Q&A roadshow 2016

June 2016 | For professional advisers only. This material is not suitable for retail clients

Global Equities

Gavin Marriott | Product Manager

#QAroadshow2016

Questions

What will drive global equity returns?

What is the outlook for US?

Where are the current opportunities?

1

Source: Schroders

What will drive global

equity returns?

Revisions

Market environment The outlook remains finely balanced

3

Source: Schroders

Asset class

preference and Flows

Liquidity

Earnings

Geopolitical risk

Valuations

Currencies

Annual S&P500 Consensus EPS

Market environment A challenging earnings environment

4

Source: Morgan Stanley Research, Thomson Reuters. As of 30 April 2016. Forecast risk warning: Please refer to the important information slide at the end of this presentation

$103.21

$110.67

$119.31 $118.48

$119.00

$135.93

$100

$105

$110

$115

$120

$125

$130

$135

$140

$145

Jan-11 Nov-11 Sep-12 Jul-13 May-14 Mar-15 Jan-16

2012

2013

2014

2015

2016E

2017E

Earnings Revision Ratio by region – last three months

Market environment A challenging earnings environment

5

Source: BofA Merrill Lynch Global Quantitative Strategy, MSCI, IBES, 31 May 2016. The Earnings Revision Ratio is a breadth measure of the direction of consensus earnings expectations. The

stocks included in this analysis are selected from the constituents of the MSCI AC World universe where IBES consensus estimates data is available. Each month the number of stocks for which

consensus earnings estimates have been upgraded and divide that by the number downgraded. For example, a Ratio of 0.80 indicates eight stocks upgraded for every ten downgraded. For illustrative

purposes only and should not be viewed as a recommendation to buy or sell.

3m Earnings Revision Ratio

0.86

0.65 0.65

0.58 0.56 0.55

0.4

0.5

0.6

0.7

0.8

0.9

1.0

USA Europe World GEM Japan Asia Pac ex-Japan

May 2015 ** Remove from final presentation **

EPS revisions for MSCI World vs Market

Market Outlook

6

15/06/2016 09:55:38

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Dec 13 Jun 14 Nov 14 May 15 Oct 15 Apr 16

MSCI World +ve to -ve EPS revisions

Sources: IBES, Datasteam, as at 7 June 2016

Earnings outlook becoming ‘less bad’

(15)

(10)

(5)

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016to

DateBest Quintile Worst Quintile

%

The power of earnings surprise Earnings Revisions – a consistent source

of alpha

The importance of earnings The persistent inefficiency of markets

7

Source: 2Empirical Research Partners Analysis. Equally-weighted USD-hedged returns. Stocks are ranked across, returns are relative to the universe. To 31 March 2016

Relative returns to the best and worst quintiles of smoothed earnings

revisions

(12)

(10)

(8)

(6)

(4)

(2)

0

2

4

6

2015 3 Years (annualized) 5 Years (annualized)

Best Quintile Worst Quintile

%

Share price and Consensus 2016 EPS estimates

What drives share prices Amazon, a textbook example

8

Source: Thomson Datastream, as at 16 November 2015. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell.

(US$)

5.00

6.00

7.00

8.00

9.00

10.00

250

300

350

400

450

500

550

600

650

700

Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15

Amazon share price Standard EPS Adjusted

What is the outlook

for US equities?

Global Stock Market Returns (annualised, USD)

Outlook for US equities Dominance of the US set to continue?

Source: Thomson Datastream, Schroders

-5

0

5

10

15

20

25

30

1995 – 2001 2002 – 2007 2008 – 2015

US Developed International Emerging Markets

%

10

2015 Non-financial net margin

Outlook for US equities The underpinnings of US equity outperformance

0%

2%

4%

6%

8%

10%

12%

India

US

Glo

ba

l

UK

Fra

nce

EM

U

Ta

iwa

n

Ko

rea

Ge

rma

ny

GE

M

Japan

La

tAm

NJA

Ch

ina

Source: Credit Suisse Research as at 31 December 2015. For illustrative purposes only and should not be viewed as a recommendation to buy or sell

11

Outlook for US equities US Margins could go higher still

Q1 07 Q3 11

Q3 07

Q4 15

Q3 14

Q4 02

Q4 95

Q2 14 Q4 95

Q3 11

Q2 07

Q2 07

-10

0

10

20

30

40

50

Ene

rgy

Ma

teri

als

Ind

ustr

ials

Cons D

isc

Tech

Sta

ple

s

He

alth

Ca

re

Tele

com

s

Utilit

ies

S&

P5

00

ex-F

inan

cia

ls

Fin

ancia

ls

S&

P5

00

Current Margin % Peak Margin % (Date)

Source: S&P, Compustat, FactSet and RBC Capital Markets. Data as of 31 December 2015. For illustrative purposes only and should not be viewed as a recommendation to buy or sell

12

Companies deliver positive surprise relative to lowered expectations

Outlook for US equities S&P500 Q1 2016 results - has the earnings cycle troughed?

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

Q4 2005 Q4 2007 Q4 2009 Q4 2011 Q4 2013 Q4 2015

S&P 500: net positive earnings surprises

13

Source: The Bloomberg ProfessionalTM service, Credit Suisse research, as at March 2016.

0

5

10

15

20

25

30

World S&P FTSE Eurostoxx ASX EM Topix

Mean Current PE

Trailing 12-month P/Es (current versus 10-year average) 12-month trailing P/E (X)

Outlook for US equities Valuations remain un-compelling

Source: Thomson DataStream, as at 31 March 2016

14

Where are the

current

opportunities?

VIX index (%)

A word on market risk Volatility spikes in Q1

Source: Thomson Reuters, Credit Suisse Research, as at 30 April 2016

0

5

10

15

20

25

30

35

40

45

Feb 14 Jun 14 Oct 14 Jan 15 May 15 Aug 15 Dec 15 Apr 16

VIX indicator

16

May 2015 ** Remove from final presentation **

World FY2016e

Where are the current opportunities? Where are consensus expectations

Source: SG Research. June 2016. Forecast risk warning: Please refer to the important information slide at the end of this presentation. For illustrative purposes only and should not be viewed as a

recommendation to buy or sell

17

-40

-30

-20

-10

0

10

20

30

40

Oil & Gas BasicMaterials

Industrials ConsumerGoods

Health Care ConsumerServices

Telecom Utilities Financials Technology

Regional earnings growth %

Looking forward Global Equities: there are always opportunities

18

Source: Schroders. For illustrative purposes only and should not be viewed as a recommendation to buy or sell

Disruptive technologies

Self help/cost discipline

Secular growth

Innovation

Pricing power

Geographical allocation

Sector allocation

Where are the current opportunities? Positioning – Global Alpha Plus

19

Source: Schroders, As at 31 March 2016. Regions and sectors shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell

0

10

20

30

40

50

60

70

Afr

ica/M

iddle

East

Co

ntin

en

tal E

uro

pe

Em

erg

ing

Ma

rke

ts

Ja

pa

n

No

rth

Am

erica

Pa

cific

X J

apa

n

Un

ite

d K

ing

do

m

Global Equity Alpha Plus Fund MSCI World

0

5

10

15

20

25

Co

nsu

me

rD

iscre

tio

na

ry

Co

nsu

me

r S

tap

les

En

erg

y

Fin

an

cia

ls

He

alth

Ca

re

Ind

ustr

ials

Info

rmatio

nT

ech

no

log

y

Ma

teria

ls

Te

leco

mm

un

ica

tio

n S

erv

ices Utilit

ies

Global Equity Alpha Plus Fund MSCI World

Appendix

Performance record

21

Global Alpha Plus Fund +3.6 +11.1 +8.4

MSCI World +0.5 +8.4 +8.7

Relative +3.1 +2.7 -0.3

1 Year

(%)

3 Year

(%p.a.)

5 Year

(%p.a.)

Global Equity Composite +1.4 +9.6 +8.0

MSCI World +0.5 +8.4 +8.7

Relative +0.9 +1.2 -0.7

1 Year

(%)

3 Year

(%p.a.)

5 Year

(%p.a.)

Source: Schroders. The results are past performance and are presented gross of fees. *The

inception date of the Schroder Global Alpha Plus Fund was 30 April 2010. Past performance is not

a guide to future performance and may not be repeated **Schroder Global Equity Composite

Inception date 31 December 1998.

As at 30 April 2016 in GBP (net)

Source: Morningstar. Universe = Offshore, Global Large-Cap Blend Equity, Primary A

Acc share class in GBP, net, for Schroder ISF Global Equity and Schroder Global Alpha

Fund. We have excluded the top 5 and bottom 5 percentiles from the peer group charts

above.

-10-9-8-7-6-5-4-3-2-101234567

Peer Group Ranking

relative to Peer

Group universe 1 Year to 30 April 2016

-1.0

-1

0

1

2

3

4

5

6

7

8

9

10

11

Peer Group Ranking

relative to Peer

Group universe 3 Years pa to 30 April 2016

+7.9

1st Quartile 2nd Quartile 3rd Quartile 4th Quartile

Schroder ISF Global Equity

-1

0

1

2

3

4

5

6

7

8

9

10

Peer Group Ranking

relative to Peer

Group universe 5 Years pa to 30 April 2016

+6.4 +1.0

+9.1

+6.6

As at 30 April 2016 in GBP (gross)

Schroder Global Alpha Plus

For professional advisers only. This material is not suitable for retail clients.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the

amount originally invested. Schroders has expressed its own views and these may change.

The data contained in this document has been sourced by Schroders and should be independently verified before further publication or use. This presentation is intended to be for information

purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is

not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Unit Trusts Limited

(Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its

customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the

document when taking individual investment and/or strategic decisions.

The forecasts included in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may

change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be

affected by external economic or other factors.

The fund holds investments denominated in currencies other than sterling, changes in exchange rates will cause the value of these investments, and the income from them, to rise or fall. Potential

investors in emerging markets should be aware that this can involve a higher degree of risk. Less developed markets are generally less well regulated than the UK, investments may be less liquid and

there may be less reliable arrangements for trading and settlement of the underlying holdings. Funds which invest in a smaller number of stocks can carry more risk than funds spread across a larger

number of companies. Investments in smaller companies can be less liquid than investments in larger companies and price swings may therefore be greater than in larger company funds. The fund

can use derivatives for investment purposes. These instruments can be more volatile than investment in equities or bonds. The fund can use derivatives for specific investment purposes but currently

does not. If we decide to use derivatives this way, this may result in a more volatile unit price and so result in a higher degree of market risk, therefore we will give unitholder appropriate notice if we

decide to do so. The fund is not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only.

Issued in June 2016 by Schroder Unit Trusts Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 4191730 England. Authorised and regulated by the Financial Conduct Authority.

UK10800

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