September 2015 | For professional investors and advisers only

Schroder ISF

European

Opportunities

September 2015

Steve Cordell | Fund Manager

Periods to 31 August 2015

Schroder ISF European Opportunities Performance

Performance in EUR % 3 months 6 months 1 year 3 years p.a. 5 years p.a.

Schroder ISF European Opportunities -7.1 -1.8 +12.9 +19.9 +14.1

MSCI Europe -9.2 -6.3 +7.6 +13.1 +10.2

Relative

+2.0 +4.6 +5.3 +6.7 +3.8

Quartile Q1 Q1 Q1 Q1 Q1

1

Source: Morningstar, performance and quartile rankings are based on ‘A’ acc shares, on the Morningstar Europe Equity Large Cap Blend category.

** Remove from final presentation **

Steve Cordell – Fund Manager

Fund Manager

Moved across to Schroders as part of the takeover of

Cazenove Capital in July 2013

Originally joined Cazenove Capital in 2002

A senior member of the Pan-European equity team and

manager of the Schroder European Opportunities Fund,

Schroder ISF* European Equity Absolute Return, Schroder ISF

European Opportunities, Schroder ISF European Equity ex UK

and Schroder European Absolute Target fund

Previously at HSBC Asset Management (Europe) Ltd

where he was responsible for several retail and institutional

Pan-European portfolios

Has 21 years of investment experience

2

Source: Schroders. *Schroder International Selection Fund will be referred to as Schroder ISF throughout this presentation

** Remove from final presentation **

Business cycle Pan-European Equity team

3

Source: Schroders, as at 31 August 2015

Matt Hudson

Head of Business Cycle

UK

Matthew Hudson (UK Equity and Income)

Michael Zorko (UK Equity Income)

David Docherty (UK Equity)

Charlotte Morrish (UK Equity)

Wade Pollard (UK Equity)

Europe

Steve Cordell (Pan Europe)

Lionel Rayon (Pan Europe, High Alpha)

James Sym (Europe ex UK)

James Rutland (Europe ex UK)

All team members have sector research responsibilities as well as product responsibilities

A range of European funds

4

Source for ratings: Morningstar OBSR, Citywire, Rayner Spencer Mills and Trustnet , as at 31 August 2015

23/09/2015 09:37:44

Schroder ISF European Equity

Absolute Return Fund

Steve Cordell

Luxembourg UCITS

€115m

Equity Europe

Long / Short

Schroder ISF European Equity

(ex. UK)

Steve Cordell

Luxembourg UCITS

€184m

Equity Europe (ex. UK)

FTSE World Series Europe ex

UK TR EUR

Schroder ISF European

Opportunities

Steve Cordell

Luxembourg UCITS

€372m

Equity Europe

MSCI Europe Net TR

Investment process

Business cycle – a pragmatic approach

Analyse sensitivity of companies’ earning streams to business cycle

Use leading indicators to assess where we are in the business cycle

This will determine how much risk we want in the portfolio

The beta of the portfolio should therefore change through the different phases of the cycle

Stock selection will usually be the key driver of return except at turning points in the cycle

6

Source: BofAML European Quantitative Strategy

23/09/2015 09:37:45

‘Designed to deliver consistent performance’

Business cycle

Sector market divides are not homogenous. They do not necessarily help us determine the behaviour of these

stocks within the cycle

Define the beta of stocks and allocate them to seven style groupings:

Pragmatic approach combining top-down macro view with earnings based security selection

Avoid permanent style/size bias

Demand for products and services changes throughout the business cycle

Operational gearing of companies impacts profitability of companies

7

Source: Schroders

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Commodity cyclicals Growth Financials Growth defensives

Consumer cyclicals Value defensives

Industrial cyclicals

HIGH BETA LOW BETA

Business cycle and style performance

8

Source: Schroders

23/09/2015 09:37:45

Growth defensive

Value defensive

Financials

Growth

Consumer cyclicals

Commodity cyclicals

Industrial cyclicals

Industrial cyclicals

Consumer cyclicals

Financials

Growth

Commodity cyclicals

Growth defensive

Value defensives

Growth

Consumer cyclicals

Commodity cyclicals

Industrial cyclicals

Growth defensives

Financials

Value defensive

Growth

Growth defensive

Value defensive

Financials

Consumer cyclicals

Commodity cyclicals

Industrial cyclicals

Overweighting

Market

Underweighting Sty

le g

rou

ps

Slowdown Recession Recovery Expansion

Seven style groupings

Commodity cyclicals Stocks whose revenues are linked either directly or indirectly to a particular commodity product such as oil, steel, gas, mining, bulk chemicals

e.g. BHP Billiton, ENI

Consumer cyclicals Cyclical stocks which rely on consumer spending for their revenues e.g. retailers, automotives, house builders, leisure, general retail

e.g. Marks & Spencer, Electrolux

Industrial cyclicals Stocks which manufacture capital goods or have revenues linked to industrial production e.g. engineering, aerospace, construction

e.g. GKN, Atlas Copco

Growth Stocks which grow revenues well in excess of GDP with a high degree of uncertainty or volatility e.g. luxury goods, medical technology, IT

e.g. Capita, Hennes & Mauritz

Financials/interest rate sensitives Stocks whose business depends on interest rate spreads, financial markets and asset valuations e.g. banks, insurers, real estate

e.g. Barclays, BNP Paribas

Growth defensives Stocks which grow revenues in excess of GDP with a low volatility and high visibility e.g. pharmaceuticals, defence

e.g. Tesco, Roche

Value defensives Stocks which grow revenues at or below GDP with low volatility and high visibility e.g. telecommunications, utilities, food producers,

beverages, tobacco, food retailers e.g. GlaxoSmithKline, France Telecom

9

The stocks and sectors mentioned above are shown for illustrative purposes only and are not a recommendation to buy or sell

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IFO business cycle indicator

EZ Composite PMI vs. Money Supply

How we determine turning points in the business cycle

10

Source: Top: JP Morgan as at August 2015. Bottom LHS: Absolute Strategy Research. RHS: Datastream as at August 2015

The Inventory Cycle Bond yields also key

Normalised forecast errors 3m change in orders less inventories European Cyclicals vs Defensives price rel US yield curve (10y – 2y)

Portfolio construction

11

Pan-European Equity

strategy meeting

Portfolio

Position sizing

Stock selection process

7 style tilts

Strength of view

Potential returns

Stock volatility

Quantitative screening

Qualitative screening

Stock opportunities analysed more in depth

Where are we?

Where are we going?

Tilts weighting to reflect our business

cycle view

Avoid permanent style/size bias

Diversified portfolio

Beta changes through cycle

Emphasis

50%

50%

Source: Schroders

EPS momentum

Price momentum

Valuation

Leverage

Analyst revisions

Databases: Bloomberg, Reuters, Datastream,

FactSet, Mirabaud Securities

Qualitative and quantitative screening of the

stock universe is undertaken in order to detect

potential opportunities

Looking for turning points in relative revisions Quantitative analysis

Stock selection process

12

Source: Mirabaud Securities, Schroders, as at September 2015

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THALES

0.00

0.25

0.50

0.75

1.00

Earn

ings R

evis

ion R

ankin

g

0

50

100

150

200

Pric

e R

ela

tive

Sep 12

Dec 12

Mar 13

Jun 13

Sep 13

Dec 13

Mar 14

Jun 14

Sep 14

Dec 14

Mar 15

Jun 15

Sep 15

50

100

150

200

250

300

350

400

Thales: Trend P/E relative, 1985 - 2015

Trend P/E relative Average + 1 SD - 1 SD

Performance and

Positioning

Periods to 31 August 2015

Schroder ISF European Opportunities Performance

Performance in EUR % 3 months 6 months 1 year 3 years p.a. 5 years p.a.

Schroder ISF European Opportunities -7.1 -1.8 +12.9 +19.9 +14.1

MSCI Europe -9.2 -6.3 +7.6 +13.1 +10.2

Relative

+2.0 +4.6 +5.3 +6.7 +3.8

Quartile Q1 Q1 Q1 Q1 Q1

14

Source: Morningstar, A Inc, Total Return, bid to bid, net of fees. Quartile rankings are based ‘A’ inc. Share, on the Morningstar Europe Equity Large Cap Blend category.

Pan Europe strategy Fund positioning – Sector

15

Source: Schroders, as at 31 August 2015. The sectors and securities shown are for illustrative purposes only and not a recommendation to buy or sell. Based on Schroder ISF

European Opportunities

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Sector Active view Direction of travel Key stock

Commodity cyclicals -2.1% BG Group

Consumer cyclicals +2.5% ITV

Financials +8.7% Merlin Properties

Growth -0.9% Pandora

Growth defensives -8.6% Bayer

Industrial cyclicals +2.5% = CRH

Value defensives -4.2% Imperial Tobacco

Market outlook

5

10

15

20

25

30

35

40

45

50

55

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Pan Europe US Asia-Pac ex Japan

54% upside to get to average valuation

17

Source: Thomson Datastream. As at 31 August 2015

The global opportunity set Europe remains attractively valued

Current: 13.2x

Pan Europe

Average 20.3x

Cyclically adjusted P/E of global regions

+1 St dev

+1 St dev

Divergence between European and global macro is

slowing the “recovery”

18

Source: Top: BofAML European Quantitative Strategy. Bottom: JPM. As at August 2015

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15

MSCI Eurozone +ve to -ve EPS revisions S&P500 MSCI UK Topix MSCI EM

Commodity deflation

19

Source: Bloomberg, August 2015

The USA is a worry

20

Source: JPM. Top LHS: Bloomberg. As at August 2015

23/09/2015 09:37:45

Focus on domestic recovery

21

Source: BofAML European Quantitative Strategy, August 2015

Persistent European ‘Recovery’ is very favourable for domestic-cyclicals (Financials)

Italian financials preferred

22

Source: JPM, August 2015

Key holdings in Banca Popolare di Milano and Anima

This presentation does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (the “Company”). Nothing in

this presentation should be construed as advice and is therefore not a recommendation to buy or sell shares. Subscriptions for shares of the Company can only be made on the

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in the prospectus. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get the

amount originally invested. Schroders has expressed its own views and opinions in this presentation and these may change. This presentation is issued by Schroder Investment

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Risk considerations: The capital is not guaranteed. All equity forward sales are with a single counterparty. In case of default, the relevant equities will be sold in the market and

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Important information

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