Investment perspectives Iain Stewart

‘The credit crisis marks an important turning point in a number of areas’

From Cheap plentiful credit Low volatility world, rising asset prices Rising debt levels, ‘efficient’ balance sheets Small government, free markets Increasing globalisation Cheap plentiful credit Low volatility world, rising asset prices Rising debt levels, ‘efficient’ balance sheets Small government, free markets Increasing globalisation Tighter credit environment Higher economic and market volatility Falling private sector debt, rising public sector debt and household savings rate More government, more regulation Local interests take priority Tighter credit environment Higher economic and market volatility Falling private sector debt, rising public sector debt and household savings rate More government, more regulation Local interests take priority LEVERAGE THRIFT To

The world took on too much debt Credit intensity of US GDP growth Source: Datastream

How did the bubble get so big? The great moderation – US 30yr treasury yield Source: Datastream

US trade balance and US dollar reserves Source: Datastream How did the bubble get so big?

1995 Derivatives $17tn $596tn 2007 Securitised debt $80tn$14tn Broad money $6tn$66tn Power money $0.3tn$5.4tn Source: Independent Strategy/Newton How did the bubble get so big?

Prospective returns improving 2.0% PA7.0% PA9.5% PA Source: Newton

Absolute returns Absolute returns Flexible asset allocation Flexible asset allocation Unconstrained mandates Unconstrained mandates What should investors do now? Portfolio construction