Challenging Conventional Wisdom in Global Equities

1. Challenging Conventional Wisdom in Global Equities Schroder Educational Series Stephen KwaSenior Client Portfolio Manager March 2013 For Broker/Dealer Use Only. Not for use with the general public or clients under any circumstances. Schroder Fund Advisors LLC, Member FINRA, SIPC 875 Third Avenue, New York, NY 10022-6225 (800) 730-2932 www.schroderfunds.com

2. Agenda • For passive investors • Challenging the conventional wisdom of cap weighted indices and ETFs • And for active investors • Challenging the conventional wisdom of concentrated portfolios • Importance of Quality in portfolios 1

3. Challenging the conventional wisdom of cap weighting Source: newslettercartoons.com 2

4. What is cap weighting? Stock weights proportional to market cap of company S&P 500 stock weights Dec 31, 2012 MSCI EAFE stock weights Dec 31, 2012 408 X 345 X Source: Schroders. Companies mentioned are shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell .

5. The issues with cap weighting • Buy and hold strategy – can detract from returns • Stock diversification issues • Concentrated to mega/large caps which underperform over time • Restricts universe of opportunities Leaves unexploited opportunities behind Source: Schroders 4

6. Issue 1: Cap weighting is a buy & hold strategy Akin to momentum investing – unable to take profits and rebalance Technology/Telecoms bubble of 1999/2000 36% of MSCI World is comprised of tech stocks here Source: Schroders, MSCI. These views and opinions are of the QEP Team and are subject to change. 5

7. Issue 2: Stock diversification issues Concentration primarily to market leaders – “Top Dogs” % weight in country total market cap Weight of largest 3 companies by country BHP Commonwealth Bank Westpac AppleExxon GE Source: Schroders as of December 31, 2012 based on stocks within the MSCI AC World Index. Countries mentioned are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The percentages shown represent the weights, as measured by market capitalization, of the indicated stocks of each country within the MSCI AC World Index. These weights are subject to change and should not be viewed as an investment recommendation. Top Dogs” is defined as the single largest company in the sector-country combination. 6

8. Issue 2: Top Dogs dominate exposure Top Dog concentration within sectors by country The Relative Cap Weight Market Share of Top Dogs (1982-2010) Source: Research Affiliates; Source: Arnott, Wu (2012): “The Winner’s Curse: Too Big to Succeed?” The authors use SIC codes to define the 12 sectors. These definitions may vary from GIC definitions. Countries/sectors shown are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. “Top Dogs” is defined as the single largest company in the sector-country combination. 7

9. Issue 2: Top Dogs lag in performance US equities Source: Arnott, Wu (2012): “The Winner’s Curse: Too Big to Succeed?”Graph shown are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Past performance is no guarantee of future results. The value of an investment can go down as well as up and is not guaranteed.“Top Dogs” is defined as the single largest company in the sector-country combination. 8

10. Issue 2: Top Dogs lag in performance Global equities Source: Arnott, Wu (2012): “The Winner’s Curse: Too Big to Succeed?”Graph shown are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. Past performance is no guarantee of future results. The value of an investment can go down as well as up and is not guaranteed.“Top Dogs” is defined as the single largest company in the sector-country combination. 9

11. Issue 3: Concentration to mega/large cap stocks Crowds out small and mid caps Schroders global universe by number as of December 31, 2012 MSCI World by size as of December 31, 2012 Source: Schroders, MSCI. MSCI World as of December 31, 2012 Capitalizations mentioned are for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The percentages shown represent the weights of stocks in the indicated ranges within the MSCI or the Schroder global universe. These weights are subject to change and should not be viewed as an investment recommendation. 10

12. Benchmark issues Significant new landscapes exist beyond the benchmark All global stocks > 15,000 global stocks> 12,000 international stocks Significant opportunities from emerging markets, small and mid caps MSCI All Country World >2,400 stocks MSCI World >1,600 stocks S&P 500 Exploit breadth – small and mid caps fertile hunting ground Source: Schroders, MSCI as of December 31, 2012 11

13. Conclusion ‘Passive’ investing is an active decision Understand the exposures you get from an index fund or ETF Cap weighting issues • Buy & hold • Concentrations to market leaders and ‘Top Dogs’ which underperform • Restricts universe Source: Schroders 12

14. Concentration versus diversification New eyes on generating alpha Source: newslettercartoons.com 13

15. How to build a highly active fund? Don’t need to be concentrated How to be highly active - Not looking like the index Concentration • Reduce number of stocks and increase bet size New sources of alpha • Take off index bets • Emerging markets • Small and Micro caps Drop constraints • Non market cap stock weights • Allow greater flexibility in stock, sector, region and currencies Source: Schroders 14

16. Active Share measures the active bets in a fund Not tracking error or number of stocks, ultimately it’s Active Share 1% 0% 2% 3% Source: Schroders. This is a stylized example is does not represent actual stock weights of the companies mentioned in any specific benchmark. 15

17. Active share vs. number of holdings Diversified but still very active Schroder International Multi-Cap Value Fund Source: eVestment. Portfolio holdings for Schroder International Multi-Cap Value Fund as of December 31, 2012 versus eVestment EAFE large/all cap managers. Active share is calculated versus MSCI EAFE.

18. Diversification can outperform concentration Rolling 3 year returns vs. Morningstar OE Foreign Large Value/Growth/Blend Median Source: Morningstar Direct. Percentile ranking of the Fund's rolling 3 year performance versus foreign equity large cap peers. Total returns are based on NAV and compared to the Morningstar OE Foreign Large Value, Growth, & Blend universes assuming reinvestment of distributions. Time period is from September 1, 2006 (inception August 30, 2006) to December 31, 2012. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Please note outperformance is cumulative not . 17

19. Thinking about Quality “Cracking the stock picking code” Source: Wall Street Journal, March 1, 2013 18

20. Thinking about portfolio construction Quality – Cracking the Stock-Picking Code? Value • Dividends • Cash Flow • Sales • Earnings • Assets Quality • Profitability • Stability • Financial Strength Source: Schroders. These views and opinions are of the QEP Team and are subject to change. 19 • Value and Quality are ideal complements • Quality is ‘Growth style’ investing without the return drag associated with purchasing more thematic glamour stocks

21. Philosophy of Value and Quality Value and Quality are strategic diversifiers Source: Schroders, QEP proprietary indicators. Global Quality less Value composite over 12 monthly rolling periods. In USD terms. As of December 31, 2012. Past performance is not a guarantee of future results. The value of an investment can go down as well as up and is not guaranteed. Please refer to the end of this presentation for important information on the composite. The results are back tested using the QEP Value and Quality ranking methodology. US Equity Rolling Annual Quality/Value Return Quality Outperforms Credit Crunch - Risk aversion is high Global Recovery conditions normalised Value Outperforms 20

22. The problem of naïve Value Cheap but low quality portfolios “Distress” is usually the entry price for naïve Value Source: MSCI. QEP Portfolio Scenario Analyzer for style skylines as of December 31, 2012. Standard Deviation is a measure of the exposure to a factor relative to a benchmark adjusted for the dispersion of that factor, ie it is a standardized z-score. For example if the portfolio dividend yield was 3% and the benchmark dividend yield was 2% and the dispersion or volatility of dividend yield within the benchmark was 4% then the dividend yield in the above chart would show 0.25 (3% - 2%)/4%.

23. Need not be a zero sum game Seek to build both cheaper and higher quality portfolios c Source: Schroder International Multi Cap Value vs MSCI EAFE Analysis using Schroders Portfolio Analyzer as of December 31, 2012. This is illustrative only and does not represent Schroders’ recommendation to buy/sell. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

24. Improving the batting average Outperformance across major market environments Source: Schroders – Performance represents Schroders International Multi Cap Value Fund in USD terms since inception to December 31, 2012. Batting average and upside/downside capture sourced from Morningstar Direct. Performance shown is past performance. Past performance is not necessarily a guide to future performance. The value of investments can go down as well as up and is not guaranteed. The investment return and principal value of the International Multi-Cap Value Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For this and other information on any Schroders Fund, visit www.schroderfunds.com, call your financial advisor or call (800) 730-2932. Schroder International Multi-Cap Value Fund batting average since inception (August 6, 2006) NAV monthly returns vs. MSCI EAFE (NDR) 23

25. Benefits of challenging the conventional wisdom Constraints typically cost returns Source: Schroders, investment team proprietary systems. Attribution analysis was generated by TPA and should be considered indicative. **Estimated data shown is representative of 1987-2012. The graph above shows the successive impacts of the indicated elements of the QEP Global Blend Strategy on the performance of the MSCI World Index. The performance shown does not reflect all the elements of the QEP Global Blend Strategy, is gross of fees and trading costs and is not intended to reflect performance of the strategy. Impacts from (from 1/31/87 to 12/31/12) are simulated results. Value is the top 1/3rd value in each country. Non-cap stock weights are QEP market impact weights. Global unconstrained incorporates small and mid caps across both developed and emerging markets. Quality is the top 1/3rd of the QEP Quality Rank. Impacts are based on past performance and past performance is no guarantee of future performance. Please consult the disclosure at the end of the presentation for assumptions, etc. • Diversified ValueCheap outperforms in the long run • Non-cap WeightingAvoid ‘Top Dog’ performance drag • Globally UnconstrainedMaximize breadth • Blending With Quality • Remember to favorstocks with stronger fundamentals 24

26. Buy & Hold Bias to mega/large cap stocks Big stocks are better Concentrated portfolios Challenging conventional wisdom in global equities Conventional wisdom Alternative ideas Systematically rebalance Embrace breadth Drop size from stock weights Diversification Look for both Value and Quality Source: Schroder 25

27. Model disclosure The results of the Steps to Higher Return Simulation on slide 25 shown in this presentation are based on a model portfolio built using a model that encompasses the following elements: Value – Impact of creating a model which rebalances into cheap stocks as defined by the QEP Global Value Rank. Active stock positions, sectors and regions are constrained +/-0.5% relative to MSCI World weightings. Non-Cap Weighting – Relax the constraint on individual stock weights and effectively disregard capitalization weighting. Instead we move to the QEP Market Impact Weight which permits stocks to be held up to a maximum of 75bp but is scaled back for less liquid or more volatile companies using a QEP Market Impact model which analyzes transaction costs and market impact by stock exchange. Unconstrained – Relax the sector and region constraints and also expand the investment universe to incorporate stocks outside of the benchmark. Quality – Model rebalances into quality stocks as defined by the QEP Global Quality Rank which is a composite measure of Profitability, Stability and Financial Strength terms. Model results are based on the QEP universe of mega to micro cap stocks subject to minimum liquidity criteria. Stocks are rebalanced at month end using closing prices with assumed turnover of 5% per month (one-way) which is broadly similar to the average turnover of our live strategies. Round-trip transaction costs are assumed to be 50bp for developed markets and 1% for emerging markets. There could be no assurance that any transactions actually performed in a managed portfolio could have been executed at the times or prices used for the purpose of calculating the performance in the model. No allowance was made in the model portfolio for advisory fees. The actual performance of managed accounts is also impacted by non-quantitative factors such as additional stock selection and risk management activities of the portfolio management team. These factors cannot be modeled predictably and were not used in preparing the underlying quantitative model or the simulated results. The model portfolio results are hypothetical results. They do not represent an attempt to show actual performance. They are used only to illustrate the impact of a quantitative model. They cannot be used to reflect actual or expected managed portfolio returns.

28. Important information Please consider a fund’s investment objectives, risks, charges and expenses carefully before investing. For a free prospectus, which contains this and other information on any Schroders Fund, visit www.schroderfunds.com, call your financial advisor or call (800) 730-2932. Read the prospectus carefully before investing. Risks associated Quantitative Equity Product’s: All investments, domestic and foreign, involve risks including the risk of possible loss of principal. The market value of a fund’s portfolio may decline as a result of a number of factors, including adverse economic and market conditions, prospects of stocks in the portfolio, changing interest rates, and real or perceived adverse competitive industry conditions. Investing overseas involves special risks including among others, risks related to political or economic instability, foreign currency (such as exchange, valuation, and fluctuation) risk, market entry or exit restrictions, illiquidity and taxation. Emerging markets pose greater risks than investments in developed markets. The views and forecasts contained herein are those of the QEP Team. and are subject to change. The information and opinions contained in this document have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of facts obtained from third parties. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. The opinions stated in this presentation include some forecasted views. We believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know.  However, there is no guarantee that any forecasts or opinions will be realized. This document is intended to be for informational purposes only and 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. Performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Principal value and investment returns will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.. Schroder Fund Advisors LLC, Member FINRA, SIPC 875 Third Avenue, New York, NY 10022-6225 (800) 730-2932 www.schroderfunds.com 27

29. Schroder International Multi-Cap Value Key characteristics: All cap & high dividend yield Size allocation Portfolio Style Characteristics vs Benchmark Dividend yield Source: Schroders Investment team’s proprietary systems – Schroders QEP International Multi-Cap Value as of December 31, 2012.  * Beta & Tracking Error sourced from PRISM (Barra) and lagged by 1 month. Weights will vary among accounts within the strategy, are subject to change and should not be viewed as an investment recommendation 28

30. Schroder International Multi-Cap Value Performance Source: Schroder International Multi-Cap Value Fund Investor shares, net of Fees in USD. TER capped at 1.15% until Mar 1, 2012 after which the TER has been capped at 0.96% pa. Benchmark: MSCI EAFE Index Net Dividend Re-invested. *Performance inception date: August 30, 2006. Performance shown is past performance. Past performance is not necessarily a guide to future performance. The value of investments can go down as well as up and is not guaranteed. The investment return and principal value of the International Multi-Cap Value Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For this and other information on any Schroders Fund, visit www.schroderfunds.com, call your financial advisor or call (800) 730-2932. **Peer group comparisons according to Lipper and Morningstar Rankings.Source: Lipper Inc.and Morningstar Inc. Rankings in the Lipper International Multi-Cap Value and the Morningstar US OE Foreign Large Value universes and are based on average annual total returns assuming the reinvestment of dividends and capital gains as of Dec 31, 2012. Since inception peer group rankings are taken from month end Aug 31, 2006. Each fund is ranked within a universe of funds similar in portfolio characteristics and capitalizations, as defined by Lipper Inc. or Morningstar Inc. There are currently 95 funds in the Lipper International Multi-Cap Value universe and 369 funds in the Morningstar US OE Foreign Large Value universe as of Dec 31, 2012. 29