September 2013

Henry Lowson - Fund Manager

AXA Framlington UK Smaller Companies Fund

17575/CR50793

This communication is for professional advisers only and must not be relied

upon by retail clients. Circulation must be restricted accordingly.

The case for small cap investing

1 17575/CR50793

Attractions of small cap

Lack of research – undervalued securities

– market inefficiencies can be exploited

More entrepreneurial/motivated management

Large investment universe

Diversification

– different sector profile to FTSE All-Share Index

2 17575/CR50793

Asset class for superior long term returns?

FTSE Small Cap ex IT sales split

3 17575/CR50793

Source: FactSet as at 31/07/2013.

United Kingdom

Europe

United States

Rest of the World

Access to both domestic and global opportunities

FTSE Small Cap ex IT – sector breakdown

4 17575/CR50793

0

5

10

15

20

25

30

35

40

Industrials OtherFinancials

ConsumerServices

Technology Utilities ConsumerGoods

Telecoms BasicMaterials

Health Care Banks Oil & Gas

FTSE Small CAP ex IT FTSE All Share

Source: FactSet as at 31/07/2013.

A broad industry exposure

FTSE Small Cap ex IT performance

5 17575/CR50793

Source: FactSet as at 31/07/2013.

50

70

90

110

130

150

170

Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13

FTSE Small Cap ex IT FTSE All-SHare FTSE Actuaries Govt Securities UK Gilts All Stocks MSCI World

P/E Ratios by market cap

6 17575/CR50793

Source: FactSet as at 31/07/2013.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

60,

975

23,

874

10,

357

6,2

96

4,5

50

3,5

84

2,9

95

2,3

06

1,9

80

1,6

22

1,3

38

1,1

88

1,0

43

904

800

706

638

561

473

405

338

279

225

189

167

137

103 7

2

Ave

rag

e 1

2m

Fo

rwa

rd P

/E

Average free float (£m)

FTSE 100 FTSE 250 FTSE Small Cap

FTSE Small Cap ex IT 1m Forward P/E

7 17575/CR50793

Source: Citigroup as at 20/08/2013.

0

10

20

30

40

50

60

Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12

FTSE SMALL CAP - 12MTH FWD P/E RTIO Average FTSE Small Cap

FTSE Small Cap ex IT Earnings Revisions

8 17575/CR50793

Source: Peel Hunt as at 20/08/2013.

Current mandate and performance

17575/CR50793

UK Small Cap team

10 17575/CR50793

Experienced and dedicated UK small cap resource

In May 2012 Henry Lowson was promoted to lead fund manager of the

AXA Framlington UK Smaller Companies Fund. He is also responsible for the

management of the AIM Inheritance Tax Portfolio Service.

Henry is a CFA Charterholder and a Member of the Chartered Institute for Securities

and Investment. He graduated from Edinburgh University in 2004 with a MA (Hons)

degree in Economics and Geography.

Chris St John joined AXA Framlington in 2005. He is the lead manager for the AXA

Framlington UK Mid Cap Fund and several pension funds

Chris graduated from Durham University with an honours degree in Philosophy and

Psychology in 1995. He qualified as a Chartered Accountant in 1998

Source: AXA IM as at 31/12/2012.

AXA Framlington UK Smaller Companies

Name : AXA Framlington UK Smaller Companies Fund

Fund manager : Henry Lowson

Launch date : 27/04/2001

Fund size : £58.8m

Number of holdings : 83

Fund structure : Unit Trust

Management fee : 0.75% (Institutional Class); £100k minimum investment

Comparative benchmark : FTSE Small Cap ex IT (used as a point of reference)

Parameters : Unconstrained UK Small Capitalisation Portfolio

Typically 70-90 holdings

Normally no greater than 3% stock holding size

Source: AXA IM as at 31/07/2013.

Actively managed UK Small Cap fund

11 17575/CR50793

Performance

12 17575/CR50793

Performance – 5 years to 31/07/2013

Source: AXA IM as at 31/07/2013. Basis: Bid to Bid, Net income reinvested, net fees. *Date at which Chris St John repositioned the Fund.

NB: Past performance is not a guide to future performance.

0

50

100

150

200

250

300

350

Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13

AXA Framlington UK Smaller Companies IMA UK Smaller Companies

1Y 3Y31/12/2008*-

31/07/2013

AXA Framlington UK Smaller Companies 33.8 85.0 188.9

FTSE Small Cap exIT 48.5 68.8 165.1

IMA UK Smaller Companies 31.5 62.8 158.1

Ranking 30/52 6/51 11/51

Quartile 3 1 1

13 17575/CR50793

Growth at a reasonable

price

Fundamentally driven

process

Experienced

management team

Emphasis on companies with secular growth characteristics

Stock selection using a qualitative and quantitative approach

Portfolio construction discipline to improve risk-adjusted returns

Team led by Henry Lowson who has over 9 years’ market experience

Supported by experienced UK Equity Investment Team

Insights from other specialist teams

AXA Framlington UK Small Cap Strategy Key features

Superior long-term growth prospects

Good quality management and fundamentals

Attractive valuation

Source: AXA IM as at 31/07/2013.

Team

UK MID/SMALL CAP MULTI-CAP UK FUND MANAGERS

SECTOR INVESTMENT TEAM

INTERNATIONAL INVESTMENT TEAM

UK assets under management

31/07/2013 Value £Composite

weight*

FTSE 100 4,782,997,622.75 58.23

FTSE 250 2,376,195,912.59 28.93

FTSE Small Cap 443,602,524.11 5.40

FTSE Fledgling 26,206,219.45 0.32

FTSE AIM 584,421,209.97 7.12

TOTAL 8,213,423,488.86 100.00

Source: AXA IM as at 31/07/2013. FM years relate to experience. *Composite consists of the UK Equity portion for 30 funds and excludes cash.

Henry Lowson

UK Small Cap

9 years

Chris St John

UK Mid/Small Cap

14 years

Nigel Thomas

UK Growth

34 years

Jamie Hooper

UK Growth

18 years

Richard Peirson

Balanced

41 years

George Luckraft

UK Income

33 years

Jamie

Forbes-Wilson

UK Income 17 years

Rupert Hunter

Private Client

28 years

Michael Firth

Private Client

28 years

Jon Gould

Private Client

4 years

Jeremy Gleeson

Technology

15 years

Susan

Sternglass Noble

Financials 27 years

Linden Thomson

Biotech

9 years

Mark Tinker

Global

26 years

Chisako Hardie

Japan

22 years

Stephen Kelly

US

22 years

Gemma Game

Healthcare

112years

Dan Harlow

US

12 years

Julian Thompson

Emerging Markets

20 years

14 17575/CR50793

Investment process

17575/CR50793

AXA Framlington UK Small Cap Fund Investment process

16 17575/CR50793

Stock Selection Top-down sector/theme Portfolio Construction 1 2 3 4 Risk Management

Portfolio Review

Micro/macro economic drivers

Constantly reviewed

Management and industry

feedback

Organic growth

Pricing power

High barriers to entry

Customer diversification

Appropriate funding structure

Valuation

Individual stock weightings

resulting from

– level of conviction/expected

upside

– Normally no greater than 3%

size

– Market capitalisation spread

– Sector diversification

– Economic scenario/market

environment

Portfolio monitored and reviewed

constantly with respect to risk

exposures and client objectives

Daily monitoring of portfolio active

exposures, and risk metrics

Weekly Portfolio Review

AXA Framlington Team meetings

75 to 95 stocks

Source: AXA IM as at 31/12/2012.

1. Top-down sector theme analysis Strategy/thematic views

Emerging Markets’ development

Power efficiency and emission reduction

Health & Safety

Growth in data / internet / mobile communications

Increasing capital efficiency

Beneficiaries of credit boom

US housing recovery

17 17575/CR50793

Economic tailwinds rather than headwinds

Devro / Synergy

Oxford Instruments / Dialight

Porvair

NCC / IOMART / ANITE

RPC / Lavendon

Booker

Keller / Tyman

2. Bottom-up analysis Combining a qualitative & quantitative fundamental approach

18 17575/CR50793

Assessment of management’s ability to guard capital whilst capitalising on market position

Management track record

Organic growth

Pricing power

High barriers to entry

Customer diversification

Appropriate funding structure

Drivers for a quality portfolio Focus on companies whose upside

has not yet been priced

Earnings yield and growth

Superior dividend growth

Free cashflow

Return on capital

With a discipline towards absolute valuation Targeting quality growth companies….

Fund positioning

17575/CR50793

Top 20 holdings

20 17575/CR50793

Market value

%

% of

portfolio

Market value

%

% of

portfolio

CLS Holdings PLC 1,632,000 2.7 Spirit Pub Company PLC 1,046,250 1.8

Tyman PLC 1,511,250 2.5 Elementis PLC 1,002,400 1.7

St. Modwen Properties PLC 1,343,425 2.3 Booker Group PLC 989,250 1.7

RPC Group PLC 1,314,450 2.2 Dunelm Group PLC 984,000 1.7

RWS Holdings PLC 1,207,000 2.0 Hyder Consulting PLC 942,000 1.6

Entertainment One Ltd. 1,161,780 2.0 Innovation Group PLC 934,375 1.6

Paragon Group of Companies PLC 1,125,250 1.9 Restaurant Group PLC 926,625 1.6

Keller Group PLC 1,104,000 1.9 Aveva Group PLC 901,500 1.5

Devro PLC 1,093,750 1.8 Brammer PLC 888,188 1.5

Oxford Instruments PLC 1,064,250 1.8 Porvair PLC 883,200 1.5

22,054,943 37.1

Source: FactSet using TBR Methodology, end of day prices as at 31/07/2013.

AXA Framlington UK Smaller Companies Relative sector positions

21 17575/CR50793

Source: FactSet as at 31/07/2013.

Largest overweight sectors Largest underweight sectors

Sector

Variation in

ending weight

%

Sector

Variation in

ending weight

%

Software & Computer Services 7.73 Real Estate -7.15

General Industrials 4.88 Industrial Transportation -3.20

Financial Services 3.50 General Retailers -3.07

Food & Drug Retailers 3.14 Household Goods & Home Construction -2.87

Construction & Materials 2.44 Mining -2.85

Market capitalisation spread of fund and UK small cap indices

22 17575/CR50793

Fund remains focused on genuine UK small cap opportunities

Source: FactSet and HGSC as at 31/07/2013.

1.01.7

4.6

6.4

12.7

6.0

1.8

10.4

14.2

7.8

17.0

7.8 8.1

0.50.0 0.0

2.0

3.2

7.3

11.612.3

15.9

23.4

13.3

10.9

0.0 0.0 0.00.3 0.5 0.8 0.6

1.7

2.72.2 2.6

5.1 5.0

17.917.1

13.1

14.2

7.6

6.5

2.1

0.0 0.0

0

5

10

15

20

25

30

0.0 - 25.0 25.0 -50.0

50.0 -75.0

75.0 -100.0

100.0 -150.0

150.0 -200.0

200.0 -250.0

250.0 -300.0

300.0 -400.0

400.0 -500.0

500.0 -750.0

750.0 -1000.0

1000.0 -1250.0

1250.0 -1500.0

1500.0 -1750.0

1750.0 -2000.0

2000.0 -2250.0

> 2250.0 Cash

%

£m

AXA Framlington UK Smaller Companies FTSE Small Cap ex IT NSCI ex IT

Market outlook

In our view geopolitical/macro economic uncertainty will create stock market volatility.

Evidence of credit conditions easing for corporates should be positive for company growth

plans and potential shareholder returns.

Smaller companies have been an overlooked area of the market in spite of their strong

performance in recent years. Recent flows into equities are supportive for markets.

Small Cap valuations continue to look attractive both in a historical context and relative to other

asset classes.

Mergers and acquisitions, share buybacks and dividend growth all supportive of Small Cap

equities.

23 17575/CR50793

Appendix 1: Portfolio Construction

24 17575/CR50793

Decision drivers – buy/accumulate

Expectation of positive earnings surprise

Material improvement in broader trading environment

Valuation anomaly (but wary of value traps)

Information advantage born out of company meetings

Management change – re-energising nascent business model

25 17575/CR50793

Absolute return focus

Decision drivers – sell/reduce

Material deviation from strategy

Unexpected market/economic development

Evidence of management inconsistency/dishonesty

Unexplained deterioration in profitability/cash generation

Extreme relative outperformance

26 17575/CR50793

Opportunity cost of capital is paramount

Portfolio construction

27 17575/CR50793

Unconstrained investment approach within risk controlled

environment

– Benchmark aware rather than benchmark driven

– Continuous checks for any systematic biases via risk models and

mitigated if unintended and unwanted

High active share – aim to diversify stock risk and ensure

stock selection is principal alpha generator

– Diversified portfolio structure: typically 80 – 100 stocks

– Average holding size c.0.5-2.0% at cost - normally no greater

than 3%

Stock weightings will reflect individual risk/return profile,

valuation, upside to fair value, near-term catalysts

Integrated risk management with continuous risk checks

for systematic biases

– Portfolio construction executed by investment team with advice

from Portfolio Engineer

Principles Portfolio structure

Source: AXA IM as at 31/072013.

0 10 20 30 40 50

0.5 - 1%

1 - 1.5%

1.5% - 2%

2 - 2.5%

2.5 - 3%

Below 0.5%

Illustrative drivers of investment weighting

28 17575/CR50793

Holding size correlates to risk reward

Low

liquidity

Asset

backed

Upside

conviction

Track record

of delivery Visible

earnings stream

Proven

management Cashflow

stability

Organic

growth

Secular

growth

Larger market

capitalisation

High

growth

Low

visibility

Unknown

management

Pre-profitable

business

Increasing weight and conviction

Holding size vs market capitalisation

29 17575/CR50793

UK Smaller Companies Unit Trust Stock Market Cap vs Fund Weight 31 July 2013

Source: AXA IM as at 31/07/2013.

0

500

1,000

1,500

2,000

2,500

0.0 0.5 1.0 1.5 2.0 2.5

Mark

et

Cap

GB

P M

illi

on

s

Fund Weight %

AXA Framlington UK Smaller Companies – turnover analysis

30 17575/CR50793

Source: AXA IM as at 31/07/2013.

*

*

Target holding period typically 3-5 years

0

5

10

15

20

25

30

35

40

0

2

4

6

8

10

12

Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13

1M Turnover 12m Average of 1M Turnover ann

Appendix 2: Case Studies

31 17575/CR50793

Case study (buy): Porvair

32 17575/CR50793

Description World leader in filtration and separation technology

Strategic attraction

of investment Reorientation of business towards higher growth regulated market segments and greater levels of IP and

design in its products

Bottom-up analysis

A global leader in microfiltration and metals filtration

Solid base of long term recurring revenues giving good visibility due the consumable/replacement nature of

their product

High barriers to entry as their filters are often accredited, bespoke and designed into their customer’s

product

Supportive regulatory backdrop in their end markets.

Strong cash generation has led to an improved balance sheet, giving financial flexibility

Opportunity to materially improve margins from 7% to 10%

Valuation

Conservative earnings forecasts of over 10% growth p.a

P/E of 12.5x at cost, with a 3% dividend yield – attractive in absolute terms but also relative to US peer,

Pall Corp

Free cashflow yield over 10%

Source: AXA IM as at 31/12/2012.

Case study (buy): Porvair

33 17575/CR50793

Decision driver

Recently won multi-million dollar contracts in aviation and gasification with significant global clients and

order book at record levels

Meeting with management in January 2012

Broker informed us of a line of stock on offer

Portfolio sizing Decision to take 0.5% holding due to size, liquidity and availability of stock (10/01/2012)

Holding now over 1% of fund

Source: AXA IM as at 31/12/2012.

0.30

0.50

0.70

0.90

1.10

1.30

1.50

1.70

Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Porvair PLC

Case study (buy): Keller Group

34 17575/CR50793

Description Keller is an international ground engineering specialist, providing solutions and services relating to

ground behaviour to the construction industry (ie foundation support, ground retention, underground

excavation)

Strategic attraction

of investment Capitalise on improving global economic conditions and reindustrialisation of the US

Bottom-up analysis

Strong management with Board Chairman, Roy Franklin (ex Paladin Resources) and Justin Atkinson,

CEO

Market leader

Balance sheet financing position ahead of market expectations

Order book at all time high

Contract wins underwrite forecasts

Capital requirement, scale and expertise provide barriers to entry

Valuation Trough multiple with operational gearing (0.5% move up in EBITDA margins = 17% uplift in profitability)

22.8p dividend, 7% yield at first purchase

Source: AXA IM as at 31/12/2012.

Case study (buy): Keller Group

35 17575/CR50793

Decision driver 13/01/12 company wins largest contract ever in Australia for Wheatstone LNG Plant - £120m

13/01/12 met company management at short notice

Contract momentum building, US prices stabilised, US construction market turning

Portfolio sizing 1% holding taken initially (316p initial purchase – 17/01/2012)

Subsequently added to holding (400p final purchase)

Holding now 1.5% of fund

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12

Keller Group PLC

Source: AXA IM as at 31/12/2012.

Case study (sell): Severfield Rowen

36 17575/CR50793

Description Severfield-Rowen is a structural steelwork fabricator. It designs, fabricates and erects steel structures and

principally operates in the UK and India

Strategic attraction

of investment Market leader in UK steel fabrication with an emerging growth opportunity in the Indian market

Bottom-up analysis

Cyclical recovery in the UK Construction market, with secular growth of steel construction in India (concrete

to steel substitution opportunity)

Building market share to 20% through downturn as competitors have failed

Potential to rebuild margins and profitability to over 15%

Experienced management team with long tenure

Valuation

EV/EBITDA for 2012 of c. 11x but forecast earnings growth of 50% at risk

Free cash flow yield of only 2% and return on capital employed forecast to be 14% in contrast to over 50%

in 2009

Dividend yield now only 2.5% following a cut to the dividend in 2011

Source: AXA IM as at 31/12/2012.

Case study (sell): Severfield Rowan

37 17575/CR50793

Decision Driver

Earnings at risk as UK Construction market remains challenging

Pricing pressure as competition in private sector chase work at any price. Therefore margins under

pressure

Pipeline of new work deteriorating

Cash flow deteriorating and gearing increasing putting the balance sheet at risk

Portfolio sizing Decision to sell 100% of holding (May 2012)

Source: AXA IM as at 31/12/2012.

0.30

0.80

1.30

1.80

2.30

2.80

3.30

3.80

Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Severfield-Rowen PLC

Important notice

This communication is intended for Investment Professional use only and should not be relied upon by retail clients. Circulation must be restricted

accordingly. Any reproduction of this information, in whole or in part, is prohibited.

This communication does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research and analysis

undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA 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. It is therefore not to be taken as a recommendation to enter into any investment transactions.

This communication should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or product and is

provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any

company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards

third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein.

Information relating to investments may have been based on research and analysis undertaken or procured by AXA Framlington for its own purposes and may

have been made available to other expertises within the AXA Investment Managers Group, who in turn may have acted upon it. Information in this document may

be updated from time to time and may vary from previous or future published versions of this document.

Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the

amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller

companies offer the possibility of higher returns but may also involve a higher degree of risk. The price of units and the income from them can go down as well as

up and investors may not get back the amount originally invested. An initial charge is usually made when you purchase units. Your investment should be for the

medium to long term i.e. typically 5-10 years. Changes in exchange rates will affect the value of trust investments overseas.

AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited which is authorised and regulated

by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street, London

EC1A 7NX. Telephone calls may be recorded for quality assurance purposes.

38 17575/CR50793