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Schroder GAIA Egerton Equity


Quarterly Fund Update
First Quarter 2017

Portfolio characteristics Portfolio structure


Fund manager John Armitage (Egerton) Gross/net exposure (%)
Long Equities 108.6
Managed fund since 25 November 2009
Short Equities -48.3
Fund launch date 25 November 2009 Total gross exposure 156.9
Total net exposure 60.3
Fund benchmark* MSCI World TR Net (local currencies)
Options (delta-adjusted) 0.0
Fund size 1,162 million Total gross exposure (delta-adjusted) 156.9

Ongoing charge** 1.68% Total net exposure (delta-adjusted) 60.3


Number of positions*
Performance fee 20% excess return above EONIA +
Long 50
1% subject to a High Water Mark
Short 83
Source: Schroders, as at 31 December 2017.
*Please note the fund is benchmark unconstrained; index returns are Source: Schroders as at 31 March 2017. Figures are on a delta-
provided for reporting purposes only. adjusted basis.*Excluding index options and government bonds.
**The ongoing charges figure is as at 30 March 2016 and may vary from
year to year for the C Acc EUR share class.

Discrete monthly returns since inception (%)


C accumulation shares (EUR)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year*
2017 2.6 1.6 1.2 - - - - - - - - - 5.5
2016 -4.3 -2.5 1.8 -2.1 3.6 -3.6 2.7 0.4 0.8 -1.7 0.8 0.7 -3.7
2015 0.9 1.7 1.0 -1.2 2.8 -0.4 4.3 -2.4 -1.7 3.6 0.3 -0.8 8.3
2014 -2.6 3.0 -2.1 -1.5 2.1 0.0 -1.0 2.1 0.0 1.2 2.0 0.3 3.4
2013 2.5 2.9 2.8 0.5 3.3 0.1 2.6 -2.7 2.5 1.8 2.5 2.6 23.3
2012 2.6 3.6 2.2 -0.0 -2.6 1.3 1.0 0.2 1.4 -0.6 2.3 0.2 12.0
2011 -2.0 2.0 -1.4 1.2 -0.2 -0.4 -0.2 -3.4 -1.8 3.5 -0.4 -1.1 -4.2
2010 -2.9 0.8 5.2 -0.0 -2.9 0.2 2.6 -0.7 4.7 3.2 -0.0 3.6 14.4
2009 - - - - - - - - - - -1.1 2.9 1.8
Source: Schroders as at 31 March 2017. NAV to NAV, net of fees. Fund launch date: 25 November 2009. *Year-to-date performance is shown for years
where monthly returns are not displayed for the full year.

Cumulative returns to 31 March 2017 (%)


C accumulation shares (EUR)
Since
90 3 months 1 year 3 years
launch
70
Schroder
5.5 6.9 15.8 75.0
50 GAIA Egerton Equity

30
MSCI World TR Net
5.4 17.2 27.5 103.5
10 (local currencies)
-10 Source: Schroders as at 31 March 2017. NAV to NAV, net of fees. Fund
3 months 1 year 3 years Since launch launch date: 25 November 2009.

Portfolio Index

Schroder GAIA Egerton Equity


1
First Quarter 2017
What happened in the market
Equities had another strong quarter during Q1, because of a gradual improvement in global economic growth, despite many political
uncertainties, for example in Europe, around the French elections, and in Asia.

US equities lagged Europe on a US dollar-adjusted basis, contrary to expectations, as doubts emerged about the effectiveness of the
Trump administration and whether or not it would be able to implement policies to stimulate economic growth within a reasonable
timeframe. However, stocks globally benefited from the fact that the Federal Reserve was able to raise interest rates and thus sustain
a gradual path towards policy normalisation. The positive response came because of the implication that the recovery remains on
track, and because a firm dollar and higher interest rates are positives for important sectors of world markets.

The fund's return was moderately satisfactory, driven by the relative outperformance of its longs, which benefited, paradoxically,
from doubts about the level and permanence of any revival in growth. Its shorts were loss-making, but with a far less negative rate of
return relative to its longs than in 2016.

Stock highlights
Applied Materials
In early 2017, the fund bought a new position in Applied Materials (AMAT), a worldwide semiconductor capex industry leader.

AMAT has a 22.5% share of semiconductor capital spending globally and is thus a key beneficiary of the increasing prevalence of
technology in daily life. This trend will only continue as, for example, artificial intelligence, machine learning, autonomous driving and
other computing applications proliferate. These applications have helped to grow semiconductor capital spend on wafer fabrication
equipment from $30bn in 2012 to close to c.$37bn in 2017.

The industry is cyclical, but significantly less so than in the past, reflecting broader demand drivers. Many of these drivers (e.g.
smartphones) have shorter replacement cycles than PCs (which were a key source of semiconductor end-demand 10 years ago) and
entail increased capital intensity.

AMAT has very high market shares in its key product areas, and has positioned itself for further growth. We are particularly excited
by the transition to 3D NAND flash memory, which is around one third complete complete). This requires the etch/deposition tools
supplied by AMAT.

The previous generation 2D NAND scaling was driven by lithography, so memory manufacturers have not needed the most
sophisticated etch/deposition tools. However, 3D NAND requires the high-end tools, which plays to AMATs strengths, and this is
helping the company grow its share by 1-2% per annum.

Furthermore, in the firms Logic/Foundry arm, AMAT's market share has risen from 15% to 21%, boosted by Intel, Samsung and TSMC
adding 10 nanometre and 7 nanometre capacity.

AMAT management highlights that the standard deviation of annual industry capital spending over 2010-2016 was one-third of that
between 2000-2009. Furthermore, China sees the semiconductor industry as strategic and has earmarked $20-30bn of spend to
develop domestic champions as part of its Five Year Plan. AMAT management, and many other industry players, expect a meaningful
uptick in China spending, beginning in the 2018/2019 period (which neither we, nor consensus, factors into earnings estimates).

The company has also added a new leg to its business, Display. The next generation of smartphones will use organic light emitting
diode (OLED) rather than LCD technology, as will high-end TVs.

OLED smartphone penetration is expected to increase from just 20% in 2016 to 55% by 2020. AMAT will be a key beneficiary of this
given its strong positioning with top OLED suppliers, such as Samsung and LG. New product introductions should, we believe, allow it
to address 20% of a market worth $14bn in 2020, versus 10% of an $8bn market today. AMATs display product revenues could thus
near quadruple from 2015 to 2020.

We have high regard for AMAT's management, particularly for the CEO (Gary Dickerson) and CFO (Bob Halliday), who took over after
the acquisition of Varian Semiconductors in 2011. The business has made all the right strategic choices over the last few years and
will, by 2020, have a much higher share of the worldwide market than in 2011, with more growth drivers and a less volatile customer
mix. It appears that AMAT will achieve many of its 2019 goals as early as 2017, reflecting a strong equipment backdrop, but also
excellent R&D execution and share gains stemming from many new product introductions.

AIA Group
The fund initially bought AIA Group shares in Q1 2016 and has bought more since.

AIA was listed in 2010, after its sale by AIG, but has been providing life insurance in Asia ex-Japan for nearly 100 years. The company
enjoys market-leading positions in the majority of its 15 markets, the largest of which are Hong Kong and China. They respectively
account for 40% and 18% of the present value of new business contracts written annually (VONB). AIA's other key markets are
Thailand (13% of VONB), Singapore (11% of VONB) and Malaysia (7% of VONB).

AIA has a very strong competitive position with major scale advantages, as one of only two genuinely pan-regional Asian life
insurance franchises (while it is also quite diversified).

Schroder GAIA Egerton Equity


2
First Quarter 2017
A number of factors constitute formidable barriers to entry against potential competitors:

Normal financial services regulation

Local licensing idiosyncrasies (AIA is unique as a foreign entity in owning 100% of its operations in China and Malaysia)

Distribution is via large agency salesforces, which take much time to assemble, train and grow cost-effectively (i.e. it would
be impossible to recreate from scratch), and by bancassurance deals

The cost of funding new business strain, without an embedded book of business throwing off profits.

AIA has executed extremely well and with great strategic insight in almost all its key functions product offerings, IT, investment etc.
and is seen as a blue chip market leader. It earns the bulk of its profits from the provision of insurance cover, rather than the offer
of deposit-replacement products, and earnings from the former are of far higher quality than from the latter, for many reasons.

We are very excited by the company's opportunity. Asia, as a whole, has low levels of life insurance penetration, with premiums
currently c.2% of GDP, compared to c.7% for the G7 nations. Life insurance penetration rates have tended to correlate with GDP per
capita, which we would expect to increase steadily, as will the regions urban middle class.

Swiss Re estimates that the mortality protection gap in Asia ex Japan, defined as the shortfall in insurance cover necessary to protect
against mortality, disability, medical expenses and poverty in old age, will grow from $34trn in 2010 to $73trn in 2020. It should be
noted that social safety nets are either underdeveloped or absent in Asia, and so demand for protection products will inevitably rise
as consumer incomes grow.

We are particularly enthusiastic about the prospects for AIAs Chinese business. China accounted for 40% of Group VONB in 2016, via
AIA's direct local entities and sales made to PRC citizens in Hong Kong. AIA is, as stated above, unique in its 100% ownership of its
Chinese subsidiary, which conveys obvious operational advantages. It currently has licenses in five of the 32 Chinese provinces
(including municipalities and autonomous regions), which give it access to an aggregate GDP of >$3trn and 40% of China's urban
affluent/mass affluent population.

Life insurance penetration has doubled since 2000 to 2%, and management feels that growth may accelerate further as GDP/capita
reaches the $10K level, at which an S-curve effect is typical. Recent growth rates have been particularly strong: domestic onshore
VONB grew by 54% in 2016 and has risen by 41% per annum since the IPO.

AIA's approach is highly differentiated from its far larger SOE competitors. It is based on a high-end offering focused on protection
as opposed to spread risk, a mix which is stickier and far more sustainable. Its also based on brand strength and a superior agency
force which is c.3x as productive as the industry average. The company's position and approach would thus be very hard to replicate.

We forecast VONB, DPS and EV (defined as equity and the net present value of in-force contracts) growth rates of, respectively, 21%,
17% and 12% per annum over the next three years, and expect the Chinese subsidiary (ex Hong Kong), which seems to have a
relatively open-ended 10-20 year growth opportunity, to contribute 50% of VONB growth.

AIA has a robust balance-sheet and capital base, with US$9.8bn of free surplus on a Hong Kong regulatory basis. Its headline
valuation multiples are not particularly low relative to Prudential plc or the Chinese SOE insurers, but we feel that the quality of its
franchise, its strong organic growth potential and the unique opportunity in China are not adequately reflected in its valuation of 1.6x
prospective Embedded Value.

US packaged food shorts


The fund has established a large short position (in aggregate) in a number of US consumer packaged food companies. Packaged
food companies have hitherto generated resilient compound growth but we believe that the group is facing a variety of structural
challenges rendering their future less attractive. Moreover, their valuations have, we believe, decoupled from their fundamentals, as
QE has led investors to favour yield and 'defensive' 'long duration' assets.

Consumer preferences are shifting towards healthy, fresh, and natural (local) food. Digital marketing, social media, and e-commerce
have eroded what have been significant scale-related barriers to entry, i.e. the necessity of advertising on mass market media, and
the ability to command prime shelf space at large retailers. An increase in the availability of third party manufacturing and
distribution has also worked to help new entrants. The result of these new realities has been a persistent decline in volumes.

The state of play at super and hypermarkets in the US compounds the problem these companies face. Price competition remains
intense, while there is a push to expand private label penetration, which is low in the US compared to Europe. Retailers are also
increasing the shelf space they allocate to fresher/healthier/more local produce, as they seek to differentiate themselves, and as
more companies follow their consumers into Whole Foods' niche.

As a result of these trends, volumes and organic sales growth at the companies we are short have been weak, a trend which has
worsened recently and which we expect to persist.

These businesses have so far managed to eke out moderate earnings growth through a combination of increased financial leverage,
advertising cuts, cost savings via continued restructuring programmes, changes in customer buying terms, and questionable
accounting policies (more on this latter point below). It is noteworthy that the average difference between GAAP (generally accepted
accounting principles) and non-GAAP EBIT margins for our short positions over 2014-2016 was over 350bps, compared to less than
100bps in the prior three-year period (2010-2013). We question whether even the modest margin expansion they have achieved since
2009 is a viable metric against which to assess their performance.

Schroder GAIA Egerton Equity


3
First Quarter 2017
The companies we are short have been significantly re-rated since 2009, despite their soft and low quality growth. Their average P/E
multiples have risen from 13x (in 2009) to 19x today (and note these are multiples of 'adjusted, i.e. non-GAAP, earnings, backing-out
continued restructuring costs). Non-GAAP EBIT and PBT have, on average, grown by just over 10%, but EPS by 35%, reflecting share
buy-backs and lower tax rates. Share prices, however, have close to doubled. We are sceptical about the quality and duration of this
growth in market value, especially in the context of the recent deterioration in fundamentals, which we believe to be structural.

Our largest consumer packaged food short is a US household name that is facing many structural challenges and is also being more
aggressive than its peers in using accounting to obfuscate the deterioration in its underlying business its volumes have been
declining for the past five years and it reports a variety of non-GAAP revenue metrics, making long-term analysis more difficult.

We believe that the company has extended payment terms to its customers, beginning in 2016. This may have been a relatively
cheap (from a funding standpoint) enticement, but it is clear that extended payment terms tend to boost reported revenue growth.
They encourage customers to purchase earlier and potentially more than they would absent these discounts, and, of course, they
reflect an underlying weakness in the business.

The company initiated three new receivables securitisation (sales) programmes in 2016, to offset higher trade receivables balances
(which resulted from the extended payment terms). These were ramped up during its weakest sales quarters.

It has also flattered its reported cashflow over 2014-2016 by extending its trade payables terms from its prior normal two month
period to three months.

We believe that this business would have had a 50% year-on-year decline in its cashflow from operations absent these programmes,
the incremental benefits from which are one-time. Its recent 'real' recent cash generation, i.e. adjusted for these boosts, has been
well short of its aggregate of capex, dividends, and share buy-backs. The company has been living beyond its means and so its net
debt has risen to 3.2x consensus 2017 EBITDA.

The company is, naturally, cutting costs in response to the challenges it faces. It has taken consistent restructuring charges, which,
despite their recurring nature, it classifies as exceptional. These have recently increased in magnitude, so that the average
difference between its GAAP and non-GAAP EBIT margins over 2014-2016 was more than 600bps, leading to non-GAAP EPS being
more than double GAAP EPS, on average, during the period. Based on this flattering earnings presentation, it trades on a high P/E of
19x, despite the structural pressures it faces, and inadequate cash-generation for its current levels of capital spending and
shareholder distributions.

Outlook and strategy


The fund's long portfolio is driven by bottom-up analysis and stock preferences, but in the context of several themes.

We expect the slow and steady but muted US economic revival to continue with, perhaps at some stage, some modestly stimulative
policies boosting prospects. The administration's desire to roll back on regulation is obviously positive for some sectors, such as
financials (if this happens) and cable (where it is happening). Inflation has been the dog that didn't bark in the night-time, to quote
Sir Arthur Conan Doyle, but there are signs that it is trending a little higher, and so stimulative measures would likely lead to sustain
the Fed's dot plot rate rises. Tax cuts would be a positive for stocks and employment and thus for interest rates.

We thus expect the dollar to remain relatively firm, even if it does not appreciate from current levels.

Animal spirits in the EU and Japan would not, in our view, be nearly so robust were US data and the dollar weak. But if the US can
remain on its modest growth track, economies worldwide can continue to heal.

This is perhaps the benign scenario embedded in today's markets. However, at a time when equity valuations are high and liquidity
forgives much, investors must keep in mind a couple of risks: :

The emergence from historic lows in interest rates may not be benign and steady, but volatile, with the risk of overshoot

The French elections and populism produce low probability but very negative outcomes.

It should be noted that growth still remains very low by historic standards and the recovery has been more marked in measures of
sentiment than economic data.

Investors views about economic/inflation prospects continue to fluctuate, as expressed by the bond market and sectoral shifts within
the equity market; we feel that it is important to avoid being pushed around too aggressively by short-term sentiment.

The fund's US portfolio has a significant exposure to cable companies and financials, two sectors which we feel play to the themes
above as well as being attractive in their own right. Its two major European longs are exporters, with substantial dollar revenues and
long order backlogs.

Schroder GAIA Egerton Equity


4
First Quarter 2017
A key cause of low nominal growth rates worldwide is the pervasive and deflationary/disruptive impact of technology on many
sectors and business models, and 'stimulus' cannot change this. It is striking that economies are improving and yet nominal revenue
growth at so many companies remains low, because of pressures/threats which would have seemed unlikely 10 years ago. This, for
us, remains the key factor of today's investment backdrop. We thus favour businesses with revenue visibility and growth drivers
which are independent of 'stimulus' or a cyclical upturn, while we feel that sustained organic constant currency revenue growth is
undervalued relative to the indices.

While the economic backdrop is reasonable, we are struck by how many mediocre businesses, with poor quality earnings and limited
revenue growth, trade at multiples which would have seemed high five to ten years ago., This, together with a sense that the
backdrop is hardly risk-free, explains the fund's short exposure of c.45%.

Schroder GAIA Egerton Equity


5
First Quarter 2017
Performance attribution as at 31 March 2017*
Summary performance attribution Month (%) Quarter (%) Year to date (%)
Long Equity 2.3 10.7 10.7
Short Equity -0.1 -2.8 -2.8
Corporate bonds 0.0 0.0 0.0
Index options 0.1 0.2 0.2
FX Hedging 0.0 0.0 0.0
Total 2.3 8.1 8.1

Top 5 contributors Type Country Sector Quarter (%)


Charter Communications Long US Consumer discretionary 1.1
S&P Long US Information technology 0.9
Airbus Long Netherlands Industrials 0.8
Activision Blizzard Long US Information technology 0.7
Tencent Long China Information technology 0.6

Bottom 5 contributors Type Country Sector Quarter (%)


Undisclosed Short India Telecoms -0.2
Fleetcore Long US Information technology -0.2
Undisclosed Short US Consumer discretionary -0.2
Undisclosed Short US Consumer discretionary -0.2
Undisclosed Short Mexico Telecoms -0.1

Region Month (%) Quarter (%) Year to date (%)


Europe ex UK 0.8 1.3 1.3
United Kingdom 0.5 0.9 0.9
North America 0.3 5.5 5.5
Pacific ex Japan -0.2 -0.5 -0.5
Japan 0.0 0.1 0.1
Emerging Markets 0.1 -0.4 -0.4
Other (including FX Hedging, Options) 0.9 1.2 1.2
Total 2.3 8.1 8.1

Sector Month (%) Quarter (%) Year to date (%)


Consumer Discretionary 0.4 2.2 2.2
Consumer Staples 0.1 0.2 0.2
Energy -0.1 -0.1 -0.1
Financials -0.1 0.9 0.9
Healthcare -0.1 -0.1 -0.1
Industrials 0.2 0.9 0.9
Information Technology 1.0 3.3 3.3
Materials 0.0 0.2 0.2
Telecoms 0.0 -0.4 -0.4
Utilities 0.0 -0.1 -0.1
Other (including FX Hedging, Options) 0.9 1.1 1.1
Total 2.3 8.1 8.1
Source: Schroders.
*Analysis expressed on a gross of fees basis using a total return methodology. The impact of any currency movement at security level is reflected
within each of the relevant strategies. All data is rounded to one decimal place; as such, any small discrepancies can be attributed to this.

Schroder GAIA Egerton Equity


6
First Quarter 2017
Key positions as at 31 March 2017 (%)
Top 10 long positions
Holding Sector Weight

1 Charter Communications Consumer discretionary 8.4

2 Airbus Industrials 6.3

3 Comcast Consumer discretionary 5.5

4 S&P Global Financials 5.3

5 Safran Industrials 4.1

6 Activision Blizzard Information technology 4.1

7 Ryanair Industrials 4.0

8 Tencent Information technology 3.6

9 Southwest Airlines Industrials 3.6

10 Altice Consumer discretionary 3.2

Top 5 short positions Country allocation


Sector Country Weight Sector Net Weight (%)

1 Industrials US -1.7 United States 36.7

2 Information technology US -1.5 France 8.8

3 Telecoms South Africa -1.5 Ireland 4.4

Consumer discretionary US Netherlands 3.0


4 -1.3
China 2.5
5 Industrials US -1.3
Source: Schroders.
Russian Federation 2.4

United Kingdom 2.4


Portfolio positioning as at 31 March 2017
Canada 2.3
Sector allocation
Japan 1.4
Sector Net Weight (%)
Germany 0.6
Financials 20.7
Denmark 0.5
Information Technology 20.3
Hong Kong 0.5
Industrials 14.3
Spain 0.4
Consumer Discretionary 11.7
Singapore -0.4
Materials 1.5 Switzerland -0.4
Real Estate 1.2 Malaysia -0.4

Utilities -0.2 India -0.4

Energy -0.5 Mexico -0.8

Consumer Staples -0.7 South Africa -1.5

Health Care -3.5 Sweden -1.8

Telecommunication Services -4.5 Others** 0.7

Index options 0.0


Total* 72.9
Total*** 72.9
*Includes cash and cash equivalents exposure of 12.6%.
Source: Schroders. Analysis based on market exposure as a percentage **Others are Italy and Australia, which both had exposures of 0.0%.
of total fund size excluding currency forward contracts. ***Includes cash and cash equivalents exposure of 12.6%.

Schroder GAIA Egerton Equity


7
First Quarter 2017
Important Information:
This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder GAIA (the Company). Nothing in
this document should be construed as advice and is therefore not a recommendation to buy or sell shares.
Subscriptions for shares of the Company can only be made on the basis of its latest Key Investor Information Document and prospectus, together with
the latest audited annual report (and subsequent unaudited semi-annual report, if published), copied o which can be obtained, free of charge, from
Schroder Investment Management (Luxembourg) S.A.
An investment in the Company entails risks, which are fully described in the prospectus.
Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not
get the amount originally invested.
Egerton has expressed its own views and opinions in this document and these may change.
This document is issued by Schroder Investment Management Ltd., 31, Gresham Street, EC2V 7QA, who is authorised and regulated by the Financial
Conduct Authority. For your security, communication may be taped or monitored.
The fund is currently closed for new subscriptions; however, to the extent that capacity becomes available new subscriptions will be
considered. To the extent you wish to subscribe in the fund, when there is available capacity, please contact Schroder Investment
Management (Luxembourg) S.A. who can explain the process and your name can be added to a waiting list which will be considered on a first
come first served basis.
Risk Considerations: The capital is not guaranteed. The value of the fund will move similarly to the equity markets. Emerging equity markets may be
more volatile than equity markets of well established economies. The title of securities may be jeopardised through fraud, negligence or mere
oversight in some countries. However the access to such markets may provide a higher return to your investment in line with its risk profile. The fund
may hold indirect short exposure in anticipation of a decline of prices of these exposures or increase of interest rate where relevant. The fund may be
leveraged, which may increase the volatility of the fund. The fund may not hedge all of its market risk in a down cycle. Investments into foreign
currencies entail exchange risks. Investments in money market instruments and deposits with financial institutions may be subject to price fluctuations
or default of the issuer. Some of the invested and deposited amounts may not be returned to the fund. The investments denominated in a foreign
currency of the share-class may not be hedged back to the currency denomination of the share-class. The share-class will be positively or negatively
impacted by the market movements between those currencies.
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Schroder GAIA Egerton Equity


8
First Quarter 2017