An Introduction to Brooks Macdonald Asset Management

September 2010

Market Update

October 2010

Market Update – 3 years in Local Currency

Market Update – 3 years adjusted for Sterling

Markets – Conflicting forces

Micro vs Macro

Inflation vs Deflation

Macro Economic Factors

High unemployment

Lower consumer spending

Public sector cuts

Banks deleveraging

US dual deficit

Higher personal taxation

Micro – Company Level Factors

Companies profitableLow debt levelsHigh earnings / dividend yieldsLow equity valuationsCompanies generating lots of cash• Merger & Acquisition (M&A)• Expansion• Higher dividends / share buybacks

Low equity allocations at present

Markets – opportunities

Defensive UK & International dividend paying stocks (value opportunities)

Asia Pacific and Emerging Markets

Gold?

Cash on deposit?

Banking shares?

Markets – Risks

Government Bonds (Gilts)

PIIGS ( Portugal, Italy, Ireland, Greece & Spain)

Consumer

Inflation – additional Quantitative Easing

Exchange Rates

US Dollar versus Sterling

Little value in Gilts – End of the Bull market in Gilts????

2

3

4

5

6

7

8

9

10

11

12

13

14

UK 10yr Gilt Yield

Value in high yielding equities

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%

10yr Gilt Yield

FTSE 100 Index

IG Corporate Bond

Glaxo

BAE Systems

Vodafone

National Grid

Income Yield - Equities v Bonds

Asia can afford to spend

Source: IMF Financial stability report, Apr 09, CEIC, Nomura Global Economics

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Debt % of GDP Gross public debt-to-GDP ratios in 2010

OECD average

Why Asia Pacific/Emerging Markets?

Increased financial and political stabilityCurrent account surpluses/lower levels of debt (both government and individual)Young populationsGrowth of domestic demand, rather than just export-led economies, and continued growth of middle class/urbanisationDiversified region (e.g. Australia – commodities; Singapore – finance; South Korea – manufacturing)The progression of China from third world to 1st world economy and the benefits for the region as a whole (e.g. tourism in Taiwan)

Asset Allocation range (2004-2010)

BMAM Medium risk

Equity markets to remain volatile whilst market views polarised

Western governments weak

Double dip unlikely, slower growth likely

Outlook

Disclaimer

Brooks Macdonald Asset Management Limited are authorised and regulated by the Financial Services Authority.

This documentation may contain confidential or legally privileged information that is intended for the addressee only. Any views or opinions presented are solely those of the author and do not necessarily represent those of Brooks Macdonald. If you are not the intended recipient you are hereby notified that any disclosure, copying, distribution or reliance upon the contents of this documentation is strictly prohibited. If you have received this documentation in error, please notify the sender immediately , so that arrangements may be made for its proper delivery.