Global Asset Management

Investment capabilities and performance

	Annualized

Composite	1 year	3 years	5 years	10 years
Global Equity Composite vs. MSCI World Equity (Free) Index	+	-	+	+
Global Bond Composite vs. Citigroup World Government Bond Index	-	-	-	+
Global Securities Composite vs. Global Securities Markets Index	+	+	+	+

Global equity markets were positive over the quarter in local currency terms. The key theme was the sustained high price for oil, which benefited energy and utility stocks. Healthcare companies also performed well because of their defensive, cash-generating qualities, while consumer stocks lagged. Our actively managed Global Equity composite outperformed benchmarks for the quarter, partly as a result of its underweight position in the underperforming materials sector. Our strong stock selection in healthcare and consumer staples contributed to performance while weak selection of industrials detracted from returns.

Global bond markets, led by the US market, rallied strongly in second quarter 2005. Despite evidence in the US of firm economic growth and rising inflation, markets appeared to focus on data that suggested underlying growth was slowing, which in turn would slow the pace of further rises in official US interest rates. Yield spreads between government and non-government investment grade markets were broadly unchanged quarter-on-quarter although spreads were volatile in the period before and after the credit rating downgrades of US car manufacturers General Motors and Ford. Our global fixed income portfolios trailed their benchmarks in second quarter, predominantly reflecting our underweight exposures to bond markets.

Asset allocation portfolios fell behind their benchmarks slightly in second quarter, with a positive security selection in the US and emerging equities offset by negative results in global (ex-US) equities and US bonds.

Our alternative and quantitative investment strategies fared well despite difficult market conditions for most hedge fund strategies in second quarter. The quarter began with extreme pressure on convertible bond valuations and other credit-related strategies, with conditions improving in May and June. In the single manager hedge fund business, currency and rates trading and long / short equity strategies produced strong performance on a relative and an absolute basis. Our multi-manager funds recorded positive returns.

Real estate continued to show excellent performance and growth in second quarter. Private real estate fund performance, particularly in the US and UK, has been driven by strong investor demand for property and improving operating performance. The publicly traded funds in Australia and Switzerland performed above their benchmarks over the last 12 months.

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