Waves, Inflation and Asset Prices

DialogueInside:

Market Commentary and Outlook

Ten Years in UK Equities – Richard Buxton

Winner Takes All – China and The Fight for Global Resources

Autumn 2012

Waves, Inflation and Asset Prices

Schroders Private Banking Dialogue – Autumn 2012

Inside:

Welcome

Market Commentary and Outlook

Next Generation: How to Sound Clever

Regulatory Winds of Change

Schroders Charities: To Spend or Save?

Winner Takes All – China and the Fight for Global Resources

10 Years in UK Equities

Waves, Inflation and Asset Prices

Private Banking News Update

01

02

05

06

08

10

12

14

16

ContributorsRupert Robinson Chief Executive UK Private Banking [email protected] +44 (0)20 7658 6880

Robert Farago Head of Asset Allocation Private Banking [email protected] +44 (0)20 7658 6545

Rob Rydon Head of Discretionary Clients Private Banking [email protected] +44 (0)20 7658 6852

Kate Leppard Head of Private Clients Private Banking [email protected] +44 (0)20 7658 6330

James Collings Head of Compliance Private Banking [email protected] +44 (0)20 7658 6449

Kate Rogers Client Director Charities [email protected] +44 (0)20 7658 2480

Dr Dambisa Moyo International Economist and Author

Richard Buxton Head of UK Equities Schroders [email protected] +44 (0)20 7658 3255

Editorial Contacts

Alice Long Editor Private Banking [email protected] +44 (0)20 7658 3786

Kate Leppard


1

‘ The key risks are the US fiscal cliff, a disorderly break up of the euro and the threat of conflict in Iran. While central banks are taking supportive measures, the long term effectiveness of monetary stimulus is questionable.’

Commodities rallied, with gold hitting all-time highs in euro terms and oil reversed the decline experienced over the previous quarter. In August, author and global economist Dambisa Moyo spoke at the Schroders Secular Market Forum, on China’s commodity rush. We have produced a summary of her talk in the article Winner Takes All – China and the Fight for Global Resources. Even allowing for a potential hard landing in China, the country’s appetite for commodities is extraordinary and the implications for the rest of the world should be considered.

Our outlook remains unchanged with slow growth forecast across the developed world. The key risks are the US fiscal cliff, a disorderly break up of the euro and the threat of conflict in Iran. While central banks are taking supportive measures, the long term effectiveness of monetary stimulus is questionable. The Federal Reserve claim that measures taken so far are responsible for the recovery in economic activity and improvement in employment. Others believe these measures will weaken growth over time reducing the health of financial institutions; threatening the functioning of financial markets, and the undesirable social impact of favouring debtors over creditors.

We expect lower inflation in 2013, although at some point the amount of monetary stimulus will trigger a rise in prices. This is likely to happen while unemployment and overall debt levels remain high. Please see Robert Farago’s article Waves, Inflation and Asset Prices for more on this topic. With central bank activity depressing government bond yields we favour equities over bonds. Earnings forecasts for this year have been revised down while prices have risen. While earnings expectations are unchanged for 2013 economic forecasts have been pushed lower to more realistic levels and therefore disappointment in earnings may already be priced in. For more insight on the UK equity market, please see Richard Buxton’s article, Ten Years in UK Equities.

Within equities, we favour developed over emerging markets, although, after two years of underperformance, the relative valuation of the latter has improved. We remain positive on the outlook for oil and gold prices. UK commercial property is expected to weaken moderately over the remainder of the year. Further out, however, we see returns broadly in line with yield minus depreciation costs, which makes the asset class attractive compared to bonds.

December 31st 2012 will see the recommendations of the Retail Distribution Review (RDR) come into force. RDR applies to all advisers in the retail investment market: product providers, independent financial advisers, wealth managers and stockbrokers. Kate Leppard, Head of Private Clients and James Collings, Head of Compliance, address the changes and what this will mean for our clients in Regulatory Winds of Change. Kate Rogers, Client Director, discusses the outlook for charities, in her article Spend or Save. We also report on the Private Asset Managers Top 35 Under 35 Awards, which recognised the rising stars of the private client adviser industry and two events that Schroders ran for young people over the summer. One was a talk by an author who has written on the importance of language and vocabulary, for pupils from Mossbourne Academy in Hackney, and the other, Today, Tomorrow, was a two-day taster course about life in the City for school leavers and graduates.

Rupert Robinson

The third quarter saw few major economic surprises. Equity and commodity prices were boosted by central bank policy which involved the ECB, the US Federal Reserve and the Bank of Japan announcing bond purchase programmes.

Europe experienced slowing economic activity, with a deepening recession in southern Europe while activity was flat in the UK. Asia also experienced a slowdown, with China recording its lowest growth since 2001.

Additional monetary printing by the US Federal Reserve coupled with reduced fears of a euro breakup, resulted in the dollar weakening against most major currencies.

Equity markets performed well, with Europe outperforming. At a company level, companies exposed to the economic cycle outperformed more defensive names. UK, US, German and Japanese government bond prices fell modestly, as investors reduced exposure to these safe havens. By contrast, bonds issued by southern European sovereigns, riskier companies and emerging economies rose in price.

Welcome


2

Robert Farago Head of Asset Allocation

Market Commentaryand OutlookCentral bank actions boosted equity and commodity prices over the quarter. The European Central Bank announced measures to support the bond markets of the stressed peripheral countries within the euro area. The US Federal Reserve announced a rolling programme of purchases of residential mortgage-backed securities. The Bank of Japan also increased its bond purchase programme. Meanwhile economic data remained subdued, but has stopped surprising on the downside.

Economic data produced few major surprises over the quarter. The US economy expanded at just 1.3% in the second quarter, while inflation declined to 1.7%. European activity slowed which meant slower growth in Germany and a deepening recession in southern Europe, while activity in the UK was broadly flat. Asian expansion also declined, with the main trading economies feeling the effects of slowing trade with Europe. The growth rate in China fell to 7.6%, its lowest level since 2001 excluding the six month plunge in activity after the demise of Lehman Brothers.

Japan also slowed as the rebound from last year’s devastating earthquake and tsunami is now largely behind us. Inflation remains subdued in the developed world but inflation is still stubbornly high in parts of the emerging world even as growth is slowing. For example, growth in India has slowed from 11.2% in March 2010 to 5.5% in June 2012 while inflation has proved sticky, with consumer price inflation coming in at over 10% in August.

The combination of reduced fears of a euro break up and additional money printing by the US Federal Reserve led the euro to strengthen against the US dollar. Indeed,

the dollar weakened against almost all currencies. The Chinese renminbi was a notable exception as the weakening Chinese economy led the authorities to maintain the exchange rate steady against the dollar.

Equity markets moved higher, led by Europe and, in particular, by the stock markets of the stressed peripheral nations. In general, companies more exposed to the economic cycle outperformed the more defensive names. Materials companies, however, lagged behind industrials and consumer cyclicals as these stocks are seen as more exposed to the ongoing slowdown in China.

2. Economic data versus forecasts1. Equity market performance 3. Chinese GDP growth

Source: Bloomberg. Past performance is not a guide to future performance.

-80

-60

-40

-20

0

20

40

60

Sep 12Jun 12Mar 12Nov 11Aug 11Apr 11Jan 11Oct 10

Index: positive number = data above expectations

Citi G10 Economic Surprise Index

4

6

8

10

12

14

16

2012201020082006200420022000199819961994

% y.o.y.

China GDP growth

60

70

80

90

100

110

120

130

140

Jun 12Jan 12Aug 11Mar 11Oct 10May 10

Index (rebased to 100)

US EquitiesUK EquitiesEuropean Equities


3

Indeed, the Chinese stock market was a notable exception, with the Shanghai A-share index falling 6% over the quarter.

The prices of government bonds in the UK, US, Germany and Japan fell modestly and yields rose as the rally in risk assets led investors to reduce exposure to these perceived safe havens. In contrast, the prices on riskier bonds rose across the board, whether they were issued by stressed European sovereigns, riskier companies or emerging economies pushing yields lower. The low level of interest rates has helped keep defaults below average levels.

Commodities prices rallied strongly. The oil price reversed the entire decline experienced over the previous three months. Agricultural commodities have led returns this year, with corn, wheat and soya all soaring due to the severe drought in America. The gold price hit all-time highs measured in euros and in Indian rupees, a key market for the metal. The HSBC Gold Mining index, which measures the performance of gold mining shares, rose 19% over the quarter.

UK commercial property prices posted modest declines, putting total returns just in positive territory, following the pattern of the previous two quarters. Global capital flows continue to support pricing in London, where an estimated 70% of transactions in 2012 originated from foreign investors.

Hedge funds generally posted positive returns. Low market volumes and the gradual withdrawal of investment banks from proprietary trading activities have allowed short-term traders to profit from pricing anomalies. Macro trading has focussed on events in Europe with mixed results, but those on the wrong side of the trades have managed their risk well. Trend following strategies have mostly treaded water in choppy markets.

Turning to the outlook, our economic forecasts are broadly unchanged. We continue to expect slow economic growth across much of the developed world over the coming year, but this forecast relies on escaping a fall over the fiscal cliff in the US (see chart 4), the euro area staying largely

‘ The combination of reduced fears of a euro break up and additional money printing by the US Federal Reserve led the euro to strengthen against the US dollar.’

intact and avoiding a military conflict in Iran. The euro area is forecast to endure another year of shrinking activity while growth in the emerging world is forecast to stabilise at below historic growth rates.

The actions of the European Central Bank are a step in the right direction but not sufficient to end the crisis. In its favour, confidence in Europe was so low that there is a chance that their actions will indeed mark the low for prices in peripheral bond markets. The reduction in current account deficits across the periphery is also a sign of progress. The sums required to prop up the Spanish banking system, however, are daunting. There are no signs yet that the outflow of bank deposits has ended. A Greek exit is a very real possibility and it is hard to be confident that sufficient firewalls are in place. European equity and bond markets offer attractive valuations but these are commensurate with the risks.

The US Federal Reserve (the Fed) announced a third round of quantitative easing, this time via a monthly purchase of mortgage-backed securities. In contrast to previous measures, this one is open ended, meaning the purchases will continue until unemployment comes down to acceptable levels.

The effectiveness of monetary policy in the current environment is debateable, and this debate is live even within the Fed. Ben Bernanke, its president, claims that the measures taken to date are responsible for the recovery in economic activity and improvement in employment. His colleague at the Dallas Fed, Richard Fisher, doubts that this additional monetary easing will persuade

firms to increase capital spending and hiring owing to their concerns over the long-term outlook. His view is that “Democrats and Republicans alike have encumbered our nation with debt, sold our children down the river and sorely failed our nation. Sober up. For unless you do so, all the monetary policy accommodation the Federal Reserve can muster will be for naught.”

Bill White, a respected economist from the OECD, goes further and highlights the unintended consequences of ultra-easy monetary policy: weakening growth over time, reducing the health of financial institutions, threatening the functioning of financial markets and the independence of central banks, as well as the undesirable social impacts of favouring debtors over creditors. Despite this, we see little chance of a change in policy and this strengthens the argument for holding some gold and gold mining companies in portfolios.

Nor is the impact on equity markets clear. Indeed, stock markets have sold off in the aftermath of the latest moves by the Fed. However, this was after rallying strongly in anticipation of action by both the US and European central banks.

We see inflation trending lower in 2013, but we continue to expect problems to arise in the future. At some point the huge amount of monetary stimulus and the lack of investment in new capacity will trigger a rise in prices. This is likely to occur at a time when unemployment remains high and overall indebtedness in the UK, US, Europe and Japan is excessive. This will mean that central banks are likely to be slow to raise

-200

0

200

400

600

800

2019201620132010200720042001

US$ bn

Net Federal Fiscal Stimulus

4. US Fiscal Cliff

Source: Strategas. Past performance is not a guide to future performance.


4

There are also tentative signs that India will embark on necessary reforms, not least to its power sector, which caused severe disruptions to electricity supply this year.

The Japanese market has proved particularly frustrating since we turned more positive, initially because of the devastating earthquake and tsunami and then more recently when the Bank of Japan failed to follow through on its announcement of more inflationary policies. While the growth outlook remains subdued, the market is particularly cheap on both book value and cash flow measures, it offers a higher yield than the US and is the one market that should really benefit when inflation does eventually surprise on the upside. The first quarter of next year will see the appointment of a new governor at the Bank of Japan. This provides Japanese politicians with the opportunity to appoint a governor who will follow more expansionary policies, matching his peers in Europe and the US. This would be positive for the equity market and negative for the yen.

The outlook for oil prices has improved over the quarter as supply has been less than expected and demand has increased despite the sluggish economic environment. In contrast, the outlook for industrial metals is very much tied into the outlook for the Chinese investment cycle and has worsened over the last three months. We expect gold to remain well bid following the unprecedented policies being pursued by both the Fed and the ECB.

We see modest further downside to UK commercial property prices over the balance of the year. We remain cautious about

the prospects for rental growth in most occupational markets, as demand remains subdued in the wake of continued economic uncertainty. Further out, we see returns broadly in line with yield minus depreciation costs, which makes property attractive compared to bonds.

We continue to see an important role for a small number of hedge funds where they offer the potential for both long-term returns and, in particular, a strategy that can profit from an increase in volatility. This typically occurs at a time when equity and other risk asset markets are struggling.

In conclusion, the European Central Bank has reduced the odds of a catastrophic collapse of the euro. Still, the crisis is far from over. The US Federal Reserve has also upped the ante with open-ended intervention in the mortgage market. This has boosted confidence in the short term, but the warnings are getting louder on the negative long-term consequences of its actions. We see upside to equities and other risk assets in our baseline scenario. However, over the next year we will need to see the real progress in the US towards a sustainable tax and spending policy and further moves towards a federal Europe. This agenda will ensure volatility. The story this year has once again been ‘don’t fight the Fed’ or indeed the European Central Bank. Still, when a Fed insider tells you they are out of bullets, it is right not to be complacent. We continue to balance equity risk with holdings of inflation-protected bonds, gold and selected hedge funds. We hold some cash in order to profit from periods of market stress.

rates. The fact that a dose of unanticipated inflation would be convenient for highly indebted sovereigns makes it more likely that policy tightening is gradual.

We continue to be cautious on government fixed income securities that are offering yields below historic, current and expected future levels of inflation. They offer an appropriate hedge against another deflationary scare for more defensive portfolios but in general we prefer inflation-protected bonds. These can perform well if inflation picks up but central banks keep interest rates low, a scenario we see as likely at some point.

Central bank actions to keep government bond yields low have also brought down yields on corporate and emerging market debt, in some cases to historic lows. The strength of balance sheets within the corporate sector means that we see room for investment-grade corporates to enhance portfolio yields. Overall we see better value in equities than bonds, with the yield on equities in many markets exceeding their government bond equivalents (see chart 5).

For equities, earnings expectations for this year have been revised down while prices have risen, meaning valuations are less attractive in absolute terms. Earnings forecasts for 2013 have remained unchanged and look vulnerable to downgrades. Economic forecasts, however, have been pushed lower to more realistic levels and therefore the disappointment in earnings may already be factored into investors’ thinking. We see upside to equity markets in our baseline scenario.

The focus of investors on safety and income has pushed valuations on some companies that tick both boxes to excessive levels. However, we can still find good quality companies, when measured by balance sheet strength and profitability, trading at attractive valuations.

We continue to favour developed over emerging markets. We note, however, that emerging markets have lagged for two years, which means relative valuations have improved. In addition, our cautious view on China has become more mainstream. This creates scope for the new administration, due in October, to surprise us on the upside.

‘ Still, when a Fed insider tells you they are out of bullets, it is right not to be complacent. We continue to balance equity risk with holdings of inflation-protected bonds, gold and selected hedge funds.’

Yield (%)

September 2007 August 2012

0

2

4

6

8

10

US High Yield Bonds

UK Property

InfrastructureUK Corp. Bonds

UK EquitiesGlobal Equities UK Govt. Bond

Cash

Chart 5: Yield comparison across markets 5 years ago and today

Source: Bloomberg, IPD. Past performance is not a guide to future performance.


5

Next Generation: How to Sound Clever

‘ Expanding your vocabulary does not make you pretentious, simply precise.’

During the summer Schroders hosted two events for young people in the Gresham Street Auditorium: an interactive session on expanding vocabulary and using the perfect word in any situation, and an introduction to the City.

The first event was for those involved in the Schroders and Hackney Schools Mentoring Programme. Schroders staff and Year Ten pupils team up once a week to meet and give the Schroders staff a chance to impart their knowledge and experience to the pupils (and often vice versa!). Mentee meetings usually take place at Schroders but have also included trips away from the office, to St Paul’s Cathedral and the Tate Modern. Topics covered in

the sessions include: managing GCSE workload, personal statements, applying to universities, interview techniques, skills for the workplace and help with finding work experience. Language and communication are key to many of these areas and we were very lucky to have Hubert van den Bergh, author of How to Sound Clever (Master the 600 English words you pretend to understand…when you don’t), give a talk for students and their mentors.

The lively hour was spent with quizzes, discussion and role-play. Staff and pupils alike discovered the etymology, and in many cases for the first time, the meaning, of words such as: svengali, luddite, phalanx, sardonic, procrustean and quixotic. The definitions of these words can be found on page 16.

Later on in the summer, Schroders Private Banking ran the second successful Today, Tomorrow two-day work experience programme. This event was aimed at school-leavers and students, aged 18 to 22. The programme included an interactive introduction to the City and financial markets, and allowed the participants to benefit from the collective experience of Schroders staff, both from Schroders Private Banking and Schroder Investment Management, and our wider professional

Hubert van den Bergh with pupils from Mossbourne Academy, Hackney.

network. The students also received practical advice on managing online profiles, writing CVs, and interview technique. Next summer’s programme is already in the planning stage so please do speak to your Schroders Private Banking contact if you would like to register interest.

Rob Rydon Head of Discretionary Clients


6

these areas. This change has already started internally at the FSA and will be completed in April 2013, once final legislation is passed.

Despite all of this turmoil there has been one major piece of thematic work that has remained a key part of the FSA’s consumer protection strategy ever since it was first put forward in 2006. This is the Retail Distribution Review (RDR).

To put it simply, the aim of the RDR is to ensure that:

– charges for advice are transparent and fair;

– consumers are clear about the service they receive; and

– consumers receive advice from well qualified professionals.

To achieve this they have published new rules that will largely prohibit indirect payments through product charges, require all advisers to charge clients directly for their services, require advisers to describe their services as either independent or restricted and require individual advisers to meet consistent professional standards, including higher level examinations.

These changes will come into effect on 31 December 2012 and will apply to all advisers in the retail investment market, regardless of the type of firm they work for (banks, product providers, independent financial advisers, wealth managers and stockbrokers).

These aims are not just the focus of the UK regulatory authorities. The European Commission is working on two pieces of legislation called PRIPS and MiFID 2, both of which have similar aims to RDR, albeit with a more ‘European’ emphasis. The UK is, as per usual, going further than the continent.

The changes required for RDR have certainly been well publicised by the regulatory authorities. More recently the press have taken up the gauntlet as it represents some of the most visible changes that consumers will experience over the next 6-12 months when obtaining financial or banking services.

There are, however, many more areas which are evolving as part of this shift in the regulatory landscape. For example, the FSA is currently considering whether unregulated investments and other sophisticated products can be marketed to,

It is fair to say, however, that the regulatory authorities across most of the globe suffered the same scrutiny and criticism.

Within a few months these bodies were producing consultation papers and draft directives proposing widespread changes to the industry to learn from mistakes and to allow the regulators more ‘power’ to curb excessive risk-taking and be more intrusive. In the UK these will include major changes to the capital and liquidity requirements for banks, much more comprehensive requirements for firms to segregate client money and assets, increased depositor protection, remuneration policies and ultimately the ‘break-up’ of the Financial Services Authority (FSA) into two new bodies. In due course there will be a body called the Prudential Regulatory Authority (PRA) which will be part of the Bank of England and will be responsible for the financial stability of all banks and other major financial institutions. The other body will be called the Financial Conduct Authority (FCA) which will oversee the remainder of the FSA’s work, including the operation of financial markets, defining how firms treat their clients and financial crime and enforcing correct standards in

Kate Leppard Head of Private Clients

Regulatory Winds of ChangeThe events of 2008 have proven to be a watershed moment in the regulation of the financial services industry. The collapse of Northern Rock, Bradford & Bingley, Lehman Brothers and other US firms, alongside the tax payer ‘rescues’ of Lloyds and The Royal Bank of Scotland in the UK, resulted in a period of grim exposure for the regulatory authorities and the senior management of some banks in the UK as to their failings in ensuring market confidence and stability.


James Collings Head of Compliance

and purchased by ‘retail’ customers. This would capture most alternative investments, such as hedge funds, commodities and some complex structured products. In the wake of the fi nancial crisis there has also been a paradigm shift away from considering derivatives as professional instruments that effectively manage risks, to being hazardous tools over which the regulators need more oversight and control. Regulating them has therefore become a major priority for regulators with centralised clearing being introduced and increased regulatory reporting and margin requirements.

The UK government is also looking to ‘ring-fence’ a bank’s derivative activities from their retail deposit operations. These reforms will change the shape of the fi nancial services industry as banks adapt their business models.

Regulatory change should be considered a good thing for clients and tax payers. The events of 2008 highlighted many weaknesses that were not previously identifi ed and many of the proposals are intended to mitigate the chance of such widespread failures happening again. It is also worth remembering, as we go through this process, that such global regulatory shift has largely been driven by the political imperative to make markets safer and to improve the outcomes for consumers. This inevitably comes with signifi cant fi nancial cost to the industry which will, in the end, be refl ected in the pricing of fi nancial services.

7

Understanding a Client’s Risk ProfileA widely agreed principle is that the greater the level of investment risk taken, the greater potential there is for investment reward and/or losses.

The sorts of questions we often face are: how can we ensure that a client’s idea of, say, a ‘low risk’ portfolio is consistent with our ‘defensive’ investment strategy? Is it too cautious for a client, or does it have assets that a client thinks too risky? Similarly, if a client wants a high rate of return on their investments, are they willing and able to bear the risk that goes with that goal? What does a client mean when they say they have a ‘moderate risk’ appetite and how can that be quantifi ed? It is important to ensure that we are speaking the same language as you when we talk about ‘risk’.

One of the most important tools that we use in this process is our ‘investment risk profi ler’. This is a ‘scored’ questionnaire which helps to assess risk appetite from a number of different angles to form the basis of further discussion. Hopefully you will all have seen the current version during the last 12 months or so, since it was re-launched. If not, we highly recommend that you take the opportunity during your next annual review to discuss your objectives and attitude to risk with your private banker and complete the profi ler as an aid to the discussion and to ensure you engage in a healthy conversation with your private banker about the risk and potential reward profi le that you wish us to employ.

this process, that such global regulatory

Schroders Private Banking Investment Risk Profi ler.


8

Once the strategy of how best to meet the charitable mission has been established (crudely thought of as ‘to spend or save’), the question of how to achieve this is the natural next step. As an investment manager specialising in charities, the question that I get asked the most is ‘how much can we spend?’

For those charities seeking perpetuity, it follows that the assets must grow in line with inflation to maintain purchasing power. Current charitable expenditure should be funded from any excess returns, over and above inflation. But what is this magic number? What amount can a charity afford to spend without risking its long term sustainability?

The answer will depend, of course, on asset allocation (where the money is invested) and the level of returns in the future. Time to polish the crystal ball I fear. Long-term return analysis suggests that expenditure levels of 4% should be sustainable for charities with a long term asset allocation strategy. These strategies are necessarily biased towards equity markets, which historically have generated the best returns against inflation. But returns since the turn of the millennium have disappointed and a gulf between equity returns and inflation has opened up.

Where to from here? I believe passionately in the power of collaboration and knowledge sharing. It is for that reason that we, at Schroders, have commissioned a research report into the spending decision. The report will be written by Richard Jenkins, author of the well received report ‘The Governance and Financial Management of Endowed Charitable Foundations’, and published by the Association of Charitable Foundations later this year. This report will be freely available to all.

Richard and I are asking charities with long term assets to share their thoughts, experiences and methods to build the evidence base for the report and help the sector respond to these challenges. I look forward to sharing the results later this year.

Is it really in the best interest of charity beneficiaries to hold on to assets, given their disappointing returns, or should trustees be focusing on increasing expenditure at a time when government, corporate and individual charitable giving is falling?

This difficult question is one being tackled by boards up and down the country. Interestingly, responses vary significantly.

There are charities that emphasise the importance of longevity. These boards are focused on maintaining the real value of their assets over the long term so that they can continue to deliver their charitable mission indefinitely. They may be permanently endowed or have a strategic wish for sustainability. These charities respond to a lower return environment by cutting their cloth accordingly, or some, more optimistically, by maintaining spending and increasing the reliance on the management of their assets to maximise returns.

At the other end of the spectrum are those boards focused on meeting a perceived increase in need, as budgets and donations from other funders are cut. These charities are increasing spending and reducing their asset base at varying rates, perhaps with the intention of overall spend out, or to fundraise and recoup the spent capital in future years.

Kate Rogers Client Director

Schroders CharitiesTo Spend or Save?After a decade of ‘yo-yo’ stock markets and not much overall upward progress in charity investment portfolio values since 2000, charitable investors wouldn’t be blamed for feeling the need to stand back and re-evaluate their investment strategy.

‘ As an investment manager specialising in charities, the question that I get asked the most is ‘how much can we spend?’


9

What is the magic number? What amount can a charity afford to spend without risking its long term sustainability?

It is not just our charity clients who have asked us about how much they can afford to spend. The question is also frequently asked by our private clients and their trustees, who often have to juggle the added constraint of capital gains tax, income tax and the differential between the two. Unsurprisingly the answer gross of tax is not dissimilar to the advice that we give to our charity clients, namely in the region of 3-4% per annum. Some of our clients wish only to take income whilst others are comfortable drawing on a combination of capital gain (we hope) and income to fund their requirements.

Historically, for lower risk investors cash and bonds just about kept pace with inflation but left little to no room for excess returns to be utilised to fund spending needs. Currently with cash and nominal government bond

yields at record lows investors will lose money in real terms (after adjusting for inflation). Even today, when buying an index linked gilt, in order to achieve a real yield we would have to buy bonds maturing in 2029. As Kate Rogers discusses – What assets should our clients hold given the lacklustre and volatile returns from equities over the last 10 years? We still believe that over the long term equities, real estate and assets such as infrastructure will provide protection against inflation and returns over and above inflation to be drawn upon, as they have in the past. The mix of assets may need to change and how the returns are generated may also change the balance of assets held by our clients. Clients who have invested in those asset classes with a bias towards income have been rewarded to a much greater extent in recent years than those investors seeking purely capital returns.

This has not always been the case and it would be dangerous to suppose that this is the new paradigm. In seeking yield one also needs to look for investments whose yield will grow in line or above inflation to meet rising living costs. The greatest return over many years comes to investors who have had the luxury of being able to reinvest their dividends for further income and capital growth.

Perhaps the greatest dilemma facing Trustees, paralleling the choice facing Charities, is of prioritising either the present or the future. This could be where there are split classes of beneficiaries, for example, a trust with an aging life tenant with rising care costs, who in entitled to and is solely dependant on the income of the trust, and a younger generation who will be entitled to the capital who wish it to retain its real spending power.

From a Private Client and Trustees’ Perspective – Kate Leppard, Head of Private Clients


10

‘It is astonishing that there is no global agency that focuses on commodity headwinds’ said Moyo. For trade there is the World Trade Organisation, for the environment we have the Copenhagen Consensus, and for financial regulation we have the G20. Moyo believes that the absence of a global commodities agency comes down to the schisms that exist between many different countries, particularly between those in the emerging and developed world. In emerging economies access to water is highly politicised, whereas in the western world energy is paramount. Here in London, we take it for granted that clean water flows from the tap, but in many countries around the globe water rationing already exists, even in urbanised areas.

What is at stake?‘At a minimum, acute resource scarcity will lead the world into a period when the average prices for commodities – arable land, water, minerals and oil – will increase to permanently higher levels’, says Moyo. Higher prices will, inevitably, lead to worsening living standards across the world.

In the extreme case, and as resource scarcity really bites, Moyo thinks that commodity shortages could lead to outright war. Since 1990 at least eighteen violent conflicts

around the world – many of them ongoing – have had their origins in resource shortages and access. Beyond this, numerous other countries in commodity-scarce regions are vulnerable to violence and clashes.

The supply and demand dynamics for commoditiesTo put her arguments in context, Moyo outlined the resource state of play as she sees it.

Demand – Population. Growth from around seven

billion today to nine billion by 2050. The ferocious rate of population growth is unique in human history – and many leading demographers believe that after 2100, it will never happen again. Commodity prices are inextricably linked to this anomaly.

– Increasing wealth in emerging markets. Emerging markets account for 90% of the global population, and it is expected that three billion people will become middle class.

– Urbanisation. As the most efficient way for governments to deliver infrastructure (such as healthcare and education) to citizens, many countries around the world have a deliberate policy of urbanisation, including China. Today,

In the summer of 2007, a Chinese company bought a mountain in Peru. More specifically, it bought the mineral rights to mine the resources within it. Mount Toromocho is an imposing landmass, measuring more than half the height of Mount Everest. Within it lies two billion tons of copper; one of the largest single copper deposits in the world. For a fee of US$3 billion, Mount Toromocho’s title transferred from the Peruvian people into the hands of the Chinese. China’s commodity campaign is breathtaking.

A world ill-prepared Moyo argues that the world remains largely ill-prepared for the challenges of resource scarcity and the evolving dynamics around China’s central role. Commodities permeate every aspect of modern daily living. They are the inputs used to produce the goods and services that we rely on: the energy that powers our cars and electricity grids; water for the sustenance of all life forms; arable land that yields grains and other foodstuffs and a long list of minerals used in everything from mobile phones to telephones, and as inputs to all sorts of machinery. Yet for all the importance of commodities and the markets in which they trade, our knowledge of this essential component of the global economy – and the largest asset class in the world – is hazy at best.

Winner Takes All – China and the Fight for Global Resources

At Schroders’ Secular Market Forum in August, Dambisa Moyo discussed how China has embarked on one of the greatest commodity rushes in history and asked what will the financial and human effects of this be – and is a large-scale resource conflict inevitable or avoidable?

Dr. Dambisa Moyo International Economist and Author


11

there are one hundred cities in China with populations of one million or more, and the government plans to build eight cities with populations in excess of twenty-five million. By comparison, the US has nine cities with a population of one million or more, whilst Europe has eighteen.

Supply – Land. There are 13 billion hectares of

land on the planet, but only 11% of that is arable. The other 89% is prohibitively hard to exploit for food production. Arable land is also not evenly distributed. China has a population of 1.3 billion, but only 12% arable land. Compare that with India, also with a population in excess of one billion, but with 50% arable land. In addition, cities tend to be built on fertile land, so as they grow this puts further pressure on land area per capita. Against this backdrop China has undertaken land purchase and lease schemes beyond its borders, particularly in South America and Africa.

– Water. Although at first glance China looks like it has sizable ‘home’ access to renewable water sources, in practice many are contaminated and not safe for human use. Therefore, a large part of China’s water rush relates to securing access to water for its population. This includes not only investments in desalination technology, but also more aggressive policies that include re-routing rivers. The availability of fresh water per capita in both China and India is below the global average.

– Energy – debunking the myths. The world’s major oil fields – whether on land or beneath the sea – have been discovered. In fact, the last major discoveries were made between the 1950s and 1960s, and today we are living off the production of these dated discoveries. This is the case even as oil hunters’ efforts, using the latest technology, have intensified. Indeed, forecasts out to 2050 indicate that large oil discoveries are tapering-off fast. Oil discoveries, currently at around five billion barrels per year, will progressively decline to about two billion barrels annually by 2050 – reverting to discovery and production levels last seen in the 1930s.

Since the early 1980s total new discovery volumes have consistently fallen below annual production. To make matters worse, many of the largest fields are now over 50 years old, and post-peak production their capacity to supply oil declines at an accelerating rate. Today, the world consumes oil at a rate of 85 million barrels per day (the USA consumes 20%, China consumes 10%). If nothing else happens, Moyo believes that natural declines from existing fields will see 2010’s daily oil supply of 85 million barrels fall to 30 million barrels a day by 2030.

The economic implications of China’s ascendancy Moyo believes China has developed a very systematic and deliberate strategy of accessing resources, and that it is the only country that is adopting a multi-lateral approach.

In just a few decades, China has become the most sought-after source of capital infusions. Rich and poor countries alike do not just wait for China to come calling; they actively court and seek out Chinese investments. China funds foreign governments (providing loans and buying their bonds), underwrites schools and hospitals, and pays for infrastructure projects such as roads and railways (particularly across the poorest parts of the world). In Moyo’s opinion, this makes China an altogether more attractive investor than international bodies such as the World Bank, which often tie harsh policy restrictions to loans. China’s economic influence on places as far-flung as the USA, Africa, Eastern Europe and South America is incalculable. China’s increasing global influence has mirrored its economic rise and, invariably, a concomitant rise in demand for resources.

China as a price setterAcross the gamut of commodities (but particularly coal and copper, and even non-publicaly traded assets such as land), China has become the dominant buyer, purchasing global resources in such disproportionate volume that it increasingly has price-setting power. Moreover, state-led capitalism means China is able to overpay for assets – and it has very deep pockets.

But who is China?China’s success relies on three different agents: individuals, corporations and the Communist Party state. But Moyo argued that ultimately they will all pull together – public and private – under one unifying force with a single agenda: the betterment of China. China’s ambitions are similar to many other governments; the difference lies in China’s ability to execute its agenda through its centrally planned command-and-control system of the economy. China’s Communist Party sponsors and influences the behaviour of mammoth state-owned enterprises, including banks, energy firms, transport and logistics businesses and resource companies.

Moyo’s conclusionsChina’s global charge for hard and soft commodities, and the infrastructure that facilitates their extraction and delivery, is meant to guarantee the continuation of its already remarkable story of economic development. In a world where cash is king, China’s cash stockpile of over US$3 trillion in foreign currency reserves allow it to do what other countries cannot do, and go where other countries cannot go. As a result, Moyo argues that China’s voracious appetite for commodities is unlikely to abate significantly, even if economic growth rates cool. To that end, Moyo asserts that the Chinese appear to be determined to pull all available levers and, because China’s resource undertaking is global and the most aggressive in history, it has economic consequences for us all.

Against this backdrop, Moyo believes that Western governments need to engage with China more on the global stage – perhaps by inviting China to play a far more central role in the global development agencies. A more co-ordinated global approach towards the commodity headwinds we face is vital if we want a just, balanced and peaceful global economy in the 21st century.

‘ The Chinese appear to be determined to pull all available levers and, because China’s resource undertaking is global and the most aggressive in history, it has economic consequences for us all.’


12

My conviction that the market was going to go sideways for ten to fifteen years called for a new approach: to build a portfolio that was not about weightings versus an index, but instead about ideas of the highest conviction. Even in a bear market, there are still companies that will perform well but there will be fewer of them. You must invest in those few companies that you believe are going to win in a tough corporate environment.

Has the way in which you manage the fund evolved over the past ten years?When we launched the fund in July 2002, the market was still firmly in a bear phase. The index fell by just over 20% in the first three weeks after launch! As a result, we were a little more tactical and short-term in the early years – simply because it is important to get some runs on the board. By the fourth year, turnover was falling away substantially; moving towards my natural investment style, and how the fund is managed today. This is genuinely investing

in companies on a three to five year view.There are typically only three new positions and complete exits per year, whereas it was materially higher in the first three years of the fund’s life. That said there are eight stocks in the portfolio today that were in the portfolio at launch, although only one has been in the fund consistently, which is Standard Chartered.

Where do investment ideas come from?I am supported by a team of 14 UK analysts and fund managers – a group of highly motivated and inquisitive individuals – so ideas don’t always come from me. Fundamental research is at the heart of our investment process. It is our job to look beyond short-term news flow, which tends to drive market sentiment, and instead focus on a realistic assessment of a company’s long-term prospects. There may be an unrecognised opportunity to grow profits, to improve returns, or even an opportunity where profits are not necessarily growing, but they are not collapsing at the rate that appears to be discounted by the valuation.

How did you view the UK equity market ten years ago?To answer that question, you first need to look back much further. In the long run – and we have gone back to 1870 to justify this – the annualised return for UK equities is 6% per year after taking into account the effects of inflation. Not bad you might think, but those returns are enormously cyclical; you have extended periods of fabulous returns, and extended periods where there are no returns at all. My supposition back in 2002 was that following a fantastic bull run throughout the ‘80s and ‘90s, we were due one of those periods where the market goes up and down, but doesn’t make much progress. Roll the clock forward ten years, and sadly I was right. While there has been total return for the market over the last ten years, it has primarily been made up of dividends. In pure index terms, UK equities are still below their peak in 2000 – the market has gone sideways.

Where did the idea for the fund come from?I asked myself the question, how could I make money in that environment? You certainly don’t want a passive index-tracking fund. But you also don’t want to invest in a hugely diversified fund built around an index – which was very much the active managers’ role in the ‘80s and ‘90s because the index was rising pretty persistently. Back then, if you moved too far from the index and a large stock rose rapidly, then you struggled to keep up.

Richard Buxton Head of UK Equities

Ten Years in UK Equities

As we celebrate the tenth anniversary of the Schroder UK Alpha Plus Fund, we caught up with fund manager Richard Buxton to review the past decade and find out what the future holds.

Discrete YearlyPerformance (%)

Q2/2011 -Q2/2012

Q2/2010 -Q2/2011

Q2/2009 -Q2/2010

Q2/2008 -Q2/2009

Q2/2007 -Q2/2008

Fund -7.3 26.7 24.4 -16.4 -13.5

Benchmark -3.1 25.6 21.1 -20.5 -13.0

Source: Schroders. Past performance is not a guide to future performance.


13

‘ My belief that the market was going to go sideways for ten to fifteen years called for a new approach: to build a portfolio that was not about weightings versus an index, but instead about ideas of the highest conviction.’

What have you learnt over the past ten years?I think one of the most important lessons has been the importance of a company’s management team. It is so often the difference between a respectable business and an outstanding business. Of course you have got to believe in the business model, the franchise and balance sheet – but trust in the management is absolutely vital. We always meet management before investing, and engage with them throughout to ensure that all company decisions are in the best interests of shareholders.

Misys, which has been an outstanding success, is a great example. The IT services provider had an installed base of customers, but its product development and execution had been lacking. So a completely new management team went into a business that was performing poorly, and five years on the strategic decisions taken by the company have created tremendous value for shareholders. It chose to merge and demerge its US healthcare business and, more recently, to sell its banking software business. It was a five year process, and it was uneven as these things often are, but we made a lot of money. The experience also highlights another thing I have learnt: to be patient. A lower fund turnover equals better performance. Things must go wrong from time to time. What do you do then? I don’t panic. The first thing to do is to determine whether the setback is

temporary or permanent. There may be a hit to profitability in the short term, but can it be fixed? If the underlying attractiveness of the business remains intact, then a share price fall can actually be an opportunity to add to a holding at a lower price. The importance of investing in businesses with strong balance sheets comes to the fore when a company has a temporary setback, because we can be confident that, despite any difficulties, it will remain solvent.

On the other hand, there might be issues that make you feel less confident in the business. Perhaps management are going to throw money at an issue for little return. We sold Tesco in May 2010 after seven years of ownership because we had concerns about the management’s strategy – and we have been proven right.

At launch you said the UK equity market was going to trade sideways for ten to fifteen years. What do the next ten years hold for investors? I think that we are going to be stuck in this broad trading range for some time. It has been four years since the financial crisis of 2008. History suggests at least six years is needed for banks to work out losses from previous crises – and this is the biggest yet. The government, banks and individuals have to retrench and this means economic activity will be low. Other parts of the world will grow faster than the UK, but remember that the UK stockmarket is truly international

and there are many companies that benefit from this. Clearly we have got to resolve the global debt overhang and the issues in Europe, but a lot of bad news is already priced in.

Fund Manager BiographyRichard Buxton’s extensive investment career spans over 26 years – of which 21 have been focused exclusively on UK equities. Richard joined Schroders in 2001 and has been Head of UK Equities since 2003. He has previously worked at Baring Asset Management, where he was a UK equity manager, and Brown Shipley Asset Management, where he was a fixed income and equity investment manager. Richard has a degree in English Language and Literature from Oxford University.

Note: Investors should remember that the value of their investments can go down as well as up. Please refer to the Fund Prospectus and Key Investor Information Document for full details of the risks.

– A downside to a very concentrated, totally index unaware fund that is usually more volatile than the index.

– This fund will rarely be average: over individual calendar years it has only ever been first or fourth quartile, but over longer time periods this volatility pays off.

– If you are investing in equity, it must be for a three-year plus timeframe. Even including the bad years, over five, seven, or ten years, the fund has been top quartile.

-60%

-40%

-20%

0%

20%

40%

60%

80%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Jun

02S

ep 0

2D

ec 0

2M

ar 0

3Ju

n 03

Sep

03

Dec

03

Mar

04

Jun

04S

ep 0

4D

ec 0

4M

ar 0

5Ju

n 05

Sep

05

Dec

05

Mar

06

Jun

06S

ep 0

6D

ec 0

6M

ar 0

7Ju

n 07

Sep

07

Dec

07

Mar

08

Jun

08S

ep 0

8D

ec 0

8M

ar 0

9Ju

n 09

Sep

09

Dec

09

Mar

10

Jun

10S

ep 1

0D

ec 1

0M

ar 1

1Ju

n 11

Sep

11

Dec

11

Mar

12

Jun

12

Quarterly relative returns (LHS) Cumulative relative outperformance (RHS)

*

Source: Morningstar, bid to bid with net income reinvested to 30.06.12, £*First quarter shown is from launch 05.07.02 to 30.09.02 Past performance is not a guide to future performance.

Performance relative to FTSE All-Share


14

paper2 they presented to gathered central bankers at the Jackson Hole conference in 2010. They looked at what happened after fifteen country-specific severe financial crises and three global episodes. They found that inflation is typically lower in the decade after the crash, with the notable exception of the global crisis of the 1970s. In the aftermath of the 1929 crash, average inflation across 21 now-developed countries fell from 1.3% in the decade prior to the crash to 0.4% over the subsequent decade, leading to bouts of deflation across many countries. The Asian crisis of 1997 saw inflation fall from 5.9% to 3.6% across the five countries hit. Since inflation averaged 2.2% in America in the ten years before Lehman’s bankruptcy and just 1.6% in Germany, the threat of deflation was very real in the winter of 2008. Indeed, the market briefly priced in a decade of deflation in the United States during November 2008 (which can be derived by comparing the yield on conventional government bonds with their inflation-protected equivalents).

Central banks across the developed world have reacted to the threat of deflation

by printing money in a variety of guises. Since September 2008, the US Federal Reserve’s balance sheet has ballooned from about $900 billion to around $3 trillion as the central bank has created new money and lent it out through purchases of government bonds, mortgage-backed debt and consumer debt. The Bank of England cut interest rates from over 5% at the start of 2008 to just 0.5% by March 2009 and maintained this rate even when inflation went over 5%. The European Central Bank’s Outright Monetary Transactions operation is the latest effort to provide liquidity to the banking system in order to avoid a disorderly retreat in bank lending.

While both inflation and deflation appear possible outcomes, we expect the authorities to ramp up inflationary policies if even the slightest threat of deflation emerges. While targeting stable inflation is a clear part of their mandate, it is also true that a dose of inflation is helpful in reducing the level of government debt relative to GDP. This may help explain why the Bank of England is persisting with quantitative easing despite seven years of inflation exceeding its

Inflation in America has barely moved outside the range of 1 – 4% for the last 20 years. This apparent stability is currently the result of two massive and opposing forces. The financial crisis of 2008 unleashed a deflationary storm, triggering an unwinding of the credit that had built up over the previous five decades. Central banks around the world have conjured up their own tempest, printing money in vast quantities. Somewhat to everyone’s surprise, these two massive forces seem to have cancelled each other out. This has produced a period of calm in financial markets that has seen the Dow Jones Industrials index this month surpass the 13,500 level, taking it back above the level of May 2008 before the financial crisis really bit. We do not have the sensitive equipment to separate the various flows of money and prices around the world. But we do think it is wishful thinking to expect the calm to persist. Our key concern over the years ahead is price instability and there are reasons to fear both inflation and deflation.

Professors C. Reinhart and V. Reinhart studied the aftermath of financial crises in a

Robert Farago Head of Asset Allocation

Waves, Inflation and Asset Prices Looking out to sea on a calm day in Yakutat, Alaska, you would not think that it was possible to single out traces of waves that originated in the Southern Ocean. Walter Munk at the Scripps Institution of Oceanography is probably the most respected and renowned oceanographer alive today1. In the 1960s, he set up a network of six measuring stations spaced thousands of miles apart spanning the Pacific Ocean. He was able to follow the progress of waves created in a storm off Antarctica as they rolled past New Zealand, Samoa, Hawaii and into the vast expanse of the Northern Pacific. The same waves showed up 7,000 miles away in Alaska two weeks later. They encountered endless cross swell along the way but they passed through each other, like ghosts, to emerge unaffected on the other side. By the time they arrived, they had a wavelength of a mile and were just one tenth of a millimetre high.


15

target level. It also helps to explain why we continue to expect additional quantitative easing by the US Federal Reserve despite the on-going economic recovery.

The history of inflationDavid Hackett Fischer charts the history of prices from 1200 to current times in his 1996 publication ‘The Great Wave’. He identifies four waves of inflation lasting from around 90 years to over 180 years. These occurred broadly in the thirteenth, sixteenth, eighteenth and twentieth centuries, with the last of these on-going (see chart). These waves share common features, which also describe the current economic environment, at least for some parts of the population: falling real wages, rising returns on capital and a growing gap between rich and poor.

While Milton Friedman told us that “inflation is always and everywhere a monetary phenomenon”, Hackett Fischer’s work3 tells us that identifying a single driver of inflation is impossible, even with the advantage of the full historic perspective. In addition to monetarist theories, historians add Malthusian, Marxist, neoclassical, agrarian and environmental explanations, while others find each period has its own ad-hoc rationale.

The Spanish conquistadors discovered a vast supply of silver at Potosi in Bolivia in 1545. The supply of silver in Western Europe increased from approximately 10,000 tons in 1550 to 23,000 tons by 1600. Much of this found its way into coinage, increasing the quantity of money in circulation. Yet prices began to go up as early as 1480, many years before this increase in money supply. Nor was inflation in Spain any higher than the rest of Europe despite the fact that this is where the silver arrived. This increase in silver did not set the inflation underway but certainly acted to reinforce the trend towards higher prices.

The 1820s and 30s saw the amount of money in circulation in the United States triple, mirroring the increase in the US Federal Reserve balance sheet since the crisis began. Yet prices remained relatively stable in the aftermath of this increase.

Inflationary psychology can remain subdued for many years despite rising prices. Prices rose steadily between 1725 and 1755 and yet price stability was assumed to be the norm. It was only when prices broke above the range of fluctuations from 1650 – 1720, a period of economic equilibrium, that the general population took note of a trend that was already more than a generation old.

Inflation and asset pricesProfessors Dimson, Marsh and Staunton from the London Business School have compiled 112 years of data on equity, bond, cash and currency returns across 19 countries4. They have used this unique database to look at the impact of inflation on returns.

They find that equities offer a limited amount of protection against inflation but are more influenced by other factors. Bonds have a special role as a hedge against deflation. Since 1900, each of the nineteen countries that they cover has experienced at least 8 and as many as 25 years of deflation.

Following extreme price rises, inflation also becomes more volatile. As investors do not like to be exposed to volatility, they pay less for securities at times of high inflation.

Buying bonds after years of extremely high inflation was rewarded by higher long-run real rates of return. This certainly describes recent history. Bonds have delivered strong returns since the early 1980s during a

period of persistently falling inflation in the aftermath of the inflationary shock of the 1970s.

Gold is the only asset in their study that did not have its real value reduced by inflation. They also conclude that commercial property is too illiquid to be purchased because of a new concern about inflation. Housing has proved a better hedge against inflation than commercial real estate.

This information allows an investor to build a portfolio that includes an element of inflation hedging. However, this hedging – as with almost all forms of hedging – comes at a price. A portfolio that is hedged against inflation should be expected to produce a lower return than an unhedged portfolio if inflation turns out to be moderate. For example, owning gold is a good hedge against inflation but is a poor long-term investment compared to equities and bonds when viewed over the last 112 years rather than just the last decade.

1 The Wavewatcher’s Companion, Gavin Pretor-Pinney, 2010

2 After the Fall, Carmen Reinhart and Vincent Reinhart, August 2010

3 The Great Wave, David Hackett Fischer, 1996

4 The real value of money, Credit Suisse Global Investment Returns Yearbook 2012, Dimson, Marsh and Staunton

Source: Datastream. Past performance is not a guide to future performance.

Consumer prices in England 1200 to today

1200 1300 1400 1500 1600 1700 1800 1900 2000

The 20th Century price revolution

The Medievalprice revolution

The 18th Century price revolutionThe 16th Century

price revolution

VictorianEquilibrium

EnlightenmentEquilibrium

RenaissanceEquilibrium

0

10

100

1000

10000

1000000Annual Price Index (1451-75=100)


16

Private Client PractitionerTop 35 Under 35 Awards

Professional relationships with our clients’ other advisers are critical to what we do. We are delighted to work with the firms recognised at the awards who, like us, have established a reputation for meeting clients’ individual needs, drawing on both internal and external expertise, delivering and providing outstanding client service that puts our clients first at all times.

Definitions from How to Sound CleverSvengali (noun) a person who controls another. Svengali originates from the name of a character in the 1894 novel Trilby by George du Maurier. Svengali uses hypnosis to control the singing voice of Trilby, a weaker character. Today, when we call someone a Svengali, we mean they are controlling of someone else, usually in a sinister way.

Luddite (noun) a person who is against new technology. Luddite derives from the name of Ned Lud, a member of a 19th-century group of English cotton mill workers who destroyed machinery that threatened to take over their jobs.

Phalanx (noun) a group of similar looking people or things. Phalanx is an ancient Greek word used to describe a group of tightly packed soldiers. Today, we continue to use this word to describe any group of people who look the same and stay close together- such as photographers awaiting a celebrity at a film premiere.

Sardonic (adj.) dourly cynical. Sardonic derives from the Greeks’ belief that eating a certain plant from the country of Sardo (the Greeks’ name for Sardinia) would cause facial contortions that resembled those of sardonic laughter; death usually followed.

A note for your diaries, the next Investment Review and Outlook Seminar will take place at 17.30 on Tuesday, 22nd January 2013. It will be held in the Schroders auditorium

at 31 Gresham Street. A panel discussion between experts from both Schroders Private Banking and Schroder Investment Management will be followed by a question

and answer session. If you would like to register interest at this stage please speak to your private banker.

On Tuesday, 25th September Schroders Private Banking was delighted to co-host the 2012 Private Client Practitioner Top 35 Under 35 Awards reception. As sponsor, Schroders Private Banking is proud to support the recognition of the rising stars in the private client legal, accountancy, and trustee arena.

Investment Review and Outlook Seminar 2013 – Save the Date

Rupert Robinson, Chief Executive Officer, London, speaking at the awards said ‘All those individuals who received awards tonight and the companies which they represent are recognised within the private client industry as being of the highest calibre. We hope that our support of these awards will allow us to deepen ties with the preeminent private client firms. Our team look forward to working with you in the years ahead.’

Quixotic (adj.) very idealistic and unrealistic. From the name of Don Quixote, the hero of the novel of the same name by Miguel de Cervantes. When we call someone quixotic, we mean they are like Don Quixote, full of grand chivalrous schemes but not living in the real world.

Procrustean (adj.) enforcing uniformity and stamping out individual quirks. The word comes from Procrustes, a torturer in Greek mythology. Procrustes would force victims to try out his bed for size – if they were too tall, he would chop off their legs; and if they were too short, he would stretch their limbs.

Rupert Robinson, CEO, UK, addresses winners and their guests

Past performance is not a guide to future performance. You should remember that Investors may not get back the amount originally invested as the value of investments, and the income from them can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of overseas investments to rise or fall. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Opinions stated are matters of judgment, which may change, and information herein is believed to be reliable. Schroder & Co. Ltd does not warrant its completeness or accuracy. This does not exclude or restrict any duty or liability that S&Co. has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. For your security communications may be taped or monitored. Schroder & Co. Limited is authorised and regulated by the Financial Services Authority. Issued and approved by Schroder & Co. Limited. w42093

100 Wood Street, London EC2V 7ER, United KingdomTel: +44 (0) 20 7658 6000 Fax: +44 (0) 20 7658 3827Email: [email protected]/privatebanking

UKSchroder & Co. Limited100 Wood StreetLondon EC2V 7ERUnited KingdomTel: +44 (0)20 7658 6000 Fax: +44 (0)20 7658 3827Email: [email protected]/privatebanking

Schroders Private Banking2nd FloorQuayside TowerBroad StreetBirmingham B1 2HFUnited KingdomTel: +44 (0)121 698 8549 Fax: +44 (0)121 698 8600Email: [email protected]/privatebanking

CAYMAN ISLANDSSchroder Cayman Bank andTrust Company LimitedPO Box 1040 GT2nd Floor, Harbour CentreGrand CaymanBritish West IndiesTel: +1 345 949 2849Fax: +1 345 949 5409Email: [email protected]/ky

CHANNEL ISLANDSSchroders (C.I.) LimitedPO Box 334Regency CourtGlategny EsplanadeSt Peter PortGuernsey GY1 3UFChannel IslandsTel: +44 (0)1481 703700Fax: +44 (0)1481 703600Email: [email protected]/ci

Schroders (C.I.) LimitedPO Box 49029 EsplanadeSt HelierJersey JE4 9WBChannel IslandsTel: +44 (0)1534 756600Fax: +44 (0)1534 756601Email: [email protected]/ci

GIBRALTARSchroders (C.I.) Limited PO Box 1239 24 College Lane Gibraltar Tel: +350 200 77760 Fax: +350 200 77742Email: [email protected]/ci

GERMANYSchroders Private Banking Frankfurt Branch Taunustor 2D-60311 FrankfurtGermanyTel: +49 (0) 69 975717-5Fax: +49 (0) 69 975717-300Email: [email protected]/privatebanking

ITALYSchroders(Italy) SIM S.p.A.Via Della Spiga 3020121 MilanItalyTel: +39 02 763 771Fax: +39 02 763 77300Email: [email protected]

Schroders(Italy) SIM S.p.A.Via del Babuino 16900187 RomeItalyTel: +39 06 3218 368 +39 06 3600 3589Fax: +39 06 3265 2660Email: [email protected]

Schroders(Italy) SIM S.p.A.Piazzetta Bettiol 1535137 PaduaItalyTel: +39 049 876 5776Fax: +39 049 876 5780Email: [email protected]

SPAINSchroder & Co Bank AGCalle Pinar, 7 4th floor 28006 MadridSpainTel: +34 91 590 05 05Fax: +34 91 563 05 76Email: [email protected]/privatebanking

SWITZERLANDSchroder & Co. Bank AGCentral 2, Postfach 1820CH-8021 ZurichSwitzerlandTel: +41 (0)1 250 11 11Fax: +41 (0)1 250 13 12Email: [email protected]

Schroder & Co. Banque SA8 rue d’ItaliePO Box 3655CH-1211 Geneva 3SwitzerlandTel: +41 (0)22 818 41 11Fax: +41 (0)22 818 41 12Email: [email protected]

SINGAPORESchroder & Co. (Asia) Limited11 Beach Road #06-01Singapore 189675Tel: +65 6507 0123Fax: +65 6507 0122Email: [email protected]

Date post:	12-Sep-2021
Category:	Documents
Upload:	others
View:	11 times
Download:	0 times

Waves, Inflation and Asset Prices

Documents