High conviction investing 2nd February 2006 Andrew Dalrymple – Senior Portfolio Manager

1. High conviction investing2nd February 2006Andrew Dalrymple – Senior Portfolio Manager

2. Investment risk The investment definition of risk: Deviation from the benchmark The ‘real’ definition of investment risk: Losing money!

3. Market risks and the pitfalls of benchmarking

4. Regional constituents of the MSCI World Index (2005) • More than 50% of the index is made up of US stocks • Less than 4% from Asia • Zero allocation in emerging markets: an area that has • produced the highest returns over the last 2-3 years • GDP vs MSCI weighting miss match % As at 31 Dec 05

5. Index comparisons – performance of regional stock markets % of MSCI World Index • Strong outperformance of certain regional markets over time v MSCI and S&P 500 • Benchmark investors miss key market trends 0.0% 3.6% 11.7% 30.0% % 54.7% Three years to 31 Dec 05 in USD. Source: Lipper Hindsight.

6. MSCI World sector breakdown and performance • Benchmark investors miss key themes • Significant 2005 outperformance of energy and materials MSCI World Performance (2005): 23.0% % Sector and performance breakdowns one year to 31 Dec 05 in GBP

7. Stock risks and the pitfalls of benchmarking

8. FTSE 100 – market domination of large stocks As at 31 Dec 05.

9. NASDAQ – market domination of large stocks As at 31 Dec 05.

10. NASDAQ – Share Price vs Index weightings Microsoft Corp & Intel Corp 12.3% 8.2% $ 7.6% 3.7% As at 31 Dec 05.

11. Hang Seng – market domination of large stocks As at 31 Dec 05.

12. Hang Seng – Share Price vs Index weightings HSBC Holdings Plc & Hutchison Whampoa 30.2% 27.5% $ 10.7% 6.7% As at 31 Dec 05.

13. Missed Opportunities and High Conviction Themes

14. High Conviction Themes – Asia • Severe economic difficulties in late 1990’s • Last five years have seen steady improvement in corporate and personal balance sheets • One of the strongest areas in the world for private consumption • Favourable demographics • Strong work ethic / entrepreneurial culture • Highly competitive cost base • Attractive valuations • Improving political stability

15. Bharti Televentures (India) Non-Index stock • India’s leading mobile telephone operator (12.5 m customers) • Subscriber growth +50%p.a. • Mobile penetration rate remains low (4%) • Excellent, proven management INR Source: Bloomberg, as at 31 Dec 05

16. High Conviction Themes – How to Invest in the US • Strong ‘bottom up’ focus • A stock pickers paradise • Franchise builders, consolidators • Niche/specialist players

17. LKQ Corp (US) Non-Index stock • Only national provider of recycled car parts • Highly fragmented market • Huge market opportunity • Strong value proposition USD Source: Bloomberg, as at 31 Dec 05

18. High Conviction Themes – Energy • Free cash flow of E&P majors is very strong • Supply side struggling (gas decline rate of 30% p.a.) • 30% more drilling activity in 2005 • Service utilisation rates approaching 100% (land and offshore) • Rig day rates at 15 year highs • Cycle to continue owing to rig shortage

19. Ocean Rig (Norway) Non-Index stock • Operator of the two most advanced semi submersibles in the world • Rig day rates have doubled since last September • Strong demand for harsh environment capability • Trading around NAV NOK Sold Added to position Purchased Source: Bloomberg, as at 30 Sep 05

20. SolarWorld (Germany) Non-Index stock • You all know this one! Sold EUR Took profits Purchased Source: Bloomberg

21. High Conviction Themes – Portfolio Construction • Best ideas portfolio • 50 - 55 global opportunities • Conviction based approach • Benchmark aware but not constrained or driven • Strong sector, regional and size bias

22. A High Conviction Investor… • Can be contrarian • Has complete flexibility • Identifies and explores themes and areas • Is not forced to buy stocks or regions • Has an absolute return mindset

23. £1,000 invested in First State Global Opportunities Fund £ Since launch to 31 Dec 05 . Source: Lipper Hindsight, bid to bid, net income reinvested, in £ sterling

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