royal london asset management

Royal London UK Equity Income Fund

A Fund for All Seasons

Citywire Scottish Investors RetreatTurnberry, 14 & 15 June 2012

Martin CholwillSenior Fund Manager

Ian GoulsbraHead of Wholesale Relationships

Tony TaylorBusiness Development Manager

Quentin SmithMarketing & Communications Manager

Good thinking. Well applied.

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Agenda

• RLAM

• Introducing Martin Cholwill

• Performance

• Investment approach

• Question time

2

Equities at RLAM

Scale & Stability

We manage over £12bn in UK and overseas equities

Award Winning Performance

Externally recognised by Lipper and Citywirefor strong and consistent performance

2011 and 2010 Winner of Best Group Over Past Three Years, Equity Large

2011 Winner of Best UK Equity Team over Past Three Years

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£8.2bn

£3.9bn

UK Equities

Overseas Equities

Source: RLAM, as at 30 April 2012

RLAM UK Equity Team Jane CoffeyHead of Equities

RL UK Equity Fund

Bradley MitchellRL UK Growth Fund

RL UK Ethical Equity Fund

Martin Cholwill RL UK Equity Income Fund

• Experienced team – average 20 years • Proven track records• Individual investment styles tailored to specific fund objectives• Diversified range of equity products

Derek MitchellRL UK Mid Cap Growth Fund

RL UK Opportunities Fund

Victoria StewartRL UK Smaller Companies

Fund

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Martin Cholwill

• 28 years’ UK equity market experience

• 15 years spent managing UK equity income funds

• Actuarial background

• Strong and consistent performance track record

• Joined RLAM in February 2005 to focus solely on RL Equity Income Fund

5

Experience and success

RL UK Equity Income Fund

6

• Conviction portfolio of my best 40-60 stock ideas

• No ballast – buys funded by selling down existing positions

• Market cap agnostic, though typical bias towards more liquid stocks

Source: FE Analytics, as at 6 June 2012

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12

RL UK Equity Income Fund IMA UK Equity Income sector average

Consistent outperformance

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Source: FE Analytics, as at 6 June 2012

Proven in both up and down markets

-0.3%-2.9%

14.6%

22.9%

-28.5%

-1.2%

18.2%

2.2%

-1.9%

17.3%

25.6%

-28.2%

0.8%

19.7%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2012 YTD 2011 2010 2009 2008 2007 2006

IMA UK Equity Income sector average RL UK Equity Income Fund

Royal London UK Equity Income Fund

• Pure focus on high yielding UK income stocks

• Proven, consistent performance record

• Experienced and independently-minded fund manager

• Attractive yield, income paid quarterly

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Traditional income approach with proven results

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Diversified Sources of Income

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FTSE 100

FTSE 250 Index (ex IT) FTSE Small Cap Index (ex IT)

55.7%

41.1%

3.2%

84.4%

13.2%2.4%

Current Market Cap Split

Fund BM

432%929%

FTSE 100 1361% Total Return

668%

1838%

FTSE 250 Index (ex IT)2506% Total Return

172%

552%

FTSE Small Cap Index (ex IT)724% Total Return

Source: RLAM as at 31st May 2012

Returns by Market Cap

Diversified sources of income

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Better balance Mid 250 FTSE 100

Overseas earnings 49% 72%

Source: RLAM, as at 31 May 2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2006 2007 2008 2009 2010 2011 2012

Large cap

Mid cap

Small cap

Pure focus on high yielding income stocks

My core investment criteria:

• Strong business model and management team

• Sound finances

• Ability to generate sustainable long term dividend growth

• Depressed share price offering a yield premium

• Purchased when out of favour

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Dividends depend on free cash-flow generation

The importance of free cash-flow

• True measure of a company’s intrinsic value

• Pays the dividend

• Provides the capital for growth

• Cannot be smoothed by creative accounting

• Problem with focusing on profits

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Cash never lies

Macro considerations

• Anaemic economic growth for developed economies

• Headwinds from government and consumer indebtedness

• Political muddle through

• Faster growth in Asia Pacific and China

• UK interest rates to stay close to zero for many years

• UK inflation risk skewed to the upside

• Corporate balance sheets in good shape; cash-flows strong

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Anaemic growth, but muddle through

Post-credit crunch strategy

• Strong market position

• Robust balance sheets

• International earnings• Faster growth elsewhere e.g. Asia Pacific

• Avoid strategically challenged companies with high debt • No safety net from takeover activity

• Ability to be nimble and different

• Looking outside the usual names

Survivor bias to portfolios

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Winning approach

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Portfolio construction

• Conviction portfolio of my best 40-60 stock ideas

• No ballast – buys funded by selling down existing positions

• Market cap agnostic, though typical bias towards more liquid stocks

• Broad sector spread, though typical focus on higher yielding industries

• Typically <5% cash

Source: RLAM , as at 31 May 2012

Sector %

Industrials 27.7

Financials 16.8

Consumer Services 13.4

Oil & Gas 8.6

Health Care 8.0

Utilities 7.9

Telecommunications 7.3

Basic Materials 5.5

Consumer Goods 4.8

Back my convictions

Dunelm Mill

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50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012

Shar

e Pr

ice

Rel

ativ

e

Source: Thomson Reuters Datastream

6p8p

11.5p

0

5

10

15

2009 2010 2011

Ordinary Dividends


Strong business model and management team

Sound finances

Ability to generate sustainable long term dividend growth

Depressed share price offering a yield premium

Purchased when out of favour

Looking outside the usual names

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80

100

120

140

160

180

200

2009 2010 2011 2012

Shar

e Pr

ice

Rel

ativ

e

Source: Thomson Reuters Datastream

36p43p

49p

0102030405060

2009 2010 2011

Ordinary Dividends


Strong business model and management team

Sound finances

Ability to generate sustainable long term dividend growth

Depressed share price offering a yield premium

Purchased when out of favour

Not just the usual mega cap names

Key messages

• Pure equity income fund

• Nimble approach

• Looking outside the ‘usual names’

• Proven in both up and down markets

• Attractive yield, paid quarterly

• Consistent outperformance

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A bit more interesting than just the usual mega cap names

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Important Information

For professional investors and advisors only. This document may not be distributed to any unauthorised persons and is not suitable for retail clients.

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.

Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested.

For funds that use derivatives, their use may be beneficial, however, they also involve specific risks. Derivatives may alter the economic exposure of a fund over time, causing it to deviate from the performance of the broader market.

All confidential information relating to any Royal London Group company must be treated by you in the strictest confidence. It may only be used for the purposes of assessing the proposal to engage RLAM. Confidential information should not be disclosed to any third party and should only be disclosed to those of your employees and professional advisers who are required to see such information for the purpose set out above. You should ensure that these persons are made aware of the confidential nature of such information and treat it accordingly. You agree to return and/ or destroy all confidential information on receipt of our written request to do so.

rlam claims compliance with the Global Investment Performance Standards (GIPS®). To receive a complete list and description of RLAM’s composite and a presentation that adheres to GIPS standards, contact us at the address below.

Issued by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0UF, authorised and regulated by the Financial Services Authority. Registration Number 141665.

Risk warning

Royal London Asset Management Limited 55 Gracechurch Street London EC3V 0UF

The services outlined in this presentation are offered by RLAM to professional clients as defined by the FSA. People whom this is not directed should not rely on the information it contains.

Source: rlam as at 6 June 2012 unless otherwise stated.

rlam is a marketing brand including the following companies: Royal London Asset Management Limited registered in England & Wales number 2244297; Financial Services Authority (FSA) register number 141665. Royal London Pooled Pensions Company Limited registered in Scotland number SC048729; FSA register number 110456. Royal London Unit Trust Managers Limited registered in England & Wales number 2372439; FSA register number 144037. Royal London Cash Management Limited registered in England & Wales number 19632; FSA register number 121844. All of the above are authorised and regulated by the Financial Services Authority.

It also includes Royal London Asset Management Bond Funds Plc registered in Ireland number 364259 and regulated by the Central Bank of Ireland. All these companies are subsidiaries of The Royal London Mutual Insurance Society Limited registered in England and Wales number 0099064 (FSA registration number 117672).Head office: 55 Gracechurch Street, London EC3V 0RL. Our Reference: 319-PRO-06/2012-QS

Contact informationFor further information on Royal London Asset Management, please contact:

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Tony TaylorBusiness Development [email protected]

Tel 020 7506 6500 Fax 020 7506 6796