October 2012

Andrea Orsi, Associate Sales Director - Italy

A truly global approach to bond investing

2

Introduction to M&G

One of Europe’s leading

asset managers

One of Europe’s largest

corporate bond fund

managers

One of Europe’s largest

fixed income credit

research teams

An active global reach

Total assets:

€252bn

Fixed

income

€152.2bn

Fixed income

analysts based in

London 86

Corporate

bonds:

High

yield

€6.2bn

Investment

grade

€87.3bn

Access to Prudential

resources in the US,

Asia and South Africa

Source: M&G, as at 30 June 2012

3

M&G Global Macro Bond Fund

• Fund manager: Jim Leaviss

• Deputy fund manager: Mike Riddell

• Launch date: October 1999

• Fund structure: UCITS III

• Size: €277 million

• Sector: Morningstar Global Bond sector

Fund facts

Source: M&G as at 30 September 2012. Ratings as at 30 September 2012 and should not be taken as recommendations.

4

Fund manager

• Jim joined M&G in 1997 from the Bank of England.

He is Head of M&G Fixed Interest

• Manager of the M&G Global Macro Bond Fund since

October 1999

• Manager of the M&G Gilt & Fixed Interest Income

Fund since April 1998

• Co-Manager of the M&G UK and European Inflation

Linked Corporate Bond Funds since September 2010

• Has 20 years experience in fixed income markets

Jim Leaviss

5

7

8

9

10

11

12

13

14

15

6 7 8 9 10

Annualised volatility of returns p.a. (%)

M&G Global Macro Bond Fund €A Acc Risk-adjusted performance vs. sector over 1y, 3y and 5y

Strong absolute, relative, and risk-adjusted returns

1 year

3 years

5 years

1 year

3 years

5 years

M&G Global Macro Bond Fund Morningstar Global Bond sector average

Source: Morningstar, Inc., Pan-European database, Global Bond sector, as at 30 September 2012. M&G Global Macro Bond Fund returns are for the euro A share class,

gross income reinvested, price to price.

Annualis

ed r

etu

rns p

.a. (%

)

October 2012

Jim Leaviss, Fund Manager

A truly global approach to bond investing

7

Central Bank regime change

8

Central Bank regime change: the 4 regimes 1880-2012

Source: International Monetary Fund (1880-2010), M&G (2008-2012). Real interest rates refer to the UK.

0.6

0.5

0.4

0.3

0.2

0.1

0.0 -4 -2 0 2 4 6 8

Post WWII debt reduction

and financial repression

1945-1980

The Volker years and inflation

fighting Central Banks

1981-2010

-5

The credit crisis and

sovereign debt crisis

2008-2012

The Gold Standard.

Monetary stability and

fixed exchange rates

1880-1939

Real interest rate (deposit rate less RPI)

Fre

qu

en

cy d

istr

ibu

tio

n

What are the side effects of the central bank medicine?

Source: www.youtube.com

10

Reliance on imported oil in the 1970s did not

necessarily cause inflation

So what did cause average inflation rates of 8% and higher?

Source: Bloomberg, BP Statistical Review, Nomura Research as at April 2011

0%

20%

40%

60%

80%

100%

120%

0%

2%

4%

6%

8%

10%

12%

14%

16%

UK Australia Canada US Japan Germany

Imp

orte

d o

il as

a %

of to

tal o

il co

ns

um

ptio

n

Infl

ati

on

ra

te %

Average Inflation (1975-1983), LHS Dependence on imported oil (1974-1980), RHS

11

"Inflation is always and everywhere a monetary

phenomenon" Milton Friedman

The role of policymakers in causing or controlling inflation

can't be underestimated

Source: Bloomberg, Nomura Research as at April 2011

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

UK Australia Canada US Japan Germany

Average excess money supply growth (1975-1983) Average inflation (1975-1983)

12

0

0.5

1

1.5

2

2.5

3

UK (RPI)

US

Germany

UK (CPI)

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

Inflation protection is cheap 5 year breakeven rates

Source: Bloomberg, as at 30 September 2012, *based on the assumption of a differential of 1% between UK RPI and UK CPI

%

RPI*

CPI target

The market expects inflation to average significantly below

the ECB’s and BOE’s target over the next five years

13

Beware of the misleading emerging

market narrative

14 Source : IMF Global Financial Stability Report, April 2012

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

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

% of GDP - World Economic Outlook 2012

-5

5

15

25

35

45

55 2011

2010

2009

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

The Chinese government has a lot of policy firepower

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

Ireland UK Spain

HK

Korea*

China*

Portugal

Japan

US

250

Cre

dit to

GD

P (%

) 20

10

200

150

100

50

0

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

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

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

16

EM external sovereign debt credit spreads are reaching

pre-crisis levels Z

-Sp

rea

d in

bp

s

www.bondvigilantes.com

Source: Bloomberg, M&G, as at 30 September 2012.

Barely compensating for liquidity risk, let alone credit risk

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Bp

s

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

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

17

Emerging market local currency debt – what goes in can also come out (but not very easily)

Source: JP Morgan, September 2012.

Emerging market economies have changed for the better –

but valuations have run ahead of fundamentals

Foreign holdings as % of government bonds outstanding

% (end of period) 2007 2008 2009 2010 2011 Q1 2012

Hungary 30 22 20 23 34 36

Poland 20 14 18 26 30 32

South Africa 13 16 15 23 25 22

Turkey 13 10 9 13 16 23

Brazil 5 7 9 11 11 12

Mexico 11 12 12 19 26 29

Peru 30 30 21 46 48 58

Indonesia 16 17 19 31 31 29

Malaysia 15 14 17 22 26 36

Thailand 0.20 2 2 6 8 8

18 Source: M&G, as at 30 December 2011. Source: Bloomberg, as at 30 September 2012.

EM local currency sovereign debt Correlation with equities

3500

4000

4500

5000

5500

6000

6500

7000

7500

160

180

200

220

240

260

280

300

320

Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12

DA

X in

dex le

vel

EM

lo

cal

cu

rren

cy s

ov

ere

ign

deb

t in

dex l

ev

el

JPM GBI-EM Global Diversified Composite Index (lhs) German equities (DAX) (rhs)

19

Eurozone crisis

20 Source: http://countrytimerecipes.alphamaids.com, as at September 2012.

21

Eurozone unemployment poses political danger

5

7

9

11

13

15

17

19

21

23

25

Spain

Greece

Eurozone

France

Italy

Germany

With millions of young adults unemployed, a lost

generation in Europe cannot bear any more pain

Source : Bloomberg, as at 31 August 2012

%

22

If you can't devalue your currency, devalue your wages

Source: Eastspring Investments, as at September 2012.

But whilst this will restore competitiveness in the long

run, it's bad for growth in the short term

Labour costs, rebased to 100 (base year 2000)

Reb

as

ed

to

10

0

German Italy

France Greece

Spain UK

100

110

120

130

140

150

160

170

00 02 04 06 08 10 12

100

110

120

130

140

150

160

170

23

Credit overcompensates for

default risk

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

Investment grade credit still looks attractive 5 year default rate, assuming a 40% recovery rate

Source: 5 year rolling default rate – Moody’s. Implied default rates - Bank of America Merrill Lynch/Bloomberg, as at 30 September 2012

0.3% 0.8% 2.0%

11.0%

15.2%

27.0%

6.2%

10.0%

21.6%

0%

5%

10%

15%

20%

25%

30%

35%

AA A BBB

Average default rate (1970-2011) Implied default rate: £ Implied default rate: €

25

M&G Global Macro Bond Fund

26

Performance levers to pull

Positive or negative duration

Positive and negative positions in sovereign and corporate debt

Can invest in both developed market and EM currencies

Invests globally in government bonds, corporate bonds, high yield, emerging market debt, inflation-linked bonds

Source: M&G.

Ability to perform in both rising and falling markets

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

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

Aims to deliver steady returns with lower volatility than the

average fund in its peer group throughout the economic

cycle

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

Aims to take high conviction views. Not benchmark-

constrained

M&G Global Macro

Bond Fund

Fund manager objectives

Total return focus

28

A fully flexible global bond fund

Credit risk

AAA AA A BBB BB B

Du

rati

on

(in

tere

st

rate

ris

k)

0 years

4 years

10 years

2 years

6 years

8 years

CCC

-4 years

-2 years

Historical credit risk and duration positioning

1

2

Feb 2009

Jul 2011

Source: M&G, as at 30 September 2012.

3 Sep 2012

29

Fund positioning summary

Source: M&G, as at 2 October 2012.

Key portfolio themes Currency breakdown

%

M&G Global Macro Bond Fund

Added European currencies on

weakness over the summer

We like Mexico – but have short positions in Brazil, Indonesia, Russia, South Africa and Turkey

We prefer credit over government bonds.

Reduced exposure further in September.

Still overcompensates for default, but

valuations have come closer to fair value

Central banks no longer care about

inflation, so we have 19% in linkers

Low interest rate duration of around

2.5 years

We prefer corporate issuers – although

covered bonds + RMBS are good value

Currencies

Emerging

markets

Government

bonds

High yield

Inflation

Duration

Investment

grade

-10

0

10

20

30

40

50

60

USD EUR JPY MXN CHF NOK SEK DKK AUD GBP

30

M&G Global Macro Bond Fund check-list

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

Provides access to all fixed interest asset classes and global currencies

Aims to deliver attractive risk-adjusted returns throughout the economic cycle

Has additional performance levers to pull, such as negative duration as well as negative positions in credit and currencies

Managed by an experienced fund manager who has worked for more than two decades in the bond markets

31

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

This document is designed for investment professionals’ use only, not for onward distribution to any other person or entity. For Switzerland: Distribution of this document in

or from Switzerland is not permissible with the exception of the distribution to qualified investors according to the Swiss Collective Investment Schemes Act, the Swiss

Collective Investment Schemes Ordinance and the respective Circular issued by the Swiss supervisory authority ("Qualified Investors"). Supplied for the use by the initial

recipient (provided it is a Qualified Investor) only. In Spain the M&G Investment Funds are registered for public distribution under Art. 15 of Act 35/2003 on Collective Investment

Schemes as follows: M&G Investment Funds (1) reg. no 390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391, M&G Investment Funds (5) reg. no 972,

M&G Investment Funds (7) reg. no 541, M&G Investment Funds (9) reg. no 930, M&G Global Dividend Fund reg. no 713 M&G Dynamic Allocation Fund reg. no 843, M&G Global Macro

Bond Fund reg. no 1056 and M&G Optimal Income Fund reg. no 522. The collective investment schemes referred to in this document (the "Schemes") are open-ended investment

companies with variable capital, incorporated in England and Wales. In the Netherlands, all funds referred to, with the exception of M&G Investment Funds (2), M&G Investment Funds

(5), M&G Investment Funds (9) and the M&G Dynamic Allocation Fund, are registered with the Dutch regulator, the AFM. This information is not an offer or solicitation of an offer for the

purchase of investment shares in one of the Funds referred to herein. Purchases of a Fund should be based on the current prospectus. The prospectus, Key Investor Information

Document (KIID), annual report and subsequent semi-annual report, are available free of charge, in paper form, from the ACD: M&G Securities Limited, Laurence Pountney Hill, London,

EC4R 0HH, GB, or one of the following: M&G International Investments Limited, German branch, Bleidenstraße 6-10, D-60311 Frankfurt am Main, the German paying agent J.P. Morgan

AG, Junghofstraße 14, D-60311 Frankfurt am Main, the Austrian paying agent, Raiffeisen Bank International A.G., Am Stadtpark 9, A-1030 Wien, the Luxembourg paying agent, J.P.

Morgan Bank Luxembourg S.A., European Bank & Business Center, 6 c route de Treves, 2633 Senningerberg, Luxembourg, the Danish paying agent, Nordea Bank Danmark A/S Issuer

Services, Securities Services, Hermes Hus, Helgeshøj Allé 33, Postbox 850, DK-0900, Copenhagen C, Denmark, Allfunds Bank, Calle Estafeta, No 6 Complejo Plaza de la Fuente, La

Moraleja 28109, Alcobendas, Madrid, M&G International Investments Limited, 34 Avenue Matignon, 75008, Paris, France or from the French centralising agent of the Fund: RBC Dexia

Investors Services Bank France. For Switzerland: Please refer to M&G International Investments Ltd., Bleidenstraße 6-10, D-60311 Frankfurt am Main or, for Sweden, from the paying

agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm, Sweden. For Italy, they can also be obtained from one of the appointed paying agents, details of

which can be found by visiting the contact section on the following website: www.mandg-investments.it. Before subscribing you should read the prospectus, which includes

investment risks relating to these funds. This financial promotion is issued by M&G Securities Limited and M&G International Investments Ltd. Both are authorised and regulated by the

Financial Services Authority and have their registered offices at Laurence Pountney Hill, London EC4R 0HH. M&G International Investments Ltd. is also registered with the CNMV in

Spain. Past performance is not a guide to future performance. Performance stats are quoted gross of Italian tax on capital gains

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