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US E iti d W ll St t' dUS Equities: under Wall Street's radarRobert Anstey, CFA Portfolio Manager, Hermes US SMID

September 2013

For professional investors only

Institutional asset managerHermes Fund Managers

Fixed Income 32.6

Established 1983

Owner BT Pension Scheme (BTPS)

AuM breakdownBy asset type (%)

Equities 20.4

Real Estate 21.0

Private Equity 14.3

Hedge Funds 6.3

Head office London

Other offices Boston, New York, Singapore and Sydney

N f b ti 14Commodities 5.4

No. of boutiques 14

Assets under management €29.1bn1

Assets under stewardship €133bnAuM breakdownBy client type (%)

1 Please note the total AuM figure includes €4.2bn of assets managed or under an advisory agreement by Hermes GPE LLP (“HGPE”), a joint venture between Hermes Fund Managers (“HFM”) and GPE Partner Limited. HGPE is an independent entity and

No. of investment professionals 132Third party 19.6

BT Pension Scheme 80.4

www.hermesfundmanagers.com | US SMID | September 2013 1

g ( ) p ynot part of the Hermes group. €0.4bn of total group AuM figure represents HFM mandates under advice. Source: Hermes as at 30 June 2013.

Strategy overviewHermes US SMID

gy

Assets: $1.5 billion

Benchmark: Russell 2500Benchmark: Russell 2500

Approach: Bottom-up, fundamental research

Investment Horizon: 3-5 year average holding periodInvestment Horizon: 3 5 year average holding period

Style: Core/Value

Risk: 3.7%* tracking error - relatively low for the asset class

* ex-ante tracking error.Source: Hermes, Factset as at 31 July 2013. The strategy performance record of the Fund Manager is shown for illustrative purposes only and data refers to returns of the

g y

Performance: 12.7% per annum for 12 years (since manager inception)

www.hermesfundmanagers.com | US SMID | September 2013

Hermes US Small & Mid Cap Companies Strategy measured in US Dollars, gross of fees and costs. Fund Manager inception: 30 September 2001. Performance shown is illustrative. The Hermes US SMID Equity Fund (UCITS) launched on 26 September 2012. Past performance is not a reliable indicator of future results. The information on this slide is based on a representative portfolio of the composite and is supplemental to the GIPS® compliant presentation that follows.

2

Investment teamHermes US SMID

Alex Knox, ACA, Senior Investment Analyst14 years’ industry experience 3 years at Hermes

Henry Biddle, ACA, Investment Analyst7 years’ industry experience1 year at Hermes

Robert Anstey, CFA, Director, Lead Manager 19 years’ industry experience12 years at Hermes

Mark Sherlock, ACA, CFA, Director, Co-manager14 years’ industry experience 8 years at Hermes

One of the largest US small/mid cap teams based in London Extensive travel (15 US trips 250 company meetings every year)

James Cook, Equity Specialist15 years’ industry experience1 year at Hermes Extensive travel (15 US trips, 250 company meetings every year)

Co-invested alongside our clients

1 year at Hermes


Source: Hermes as at 31 July 2013Note: CFA® is a trademark owned by the CFA Institute.

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Hermes US SMID

Investment philosophy p p y

We believe that long-term investment in high quality companies, bought at a discount to intrinsic value, produces the best risk adjusted returns for clientsproduces the best risk-adjusted returns for clients.


Hermes US SMID


5www.hermesfundmanagers.com | US SMID | September 2013

Hermes US SMID


“Leave no stone unturned” Find investments that others are not looking at

“The tortoise beats the hare” We prize consistency and stabilityp y y

“Where is the value?” What businesses are out of favour currently?y

“Micro not macro” Understand what you can, not what you can’t


Understand what you can, not what you can t

ResultsHermes US SMID

Hermes US SMID

compositeRussell

2500

Composite vs. indices since Portfolio Manager inception1

(%)Annual returns(%)

300

350

composite 2500

YTD 24.1 23.0

2012 22.7 17.9

2011 2.3 -2.5

2010 23.7 26.7

2009 36 2 34 4

150

200

250

2009 36.2 34.4

2008 -31.3 -36.8

2007 6.7 1.4

2006 16.5 16.2

2005 7.4 8.1-50

0

50

100

1Portfolio Manager Inception: 30 September 2001.Source: Hermes, StatPro as at 31 July 2013. The strategy performance record of the Fund Manager is shown for illustrative purposes only and data refers to returns of the

2004 23.5 18.3

2003 38.1 45.5

2002 -11.5 -17.8

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US SMID Russell 2500 S&P 500

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y gy p g p p yHermes US Small and Mid Cap Strategy measured in US Dollars, gross of fees and costs. Performance shown is illustrative. The Hermes US SMID Equity Fund (UCITS) launched on 26 September 2012. Past performance is not a reliable indicator of future results. The information on this slide is based on a representative portfolio of the composite and is supplemental to the GIPS® compliant presentation that follows.


Hermes US SMID

Investment examplesp

Diversified asset-based natural resource company

75 consecutive years of uninterrupted dividends

20 year total shareholder return of 11% per annum

Opport nities to deplo capital in a gro ing region Opportunities to deploy capital in a growing region

$3.9bn capital budget over next five years


For illustrative purposes only.Source: Hermes, MDU Resources Group, Bloomberg as at 31 July 2013.

Investment examplesHermes US SMID

p

The leading Asian-American bank

113 branches in US, 7 in China

14% Tier 1 risk-based capital

Book value CAGR of 22% over ten years

7% i i ld t h i 7% earnings yield on trough margins


For illustrative purposes only.Source: Hermes, East West Bank, Bloomberg as at 31 July 2013.

Investment examples Hermes US SMID

p

Global leader in thermal imaging

10 year revenue growth of 18% p a 10 year revenue growth of 18% p.a.

Highly profitable – 22% operating margin

Many expanding end market opportunities

Weakness in government business led to an attractive valuation


For illustrative purposes only.Source: Hermes, Flir Systems, Bloomberg as at 31 July 2013.

SummaryHermes US SMID

y

Long track record of outperformanceg p

Experienced, stable team

Lower risk for the asset class

Hermes US SMID Equity Fund launched 26 September 2012 (Dublin-UCITS)

11www.hermesfundmanagers.com | US SMID | September 2013

Appendix

Investment processHermes US SMID

p

How do we find our ideas? Meeting 250 companies every year – extensive travel around the US Proprietary idea generation screen – S&P quality ratings and Piotroski scores Proprietary idea generation screen – S&P quality ratings and Piotroski scores The Watchlist (c.200 companies) – quality companies which meet our criteria

How do we construct and monitor the portfolio? Database contains our own detailed fundamental reports and cash flow models Position sizes determined with reference to quality, liquidity and risk Proprietary portfolio construction tool (the Composition Review) Regular conference calls with management teams Peer reviews Peer reviews Sell discipline

How do we manage risk? Risk systems – Barra and MultiFRAME (proprietary multifactor model)


Investment Office – acts as internal control between client fund manager

Hermes US Small & Mid CapGIPS® Composite

Composite: US Equity Small & Mid Cap ActiveComposite: US Equity Small & Mid Cap ActiveCreation date: 07 December 2006 Inception date: 01 November 1987 All information is quoted in USD

Year Gross of Fees Return Net of FeesReturn

BenchmarkReturn

Composite 3-Yr St Dev (%)

Benchmark 3-Yr St Dev (%) No of Portfolios Composite Dispersion USD Total Composite Assets

(Million) % Total Firm Assets

2012 22.7 21.8 17.9 18.3 19.2 <5 N/A 923.1 2.7

2011 2.3 1.6 -2.5 <5 N/A 652.0 1.9

2010 23.6 22.8 26.7 <5 N/A 643.8 1.7

2009 36.2 35.2 34.4 <5 N/A 527.9 1.5

2008 -31.3 -31.8 -36.8 <5 N/A 394.4 1.1

2007 6.7 5.9 1.4 <5 N/A 581.6 0.8

2006 16.4 15.6 16.2 <5 N/A 551.6 0.4

2005 7.4 6.7 8.1 <5 N/A 640.4 0.7

2004 23.5 22.6 18.3 <5 N/A 602.9 0.7

2003 38.1 37.1 45.5 <5 N/A 494.7 0.6

Hermes Fund Managers Limited claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS® standards. Hermes Fund Managers Limited has been independently verified for the periods 1 January 1998 through 31 December 2011. The verification report is available upon request Verification assesses whether (1) the

31 December 2009 the Hermes Fund Managers Limited firm definition was broadened to better represent the full range of investment strategies offered. Information about changes is available upon request.

Gross of fees returns have been calculated gross of management, custodial fees and reclaimable withholding taxes but after all trading commissions The

Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership. The benchmark is market-cap weighted and rebalanced on a yearly basis.

The composite base currency is USD. Performance returns shown in USD. The USD management fee schedule for this strategy is 0 90% per annum for the

compliant presentations are available upon request.

Where appropriate, composite dispersion is calculated as the equal weighted standard deviation of the annual returns of the constituent portfolios. If a composite consists of less than five portfolios for the full year then no measure of dispersion is shown.

upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS® standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS®

standards. Verification does not ensure the accuracy of any specific composite presentation.

Notes: For the purposes of compliance with GIPS®, the

withholding taxes, but after all trading commissions. The composite includes all discretionary portfolios following the Active US Small & Mid Cap strategy run by the Hermes US Small & Mid Cap team and has an inception date of 01 November 1987. The objective of the strategy is to exceed the return on the benchmark on a three year moving average basis.

The composite's benchmark is the Russell 2500 Index, which is designed to measure the equity market

schedule for this strategy is 0.90% per annum for the first $25 million, 0.80% per annum for the next $25 million, and 0.70% per annum thereafter. The boutique’s standard fees are shown in Part 2A of its Form ADV. For historical fees, please contact Hermes. Net results reflect the above-mentioned fee schedules, actual results may vary for each individual portfolio. Hermes Fund Managers Limited do not use leverage in the management of any portfolios unless otherwise explained in the relevant composite disclosure. A

The three year annualized standard deviation measures the variability of the composite and benchmark returns over the preceding 36 month period.

Standard deviation measures are not shown where there are less than 36 monthly observations available.

firm is defined as Hermes Fund Managers Limited ("Hermes"), a multi-boutique asset manager consisting of a number of subsidiary or affiliate companies. As of

performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as “SMID” cap. The Russell 2500 Index is a subset of the Russell 3000

complete list of composites descriptions, along with additional information regarding policies for valuing portfolios, calculating performance, and preparing


Hermes US SMID

Important informationThis document is for Professional Investors only. In Australia this document is directed at ‘Wholesale Clients’ only. Any investment products referred to in this document are only available to such clients. Investing with Hermes may be restricted in other countries and as such, any person who receives this document is required to make themselves aware of their respective jurisdictions and observe any restrictions. This document does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. It pays no regard to the investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment (new or continuous), please consult a

f i l d/ i t t d i t it it bilit

p

professional and/or investment adviser as to its suitability.

Any opinions expressed may change. The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. Investing in smaller/medium sized companies carries higher risks than investing in larger companies.

Subscription and redemption fees are not included in the performance figures. All figures, unless otherwise indicated, are sourced from Hermes. Further information on investment products and any associated risks can be found in the Fund's Key Investor Information Document (“KIID”) and the Prospectus available from Hermes on request or via our website: www.hermes.co.uk. The articles of

i ti th F d’ K I t I f ti D t (“KIID”) th P t d th l d i l t il bl f f h t H I t t F d l Gassociation; the Fund’s Key Investor Information Document (“KIID”); the Prospectus, and; the annual and semi-annual reports are available free of charge at Hermes Investment Funds plc, Georges Court, 54-62 Townsend Street, Dublin 2, Ireland; and at its representative in Switzerland (ACOLIN Fund Services AG, Stadelhoferstrasse 18, CH-8001 Zurich, www.acolin.ch). The Paying agent in Switzerland is NPB New Private Bank Ltd., Limmatquai 1/am Bellevue, P.O. Box, CH-8022 Zürich.

Issued and approved by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Lloyds Chambers, 1 PortsokenStreet, London E1 8HZ. This document is distributed in Australia by Hermes Fund Managers (Australia) Pty Ltd (“HFMA”) which is registered with the Australian Securities and Investments Commission (“ASIC”) under financial services licence number 351784. HIML is a registered investment adviser with the United States Securities and Exchange Commission (“SEC”). HIML is the investment manager and promoter of Hermes Investment Funds plc (“HIF”) - an open-ended investment company with variable capital and with segregated liability between its sub-funds - incorporated in Ireland. Authorised b th C t l B k f I l d d i d b th Fi i l C d t A th it T l h ll b d d f t i i d it i P t ti l i t i th U it d Ki dby the Central Bank of Ireland and recognised by the Financial Conduct Authority. Telephone calls may be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

CM1149030 09/13


Excellence. Responsibility. Innovation.

Hermes Fund Managers

Hermes Fund Managers is a multi-boutique asset manager with a growing global presence. Our pursuit of excellence is defined by a commitment to deliver innovative investment solutions through a responsible asset management approach. We offer investment solutions across alternatives, fixed income and specialist equity products, as well as being one of the market leaders in responsible investment advisory services.

Our investment solutions include:

Alternatives Commodities, Hedge Fund Solutions, Infrastructure, Private Equity and Real Estate

Equities Asia, Emerging Markets, Europe, Global, Japan, Quantitative and Small & Mid Cap

Fixed Income Global High Yield Bonds, Investment Grade Credit, UK & Global Government Bonds and UK & Global Inflation-Linked Bonds

Responsible Investment Advisory Services Corporate Engagement, Intelligent Voting, Public Policy Engagement and UNPRI compliance

Offices London | Boston | New York | Singapore | Sydney

Contact information

United Kingdom +44 (0)20 7680 2121 Africa +44 (0)20 7680 3726 Asia Pacific +61 (0)2 8249 8215 Australia +61 (0)2 8079 2901

Canada +1 617 892 8914 Europe +44 (0)20 7680 2121 Middle East +44 (0)20 7680 3726 United States +1 617 892 8914

Enquiries [email protected]

Economy & Finance

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