 Philip Todd Head of Charities Ingenious Asset Management 25 April 2012  ASSET MANAGEMENT, CORPORATE FINANCE, INVESTMENTS, VENTURES Charity Trustees Investors Association “Inflation versus the risks of putting your cash to work”

 2 Today’s (31 Dec 2011) value of £100 invested at the end of 1899, income reinvested gross NominalReal Cash£20,228£274 Gilts£31,459£427 Equities£1,639,368£22,239 THE SCOURGE OF INFLATION Source: Barclays Capital

 3 £100 CASH 10 YEARS AGO AND 10 YEARS FROM NOW *Assuming inflation and cash returns in the 10 years to 2021 = the 10 years to 2011 Source: Barclays Equity Gilt Study 2012

 4 Standard Deviation – is a measure of investment risk or volatility in sub-period returns. Higher standard deviation means higher risk. In a normal distribution, one standard deviation covers 68.2% of data points. Two standard deviations cover 95.4% of data points. When considering investment returns, a standard deviation of 15.3% means that there is a 68.2% probability that the actual outcome of an “investment” will be 15.3% either side of the mean or average return. So if the mean expected return is 5%, there is a 68.2% probability that the actual outcome will be between -10.3% and 20.3%. If the standard deviation is 5.1%, and the mean expected return is 5%, there is a 68.2% probability that the actual outcome will be between 0.1% and 10.1% So lower standard deviation equals lower risk or lower volatility. RISK

 5 STANDARD DEVIATION -25.6% -10.3%5.0%20.3%35.6% μ = 5.0% σ = 15.3% σ σ σ σ

 6 10 Years to end Dec 2011 UK Base Rate FTSE Gilts All Stocks TR GBP IPD UK All Property TR GBP FTSE All-Share TR GBP Ann Ret (%) Cum Ret (%) Std Dev (%) ASSET CLASS RETURNS Source: Morningstar, Ingenious

 7 25 Years to end Dec 2011 UK Base Rate FTSE Gilts All Stocks TR GBP IPD UK All Property TR GBP FTSE All-Share TR GBP Ann Ret (%) Cum Ret (%) Std Dev (%) ASSET CLASS RETURNS Source: Morningstar, Ingenious

 8 30 Years to end Dec 2011 UK Base Rate FTSE Gilts All Stocks TR GBP MSCI UK GBP Ann Ret (%) Cum Ret (%) Std Dev (%) ASSET CLASS RETURNS Source: Morningstar, Ingenious

 9 20 Years To 31st Dec 2011 UK Base RateAPCIMS IncomeAPCIMS BalancedAPCIMS Growth Ann Ret (%) Cum Ret (%) Std Dev (%) Source: Morningstar, Ingenious APCIMS INDICES vs CASH 10 Years To 31st Dec 2011 UK Base RateAPCIMS IncomeAPCIMS BalancedAPCIMS Growth Ann Ret (%) Cum Ret (%) Std Dev (%) Years To 31st Dec 2011 UK Base RateAPCIMS IncomeAPCIMS BalancedAPCIMS Growth Ann Ret (%) Cum Ret (%) Std Dev (%)

 10 To end Feb 2012CashLower Risk Moderate RiskHigher Risk Inception Date31/05/2004 Inception Annualised Return (%) Inception Return (%) Standard Deviation (%) Source: Morningstar, Ingenious ACTIVE MANAGEMENT vs CASH

 11 Cash, with gross income reinvested, may have beaten inflation over longer time periods but over the last 10 years, cash has not beaten inflation if only income net of tax is re- invested and certainly currently, inflation is higher than cash returns. Investing in UK equities a riskier (higher standard deviation) asset class should deliver higher returns than gilts over long time periods. Investing in a mix of asset classes should (with good management) deliver an outcome of higher returns for taking higher risk. CONCLUSION

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