Slide 1 Ingenious Asset Managementwww.ingeniousmedia.co.uk Fixed Interest as an Asset Class and What Fixed Interest to hold in a Charity Portfolio Philip Todd 14th May 2013

Slide 2 Ingenious Asset Managementwww.ingeniousmedia.co.uk Asset Class Returns 10 Years to End Dec Jan 13 to 9 May 13 Period Return Cumulative Return Annualised Return Cash (Base Rate)33.6%2.9%0.2% FTSE Gilts All Stocks76.7%5.9%0.8% Index-Linked Gilts All Stocks103.9%7.4%7.7% Merrill Lynch Corporate Bond Index 80.0%6.1%5.0% IPD UK All Property75.9%5.8%1.7%* FTSE All-Share131.7%8.8%13.9% *Estimate Source: Morningstar Direct

Slide 3 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bonds Expensive or Cheap?

Slide 4 Ingenious Asset Managementwww.ingeniousmedia.co.uk Source: Bloomberg *Source: The Economist UK & US Government Bond Yield US bond yields last at these levels in 1947 – returned -1.6% PA next 30 years.*

Slide 5 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bond Yields Interest Yield – the annual gross income expressed as a % of the current value Cash:£100,000; interest rate 0.5%; annual income £500; interest yield 0.5% Shares:£100,000 (100,000 shares at 100p); dividend rate per share 3.32p; annual income £3,320; interest yield 3.32% Gilt:£100,000 worth (£83,319 Treasury 4% 2022 priced at £ = £100,000) -Coupon is 4% -Annual income is £3, Interest yield is 3.33%

Slide 6 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bond Yields Treasury 4% 07/03/2022 gilt (interest yield 3.33%) Current price is £ But at 07/03/2022 that £ falls to £100 For your £83,319 nominal of this Treasury 4% 07/03/2022 you will get £83,319 – a loss from now of £16,681 However, you will receive £1, every 6 months up to and including 07/2022, a total of £29, Gross Redemption Yield is 1.57% (better than cash?; less than inflation?) Gross Redemption Yield – is a measure of a bonds future return if it is held to maturity. It is expressed as a % and takes into account the time value of money, accrued interest and any capital gain or loss on redemption. It is expressed as an annual % return.

Slide 7 Ingenious Asset Managementwww.ingeniousmedia.co.uk Bond Yields PriceInterest Yield Gross Redemption Yield 9 Year Gilt TR 4% 2022£ %1.57% 4 Year Gilt£ %0.26% 25 Year Gilt£ %2.92% Treasury 4.25% 2027£ %2.31% Index-Linked Gilt 1.25% 2027 £ %-0.78%* M&G Corporate Bond Fund p3.22%2.26% *Prospective Real Redemption rate on projected inflation of 3% Source: Morningstar Direct

Slide 8 Ingenious Asset Managementwww.ingeniousmedia.co.uk What Fixed Interest to hold in a Charity Portfolio?

Slide 9 Ingenious Asset Managementwww.ingeniousmedia.co.uk You need to have a view of the world. In the UK Economic Backdrop Inflation/Deflation - Central Bank finds inflation helpful. The alternatives are growth (proving problematic) or default (unattractive) Interest Rate Direction - the next interest rate move is likely to be a rise Currency - Sterling has not shown to be a good store of value (and is unlikely to be for the foreseeable future).

Slide 10 Ingenious Asset Managementwww.ingeniousmedia.co.uk Source – Office of National Statistics, Ingenious Asset Management UK RPI post the Second World War

Slide 11 Ingenious Asset Managementwww.ingeniousmedia.co.uk Financial Repression – Inflation Source: Office of National Statistics Grow Default Debase

Slide 12 Ingenious Asset Managementwww.ingeniousmedia.co.uk Gold versus Sterling Number of Gold Troy Ounces per £1000 Source: Thompson Reuters Datastream

Slide 13 Ingenious Asset Managementwww.ingeniousmedia.co.uk Norwegian Net Debt Norway, General Government Net Debt % of GDP Graph Source: Thompson Reuters Datastream, The Economist (*6 Year),

Slide 14 Ingenious Asset Managementwww.ingeniousmedia.co.uk Fixed Interest Exposure in a Charity Portfolio EIB NOK (Norwegian Kroner) 4.25% 2017 AAA rated Supranational Bond M&G UK Inflation-Linked Corporate Bond Fund Exposure to index-linked UK Corporate issues – individual issues can be illiquid PIMCO Global Real Return Fund Exposure to the equivalent of UK index-linked gilts around the world with underweight/overweight views on geographic and duration positioning.

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