Global Strategy Guy Monson CIO & Managing Partner September 2010 1

Correlations are rising again as the “risk-on/risk-off” trade starts to dominate asset allocation thinking… Market-implied probability disruptions of S&P 500 (a) Option-implied volatilities Source: Bank of England, June 2010 Source: Bank of England, June 2010 2

Triggering an unprecedented rush into ‘safe assets’ driving bond-equity valuations close to 40 year lows Source: Ned Davis, September 2010

With retail investors jumping from zero-yielding cash to bonds…with equities still perceived as a risk asset Source: Ned Davis, September 2010

Investment-grade corporate bond spreads (a) Rising G7 debt offers little long-term attraction in govt. bonds, corp. yields are low and EM overbought? Investment-grade corporate bond spreads (a) Net inflows into emerging market debt mutual funds (a)(b) Source: IMF, April 2010 Source: Bank of England, June 2010 5

Advanced Economies’ Gross Financing Needs, 2010 The consequence has been soaring debt, and over-inflated, property-linked tax revenues in the West… Advanced Economies’ Gross Financing Needs, 2010 Source: IMF, April 2010 6

By comparison, with corporate cash flow very strong globally, our income strategy is based on global equity Deloitte asked the CFOs to select their top 3 priorities for 2010. The score is the percentage of CFOs that have included each factor in their top 3 priorities. Source: Ned Davis, September 2010 Source: The Deloitte CFO Survey, Q2.2010 7

Equity market outlook and real asset perspective Investment Implications 2008’s simultaneous collapse in global equity, corporate bond and listed real estate markets in the face of the economic crisis is almost unprecedented, as is the high degree of real asset correlation – a similarly correlated rebound is possible today. Equity and listed real estate still offer attractive yields today… although the recent market rally has been extraordinary. Corporate cash holdings are exceptionally high. Such levels are usually very supportive for asset prices… Key Opportunities The equity rally seen since March 9th, more than a year ago, is in our view part of a longer-term, low volatility uptrend that should last well into 2011. The surge in volatility and market sell off last month has not altered the long-term value in global ‘blue chips’. Global equity income is a highly attractive alternative to bonds, with corporate bonds fully valued. Super-normal cash flow promises ongoing dividend rises…BP shows the value of global diversification. Chinese and BRIC market valuations are high though, and inflationary challenges are emerging… 8 8 8

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