Montreux presentation final

CAZENOVE UK ABSOLUTE TARGET FUND

For professional advisers only

A leader in generating absolute returns

Steve Cordell, Fund ManagerCitywire Montreux May 2012

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Investment team – fund managers

Steve Cordell, fund manager

Joined Cazenove in 2002.

A senior member of the pan-European

equity team and manager of the

Cazenove UK Equity Absolute Return

Fund, the Cazenove Leveraged UK

Equity Fund, the Cazenove UK Absolute

Target Fund and also the S&P AAA-rated

Cazenove Pan Europe Fund.

Joined from HSBC Asset Management

(Europe) Ltd where he was responsible

for several retail and institutional pan-

European portfolios.

Director of Cazenove Capital and has 18

years of investment experience.

Julie Dean, fund manager

Joined Cazenove in 2002.

A member of the pan-European equity

team and manager of the Morningstar

OBSR Bronze-rated Cazenove UK

Opportunities Fund and the Cazenove

UK Equity Fund.

Joined from HSBC Asset Management

(Europe) Ltd where she was responsible

for similar funds as well as institutional

portfolios.

Graduated from St Anne’s College,

Oxford University with a BA (Hons) in

Modern History. She has 19 years of

investment experience.

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Cazenove UK Absolute Target Fund in 2011: 11.2%

Source: Lipper at 31/12/11Source: Lipper at 31/12/11

11.18%

-3.46%

% Percentage

2011 fund (Euro share class) volatility 7.5 / FTSE All-Share 24.8

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Cazenove UK Absolute Target Fund (CAT)

Targeting 8-10%* per annum net of fees (No hurdle rate)

Expecting maximum two thirds UK Equity Market Volatility

UCITS UK OEIC using CFDs

Launched July 2008

Two share classes:

- P1 - AMC 1.25% plus 20% performance fee (with high watermark)

- P2 - AMC 0.75% plus 20% performance fee (with high watermark)

Minimum investment €1,000 (P1) or €500,000 (P2)

Sterling and euro (daily hedged) accumulation shares

*There is no guarantee that either the target or positive returns will be achieved

Performance since launch

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-40

-30

-20

-10

0

10

20

30

40

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12

Cazenove UK Absolute Target P2 GBP 9.64% FTSE All-Share TR 25.57%

Steve Cordell Appointment

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Cazenove UK Absolute Target Fund: volatility since launch


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Broadly market neutral approach

10 worst market monthly drawdowns vs fund10 worst market monthly drawdowns vs fund

Source: Cazenove Capital Management at 31/03/12Source: Cazenove Capital Management at 31/03/12

Pan-European equity team

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Chris RiceHead of Pan-European Equities

All team members have sector research responsibilities as well as product responsibilitiesAll team members have sector research responsibilities as well as product responsibilities

Social environment and ethical (SEE) research is integrated into our mainstream investment process – in addition we have 2 SRI analysts.Social environment and ethical (SEE) research is integrated into our mainstream investment process – in addition we have 2 SRI analysts.

UKUK EuropeEuropeSteve Cordell (UK Absolute)

Paul Marriage (UK Smaller Companies)

Julie Dean (UK Equity)

John Warren (UK Smaller Companies)

Matthew Hudson (Equity Income)

David Docherty (UK Equity)

Wade Pollard (UK Equity)

Charlotte Morrish (UK Equity)

Melanie Jenkins (Charity & Inst)

Chris Rice (Europe Ex UK)

Steve Cordell (Pan-Europe)

Lionel Rayon (Pan-Europe, High Alpha)

Kuldip Shergill (Pan-Europe, High Alpha)

James Sym (Europe Ex UK)

PHILOSOPHY

Business cycle – a pragmatic approach

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GDP trend growth

Recovery Expansion Slowdown Recession

Beta dominates

Beta dominates

Beta dominates

Alpha

domin

ates

Alpha dominates

• At turning points in the economic and stock market cycles, we would expect business cycle factors to dominate stock returns and as

such we would expect to commit more of our risk capital to beta factors.

• During trend periods (expansion/contraction) it is the difference between stocks and sectors which dominate stocks returns. As such we

would expect to commit more risk capital to alpha factors (either fundamental or valuation anomalies).

A pragmatic approach

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Alpha dominates

Alpha dominatesAlpha dominates

• Sector market divides are not homogenous. They do not necessarily help us determine the behaviour of these stocks within the cycle.

• Define the correlation of stocks and allocate them to seven style groupings:

Commodity cyclicalsGrowth Financials

Growth defensives

Consumer cyclicals Value defensives

Industrial cyclicals

HIGH BETA LOW BETA

• Pragmatic approach combining top-down macro view with earnings based security selection

• Avoid permanent style / size bias

• Demand for products and services changes throughout the business cycle

• Operational gearing of companies impacts profitability of companies

‘A pragmatic approach is most likely to achieve competitive and

consistent returns’

Stock selection.…..variability is predictable

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Slowdown Recession Recovery Expansion

Long

Short

Long

Short

Growth defensive

Growth

Value defensives

Commodity cyclicals

Interest rate sensitive

Consumer cyclicals


Value defensive

Growth defensive

Growth

Consumer cyclicals

Commodity cyclicals




Consumer cyclicals


Commodity cyclicals

Growth

Growth defensives

Value defensives

Commodity cyclicals


Growth

Consumer cyclicals


Growth defensives

Value defensive

Typical longs

Typical shorts

Horses for courses

31/12/99 - 12/03/03 12/03/03 - 15/06/07 15/06/07 - 03/03/09 03/03/09 - 07/07/11

Morgan Crucible Electronic & Electrical Cyclical -74% +272% -42% +74%

Bodycote Industrial Engineering Cyclical -55% +114% -26% +84%

Cookson General Industrials Cyclical -80% +98% -78% +39%

Diageo Beverages Defensive +147% -17% +40% 7%

Unilever Food Producers Defensive +178% -35% +57% 0%

Reed Elsevier Media Defensive +72% -23% +43% -4%

Stock Sector Style

Performance relative to FTSE All-Share*

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Source: Thomson Datastream

INVESTMENT PROCESS

How we determine turning points in the business cycle

30

35

40

45

50

55

60

65

70

2000 2002 2004 2006 2008 2010

Headline Index New Orders

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20

30

40

50

60

70

2000 2002 2004 2006 2008 2010


20

30

40

50

60

70

80

2000 2002 2004 2006 2008 2010


UK Markit manufacturing PMI US ISM manufacturing PMI

Germany Markit manufacturing PMI China manufacturing PMIs

Source: Markit & Thomson Datastream

High correlation between leading indicators and earnings revisions

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US ISM vs S&P 500 EPS estimates S&P 500 Index vs EPS estimates

UK Manufacturing PMI vs FTSE All-Share EPS estimates FTSE All-Share Index vs EPS estimates


Stocks also correlate to leading indicators

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Leading indicators of the cycle Industrial cyclicals follow

Source: Merrill Lynch

Portfolio construction

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Pan-European equity strategy meeting

Portfolio

Position sizing

Stock selection process

7 style tilts

75%

25%

Emphasis

Strength of view

Potential returns

Stock volatility

Quantitative screening

Qualitative screening

Stock opportunities analysed more in depth

Where we are?

Where we are going?

Tilts weighting to reflect our business cycle view

Avoid permanent style / size bias

Diversified portfolio

Low correlation

Three type of trades to add value

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Business cycle factorsBusiness cycle factors Security analysisSecurity analysis

E Example Long: GlaxoSmithKline

Short: Solvay Tech

Long: Babcock

Short: Intertek

Long: Spectris

Short: Talvivaara

Business cycle trades50 – 90%

Directional trades20 – 50%

Trade

Range

Relative value trades0 – 10%

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Net / gross exposures since launch

Source: Cazenove Capital Management at 31/03/12Source: Cazenove Capital Management at 31/03/12

Average net exposure % Monthly gross exposure %

Cazenove UK Absolute Target Fund in 2011: 11.2%

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-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11

Cazenove UK Absolute Target P2 GBP FTSE All-Share TR

-3.46%

11.24%

% Percentage

2011 fund volatility 7.5 / FTSE All-Share 24.8

How we made our 11.2%* net return in 2011

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Largest 10 sector impacts (bps) Longs Shorts Total

Support Services 138 83 222

Mining -3 203 200

Chemicals 18 116 134

Industrial Metals & Mining 131 131

Pharmaceuticals & Biotechnology 108 108

Electronic & Electrical Equipment 95 11 106

General Retailers -42 117 75

Life Insurance 46 22 66

Software & Computer Services 7 -89 -82

Media -150 -19 -169

Source: Cazenove Capital Management 12 months to 31/12/11

*P2 GBP Class

Longs Shorts Net

Total Estimated Contribution (bps) 488 631 1120

Risk on, risk off…

23


Commodity prices vs USDUK defensives % PER premium vs cyclicals

Macro dominates markets now

OUTLOOK

… and in the real world

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Source: Thomson Datastream / Bloomberg

The boom and bust of America’s housing market

China money supply vs copper Prices

UK, US and Eurozone bank lending

• UK supported by QE - just

• Credit crunch in Eurozone – recession likely

• China growth/inflation balance more sustainable – easing started

• US muddle through - at risk from European contagion?

• UK supported by QE - just

• Credit crunch in Eurozone – recession likely

• China growth/inflation balance more sustainable – easing started

• US muddle through - at risk from European contagion?

Can the US economy continue to surprise on the upside?

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US corporate profits as a % GDP at an all time high US NFIB smaller companies business optimism

The global output cycle: American outperformanceUS economic surprise indicator

Source: Bloomberg & Thomson Datastream

Can the UK & Europe grow?

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UK BOE QE To date, planned and consensus forecast for end-2012

German export orders

UK GDP

Source: Thomson Datastream / Bloomberg & BofA Merrill Lynch European Equity Strategy

FTSE All-Share earnings forecasts

UK GDP

Summary

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Genuine asset diversifier

Highly liquid strategy

Macro / business cycle expertise

Low volatility, incremental returns

Utilises European equities if needed

Flexible trading approach

Risk management – UK Absolute Target

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NICK BUCKNELL joined Cazenove in 2003. He is Head of Risk and is responsible for risk management

across equities, bonds and hedge funds. Nick is also involved in providing strategic asset allocation advice.

Prior to joining Cazenove Capital, Nick held similar positions at Newton Investment Management and Merrill

Lynch Investment Managers. Nick graduated from Exeter University with a first class degree in

Mathematical Statistics & Operational Research. Nick is a Fellow of the Institute of Actuaries and has 15

years of investment management experience.

Leverage & stock controls Independent monitoring Size, style, hedging

Max 200% gross exposure

(typical range 100 – 175%)

Max 50% net exposure (typically up to +/-25%)

Will not invest in unquoted stocks

Normal positions <5% NAV

Typically 30 – 50 holdings on each side of the

balance sheet

Daily VaR monitoring and stress testing done

in-house

Fortnightly factor analysis

Monthly analysis of realised performance

Monthly liquidity analysis

Unconstrained sector positioning

Bias to large and midcap

No automatic stop loss

Will use CFD’s

Use of futures & ETF’s

Selective investment in European markets

Can buy options or write calls

QUESTIONS

Regulatory information and risk warnings

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Issued by Cazenove Capital Management which is the name under which Cazenove Capital Management Limited and Cazenove Investment Fund Management Limited both authorised and regulated by the Financial Services Authority provide investment products and services. Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and an investor may not get back the amount originally invested and may be affected by fluctuations in exchange rates. The levels and bases of tax assumptions may change. This document is for information purposes only and does not constitute an offer to enter into any contract/agreement nor is it a solicitation to buy or sell any investment or to provide any services referred to therein. This document is intended for Professional Advisers, Professional Intermediaries and non-private clients only.

The Cazenove UK Absolute Target Fund is registered for sale in the following jurisdictions: Austria, Denmark, France, Germany,

Guernsey, Ireland, Italy, Jersey, Luxembourg, The Netherlands, Singapore, Spain, Sweden, Switzerland, The United Kingdom.

Further information on the performance fee and risks of the fund can be found in the full Prospectus and Key Investor Information document (KIID). The KIIDs are available in the following languages German, Swiss-German, Danish, Spanish, French, English, Italian, Dutch, Swedish.

Montreux presentation final

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