AROUND THE WORLD IN 80 MINUTES European Cazenove Investment Management For professional advisers only

Europe's perfect storm Deflationary policy environment Constitutional crisis Deleveraging environment Low-growth world Growth at risk Perfect investment opportunity? 1

Investor confidence undermined net mutual outflows in Europe -€65bn Source: Lipper at 31/12/11

Professional opinion divided CPI actual between 2-3% in 2011 Only high forecasters achieved credibility Deflationary concerns avoided for now 3 Consensus of economists and bank advisers fragmented <2.5% experts were correct on €489bn funding LTRO success is deemed critical for illiquid markets Deep recession avoided? 2nd LTRO spread of forecasts* Source: *UBS Survey at 17/02/12, **Absolute Research Strategy at 01/02/12 Eurozone inflation forecasts** (%)

Crisis? What crisis? UK National debt more likely to exceed 100% GDP Eurozone debt looks stable relative US S&P AAA credit rating unlikely to restored in the medium term Confidence in European inter-bank lending increasing LTRO judged a success European currency crisis avoided for now 4 Gross debt as a % of GDP*Euribor-OIS spread (bps) Source: Thomson Datastream at February 2012, Bloomberg at 23/02/12

“Eurozone crisis putting pressure on EM equities” FT Adviser - 27 Feb 2012 “Europe Delays Debt Talks After Signs of Uncertain Support‎” New York Times – 29 Feb 2012 “Europe's financial crisis sparks protests ‎ ” Washington Post – 28 Feb 2012 “EU Crisis: Will Greece wreck the Eurozone?” Economic Times - 14 Feb 2012 Eurozone GDP proportionate to media hype? 5 Eurozone countries as a % of total GDP PIGS (less Italy) economies 17.6% of 2011 GDP Source: Thomson Datastream at 31/12/11

Budget deficits falling 2010: universal flouting of 3% budget deficit rule Austerity impacting debt Even Germany almost in surplus 2011: German economy grew by 3% Italy and Germany within deficit rule 6 Eurozone government budget deficits as a % GDP * Forecasts Source: Thomson Datastream at February 2012

Franco-German business optimism positive Private sector companies only Historic PMI rallies precede strong equity revisions February PMI forecasts a ‘soft’ landing in China Oil price risk would require a trend back to $140 7 PMIs rebounded in January Source: Thomson Datastream at February 2012

Eurozone power house resilient Exports GDP Growth vs business survey (%) 8 Germany Index of investor and analyst expectations 6 month outlook Largest confidence jump since 2009 Hopes of debt crisis resolution Economy proves resilience Investor confidence survey Source: Bloomberg at February 2012

German export-led recovery Strong demand from non-EU countries Diversified export market Weakening euro will boost industrial exports Underexposed to the US market 9 % of total exports Source: Thomson Datastream at 30/11/12

European export exposure Germany, UK and France < 20% exposure to PIIGS exports 10 European Union’s 3 largest economies export exposure Eurozone’s export exposure to the rest of the world Source: Thomson Datastream at 31/12/11 Eurozone exports well positioned for global economic recovery

Risk of European market rally? Price earnings a leading indicator for increasing equity returns History offers a ‘clue’ to correlated earnings recovery to undervalued assets 11 Europe vs price earnings Source: Thomson Datastream at 23/02/12

Trough to peak recoveries in European equities 12 FTSE World Europe (since inception maximum 2 year recovery periods) Source: Thomson Datastream at 23/02/12 “If past history was all there was to the game, the richest people would be librarians” - Warren Buffett

Are European equities good value? 13 Large international companies trade at a premium Active managers need to identify value Dividend records can inflate price relative to growth Beware of valuation traps just because a stock is cheap International demand is key. In 2010, 41% of UK market was owned by overseas investors* *Source: ONS at 28/02/12 **Source: Bloomberg at 23/02/12 ┼ Source: Mirabaud at 12/03/12 Combined Market Cap**24.2% 9.8x 12.7% 11.8x 14.1% 13.8x Average P/E UKEurope (ex-UK)US Market Trend P/E ┼ 16.2x 10.3x 17.6x

US recovery impact 14 Source: Thomson Datastream at 23/02/12 European business and investors responding to US recovery

Is the reverse yield gap back? 15 Source: Thomson Datastream at 23/02/12 Low equity growth outlook increases pressure for tangible returns - DIVIDENDS Yield

Low growth outlook encourages dividend opportunity 16 Source: Thomson Datastream at 23/02/ European stocks with yields higher than their P/E Yield

Cazenove European active weightings 17 Style GroupingFund %IndexKey Stocks Commodity Cyclicals12.5ENI Consumer Cyclicals7.0Publicis Groupe Financials20.5Allianz Growth10.6Bureau Veritas Growth Defensives19.5Bayer Industrial Cyclicals14.0Alstom Value Defensives16.1Sanofi Source: Cazenove Capital Management at 31/01/ UnderweightOverweight Neutral

Cazenove European Income Fund launch 18 Only 2nd European Fund launch to be managed by Chris Rice (OBSR AA rated) Dual objective* –Income (110% of the Index) –Capital growth (index +2% net of fees over 3 years rolling) Quarterly distribution Concentrated approach: stocks European Income funds limited strong reputational fund managers 1st May launch *Not guaranteed Subject to FSA approval

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