AXA Framlington Japan Smaller Companies Fund Chisako Hardie Fund Manager 10658 Positive outlook for Japan 10658 2 Japanese equities a positive outlook Corporate behaviour Balance sheet reform M&A activity Improving shareholder returns Consumer confidence Labour market stabilisation Asset price recovery Death of deflation Capital expenditure Healthy cashflow High capacity utilisation Ageing capital stock
10658 3 Changing corporate behaviour Trends in Japanese M&A: number and value of deals (US$bn) 0 50 100 150 200 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 0 200 400 600 800 1000 1200 1400 1600 1800 2000 Value (LHS) Number of deals (RHS) Source: SDC and Citigroup. Based on conclusion days for done deals. ( $ b n )
10658 4 -4 -3 -2 -1 0 1 2 3 4 Jan-02 Dec-02 Nov-03 Oct-04 Sep-05 Aug-06 CPI Index (ex fresh food) Domestic Corporate Goods Improving consumer confidence Jobs market Consumer prices (% y/y) Sources: Ministry of Public Management, Home Affairs, Posts & Telecom; Bank of Japan (all via Bloomberg), 31 January 02 to 30 November 2006 Source: Bloomberg as at 30 November 2006 3.5 4 4.5 5 5.5 6 Jan-02 Dec-02 Nov-03 Oct-04 Sep-05 Aug-06 0.4 0.7 1 1.3 Unemployment rate (LHS) Job offers to applicants ratio (RHS) 10658 5 70 75 80 85 90 95 100 105 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Capital expenditure upward pressure Source: METI as at 30 November 2006 Production capacity (2000=100) 10658 6 51.3 26.6 10.7 4 2.8 4.6 13.3 31.4 30.8 14 7.1 3.4 0 10 20 30 40 50 60 Currency & deposits Insurance & pension reserves Shares & equities Investment trusts Bonds Other Japan US % Distribution Japan and US household financial assets Will domestic investors buy equities? Source: Bank of Japan as at 30 September 2006 10658 Japanese smaller companies A most attractive asset class 10658 8 New business creation Numerous new businesses are being created because of: Changes in large companies attitudes Changes in peoples sense of values Emergence of entrepreneurial sprit New technology 10658 9 Investment themes Recovery in capital expenditure Recovery in property prices Outsourcing Energy The retirement of baby-boomers Mobile internet 10658 10 Deane Donnigan HEALTHCARE 10 years Gareth Powell BIOTECH 7 years Matthew Lovatt RISK MANAGER 19 years SPECIALIST SUPPORT Nick Evans TECHNOLOGY 8 years Richard Peirson FINANCIALS 34 years Investment team & experience Amanda Prince RISK MANAGER 16 years Chisako Hardie PRIMARY 15 years Anja Balfour SECONDARY 17 years Ming Kemp ASIA EX-JAPAN 11 years PRIMARY & SECONDARY MANAGERS GENERAL SUPPORT 10658 11 Investment process Bottom-up stock picking fund Main focus on growth but only when its undervalued Diversified portfolio Strong buy and sell disciplines Aware of the macro environment Direct company contact The Edinburgh Advantage
10658 12 Stock selection process The universe 3,000 listed companies Screening viability profitability Company meetings/site visits Sell-side research Independent research Press Trade publications Macroeconomics Themes Global sectors The monitor list 500 companies Portfolio 70-85 stocks 10658 13 Portfolio construction Low style/sector risk Main risk is stock specific Only the best ideas Flexibility to switch from growth to value or vice-versa Aim to have no more than 2% in any individual stock (not a restriction though) Target prices set for stocks 10658 14 -60 -40 -20 0 20 40 60 80 100 120 140 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 %
g r o w t h SWIP Japanese Smaller Companies A Acc (MF) MSCI Japan Small Cap TR (IN) IMA Japanese Smaller Companies (IN) Proven track record Source: Lipper Hindsight from 29 December 2000 to 31 December 2005, % Growth, Total Return, Bid to Bid, UK Tax Net Percentage Growth Total Return, Tax UK Net, in GBP 129% 85% 71% 10658 15 AXA Framlington Japan Smaller Companies Fund Investment Objective The objective of the Fund is to achieve long term capital growth. Investment Policy The Funds objective will be achieved through investment principally in small cap companies having their head office or exercising part of their overriding economic activity in any economic sector in Japan, having a market capitalisation of between 1bn and 45m Benchmark IMA Japanese Smaller Companies Sector Average IMA Sector Japanese Smaller Companies 10658 16 AXA Framlington corporate update AXA Framlington Group is owned 100% by AXA Investment Managers S.A. AXA Investment Managers took full ownership of Framlington Group on 1 November 2005 Previously, Framlington Group was owned by HSBC Holdings (51%) and Comerica Incorporated (49%) A formal condition of the sale agreement was that Framlingtons investment philosophy and process would be protected, enabling managers to continue to manage money as they always have AXA Framlingtons focus will therefore continue to be on delivering superior investment returns for clients, through competitive products, backed up with excellent service
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Important information This advertisement is for professional advisers only and must not be relied upon by private investors. Circulation must be restricted accordingly. Issued by AXA Framlington Unit Management Limited. AXA Framlington Unit Management Limited is authorised and regulated by the Financial Services Authority. A Member of IMA. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Investments should be made for the long term, ie. at least five years. Past performance is not a guide to future performance. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets, smaller companies or single sectors offer the possibility of higher returns but may also involve a higher degree of risk. Information relating to investments is based on research and analysis undertaken or procured by AXA Framlington Investment Management Limited for its own purposes and may have been made available to other members of the AXA Framlington Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. This document is not a prospectus and does not constitute an offer to sell or buy any units/shares in the Fund. All applications for units are made strictly subject to the Prospectus. Copies of the latest Full Prospectus, simplified Prospectus and Terms & Conditions are available directly from the Manager upon request.