High conviction investing 2nd February 2006 Andrew Dalrymple – Senior Portfolio Manager

1 Investment risk The investment definition of risk: Deviation from the benchmark The ‘real’ definition of investment risk: Losing money!

Market risks and the pitfalls of benchmarking

3 Regional constituents of the MSCI World Index (2005) As at 31 Dec 05 % More than 50% of the index is made up of US stocks Less than 4% from Asia Zero allocation in emerging markets: an area that has produced the highest returns over the last 2-3 years GDP vs MSCI weighting miss match

4 Index comparisons – performance of regional stock markets Three years to 31 Dec 05 in USD. Source: Lipper Hindsight. Strong outperformance of certain regional markets over time v MSCI and S&P 500 Benchmark investors miss key market trends 0.0% 3.6% 11.7% 30.0% % of MSCI World Index % 54.7%

5 MSCI World sector breakdown and performance Sector and performance breakdowns one year to 31 Dec 05 in GBP % Benchmark investors miss key themes Significant 2005 outperformance of energy and materials MSCI World Performance (2005): 23.0%

Stock risks and the pitfalls of benchmarking

7 FTSE 100 – market domination of large stocks StockIndex weighting BP9.1 HSBC Holdings7.5 GlaxoSmithKline6.1 Vodafone Group5.5 Royal Dutch Shell5.0 Royal Bank of Scotland3.9 Royal Dutch Shell3.6 AstraZeneca3.2 Barclays2.8 HBOS As at 31 Dec 05.

8 NASDAQ – market domination of large stocks StockIndex weighting Microsoft Corp8.2 Intel Corp3.7 Cisco Systems Inc3.3 Amgen Inc2.6 Google Inc2.5 Qualcomm Inc2.2 Dell Inc2.0 Oracle Corp1.9 Apple Computer Inc1.8 eBay Inc As at 31 Dec 05.

9 NASDAQ – Share Price vs Index weightings Microsoft Corp & Intel Corp 12.3% 7.6% $ 8.2% 3.7% As at 31 Dec 05.

10 Hang Seng – market domination of large stocks StockIndex weighting HSBC Holdings Plc30.2 China Mobile Hong Kong15.5 Hutchison Whampoa6.7 CNOOC4.6 Hang Seng Bank4.1 Cheung Kong Holdings3.9 Sun Hung Kai Properties3.8 BOC Hong Kong Holdings3.4 CLP Holdings2.3 Hong & China Gas As at 31 Dec 05.

11 Hang Seng – Share Price vs Index weightings HSBC Holdings Plc & Hutchison Whampoa $ 27.5% 10.7% 30.2% 6.7% As at 31 Dec 05.

Missed Opportunities and High Conviction Themes

13 High Conviction Themes – Asia  Severe economic difficulties in late 1990’s  Last five years have seen steady improvement in corporate and personal balance sheets  One of the strongest areas in the world for private consumption  Favourable demographics  Strong work ethic / entrepreneurial culture  Highly competitive cost base  Attractive valuations  Improving political stability

14 Bharti Televentures (India) Non-Index stock India’s leading mobile telephone operator (12.5 m customers) Subscriber growth +50%p.a. Mobile penetration rate remains low (4%) Excellent, proven management Source: Bloomberg, as at 31 Dec 05 INR

15 High Conviction Themes – How to Invest in the US  Strong ‘bottom up’ focus  A stock pickers paradise  Franchise builders, consolidators  Niche/specialist players

16 LKQ Corp (US) Non-Index stock Source: Bloomberg, as at 31 Dec 05 USD Only national provider of recycled car parts Highly fragmented market Huge market opportunity Strong value proposition

17 High Conviction Themes – Energy  Free cash flow of E&P majors is very strong  Supply side struggling (gas decline rate of 30% p.a.)  30% more drilling activity in 2005  Service utilisation rates approaching 100% (land and offshore)  Rig day rates at 15 year highs  Cycle to continue owing to rig shortage

18 Ocean Rig (Norway) Non-Index stock NOK Operator of the two most advanced semi submersibles in the world Rig day rates have doubled since last September Strong demand for harsh environment capability Trading around NAV Purchased Added to position Source: Bloomberg, as at 30 Sep 05 Sold

19 SolarWorld (Germany) Non-Index stock EUR Source: Bloomberg Purchased Took profits Sold You all know this one!

20  Best ideas portfolio  global opportunities  Conviction based approach  Benchmark aware but not constrained or driven  Strong sector, regional and size bias High Conviction Themes – Portfolio Construction

21 A High Conviction Investor…  Can be contrarian  Has complete flexibility  Identifies and explores themes and areas  Is not forced to buy stocks or regions  Has an absolute return mindset

22 £1,000 invested in First State Global Opportunities Fund Since launch to 31 Dec 05. Source: Lipper Hindsight, bid to bid, net income reinvested, in £ sterling £

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