Adrian WhittinghamHead of Retail

• Concentrated is better

• High dividend yield equals safety

• You have to be small to be good

• Cap weighted indices are hard to beat

Martin Conlon

Head of Australian Equities

Our Philosophy

Our Philosophy

• External pressures to change product and business direction may not always be well informed

• Change should be in the best interests of our clients

Myth Concentrated is better

Concentrated Portfolios – Will they win the race?

• Betting on fewer horses in the race doesn’t change the odds

• “Sure things” don’t always win

• Knowing a lot about 1 or 2 horses isn’t the point. To win you need to know how good they are versus the field

• Confidence from picking winners in the past doesn’t improve your odds in the next race

• Educated punters focus on process, not on outcomes

Is Concentrated Better?

Specialisation – has it gone too far?

• Clients of fund managers are consolidating rapidly while fund managers are fragmenting

• Decisions across asset classes have been largely removed from fund managers

• Myopia is a significant danger for fund managers as product specialisation narrows

Is Concentrated Better?

High Dividend Yield = Safe Investment

Myth

Stable business may not be a stable investment

•Aggressive gearing necessarily makes an equity investment more volatile

•Valuations are based on extrapolating cashflows into the distant future

•Distributions are not supported by current cashflow

Source: Morgan Stanley as at 30 June 2006

MIG Valuation Sensitivity

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1% -1%

Risk FreeRate

Inflation Traffic

Stable business may not be a stable investment

• Investor’s focus on yield is removing focus on underlying cashflow

• Absence of tax and depreciation for most infrastructure and property trusts means yield comparisons with traditional companies are misleading

Source: Company Reports, Schroders as at 30 June 2006

7.1%

4.6%

6.3%

4.1%

7.6%

0

5

10

15

20

25

30

35

40

45

Macquarie Infrastructure

Group

Macquarie Goodman

Westfield Group

Coca-Cola Amatil

Telstra0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

EV/EBITDA Multiple Distribution Yield

Stable business may not be a stable investment

Source: Company Reports, Schroders as at 30 June 2006

High Dividend Yield = Safety?

Myth You have to be small

to be good

How have smaller managers fared?

• Limited evidence of smaller managers generating superior performance

•Strong performance of small cap stocks has provided a tailwind

•Track records are generally short and don’t cover varied market conditions

•There are many good boutiques, but size in itself is an overemphasised attribute

Australian Equity Managers/FUM vs Performance

Source: Mercer Australian Shares Survey 3 Years Ended 31 Aug 2006FUM Source: van Eyk, Rainmaker, Lonsec

S&P/ASX Accum Index 3 Year Return to 31 August 2006

22.1%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

SchroderAustralian

Equity

FU

M A

$ B

illi

on

0

5

10

15

20

25

30

35

3 Y

ea

r P

erf

orm

an

ce

% p

a

FUM (lhs) 3 yr Perf % (rhs)

How have smaller managers fared?

• Size of FUM is only one factor impacting investment performance – it shouldn’t be overemphasised

• Size is more important to short-term trading based processes than investment processes

• As companies become global, fund managers must have global capability

Incentivisation

GlobalCapability

Team &Focus

Systems &Resources

Process

FUM

PortfolioPerformance

Competition Works

• As the number of small boutiques proliferates, the claimed advantages of being small and nimble will dissipate

• Hedge funds have exhibited similar characteristics – their number has proliferated, excess returns have dwindled

Does Size Matter?

Myth Cap weighted indicies

Enough Diversity in the ASX300?

• Cap weighted indices often over emphasise sectors with strong recent performance

• A well diversified portfolio may significantly depart from the index

• Diversification is key – do your clients have property exposure in addition to a broader ASX mandate?

Diversify

ASX300 Sector Breakdown

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Ban

ks

Mat

eria

ls

Rea

l Est

ate

Insu

ran

ce

En

erg

y

Div

ersi

fied

Fin

anci

als

Fo

od

& S

tap

les

Ret

ailin

g

Tra

nsp

ort

atio

n

Cap

ital

Go

od

s

Tel

eco

mm

un

icat

ion

Ser

vice

sF

oo

d B

ever

age

&T

ob

acco

Hea

lth

Car

eE

qu

ipm

ent

&

Med

ia

Co

nsu

mer

Ser

vice

s

Uti

litie

s

Co

mm

erci

alS

ervi

ces

&P

har

mac

euti

cals

&B

iote

chn

olo

gy

Ret

ailin

g

So

ftw

are

&S

ervi

ces

Co

nsu

mer

Du

rab

les

& A

pp

arel

Sem

ico

nd

uct

ors

&S

emic

on

du

cto

rA

uto

mo

bile

s &

Co

mp

on

ents

Tec

hn

olo

gy

Har

dw

are

&

Source: ASX300 as at 30 June 2006

Market Outlook

Market Outlook

• Momentum in earnings and returns is slowing

• Defensive assets are not defensively priced

• Despite weaker earnings environment, riskier earnings streams offer greater reward

Return on Equity

72 76 80 84 88 92 96 00 04 08

4

6

8

10

12

14

16

18

%

Return on Equity

Source: Schroders as at 30 June 2006

Australian Equity Fund Performance

Source: Schroders, performance is to end Sep 06, post fee

19.1

24.5

16.116

22.7

15.8

0

5

10

15

20

25

30

1 Year 3 Years 5 Years

Schroder Australian Equity Fund S&P/ASX 200 Accumulation Index

%

• Concentrated is better

• High dividend yield equals safety

• You have to be small to be good

• Cap weighted indices are hard to beat

Myths

Where can you access us?AMP

Portfolio Care

AUSMAQ

AXA Generations

AXA Summit

Asgard

BT Wrap

BT Wrap Essentials

Fiducian

First Choice

ING One Answer

IOOF

Macquarie Wrap

MLC Masterkey

MLC Masterkey Custom

Navigator

Navigator Access

Netwealth Investments Ltd

Oasis

Perpetual Wealthfocus

Synergy Capital

Skandia

Tower Trust

Westpac Life & PPS

Zurich Financial Services

Stephen Kwa

Head of Product & Marketing

Agenda

• Myths in global equity investing • Cap weighted indices are hard to beat• Concentrated is better• Small is good

• Schroder Global Active Value Fund (Hedged)

• Market Review

Myth Cap weighted indices are

hard to beat

All global stocks (>15,000)

MSCI All Country World (>2,700)

Where do you look for global opportunities?

MSCI World (>1,900)

Australian stocks

ASX 200

Consider this…In the top 100 stocks YTD Sep 06,

It’s a big world of opportunity…

Go broadSource: Schroders, MSCI

Paladin +145%

Pan Fish (Norway) +155%Akamai Tech (US) +151%

Shenzhen Inv (China) +153%

The other 96 stocksaverage stock +406%

Is your benchmark biased?

• 1,831 biggest stocks in the world

• Half of the benchmark is in the top 150 stocks

• A quarter of the benchmark is in the top 40 stocks

• Exposure to big, liquid stocks in developed markets.

IT HAS A DEVELOPED MARKET, MEGA CAP BIAS!!!

Source: MSCI at 29 September 2006

Go unconstrained

MSCI World ex Australia (unhedged to AUD) index is the most common benchmark used for international equities.

MSCI World ex Australia region exposure

North America

56%

Europe ex UK

21%

UK11%

Japan11%

Pacific ex Japan

1%

Emerging Markets

0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1992 1994 1996 1998 2000 2002 2004

Technology/Telecoms weight as a % of MSCI World

Other benchmark limitations

Do you want 36% of your portfolio in tech stocks here? Follow markets up…

and follow them back down!

• Buy & Hold / Momentum strategy • greater weight on stocks which have gone up

• Classic example - Tech boom of late 90’s

Invest Without ConstraintsSource: Schroders, MSCI

Limitations of cap weighted indices

• Universe excludes valuable investment opportunities

• Bias to developed markets not the best markets

• Bias to large stocks not the best stocks

• Momentum strategies forcing you to buy high and sell low

Go global and unconstrained

Myth

Concentrated is better

Concentration

• Reduce number of stocks and increase bet size

Concentration or Conviction?

Drop constraints

• Allow greater flexibility in stock, sector, region and currencies

Conviction = Backing your investment ideas

Not looking like the index

New sources of alphas

• Take off index bets

• Emerging, small/micro caps, etc

• Shorting

Conviction NOT concentration

Global Active Value Tracking Error versus global indices

7.7% 7.4%6.9% 6.6% 6.4%

0%

5%

10%

Traditionalmanager

Concentratedmanager

MSCI WorldSmall

MSCI WorldGrowth

MSCI World MSCI WorldValue

MSCI AC World

Diversification with conviction

Source: Schroders, Barra

Based on Schroder Global Active Value Fund, 29 September 2006

TrackingError(%pa)

Tracking Error: How much a fund’s returns deviate from the benchmark return

Conviction with diversification

Myth: Concentrated is better

• Concentration = more volatile returns

• Don’t confuse conviction and concentration

Conviction with diversification

MythYou have to be small to be

good

Myth: You need to be small to be good

The claims:

• More nimble and faster decision making

• Fewer capacity issues, can buy smaller stocks

• Better aligned incentives as fund managers own the business

The reality:

• Small is less relevant for low turnover long term strategies

• Capacity less of an issue in global markets

• Fewer distractions of business risks

• Systems and infrastructure

• Trading costs

Does size really matter?

Bringing it all together

Go global: Adopt widest possible universe

Schroder Global Active Value

Region/sector weights

Stock weights

Unconstrained bottom-up

Non cap weighted, max 0.5%

*Tracking error is not targeted, based upon simulations we expect a range of 5 to 10% p.a. relative to the MSCI world or comparable index

Target excess return

Number of stocks

Tracking error

3% to 4% p.a.

500+

5 to 10% p.a.

Global Active Value

Style Global Value

Universe >15,000 stocks > 45 countries

Remove constraints: Freeing ourselves from the rules of the benchmark boosts returns

Diversify broadly: To manage risk yet retain high conviction

Source: Schroders

Unifying strategy

Portfolio positioning – Cap weights

10.6%

0.2%

62.2%

27.0%16.4% 16.7%

42.9%

23.0%

0%

20%

40%

60%

80%

100%

Mega>US$20bn

Large US$5-20bn

Mid US$1-5bn

Small/Micro<US$1bn

Wei

gh

t

MSCI World Index

Global Active Value

• Mega and large caps crowd out other opportunities

• Mid cap stocks offer attractive opportunitiesSource: Schroder Global Quantitative Active Value Fund,

MSCI World ex Australia as at 29 September 2006

Mega and large account for 90% of

the indexMid cap offers

attractive opportunity

All cap not large or small cap

Portfolio Positioning - Regions

• More even allocation between regions

• Within Emerging Markets Asia is favouredSource: Schroder Global Active Value Fund, current weights at 29 September 2006

Global Active Value Performance

Source: Schroders. Inception is 01 September 2005 to 29 September 2006

Performance is in AUD and post fees

Schroder Global Active Value relative to MSCI World ex Australia (Both hedged to AUD)

13.1%

18.3%

20.5%

9.5%

17.4%

15.0%

0%

5%

10%

15%

20%

25%

2006 YTD 1 year Since Inception (Total)

Schroder Global Active Value (Hedged)

MSCI World ex Australia (Hedged in AUD)

(Inception: 1 September 2005)

GAV complements key competitors

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

Cor

rela

tion

Source: Zephyr, Schroders

Based on Schroder Global Active Value Composite and Backtest, 31 July 2003 to 30 June 2006

Global Active Value Correlation of Excess Returns with key competitors

Market Review

Source: MSCI as 29 September 2006

Global Equity ReturnsGrowth of $100 to Sep 06, local currency, dividends net of withholding tax reinvested

96

101

106

111

116

121

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Va

lue

of

$1

00

World ex Australia

Emerging

12.4%

8.4%

Global

Conclusion

Myths

• Cap weighted benchmarks are hard to beat

• Concentrated is better

• Small is goodDiversified

Global

Diversified

Unconstrained

Value

Global

Schroder Global Active Value

Available from

• Direct

• BT Wrap

• Macquarie Wrap

• SMF

Global Active Value offers a robust and repeatable process for capturing opportunities from global equity investing

Unconstrained

Diversified

Global

Diversified

Value

Panel Discussion

Tim Farrelly, Principal of farrelly’s

Marcus Hanel, Associate Standard&Poor’s

Randal Jenneke, Head of Research Schroders

David Philpotts, Portfolio Manager Global Active Value Schroders

farrelly’s

+3.6%pa

+9.1%pa

Small value and Big value vs All Ords

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

89 91 93 95 97 99 01 03 05

Small value vs All Ords Large value v All Ords

48.

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Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.

Performance of large, mid & small caps

As at June 30, 2006 (% p.a.)

Source: Standard & Poor’s

0%

5%

10%

15%

20%

25%

30%

35%

1 year return 3 year return 5 year return

Large Cap (1-50) Mid Cap (51-100) Small Cap (ex 100)

49.

CONFIDENTIAL AND PROPRIETARY.

Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.

Mainstream vs boutique market cap exposure

As at June 30, 2006Source: Standard & Poor’s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

S&P/ASX 200Accumulation Index

Average MainstreamManager

Average BoutiqueManager

Large Cap (1-50) Mid Cap (51-100) Small Cap (ex 100)

farrelly’s

Relative performance of Boutiques and Institutions for Australian equity

portfoliosBoutiques v Institutions

90

95

100

105

110

115

120

125

130

135

140

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

farrelly’s

Pricing Small v Big Australia

10

12

14

16

18

20

22

24

97 98 99 00 01 02 03 04 05

PE

Rat

io

ASX 100 ASX Small Ords

52.

CONFIDENTIAL AND PROPRIETARY.

Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.

Disclosure

Analyst Disclosure: Analyst(s) remuneration is not linked to the rating outcome. The Analyst(s) may hold the financial product(s) referred to in the website or a rating report but Standard & Poor’s considers such holdings not to be sufficiently material to compromise the rating or opinion. Analyst(s) holdings may change during the life of a rating report. The Analyst(s) certify that the views expressed in the website or a rating report reflect their personal, professional opinion about the financial product(s) to which the website or report refers.

Standard & Poor’s Disclosure: In the event of any person subscribing to the financial product(s) referred to in the website or a rating report, such subscriptions may result in a Standard & Poor’s client receiving a commission, fee or other benefit or advantage. Details of any such benefits can be obtained from your financial adviser. Standard & Poor’s itself does not receive any commission. Prior to the assignment of any rating, the fund manager agreed to pay Standard & Poor’s a fee for the appraisal and rating service rendered. Standard & Poor’s assign ratings using comprehensive and objective criteria. Standard & Poor’s fee is not linked to the rating outcome. Costs incurred during the rating process, including travel and accommodation expenses, may be paid for by the fund manager to enable on site reviews. Standard & Poor’s does not hold or have a material interest in the financial product(s) referred to in the website or a rating report. Standard & Poor’s associates may hold the financial product(s) referred to in the website or a rating report but detail of these holdings are not known to the Analyst(s). Standard & Poor’s from time to time provides fund managers with investment data, research software, consulting and other financial planning services. Standard & Poor’s is a wholly owned member of the McGraw Hill Companies, a New York Corporation. The analytic services and products provided by Standard & Poor’s are the result of separate activities in order to preserve the independence and objectivity of each analytic process. Each analytic product or service is based on information received by the analytic group responsible for such product or service. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process. Standard & Poor’s holds an Australian Financial Services Licence Number 258896.

Standard & Poor’s Information Services (Australia) Pty Limited

53.

CONFIDENTIAL AND PROPRIETARY.

Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.

Disclosure

Analyst Disclosure: Analyst(s) remuneration is not linked to the rating outcome. The Analyst(s) may hold the financial product(s) referred to in the website or a rating report but Standard & Poor’s considers such holdings not to be sufficiently material to compromise the rating or opinion. Analyst(s) holdings may change during the life of a rating report. The Analyst(s) certify that the views expressed in the website or a rating report reflect their personal, professional opinion about the financial product(s) to which the website or report refers.

Standard & Poor’s Disclosure: In the event of any person subscribing to the financial product(s) referred to in the website or a rating report, such subscriptions may result in a Standard & Poor’s client receiving a commission, fee or other benefit or advantage. Details of any such benefits can be obtained from your financial adviser. Standard & Poor’s itself does not receive any commission. Prior to the assignment of any rating, the fund manager agreed to pay Standard & Poor’s a fee for the appraisal and rating service rendered. Standard & Poor’s assign ratings using comprehensive and objective criteria. Standard & Poor’s fee is not linked to the rating outcome. Costs incurred during the rating process, including travel and accommodation expenses, may be paid for by the fund manager to enable on site reviews. Standard & Poor’s does not hold or have a material interest in the financial product(s) referred to in the website or a rating report. Standard & Poor’s associates may hold the financial product(s) referred to in the website or a rating report but detail of these holdings are not known to the Analyst(s). Standard & Poor’s from time to time provides fund managers with investment data, research software, consulting and other financial planning services. Standard & Poor’s is a wholly owned member of the McGraw Hill Companies, a New York Corporation. The analytic services and products provided by Standard & Poor’s are the result of separate activities in order to preserve the independence and objectivity of each analytic process. Each analytic product or service is based on information received by the analytic group responsible for such product or service. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process. Standard & Poor’s holds an Australian Financial Services Licence Number 258896.

Standard & Poor’s Information Services (Australia) Pty Limited

DisclaimerThis presentation is intended solely for the information of the person to whom it was provided by Schroder Investment Management Australia Limited (ABN 22 000 443 274) (Schroders). Investment in the Schroder Australian Equity Fund or the Schroder Global Active Value Fund Hedged (“the Fund”) may be made on an application form in the Product Disclosure Statement available from the Manager website www.schroders.com.au. It does not contain and should not be taken as containing any securities advice or securities recommendations.

Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this presentation or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this presentation or any other person. Returns shown are before tax and after fees and all income is reinvested.

You should note that past performance is not a reliable indicator of future performance. Opinions constitute our judgement at the time of issue and are subject to change.