2. Jersey Investment Briefings - November 2010 Tristan Hanson November 2010 Structural Themes & Asset Allocation Update

3. Jersey Investment Briefings - November 2010 Overview  Structural Themes: I.Quantitative Easing and implications for asset prices II.Equities: the most attractive major asset class III.Contrasting fortunes: emerging vs developed economies IV.Uncertainty is unavoidable  Asset Allocation update

4. Jersey Investment Briefings - November 2010 Theme 1: The goals of QE  Higher asset prices  Bond yields down (prices up)  Other asset prices rise (corporate bonds, equities, property)  Wealth effect on spending  Lower cost of borrowing  Influence expectations

5. Jersey Investment Briefings - November 2010 Source: Ashburton, S&P, Bloomberg Implied equity risk premium is high US: Implied Equity Risk Premium (%) Based on 12mth forward earnings per share 0 1 2 3 4 5 6 7 8 Sep-89 Sep-94 Sep-99Sep-04 Sep-09 % US: Implied Equity Risk Premium Based on Trend EPS -2 0 2 4 6 8 10 12 Dec-69 Dec-79 Dec-89 Dec-99 Dec-09

6. Jersey Investment Briefings - November 2010 Equity valuations imply attractive relative returns Source: Ashburton, Factset, Bloomberg Expected long-term real returns (local ccy) 0 2 4 6 8 10 US 10yr Govt GER 10yr Govt JAP 10yr Govt SA 10yr Govt US IG Corp US HY Corp US Equity EY GEM Equity EY EU Equity EY SA Equity EY %

7. Jersey Investment Briefings - November 2010 Corporations are in good shape Source: Deutsche Bank, Barclays Capital US Average Corporate Bond Yield 2 4 6 8 10 Jan-90Jan-95Jan-00Jan-05Jan-10 % US Corporate Leverage (Ex-Financials)

8. Jersey Investment Briefings - November 2010 Corporations are in good shape European EBIT Margins %

9. Jersey Investment Briefings - November 2010 Theme 3: Structural divergence in growth rates Source: IMF Industrial Production 80 90 100 110 120 130 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jan 2007 = 100 Retail Sales 80 90 100 110 120 130 140 150 160 170 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jan 2007 = 100 Emerging economies World Advanced economies

10. Jersey Investment Briefings - November 2010 EM: lower debt levels & improved fundamentals Source: IMF, WB 41 27 21 33 50 56 108 51 109 145 108 211 194 164 8 33 43 40 47 64 17 77 29 27 66 85 52 71 195 0100200300400 Russia Indonesia Mexico Turkey Poland Brazil China India Korea South Africa Germany Singapore UK USA Japan Private + Public Debt 2008 % of GDP Private Public

11. Jersey Investment Briefings - November 2010 US Household Balance Sheet Source: Bloomberg, Federal Reserve 0% 100% 200% 300% 400% 500% 600% 700% 800% Mar-57Mar-67Mar-77Mar-87 Mar-97 Mar-07 % of disposable income Assets/Income Net Worth/Income Debt/Income 50% 70% 90% 110% 130% 150% Dec-80Dec-85Dec-90 Dec-95Dec-00 Dec-05 % of disposable income Debt/Income

12. Jersey Investment Briefings - November 2010 European sovereign risk will not disappear Source: Barclays Capital 77 92 100 121 148 0 50 100 150 GermanySpainFrancePortugalIrelandItalyGreece Government Debt/GDP (%) 20072013

13. Jersey Investment Briefings - November 2010 Theme 4: Uncertainty  Policymakers and investors in uncharted territory  Quantitative easing & experimental monetary policy  Public debt levels & sovereign debt crises  Global coordination/global rebalancing  Perceived large tail-risks  How quickly things can change: “In due course, however, as the expansion matures the Federal Reserve will need to begin to tighten monetary policy conditions to prevent the development of inflationary pressures ”. Ben Bernanke, “Federal Reserve’s exit strategy”, speech 10 th February, 2010

14. Asset Allocation Update November 2010

15. Jersey Investment Briefings - November 2010 Asset Allocation Source: Ashburton fixed income range 0% - 80% Equity range 0% - 50% Replica Asset Management Fund Asset Allocation (21/10/10) Equities - US Equities - EU Equities - Japan Equities - Asia ex-Jap Corporate Bonds DM - Government Bonds EM - Government Bonds Cash/Equivalents 16 14 4 15 14 15 12 10

16. Jersey Investment Briefings - November 2010 Asset Management Funds: asset allocation update  Equity exposure has been effectively at limit since end-August  Equity exposure diversified globally; high exposure to China  Government bond exposure concentrated in long-end US, UK curves to exploit term premia  Long-dated TIPS exposure closed out in October following decline in real yields  High correlations and volatility make currency markets challenging. Long-term belief that the euro will decline from current levels against a currency basket.

17. Jersey Investment Briefings - November 2010 US/UK 30yrs: risk premium is high Source: Bloomberg US 30yr yield less 10yr yield -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Mar-96Mar-99Mar-02Mar-05Mar-08 % UK 30yr yield less 10yr yield -1.5 -0.5 0 0.5 1 1.5 Mar-96Mar-99Mar-02Mar-05Mar-08 %

18. Jersey Investment Briefings - November 2010 Equities: EM re-rating argues for global diversification DM cheap EM cheap Source: JP Morgan, Datastream, MSCI

19. Jersey Investment Briefings - November 2010 Conclusion  Global equities are priced to deliver attractive returns. We maintain diversified exposure across DM and EM.  Bottom-up corporate fundamentals strong  Macro/policy risks likely to cause periodic volatility & trading opportunities – be sceptical of extreme views/price action  Relative value in long-dated US and UK government bonds

20. Thank you Active Investment Managers

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