Www.ifunds.co.uk SPECTRUM PORTFOLIOS MANAGING RISK IN A VOLATILE WORLD AUGUST 2011 iFunds is a...

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SPECTRUM PORTFOLIOS

MANAGING RISK IN A VOLATILE WORLD

AUGUST 2011

iFunds is a registered trade mark used under sub-licence from Raymond James Investment Services Limited (RJIS). Registered in England and Wales number 3779657. Registered office 77 Cornhill, London, EC3V 3QQ RJIS is authorised and regulated by the Financial Services Authority. www.rjis.co.uk

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AGENDA

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To obtain the best return from the assets commensurate with the level of risk the

customer is prepared to accept

OBJECTIVE

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VIX (implied volatility) Index.Vertical axis is the 30 day volatility implied by the pricing of S&P 500 index options

RISK IS NOT STATIC

2/1/04 29/7/11'05 '06 '07 '08 '09 '10Jul Jul Jul Jul Jul Jul Jul

VIX New Methodology Index

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ScopeShareChart (c) www.sharescope.co.uk

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UKX31/12/07 31/12/08Apr Jul Oct

FTSE 100 & FTSE Eurotop 100

Feb Mar May Jun Aug Sep Nov

Index

7500 7500

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FTSE Japan 40

FTSE 100

S&P 500

FTSE Eurotop 100

RISK IS NOT SPECIFIC TO GEOGRAPHY

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UK Government GiltsDown 18% in 1994

Rated Corporate Bonds Down 35% From Jan 06SLXX

3/4/06 1/4/09'09'07 '08

iShares iBoxx £ Corporate Bond

Jul Jul Jul

Pounds ETF

145

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3/1/94 30/12/94Apr Jul Oct

D. Barclays Capital UK Gilt >15Yrs Sterling Bond I

Feb Mar May Jun Aug Sep Nov

Pence

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RISK IS NOT SPECIFIC TO ASSET CLASS

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

21.66 70.55 42.91 8.32 20.64 36.67 13.90 45.41 13.45 34.67 14.86 74.14 22.12

18.60 37.34 7.68 7.62 9.91 18.36 9.94 37.25 13.15 20.53 4.67 24.06 14.0

13.02 30.40 5.98 5.08 8.35 16.56 9.21 20.55 4.65 6.51 -13.04 22.96 13.7

10.90 21.25 5.98 -2.48 4.00 11.98 7.84 18.10 2.71 5.97 -18.68 14.8 12.8

7.21 5.33 -6.97 -15.41 -16.87 9.44 6.28 8.93 1.57 5.52 -20.73 10.09 11.33

-28.46 0.07 -7.97 -15.94 -24.97 3.69 4.65 7.59 0.00 2.03 -32.78 12.12 4.09

-28.73 -3.39 -26.09 -19.75 -29.05 2.14 4.40 4.65 -14.68 1.83 -38.00 0.50 0.50

Green=FTSE All Share (ex divs, source: Sharescope)Orange=MSCI Emerging Markets (ex Divs, source: MSCI)Blue=MSCI World (ex divs, source: MSCI)Mauve= Cash (BOE Base month average, source Bank of England)

Black=UK Govt Gilts 5-15 yrs (source: Barclays Capital)Grey=UK Corporate BBB 5-15yrs (source: Barclays Capital)Red=RJ CRB Total Return (source: Reuters Jefferies)

ANNUAL VARIATIONS IN ASSET CLASSPERFORMANCE

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• Fixing asset allocation will from time to time lead to an allocation to assets

underperforming the required rate of return

• Exposure through individual shares may be too risky for majority of clients

• Exposure through actively managed funds is expensive relative to other vehicles

that are now available and it doesn’t guarantee superior results

• Risk is traditionally adjusted by increasing the fixed interest content or other

perceived low risk assets

• Cash is an asset class in its own right

OBSERVATIONS

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• Reduce risk through asset diversification

• Reduce risk through continuous analysis of relative asset volatility

• Use low cost indexed vehicles for stock selection

Aim to deliver an absolute return commensurate with each client’s individual risk

profile, while recognising this approach may under perform recognised

commercial benchmarks

iFUNDS APPROACH

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• Which asset classes represent the best value?

• Allocation to each asset class calculated based on risk

• Use index tracking ETFs to manage the portfolio

THE INVESTMENT PROCESS

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BEST VALUE ASSET CLASS?

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EQUITIES COMMODITIES REAL ESTATE CORPORATE BONDS

UK FIXED GILTS

INDEX LINKED GILTS

CASH AND SHORT GILTS

UKUS

EuropeAsia

PacificLatin America

EnergyGrains

Industrial MetalsLivestock

Precious MetalsSofts

All Commodities

Asia

Europe

America

UK >15 yrs UK >15 yrs UK > 15 yrsCash

UK Gilts 1-5 yrs

Large CapMid Cap

Small Cap- - - - - -

LongShort

LongShort - - - - -

Currency(USD, GBP,

Euro)- - - - - -

THE ASSET CLASSES CONSIDERED

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• Consider everything in sterling return terms

• Adjust prices to reflect recent volatility

• Compare each asset class with every other asset class

• Produce a “league table” of relative positions

• Table shows which asset class provides best return for a unit of risk

• Calculations run on a daily basis

• Material changes in position tend to take place over weeks/months

RANKING THE ASSET CLASSES

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RANKING 1st AUGUST 2011 RANKING01/07/11

1 UK Gilts (Short Dated) (1)

2 UK Gilts (Inflation Linked) (2)

3 European Large Cap Equities (Inverse) (17)

4 Precious Metals (8)

5 Asia Equities (Dividend) (14)

6 US Property (3)

7 UK Gilts (Long Dated) (5)

8 UK Corporate Bonds (Long Dated) (22)

BUFFER ZONE

9 Japanese Small Cap Equities (23)

10 Asia Large Cap Equities (Emerging Markets) (25)

TOP RANKED ASSET CLASSES

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RISK BASED ASSET ALLOCATION

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• Size of each investment in the portfolio is dependent on its recent historical risk profile, combined with the portfolio type selected i.e. the higher the portfolio risk, the greater the exposure to the riskier assets available

• Risk Tolerance is the expected immediate loss (or gain) on the overall fund as a result of the price of one individual holding changing by one standard deviation

Example

£1,000,000 ‘Yellow’ portfolio. Risk tolerance = 0.5%.(ie expected immediate loss or gain = £5000 (0.5% x £1m))

Volatility* Position Size

20% £5000 / 0.2 = £25,000

15% £5000 / 0.15 = £33,333

10% £5000 / 0.1 = £50,000

*200 day moving average standard deviation

RISK BASED ASSET ALLOCATION

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PORTFOLIO ANNUAL RETURNS

ANNUAL VOLATILITY

RISK TOLERANCE

ORANGE 10.7% pa 8.4% pa 0.65%

YELLOW 9.5% pa 7.4% pa 0.50%

GREEN 8.6% pa 6.3% pa 0.40%

BLUE 8.0% pa 5.8% pa 0.35%

INDIGO 6.8% pa 4.6% pa 0.25%

• Annual returns are average gross return per annum (transaction costs accounted for but consideration should be given to the impact of management fees)

• Volatility: A measure of how risky an asset is – the higher the figure the more risky the asset• Risk Tolerance is the overall fund loss due to expected negative performance per investment (as per example from previous slide)

SPECTRUM FUNDS

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• Note: This chart represents simulated performance and the past results are not indicative of future performance. Figures used are net of transaction costs but gross of annual management fees. Source: iFunds/National Office of Statistics

SPECTRUM RETURNS V INFLATION

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• Note: This chart shows simulated performance of the iFunds Spectrum range and actual performance of the Retail Price Index (RPI). Spectrum figures used are net of transaction costs but gross of annual management fees. Past results are not indicative of future performance. All performance figures shown are annualised (geometric) average three year period returns (ending 31 st December for each year shown). Data sources: iFunds and National Office of Statistics.

SPECTRUM RETURNS V INFLATION

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ASSET ALLOCATION 1 AUGUST 2011

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CHANGES IN ASSET ALLOCATION

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USE EXCHANGE TRADED FUNDS

• Index Trackers• Low Total Expense Ratios (TERs) of 0.40% versus 1.80% for active managed funds• Low ‘frictional costs’ e.g. Bid/offer spreads• Real time dealing• Liquidity• Low tracking error• Transparency of holdings• Wide range• Suit active management• No outperformance or underperformance relative to index tracked

*Source: Barclays ETF Study, June 2010, European Funds

STOCK SELECTION

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BLUE PORTFOLIO SIMULATED RETURNS SINCE 1997

Note: This chart represents simulated performance and the past results are not indicative of future performance. Figures used are net of transaction costs but gross of annual management fees.

9/9/97 29/7/11'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

FTSE APCIMS Stock Market Balanced Portfolio & Z. Spectrum03.5Blue6000

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GREEN PORTFOLIO SIMULATED RETURNS SINCE 1997


9/9/97 29/7/11'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

FTSE APCIMS Stock Market Balanced Portfolio & Z. Spectrum04.0Green

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YELLOW PORTFOLIO SIMULATED RETURNS SINCE 1997


9/9/97 29/7/11'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

FTSE APCIMS Stock Market Balanced Portfolio & Z. Spectrum05.0Yellow

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• A multi- asset class investment process tailored to each customer’s individual risk profile

• Use of collective index trackers to reduce stock specific risk

• A focus on absolute real returns above RPI

• Targeted portfolio risk profiles

SUMMARY

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WHO CAN BENEFIT FROM IFUNDS APPROACH?

• Clients with a specific risk/return objective in mind

• Clients who are not concerned with performance relative to a commercial benchmark (e.g. FTSE 100), as long as their personal long term risk/reward objective is achieved

SUMMARY

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• iFunds founded 2002 with

• Over 60 years combined investment experience

• Total iFunds assets under management £140m*

• iFunds is a trading name of Raymond James Investment Services Limited, part of Raymond James Financial Inc. (RJF)

• RJIS assets £2.6bn*

• RJF global assets exceed $278bn*

• Relationship provides:

- Platform for active investment management- Direct stock market access- Safe custody – all assets held by Pershing Securities Limited.- Financial stability-Economies of scale

* As at 30 June 2011

iFUNDS AND RAYMOND JAMES

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Volatility is the annualised standard deviation based on monthly performance figures

Return figures based on bid price at close of business on last day of the month

Returns for simulations are calculated net of transaction costs but gross of annual management fees

iFunds is a registered trade mark used under sub-licence from Raymond James Investment Services Limited (RJIS). Registered in England and Wales number 3779657. Registered office 77 Cornhill, London, EC3V 3QQ

RJIS is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. www.rjis.co.uk

Performance

This document is issued by iFunds. Past performance is not a reliable indicator of future results. Quoted yields are not guaranteed. Except where otherwise indicated performance numbers are sourced from iFunds. We reasonably believe that the information contained herein is accurate as at the date of publication. This document must not be relied on for purposes of any investment decisions. This document may include simulations which are based on our current investment processes. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those simulated.

The value of investments, and the income from them, can do down as well as up and you may not recover the amount of your original investment. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

DISCLOSURES

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