National Society of Institutional Investment Professionals Inflation – The Next Disaster? Mark Roberts, CFA® Global Director of Research December 3, 2009 North America: Dallas • San Francisco • Newport Beach • New York • Atlanta Europe: London • Paris • Munich • Prague • Madrid Asia: Hong Kong • Shanghai • Tokyo

Table of Contents Structural and Cyclical Components “Road Signs” - Leading Indicators How Can Investors Protect Themselves - Correlations CONFIDENTIALITY NOTICE: All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. This publication may contain confidential and proprietary information of Invesco Institutional and/or Invesco Ltd. Circulation, disclosure, or dissemination of all or any part of this material to any unauthorized persons is prohibited. Unauthorized reproduction or distribution of all or any part of this material is prohibited.

Demographics Can Impact Inflation Population of persons 20-34 can drive consumption and credit demand Source: Invesco Real Estate using data from Moody’s Economy.com. Chart reflects annual data from December 31, 1965 – September 2009.

Government Spending Can Impact Inflation Sharp moves in spending can lead inflation by 3-4 years Source: Invesco Real Estate using data from Moody’s Economy.com. Chart reflects annual data from December 31, 1965 – September 2009. Government Spending as a share of GDP is shifted forward by three years to reflect the leading impact it has on inflation.

Shelter Costs Down, Oil Presents Inflation Risk CPI-Shelter Costs; Qtr Growth, Annual Oil Price: WTI, ($/Bbl) Source: Invesco Real Estate using data from Moody’s Economy.com, December 31, 1998 – September 30, 2009. CPI-Shelter Costs reflect quarterly growth and is shown in annualized terms.

Business Inventories: Shortages Could Present Inflation Risk, But Plenty of Capacity Available Moody’s Economy.com: IITB.US SITB.US Census Bureau: Manufacturing and Trade Inventories and Sales - NAICS version Source: Invesco Real Estate using data from Moody’s Economy.com; December 31, 1992 – September 30, 2009

Money Supply Growth High but Velocity Down M2 Growth by Quarter, Annualized Money Velocity (GDP/M2) Source: Invesco Real Estate using data from Moody’s Economy.com. Money Supply Growth (M2) and Velocity charting quarterly data from 1970 through 3Q09 and shown in annualized terms.

Inflation Expectations Remain Low Expectations equal to the difference between bond yields and TIPs Source: Invesco Real Estate using data from the Federal Reserve Board from December 31, 2002 – September 30, 2009. Expected inflation is calculated as the difference between the 5-year nominal Treasury yield and the 5-Year Treasury Inflation Protected (TIP) yield.

Inflation Expectations Predict Trends Well Since 2003, the bond market leads actual inflation by 6-9 months Source: Invesco Real Estate using data from the Federal Reserve Board and Moody's Economy.com for the inflation data. Data reflects the timeframe from December 31, 2002 – September 30, 2009. Expected inflation is calculated as the difference between the 5-year nominal Treasury yield and the 5-Year Treasury Inflation Protected (TIP) yield.

Correlation of Asset Class Returns and Inflation Long-Term Historical Correlations Source: Invesco Real Estate using data from Morningstar/Ibbotson & Associates. Correlations for the time period from December 31, 1979 – December 31, 2008 with the exception of the Gold and Silver Index December 1991-December 2008 and Bar Cap TIPs which commences in December 1997 – December 2008.

Correlation of Real Estate Returns and Inflation Sectors with shorter lease terms may provide a better inflation hedge Source: Invesco Real Estate using data from Morningstar/Ibbotson & Associates and NCREIF. Correlations for the time period from December 31, 1977 – September 30, 2008.

Correlation of Real Estate Returns and Inflation: Expected and Unexpected Long-Term Historical Correlations by Property Type Source: Invesco Real Estate using data from Morningstar/Ibbotson & Associates and NCREIF. Correlations for the time period from December 31, 1977 – September 30, 2008.

Thank You! Mark Roberts, CFA® Global Director of Research Mark.Roberts@invesco.com