different periods in the economic cycle. We can offer your clients a fund for all seasons. Investment Grade Recovery Boom Inflation Linked High Yield Slowdown Short-dated Treasuries Recession Long-dated Treasuries Fixed Income Onshore page 7

An imposing figure on the fixed income landscape Our commanding performance record is testament to the skills of our 25-strong fixed income team, the senior members of which have worked together for more than a decade. It s no wonder that Kames Capital s fixed income capability is imposing itself on the investment landscape. Given our heritage, fixed income has always been a core part of what we do. As at 31 March 2013, our fixed income team in the UK managed assets worth 28.9 billion. This has grown over the years as our track record has encouraged new investors to come to us, and existing investors to stay with us. Most of our fixed income funds also have Morningstar OBSR ratings you can see the latest ratings for each of the funds on our website, along with our latest fund factsheets, and other important information about our funds and capabilities. Another feature that illustrates our capability in fixed income is the list of awards our team has earned. Here are those from the past five years. Awards Silver Morningstar OBSR Analyst Rating Bronze Morningstar OBSR Analyst Rating Rayner Spencer Mills rated 2013 Pension and Investment Provider Awards Global Fixed Income Manager of the Year Professional Pensions UK Pensions Awards 2013 Fixed Income Manager of the Year Lipper UK Fund Awards 2013 Group Award for Small Bond Group Best Sterling High Yield bond fund Lipper UK Funds Awards 2012 Best High Yield Bond Fund (GBP) over 3 years Lipper Awards 2011 Best High Yield Bond Fund (GBP) over 3 years Portfolio Adviser Awards 2013 High Yield Bond Fund Platinum Award Portfolio Adviser Awards 2012 High Yield Bond Fund Gold Award Portfolio Adviser Awards 2011 High Yield Bond Fund highly commended Investment Adviser 100 Club Awards 2012 Best Fund in the Specialist Income category 2012 Morningstar OBSR Five Year Award 2012 Global Investor Awards for Investment Excellence European Fixed Income Manager of the Year Fund Manager of the Year Award 2012 High Yield Bond category Fund Manager of the Year Award 2011 Sterling High Yield Bond category Fixed Income Onshore page 8

Find out more Find out more about our fixed income capabilities. Steve Kenny Head of Retail Sales M: +44 (0)7740 897 917 E: steve.kenny@kamescapital.com Important information This document is not intended for retail distribution and is directed only at investment professionals. It should not be distributed to, or relied upon by, private investors. The information in this document is based on our understanding of the current and historical positions of the markets. The views expressed should not be interpreted as recommendations or advice. While the investment objective of absolute return funds is to achieve a positive return in all market conditions, this is not guaranteed in any way. Risk Factors The value of investments and the income from them may fall as well as rise and cannot be guaranteed. These Funds are medium to long-term investment. Fluctuations in interest rates and exchange rates may affect the capital value of the Fund. Past performance is not a guide to future performance. The value of investments may fall as well as rise, and investors may not receive back the amount invested. Any investment objective, performance benchmark and yield information will be treated as a target only and should not be considered as an assurance or guarantee of the performance of the Fund or any part of it. The impact of the initial charge will be to reduce the amount available for investment. All annual charges are deducted from Fund income as far as possible. Where Fund income is insufficient to meet charges, they will be deducted from capital. Investors in these Funds should consider the following risk factors; Market Risk: The potential for change in market value of instruments due to adverse movements in equity, bond, commodity, currency and other market prices, indices or interest rates or changes in the anticipated or calculated volatility of these movements. Liquidity Risk: This includes both market liquidity risk and funding risk. Market liquidity risk is the inability to trade an instrument at the desired price due to a lack of supply or market demand. Funding risk is where a fund has insufficient cash to meets its financial obligations. Counterparty Risk: The risk that the failure of a counterparty to meet its obligations leads to a financial loss to the Fund, both through loss of any monies owed to the Fund by the counterparty and the cost of reinstating economic exposure in the case of counterparty default. Concentration Risk: The risk of a portfolio being too concentrated in particular positions or too exposed to certain issuers. Highly concentrated positions can exacerbate market, liquidity and counterparty risk. To improve our customer service, and for training purposes, your telephone conversations with us may be recorded. You should read the Key Investor Information and Application Form document carefully, particularly the section on Risk Factors. The Key Investor Information and Full Prospectus are available on our website www.kamescapital.com or by calling our investor helpdesk on 0800 45 44 22 or in writing from Kames Capital, Mellon House, Ingrave Road, Brentwood, CM15 8TG. The Kames Strategic Bond Fund, Kames High Yield Bond Fund, Kames Investment Grade Bond Fund and Kames Ethical Corporate Bond Fund are sub-funds of Kames Capital ICVC (an Open-Ended Investment Company). Kames Capital plc is the Authorised Corporate Director of the Company (ACD). The Kames Absolute Return Bond Fund is a sub-fund of Kames Capital Investment Company (Ireland) plc which is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number 442106). This document is accurate at the time of writing but can be subject to change without notification. Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number 442106), registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland. Kames Capital is an Aegon Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Conduct Authority, (FCA reference no: 144267). Kames Capital plc is the Investment Manager and Marketing Agent for Kames Capital Investment Company (Ireland) plc. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an Aegon company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (PRA/FCA reference no: 165548). Fixed Income Onshore page 9

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