November 2012

M&G Global Macro Bond Fund

Rupert Wooster, Deputy Director UK Institutional Sales

2

Introduction to M&G

One of Europe’s leading

asset managers

One of Europe’s largest

corporate bond fund

managers

One of Europe’s largest

fixed interest credit

research teams

An active global reach

Total assets:

€252bn

Fixed

income

€152.2bn

Fixed income

analysts based in

London 86

Corporate

bonds:

High

yield

€6.2bn

Investment

grade

€87.3bn

Access to Prudential

resources in the US,

Asia and South Africa

Source: M&G, as at 30 June 2012

3

M&G Global Macro Bond Fund

• Fund manager: Jim Leaviss

• Deputy fund manager: Mike Riddell

• Launch date: October 1999

• Fund structure: UCITS III

• Size: £299 million

• Sector: IMA Global Bond sector

Fund facts

Source: M&G as at 31 October 2012. Fund size as at 22 November 2012. Ratings as at 30 September 2012 and should not be taken as recommendations.

4

60

80

100

120

140

160

180

M&G Global Macro Bond Fund X Acc Emerging market local currency sovereign debtEuropean High Yield GiltsSterling Investment Grade Corporates

Global opportunity set and designed to achieve lower volatility To

tal

retu

rn,

ind

ex

ed

to

10

0

M&G Global Macro Bond Fund

Total return

73.1%

60.7% 60.4% 52.3% 42.5%

Credit crisis

Our most flexible bond fund

Source: M&G, Bloomberg, Morningstar as at 2 November 2012. Sterling X Acc class shares, UK database, net income reinvested, price to price. European High Yield refers to the ML European High Yield Constrained Index, Emerging

Market Local Currency Sovereign debt to the JPM EM-GBI Global Diversified Index, Gilts to the ML UK Gilts Index, and Sterling Investment Grade Corporates to the ML Sterling Corporate & Collaterlized Index.

5

Deputy Fund Manager

• Mike Riddell joined M&G’s fixed interest team in 2003,

originally as a portfolio analyst

• In March 2010, he was promoted to fund manager of

M&G Emerging Markets Bond Fund, M&G International

Sovereign Bond Fund and M&G Index Linked Bond Fund

• Prior to joining M&G, Mike worked as an assistant portfolio

manager at Premier Asset Management within the private

client department, covering both equities and fixed income

• Mike graduated from Birmingham University in 2001 with a

BSc honours in money banking & finance, and is CFA

charterholder

Mike Riddell

November 2012

Mike Riddell, Deputy Fund Manager

M&G Global Macro Bond Fund

S T A Y A H E A D

7

Agenda

Emerging markets are not a safe haven

The US economy – a comeback story

Portfolio positioning of the M&G Global Macro Bond Fund

Introduction to the M&G Global Macro Bond Fund

8

Introduction to the

M&G Global Macro Bond Fund

9 Source: M&G, as at 13 January 2012.

Aims to outperform the average fund in its peer group as well as the fund’s composite benchmark over the medium term

Aims to deliver steady returns with lower volatility than the

average fund in its peer group throughout the economic

cycle

Aims to construct a diversified portfolio by investing in a range of liquid fixed interest assets across geographies

Aims to take high conviction views. Not benchmark-

constrained

M&G Global Macro

Bond Fund

Fund manager objectives

A fully flexible global bond fund with total return focus

10

Emerging market are not a safe

haven

11

Emerging market (EM) fund flows close to record this year

Source : JP Morgan, September and October 2012.

Inflows into EM fixed interest ($bn) Cumulative flows per asset class (% of AUM)

Where are valuations?

12

EM external sovereign debt credit spreads are reaching

pre-crisis levels Z

-Sp

rea

d in

bp

s

www.bondvigilantes.com

Source: Bloomberg, M&G, as at October 2012.

Barely compensating for liquidity risk, let alone credit risk

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Bp

s

Brazil 8 ⅞ 04/15/24 Colombia 8 ⅛ 05/21/24 Philippines 10 ⅝ 03/16/25

Mexico 8 09/24/22 Peru 7.35 07/21/25

13 Source : IMF Global Financial Stability Report, April 2012

The question is not if, but when China’s bubble will burst

China – the world’s biggest credit bubble since 2009 Annual change in private credit, 2009-11

% of GDP - World Economic Outlook 2012

-5

5

15

25

35

45

55 2011

2010

2009

14 Source : World Bank, IMF, HSBC, January 2012. *China and Korea data have been adjusted by HSBC.

The Chinese government has a lot of policy firepower

– but the days of 10%+ growth are behind us

Ireland UK Spain

HK

Korea*

China*

Portugal

Japan

US

250

Cre

dit to

GD

P (%

) 20

10

200

150

100

50

0

61000 51000 41000 31000 21000 11000 1000 Per capita income (USD)

China’s extraordinarily growth is now held up by credit Chinese GDP growth rate should be nearer to 5% than 10%

Credit to GDP in % (2010) relative to per capita income in USD

15 Source: M&G, as at 30 December 2011.

We are not constructive on EM FX Valuations do not look compelling

Source: Bloomberg, as at October 2012.

De

fau

lt R

ate

%

We have no exposure to EM FX and are short of the ZAR

JP

M R

eal B

road

Eff

ecti

ve

Exch

an

ge R

ate

, in

dexed

to

100

JP

M R

eal B

road

Eff

ecti

ve

Exch

an

ge R

ate

, in

dexed

to

100

60

80

100

120

140

160

180

200

220

240

260

280

BRL

CLP

MXN

30

50

70

90

110

130

150

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

IDR

MYR

CNY

THB

PHP

INR

16 Source: M&G, as at 30 December 2011.

The USD looks attractively valued Particularly relative to sterling

Source: Bloomberg, ONS, as at October 2012. Rebased to 100 at 31 January 1970.

De

fau

lt R

ate

%

We have hedged GBP and AUD exposure into USD

-6

-5

-4

-3

-2

-1

0

1

2

3

4

2008-09 sterling

-19% vs US dollar,

-17% vs euro

1975-76 sterling

-28% vs US dollar,

-29% vs Deutsche mark 1990-91 sterling

-20% vs US dollar,

-15% vs Deutsche mark

UK

cu

rren

t b

ala

nce a

s %

of

GD

P

JP

M R

eal B

road

Eff

ecti

ve

Exch

an

ge R

ate

, in

dexed

to

100

70

80

90

100

110

120

130

140

150

160

170

180

NZD

AUD

GBP

USD

17

The US economy- a comeback story

18 Source: M&G, as at 30 December 2011. Source: Barclays Research, as at 2 November 2012.

The US fiscal cliff negotiations are crucial to reassure

employers, investors and rating agencies

Assessment of US ‘fiscal cliff’ risks (Barclays Research)

A fiscal drag on the US economy is likely to occur, but it is unlikely

that policymakers will let the US fall into recession

19 Source: M&G, as at 30 December 2011.

The US housing market indicates a solid economic

recovery

US new one family homes months’ supply (3m average) vs US GDP yoy

The US economy looks in much better shape than the UK and the

Eurozone – so how can this be reflected in the portfolio?

-10

-8

-6

-4

-2

0

2

4

6

8

100

2

4

6

8

10

12

14

1963

1965

1966

1968

1969

1971

1972

1974

1976

1977

1979

1980

1982

1984

1985

1987

1988

1990

1991

1993

1995

1996

1998

1999

2001

2003

2004

2006

2007

2009

2010

US

GD

P Y

oY

(%)

Ho

us

ing

in

ve

nto

ry –

mo

nth

s’ s

up

ply

(in

ve

rted

sc

ale

)

weak growth

strong growth short supply

large supply

Source : Bloomberg, as at 30 September 2012,

20

• Global construction materials

• Cyclical business, volatile cash flow

• Unsecured, NA/B-

• M&G Rating: B

• Current yield-to-maturity = 7.1%

• Improving credit, favoured play on US

housing market

EUR 9.625% 2017

Stock example Cemex Building materials & construction sector

Source: M&G as at 31 October 2012

21

Portfolio positioning of the

M&G Global Macro Bond Fund

22

Fund positioning summary

Source: M&G, as at 31 October 2012.

Currency breakdown

%

M&G Global Macro Bond Fund

Key portfolio themes

We like the USD and have short positions in

sterling, the Aussie dollar and Kiwi dollar as

well as the SA rand

We are very selective – some corporate exposure, but short positions in Brazil, Indonesia, Russia, South Africa & Turkey

Quality dominates. Generally we prefer

credit over government bonds.

Still overcompensates for default, but

valuations have come closer to fair value

Central banks no longer care about

inflation, so we have 18% in linkers

Low interest rate duration of around

2.5 years

We prefer corporate issuers – although

covered bonds + RMBS are good value

Currencies

Emerging

markets

Government

bonds

High yield

Inflation

Duration

Investment

grade

-5

5

15

25

35

45

55

65

USD EUR JPY CHF SEK NOK ZAR AUD NZD GBP

Fund Neutral position

23

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Prices may fluctuate and you may not get back your original investment.

For Financial Advisers only. Not for onward distribution. No other persons should rely on any information contained within. This Financial Promotion is issued by M&G

Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London, EC4R

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