1. The Corporate Bond Market
Chair: Julian Parker, Chartered FCSI, President, CISI Guernsey Branch
Speaker: Kevin Telfer, Fixed Income Product Specialist, Kames Capital
16 January 2013
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2. Fixed income update January 2013
Kevin Telfer – Fixed Income Product Specialist

3. Kevin Telfer – Fixed Income Product Specialist
Kevin is a fixed income product specialist and is responsible for liaising with clients, consultants and financial advisers. He joined us in 2006 from Aon Consulting where he was an investment consultant, and has 16 years’ industry experience. Kevin studied Actuarial Mathematics and Statistics at Heriot Watt University name and is a Fellow of the Institute and Faculty of Actuaries.
 Richard McGrail – Business Development Manager
Richard joined Kames Capital in 2007 as a Business Development Manager for the North of England, Scotland and Ireland. His role encompasses developing relationships with Wealth Managers and key regional IFA clients. Prior to this, Richard spent three years with Aviva successfully developing key business relationships with national and regional clients. Richard has over 13 years experience in the financial services industry and is AFPC qualified.

4. Introducing Kames Capital
Specialist investment management business
271 employees, including 85 investment professionals in Edinburgh, London and the Netherlands
Funds under management of £52 billion*
Expertise in four principal areas: fixed income, equities, properties and multi-asset
Clients in the UK, Europe and Asia
Wholly-owned subsidiary of AEGON NV, one of the world’s leading financial services businesses
Our investment capabilities
Fixed income
Equities
Property
Multi-asset
Our clients
Corporate pension funds
Public funds
Financial institutions
Charities/foundations
Wealth managers
Financial advisers
Source: Kames Capital as at 31 December *As at 30 September 2012

5. Liquidity – what the fund managers are saying
“daily volumes are on a par with where they were in 2007”
Richard Woolnough, manager of the £6.5bn M&G Corporate Bond Fund, £5.8bn M&G Strategic Bond Fund & £10.7bn M&G Optimal Income Fund
Bond Vigilantes, 4 Dec 2012
“trading in the sterling corporate bond market is more expensive and difficult than before the financial crisis”
Ian Spreadbury, manager of the £3.3bn Fidelity Moneybuilder Income Fund
Investment Week, 4 Dec 2012
“anybody who says liquidity is not a problem is lying”
Richard Hodges, manager of the £1.6bn Legal & General Dynamic Bond Fund
Independent on Sunday, 19 Aug 2012
“liquidity in the corporate bond market can be pretty patchy”
Paul Reed, manager of the £5.8bn Invesco Perpetual Corporate Bond Fund
Investment Week, 17 Dec 2012

6. Equities & bonds – important differences
Trading mechanism
Exchange
Counterparty
Pricing ?
Market size
£1,774 bn
£533 bn
So what does this mean?
Corporate pricing can be inconsistent and liquidity is lower
Corporate bonds are therefore less suitable to index tracking
Source: FTSE UK All-share Index market cap from FactSet as at 31 December iBoxx £ Non-Gilt Index from Barclays as at 31 December 2012

7. The challenge of managing corporate bond funds
£bn
Source: Federal Reserve Bank of New York and Investment Management Association as at January 2012

8. No longer able to rely on steady supply of new bond issuance
£bn
Source: Barclays

9. Best selling funds in the IMA £ Corporate Bond sector
Fund size (£bn)
31 July 2012
31 July 2007
M&G Corporate Bond
6.6
1.1
Invesco Perpetual Corporate Bond
5.7
1.9
M&G Strategic Corporate Bond
5.5
0.9
Scottish Widows Corporate Bond
3.5
2.2
Fidelity Moneybuilder Income
3.1
1.2
Total sector
50.3
25.0
Source: Lipper as at 31 July 2012

10. Managing liquidity in credit funds
Fund liquidity carefully monitored and tested
Illiquid investments at manageable levels
Pricing protects investors
Derivatives, cash and gilts

11. Liquidity in Kames Capital’s credit funds
Sterling Corporate Bond (%)
Ethical Corporate Bond (%)
Investment Grade Bond (%)
Strategic
Bond (%)
High Yield Bond (%)
1 day or less
35.7
31.8
43.4
36.0
20.0
2-7 days
29.8
25.7
33.7
50.5
8-30 days
18.4
18.7
13.0
10.2
15.2
Over 30 days
13.7
22.3
8.2
8.6
Over 6 months
2.4
1.5
1.7
1.8
4.1
Source: Kames Capital as at 30 June Figures are unaudited and there is no guarantee that the above figures will remain unchanged in the future.

12. Equities & bonds – important differences
Trading mechanism
Exchange
Counterparty
Pricing ?
Market size
£1,774 bn
£533 bn
So what does this mean?
Corporate pricing can be inconsistent and liquidity is lower
Corporate bonds are therefore less suitable to index tracking
Source: FTSE UK All-share Index market cap from FactSet as at 31 December iBoxx £ Non-Gilt Index from Barclays as at 31 December 2012

13. Corporate bond pricing differentials
Source: Barclays , Markit and Bloomberg as at 31 January 2010

14. How we price our corporate bonds
Process is independent of fund managers and fully audited
Primary sterling corporate bond price provider is iBoxx
Supplied prices are monitored for anomalies
Formal secondary pricing process when required

15. Regulators concerned about liquidity?

16. Appendices

17. Kames UK OEIC – building blocks or blend?
Strategic Bond Fund
27%
Investment Grade Bond Fund
High Yield Bond Fund
28% 9%
Source: Kames Capital as at 31 August 2012

18. Key personnel for your mandate
Philip Milburn
Melanie Mitchell
Claire McGuckin
David Roberts
Colin Finlayson
Stephen Snowden
Euan McNeil
Iain Buckle
Multi award-winning team
Our funds benefit from our award-winning fixed income capability
Source: Kames Capital as at 31 December 2012

19. Kames Investment Grade Global Bond Fund
Investment grade portfolio
Invests primarily in investment grade and government bonds in any currency
Ability to invest in selected high yield bonds
1 year
2 years
3 years
4 years
5 years
Fund
15.23%
14.43%
23.76%
52.50%
39.24%
Median
12.36%
14.53%
21.13%
42.65%
33.34%
Quartile 1 3 2
Outperformance
2.87%
-0.10%
2.63%
9.85%
5.90%
Source: Lipper as at 31 December NAV to NAV, income re-invested. Total return, local currency, A Inc USD class. Launch date 8 November Past performance is not a guide to the future.

20. Important information
Following a request to provide attendees with an insight into FI Bonds, this presentation has been complied for educational purposes only and does not constitute a financial promotion in terms of section 21 of the Financial Services and Markets Act The information in this presentation is based on the opinions of the presenter as at 16 January 2013 and should not be interpreted as advice or recommendations. The information contained in this presentation is derived from proprietary and non-proprietary sources deemed by Kames Capital to be reliable and are not necessarily exhaustive or guaranteed as to accuracy. Reliance upon the information in this presentation is at the sole discretion of the listener. The information contained in this presentation is confidential and has been prepared and is intended for use on a confidential basis at the CISI event Guernsey on 16 January 2013 only. It may not be reproduced, redistributed or passed on to any other persons or published on whole or part for any purpose. Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number ), registered office at North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland. Kames Capital is an AEGON Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Services Authority (FSA reference no: ). Kames Capital plc provides segregated and retail funds and is the Authorised Corporate Director of Kames Capital ICVC, an Open Ended Investment Company. Kames Capital Management Limited provides investment management services to AEGON, which provides pooled funds, life and pension contracts. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an AEGON company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSA reference no: ).
FP ID: 2013/15024