Simon Brennan Director

1. Deutsche Ban Simon BrennanDirector Private Wealth Management PFS Yorkshire Regional Conference March 2012

2. Gap/Knowledge Filling 66-68 • Investment Principles & Risks • Methods of Evaluating Portfolio Performance • Performance Measurement • Performance Attribution Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

3. Investment Principles/Objectives • Growth • Derive an income • Capital security • Liquidity Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

4. Investment Markets • Classification of assets • Financial behaviour of assets • Correlation of assets • Fiscal impact of assets Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

5. Basics of Risk • Risk Tolerance The degree of uncertainty that aninvestorcan handle in regard to a negative change in the value of his or her portfolio. • Risk Capacity Financial risk capacity can be measured in many different ways, including time horizon, liquidity, wealth and income. People who have a high liquidity requirement (they could need access to their money at any time) are constrained to how much risk they can take.  Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

6. Past Performance • Understand investment markets • Assess the investment and composition • Look at Manager competence • Reward for management • Predicting the outcomes Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

7. Performance • Measurement- returns made over a period • Evaluation Whether manager added value How the manager added value Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

8. Calculating returns Simon Brennan PFS London Regional Conference • Money weighted return MWR A measure of the overall return on capital invested over a specific period may include allowance for income introduced or withdrawn Deutsche Bank Private Wealth Management

9. Money Weighted return • R= D+V1-V0 V0 • R= rate of return • V0= value at the start of the portfolio • V1=value of the portfolio at the end of the period • D= income during the period Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

10. Money Weighted Return • V0= £25,000 • V1= £28,000 • Income (generated) paid out £1,000 £1,000 + £28,000 - £25,000 £25,000 =0.16 MWR=16% Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

11. Money Weighted Return (income withdrawn/added) MWR= D+V1-V0- C V0+(C x n/12) Where N is the number of months C = Cashflow Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

12. Money Weighted Return (income added and withdrawn) • V0= £20,000 • V1= £24,000 • £3,000 invested in 3rd month • £2,000 withdrawn in 9th month • £3,000 - £2,000=£1,000 = 24,000 - 20,000 -1,000 20,000+ (3,000x9/12)+(-2,000x3/12) =0.1379 13.79% Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

13. Time weighted return • The time-weighted rate of return is the preferred industry standard as it is not sensitive to contributions or withdrawals. • It is defined as the compounded growth rate of £1 over the period being measured. • The time-weighted formula is essentially a geometric mean of a number of holding-period returns that are linked together or compounded over time (thus, time-weighted). • The holding-period return, or HPR, (rate of return for one period) is computed using this formula: Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

14. Time weighted return Simon Brennan PFS London Regional Conference Eliminates distortions caused by timing of new money Breaking down the return for a particular period Reflects sub periods of withdrawn/added cash Compounding sub periods to get overall return Deutsche Bank Private Wealth Management

15. 1+R = (1 +r1)(1+r2)(1+r3).......(1+rn) R=TWR r1=holding period n= sub periods Simple Approach to TWR Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

16. Alpha and Beta  Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

17. BETA • A measure of the volatility, or systematic risk,  of a security or a portfolio in comparison to the market as a whole. • Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

18. BETA • 0.5 Beta lower volatile than market • 1.0 market performance • 1.5 market outperformance/underperformance • Historical data Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

19. Risk adjusted returns • Alpha • Sharpe Ratio • Information Ratio Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

20. Alpha • A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a security(stock) and compares its risk-adjusted performance to a benchmark index. • Difference between what you would expect from a security b and the actual return • Cannot be explained by general market movements Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

21. Alpha Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

22. Positive and Negative ALPHA POSITIVE.......value added NEGATIVE...........value detracted Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

23. Demonstration of Alpha Fund A 12% 4% 10% 1.2 12- [4+1.2(10-4)] =0.8% Fund B 10% 4% 10% 0.8 10- [4+0.8(10-4)] =1.2% Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

24. Sharpe Ratio The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. A variation of the Sharpe ratio is the Sortino ratio, which removes the effects of upward price movements on standard deviation to measure only return against downward price volatility. Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

25. Interpreting Sharpe Ratio • The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. • A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed Portfolio return 10% Risk free return 4% SD 8% Sharpe= 10 – 4 8 0.75% return over the risk free rate for each unit of risk taken Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

26. Information Ratio • Assess risk adjusted performance • Used to demonstrate consistency of beating benchmark index • IR= Ra –Rb Tracking error Ra = portfolio return Rb = benchmark return Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

27. Information Ratio IR A high IR can be achieved by having a high return in the portfolio, a low return of the index and a low tracking error.  For example: Manager A might have returns of 13% and a tracking error of 8%  Manager B has returns of 8% and tracking error of 4.5% The index has returns of -1.5% Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

28. Manager B had lower returns but a better information ratio Manager A's IR = [13-(-1.5)]/8 = 1.81 Manager B's IR = [8-(-1.5)]/4.5 = 2.11Manager B had lower returns but a better IR. A high ratio means a manager can achieve higher returns more efficiently than one with a low ratio by taking on additional risk. Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

29. What are benchmarks? • Appropriateness, what are we trying to prove • Asset allocation • Performance: active/passive/tracker • Deviation of benchmark • Income generated/dividends/costs of management • Tracking error Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

30. Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

31. Industry benchmarks • APCIMS • FTSE • MSCI • Russell • RAFI Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

32. Creating Benchmarks • Synthetic • Individual • Simple Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

33. Performance v benchmarks • Drill into benchmark • Industry • Composite • Absolute/target returns Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

34. Bond benchmarks • Look at bond indices ....sovereign v corporate • Corporate financials Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

35. Use of benchmarks • Analysis • Asset allocation • Risk and return • Added value, demonstrate returns • Performance fee Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

36. Selection Process • Fund • Collective approach, FoFs • Models • Manager(s) Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

37. Selection of funds/manager/DFM Industry ratings Size of funds Historical data Survivorship Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

38. Selection of funds/manager/DFM Assessing fund manager Considering strategy Pedigree Research process Simon Brennan PFS London Regional Conference Risk controls Deutsche Bank Private Wealth Management

39. Selection of funds/manager/DFM Personality Statistics Internal nesting Security Added benefits/tools Review and report process Simon Brennan PFS London Regional Conference Number of clients Deutsche Bank Private Wealth Management

40. Returns • Time frame • Risk appetite • Requirement of client • Over engineering Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

41. Long term view Asset Allocation Is the KeyThe belief has its origins in a study by Brinson, Hood and Beebower entitled "Determinants of Portfolio Performance" (Financial Analysts Journal, July/August Issue, 1986). • The study concluded that 93.6% of the variation of returns in a diversified portfolio is explained by the asset allocation policy. • The key term here is "diversified", but we will address that in a moment.  Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

42. 'Strategic Asset Allocation’ • A portfolio strategy that involves periodically rebalancing the portfolio in order to maintain a long-term goal for asset allocation. 'Tactical Asset Allocation - TAA’ • An active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors. Dynamic Asset Allocation‘ ‘Dynamic Asset Allocation’ • A portfolio management strategy that involves rebalancing a portfolio so as to bring the asset mix back to its long-term target. Such rebalancing would generally involve reducing positions in the best-performing asset class, while adding to positions in underperforming assets. The general premise of dynamic asset allocation is to reduce the fluctuation risks and achieve returns that exceed the target benchmark. Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

43. Simple attribution Asset Class Manager asset Index Contribution allocation performance to return % for each class % % UK Equities 45 20 9.00 Overseas equities 25 15 3.75 Fixed Interest 20 10 2.00 Cash 10 5 0.50 Overall contribution to return 15.25

44. Five traits of a successful investor Highly disciplined and committed Invests without emotion Always up to date with the market Possesses a realistic outlook on investing Always has a plan Simon Brennan PFS London Regional Conference Deutsche Bank Private Wealth Management

45. Important Information – IntermediaryThis presentation has been prepared for private circulation and is not intended for clients categorised as private customers under the rules of the Financial Services Authority.This is not a solicitation, or an offer to buy or sell any security. Recommendations do not necessarily imply their suitability for individual portfolios or situations in respect of which further advice should be sought. The price of securities and the income from them can go down as well as up and the amount originally invested may not be received back in full. The past performance of a security or market is not necessarily indicative of future trends. Opinions and recommendations are given in good faith but without legal responsibility and are subject to change without notice, however this does not exclude any duty or liability to a customer which Tilney Investment Management has under the Financial Services and Markets Act 2000. Information contained in this publication has been compiled from sources believed to be reliable but is not warranted to be accurate or complete. Tilney Investment Management and/or companies connected with it may within the last 12 months have provided investment advice or services in connection with any securities referred to or relatedsecurities and those companies or their officers and employees may have a position or engage in transactions in such securities.Deutsche Bank Private Wealth Management is a trading name of Tilney Investment Management.Tilney Investment Management is a Member of the London Stock Exchange and is authorised and regulated by theFinancial Services Authority. FSA Register No: 124255.Registered Office: Royal Liver Building Pier Head Liverpool L3 1NY Tel: 0151 255 3000 Fax: 0151 236 1252 www.dbpwm.co.ukTilney Investment Management is a member of the Deutsche Bank Group.