Schroder GAIA Sirios US Equity January 2014 January 2014 | For professional investors or advisers only.
John Brennan Track Record 28 years investment experience Co-founded Sirios in 1999. Prior to Sirios John was Senior Vice President at MFS Investment Management where he managed the MFS Special Value Trust and MFS Capital Opportunities Fund John Brennan track record (MFS* +Sirios) John Brennan track record (Sirios) 3000% 300% 250% 2500% 200% 2000% 150% 1500% 100% 1000% 50% 500% 0% 0% -50% 1990 1992 1994 1996 1999 2001 2003 2005 2008 2010 2012 1999 2001 2002 2003 2005 2006 2007 2009 2010 2011 2013 JB Cumulative Returns S&P 500 Cumulative Returns JB Sirios Cumulative Returns S&P 500 Cumulative Returns USD 1m invested with USD 1m invested in USD 1m invested with USD 1m invested in John Brennan S&P 500 John Brennan S&P 500 3.9m 1.8m 26.0m 8.7m Result: Considerable alpha generation through time Source: Schroders and Sirios as at 31 December 2013. *MFS Special Value Trust Jan. 1990 – December 1991 and MFS Capital Opportunities January 1992 – Feb. 23, 1999; S&P 500 index performance for Feb. 24, 1999- June 28, 1999; Sirios US Equity Long Short Strategy from July 1, 1999 through 28 February 2013 and then Schroder GAIA Sirios US Equity from 1 March 2013 onwards. The charts are based on past performance and John Brennan may not replicate the same track record with Schroder GAIA Sirios US Equity. 1
Schroder GAIA Sirios US Equity Investment Aim The fund aims to outperform the S&P 500 by generating consistent returns over the long term with lower volatility through seeking to preserve capital in declining markets and capturing more than its fair share of performance in up markets . Source: Schroders 2
Sirios US Equity Long/Short Strategy* vs. S&P 500** Result: significant alpha since inception Cumulative Return Annualised Volatility Annualised Return Maximum Drawdown 0% 12% 300% 18% 16% -10% 250% 10% 14% 200% 8% -20% 12% 10% 150% 6% -30% 8% 100% 4% -40% 6% 4% 50% 2% -50% 2% 0% 0% 0% -60% Sirios S&P 500 Sirios S&P 500 Sirios S&P 500 Sirios S&P 500 Source: Sirios and Schroders as at 31 December 2013 *Sirios US equity long short strategy: Sirios offshore fund Jul.1999 - Feb. 2013 , Schroder GAIA Sirios US Equity A Acc USD Mar. 2013 onwards. **S&P 500: S&P 500 TR from Jul.1999 - Feb. 2013 , S&P 500 TR Net Mar. 2013 onwards. Past performance of the fund is not indicative of future or likely performance of the fund. 3
Schroder GAIA Sirios US Equity Sirios Capital founded in 1999 Fund is based on an existing Sirios US equity long/short fund Fundamental long/short equity fund, typically long-biased Invests primarily in US mid/large-cap companies US focussed firm with potential exposure across Asia and Europe Ability to analyse and invest across the capital structure for best risk-adjusted returns Current AUM $1.75bn* (employees represent a significant percentage of total firm assets) Liquid strategy with a moderate use of leverage Low correlation to equity markets¹ with proven downside participation² Source: Schroders and Sirios, * Source: Sirios as at 31 December 2013. ¹ Since inception (July 1999 – December 2013) Sirios US Long/Short strategy's correlation to the S&P 500 TR Index has been 0.40 ² Since inception (July 1999 – December 2013) Sirios US Long/Short strategy's participated in only 12.5% of the S&P 500 Index’s cumulative down months. 4
Portfolio Construction Longs 40–60 positions Gross exposure 125%–150% Number of (200% max) Gross and Shorts 50–70 positions positions net exposure Net is derived from idea generation long and short (25% - 75% is typical) Core longs 3–5 years Primarily US with material Holding exposure to Asia and Europe Global Catalyst longs up to 1 year periods exposure Shorts typically less than 1 year Growth oriented and valuation Opportunistic exposure sensitive Mid/Large to fixed income for equity-like Equity cap focus returns with lower risk oriented Source: Sirios 5
Investment process and risk management Exposure management focuses on downside protection and upside capture Gross/ Net exposure • Gross/ net exposure typically changes gradually through time depending on the prevailing market conditions. Fundamental security analysis helps determine the outlook for corporates and guides overall exposure management. • As you can see below in periods of stress both gross and net exposure are reduced. Often good stock selection can be rewarded in bear markets in particular on the short side as challenged companies / sectors are punished (eg 2000-2002 Tech Telecom and 2007-2008 Financials) 200% 150% 100% 50% 0% -50% Bull Bull Bear Bull Bear Bull Bear -100% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Equity (Long) Fixed Income (Long) Bank PFD (Long) Equity (Short) Fixed Income (Short) Bank PFD (Short) Fund Net Exposure Fund Gross Exposure Ability to invest across the capital structure of a company (up to 35% in Fixed Income): • Historically the portfolio has opportunistically invested in fixed income post periods of market stress to get equity type returns higher up the capital structure. • As you can see above the fund has increased gross and net exposure through fixed income (eg corporate bonds, convertibles, bank preferreds) as well as equities. As spreads narrow and bond prices move closer to par the fixed income positions are typically eliminated. Source: Sirios & Schroders as at 29 November 2013 6
Downside Protection Result: Sirios returns in 10 worst months for S&P 500 since inception 10% 5% 0% -5% -10% -15% -20% Oct-08 Sep-02 Feb-09 Feb-01 Sep-08 Jun-08 Jan-09 Sep-01 May-10 Nov-00 S&P 500 Sirios Oct-08 Sep-02 Feb-09 Feb-01 Sep-08 Jun-08 Jan-09 Sep-01 May-10 Nov-00 Cumulative S&P 500** -16.79% -10.87% -10.65% -9.12% -8.91% -8.43% -8.43% -8.08% -7.99% -7.88% -97.15% -5.41% 2.70% -2.59% 1.40% -4.82% 3.13% 6.34% 0.02% -4.15% -0.06% -3.44% Sirios* Net Exposure -8% 9% 20% 52% 33% 9% 44% 32% 49% 27% 27% Source: Schroders & Sirios as at 31 December 2013 *Sirios US equity long short strategy: Sirios offshore fund Jul.1999 - Feb. 2013 , Schroder GAIA Sirios US Equity A Acc USD Mar. 2013 onwards. **S&P 500: S&P 500 TR from Jul.1999 - Feb. 2013 , S&P 500 TR Net Mar. 2013 onwards. Investment involves risk. Past performance of the fund is not indicative of future or likely performance of the fund. 7
Sirios US Equity Long/Short Strategy Up and Down Market Capture Historical Contribution (gross)*** Common Equity +391.6% Longs +414.3% Hedges (ETF, SPDR, Puts) -24.8% Longs (net of hedges) +389.5% Single Name Equity Shorts +2.1% Fixed Income +80.3% Total +471.9% Downside Participation (net, cumulative) S&P 500** -267.7% Sirios* -33.5% Sirios Downside Participation 12.5% Upside Capture (net, cumulative) S&P 500** +341.9% Sirios* +177.8% Sirios Upside Capture 52.0% Net Exposure (average) Sirios Average Net Exposure 48.3% Combined Up/Down (net, compounded) S&P 500** +75.7% Sirios* +295.8% Source: Schroders as at 31 December 2013 *Sirios US equity long short strategy: Sirios offshore fund Jul.1999 - Feb. 2013 , Schroder GAIA Sirios US Equity A Acc USD Mar. 2013 onwards. **S&P 500: S&P 500 TR from Jul.1999 - Feb. 2013 , S&P 500 TR Net Mar. 2013 onwards. ***Source Sirios as at 31 October 2013 Gross contribution is shown for Sirios’ offshore fund. Investment involves risk. Past performance of the fund is not indicative of future or likely performance of the fund. 8
Schroder GAIA Sirios US Equity Snapshot of Exposures Geographic Exposure Sector Exposure Exposure Analysis: Gross Long Equity 90.1% Gross Long FI & Bank Preferred 0.0% Financials North America Fund Gross Long 90.1% Gross Short FI & Bank Preferred 0.0% Consumer Gross Short Equity -20.9% Fund Gross Short -20.9% Tech / Telecom Europe Hedges -2.3% (Index options (delta- adjusted) and ETFs) Energy/Industrials* Total Gross Exposure 113.3% Total Net Exposure 66.9% Asia Health care -20% 0% 20% 40% 60% 80% -20% -10% 0% 10% 20% 30% 40% Short Long Source: Schroders as at 31 December 2013 *Includes energy, basic materials, capital goods, transportation and utilities 9
Within UCITS US equity exposure is typically long only With an astonishing 1/3 rd of AUM invested in passive funds and ETFs 30% Passively managed Actively manged - long/short equity Actively managed - long only 1% 69% An new option is now available - US equity long/short funds Source: Lipper FMI FundFile as at November 2013 10
Why do so many investors prefer ETFs? Because most active long only managers have underperformed the S&P500 Annualised Return 12 Sirios US Equity Long Short 10 8 6 US Flex Cap Large Cap Value S&P 500 2. Fidelity America 4 1. Vanguard US 500 Stock Index 4. L&G US Index Large Cap Growth 5. JPM US Select Equity 2 Large Cap Blend 3. Pioneer US Research 0 5 7 9 11 13 15 17 19 21 -2 Annualised Standard Deviation Source: Morningstar as at 31 December 2013. Performance is shown for Sirios US Long/Short strategy since inception July 1999 chain linked to the Schroder GAIA Sirios US Equity C Acc USD which launched on 27/02/2013. Long only managers since July 1999 with >$500m assets under management. Orange symbols represent Morningstar peer group averages. 11
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