Investors in Values

LWM Consultants Ltd.

Standard Life Global Absolute Return Fund (GARS) Fund

Investment challenges• People are living longer, investments have to work harder and for longer

• Eighties and nineties lulled investors into a false sense of security both with equities and cash yielding high returns

• Equity markets returning to normal valuations, volatile but potential for long term positive returns

• Cash is seriously challenged - interest rates at 0.5% p.a. – but potential for further reduction in rates or remaining at present rate until 2015

• High inflation currently at 2% (January 2014) eroding real value of cash i.e. 0.84% return means cash is losing 1.16% p.a. in real terms

• Short-term cash investors can accept this but funds for specific needs (2 years plus) are being diluted

• Volatile markets mean investors are nervous of investing in the markets with funds set aside for specific needs - the ‘holy grail’ would to achieve high returns (as per 1990’s) without the risk of losing money

Cash for specific needs

• Funds set aside for known events, so university education, new car etc.

• Although there is some knowledge of some of the events some are unknown, so the capital needs to be available

• Timeframes tend to be 2 years plus, and could be longer

• Cash has always been seen as a safe long term investment and risk free investment, ideal for such circumstances

Cash today• In April 1999 cash ISAs earned an average 6.32%, in 2011 the

average cash ISA earned just 0.84% - (source Telegraph and Market Oracle).

• In April 1999 inflation was 1.6% so real return was around 4.72%

• 2008 onwards saw the collapse of Icesave and near collapse of RBS, Northern Rock et al

• In a low interest rate / “high inflation” world, there is no longer a risk free investment, inflation at 2% (January 2014) means cash investments are losing money in real terms

• For funds set aside to cover specific needs this is a real challenge

Introducing the Standard Life GARS

FundTHE FUND

o Aims to give investors positive investment returns in all market conditions. It seeks to provide returns that have historically been achieved by conventional long-term equity investment, but with only a third of the volatility

o Aims to deliver an absolute return over rolling 12-month periods and has a target return of cash +5% per annum (gross of fees) over rolling 3-year periods. They expect this to be consistent with the long-term return available from equities and aim to achieve this target with around a half to a third of the volatility

• Unlike cash returns are NOT guaranteed and your capital will fluctuate, past performance is no guide to future performance and investments can fall as well as rise

Introducing the Standard Life GARS

Fund• Cash is based on the 6 Month LIBOR Rate (currently 0.61188%) –

over three years the target would be 5.61% p.a. gross of fees, the fund over three years has returned 6.31% p.a.

2008 2009 2010 2011 2012 2013 Since launch

-5.26% 18.67% 9.90% 2.19% 7.02% 6.28% 6.62%

How does it work?• It looks to invest in a broad range of return opportunities – by this we mean

it will hold equities, bonds and other investment strategies

• This is the traditional diversification strategy but it overlays with with a multi market return strategy which looks to squeeze down the volatility but not the performance

• So effectively it creates the best of both worlds i.e. bond like volatility but equity type returns

• The strategies are split into:o Traditional – Market Returns and Stock Selectiono Advanced – Directional and Relative Value

Traditional StrategiesMarket Returns / Stock Selection

• How the strategy works

Market returns are earned by investing in assets that are expected to provide a long-term return that is superior to cash, e.g. equities, corporate bonds and real estate. The risk from holding these assets is that they can also give negative returns over significant time periods.

Stock selection exploits the stock selection expertise of a variety of traditional fund managers who are tasked with out-performing market benchmarks. Also known as alpha generation, they target a 1% per annum contribution to GARS overall from this source.

• Example of how this works

From inception, GARS benefited from a significant investment in equity markets until late 2007, when they significantly cut this exposure. During the volatile markets of 2008, the fund's exposure to equity holdings fell in line with market movements to a low of 18%. They topped these up to 25% in October 2008 and again in February 2009, with GARS benefiting from strong market gains in 2009.

Advanced StrategiesDirectional

• How the strategy works

These strategies, often based on interest rate and currency views, are cyclical market opportunities, so may not offer a significant long-term reward for holding them continuously. On a two-to-five-year view, however, they can offer significant rewards that are often uncorrelated to long-term market returns.

• Example of how this works

European interest rates. In 2008, they believed European shorter-term interest rates were too high and put in place strategies that would deliver returns as interest rates fell. As traditional risk assets collapsed in value in the second half of 2008, this strategy performed better than they expected, offering an element of resilience to the overall value of the Fund. Interest rate or duration positions, especially at longer maturities, also provide diversification to their equity strategies, again benefiting the Fund’s risk-return characteristics.

Advanced StrategiesRelative value

• How the strategy works

Highly correlated markets may behave significantly differently over extended periods. This can be as straightforward as the comparison of two equity markets. They may reach relative valuation levels that are unsustainable. Relative value strategies can take advantage of the normalisation of markets without exposure to the direction of underlying asset class. For example, they can implement a strategy that delivers returns if one stock market outperforms another irrespective of whether equity markets are going up or down. The strategies add further diversification.

• Example of how this works

Financial vs corporate credit. Credit rating downgrades for financial companies were a prominent feature of investment markets in 2008 as the financial system cracked and banks sought government support. In the midst of this financial crisis, investor aversion to financial bonds was reflected in their high yield. Their relative value strategy exploited the fact that financial companies have to vigorously defend their creditworthiness more than most in order to operate profitably. They expected to benefit from an improvement in the relative credit quality of financial companies versus the market as a whole, which was subsequently the case in 2009.

Summary• Low returns on cash, “high inflation” and volatile markets are making it harder

to find a home for funds set aside for specific needs (2 years plus)

• Inflation is 2.00%, effectively providing negative returns on long term cash holdings

• For funds set aside for specific needs investors want to achieve higher returns without volatility – this is unrealistic because it requires the deployment of risk, which by its very own nature means that to achieve returns may mean losing money over the short term

• However the Standard Life GARS Fund provides an alternative option, aiming to achieve positive returns over all periods by using a multi market strategy:

o Since launch in 2008 the investment has returned 6.62% p.a., in fact only in 2008 did it return a negative amount, over three years to the end of December 2013 it returned 6.31% p.a.

Source: Morningstar for performance data on Standard Life GARS Fund

You should note that past performance is not a reliable indicator of future returns and the value of your investments can fall as well as rise.

PLEASE NOTE YOUR CAPITAL AND / OR RETURNS ARE NOT PROTECTED OR GUARANTEED

LWM Consultants Ltd is an appointed representative of Sense Network Limited, which is authorised and regulated by the Financial Services Authority. Registered in England and

Wales under Company Number 07408315. Registered Office: St John’s Court Whiteladies Road Bristol BS8 2QY