Highly Recommended Recommended Approved Not Rated Redeem Product Assessment Report data as at 31 Oct 2014 Rating issued on 05 Dec 2014 Winton Global Alpha Fund

VIEWPOINT & RATING APIR Code The Winton Global Alpha Fund (the Fund) is a Commodities Trading Advisor (CTA) fund that is MAQ0482AU managed by Winton Capital Management (Winton) and distributed by the Macquarie Professional Series in Australia. Winton employs a fully systematic, research driven, quantitative process that Asset Class seeks to exploit technical/price driven signals and non-trend following signals (e.g. fundamental Alternatives factors) through investment in a broad range of futures and forwards markets. Zenith rates the Fund RECOMMENDED. Sub-Asset Class Winton is one of the largest CTA managers in the industry with approximately US$25.2 billion in CTA Funds Under Management (FUM) as at 30 September 2014. Winton has built a strong track record since the inception of its flagship Winton Futures Fund in 1997. Winton's key founder, David Investment Style Harding has a long and successful track record in managing trend following programs and leads Systematic Winton's research team together with Chief Investment Officer, Matthew Beddall. Winton's research Investment Objective team stands at 127 researchers as at 30 September 2014. Zenith believes Winton's research team is extensively resourced and is of a high calibre, which is seen as essential to ensure the Fund To generate long-term absolute remains competitive relative to peers in the CTA space. returns with a targeted volatility of 10% p.a. The Fund's investment strategy is fully systematic, diversified and utilises a combination of both Zenith Assigned Benchmarks trend following and non-trend following models. Winton's trading system continuously monitors and Benchmark 1: Bloomberg AusBond Bank processes price movements and other data in hundreds of liquid financial futures markets across Bill Index various asset classes, such as commodities, equities, currencies and fixed interest. Patterns in the data are then used as inputs into the models, which generate investment signals. Trend following is Benchmark 2: Dow Jones Credit Suisse Managed Futures $A (Hdg) expected to account for approximately 60% to 70% of the signals across the portfolio, with the balance of signals derived from non-trend following models. Winton's trend following process utilises multiple timeframes, resulting in an overall trend capture timeframe that is of a medium Key People speed, typically three to four months. David Harding Founder & President Winton targets a volatility level of 10% p.a., which Zenith considers to be low relative to its peers. The Fund's positions are subject to the volatility target and scaled according to the volatility of the Matthew Beddall underlying markets, which are calculated daily by Winton's proprietary forecasting model. Chief Investment Officer Zenith believes Winton has appropriate risk constraints in place and has robust risk management Investment Team Size systems in place to ensure the Fund's risk position remains within desired levels. 139 Although very high in absolute terms, Zenith considers the Fund's overall fee structure to be Net Returns (% p.a.) competitive relative to its major CTA peers. 5 yrs 3 yrs 1 yr FUND FACTS Fund 9.74 7.73 14.19 • Large research team and a leader in systematic investment management Benchmark 3.87 3.29 2.66 Median 8.42 6.46 15.58 • Strong performance track record • Utilises both price-based trend following and non-trend following models Income (% p.a.) Income Total FY to 30 Jun 2014 7.40 8.83 FY to 30 Jun 2013 4.91 6.97 ABSOLUTE RISK (SECTOR) RELATIVE RISK (FUND WITHIN SECTOR) FY to 30 Jun 2012 5.97 6.79 VERY HIGH VERY HIGH

Fees (% p.a.) HIGH HIGH Management Cost: 1.88% Performance Fee: 20.5% of net profit with MODERATE MODERATE HWM LOW LOW Analyst VERY LOW VERY LOW Quan Nguyen Senior Investment Analyst INCOME DISTRIBUTIONS PER INVESTMENT TIMEFRAME (03) 9642 3320 [email protected] MONTH QUARTER 6 MONTH ANNUM 1-2 YRS 3-4 YRS 5-6 YRS 7+ YRS

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SHORT RISK: CTAs enter into both long and short positions. APPLICATIONS OF INVESTMENT In taking short positions, CTAs bear the risk of an increase in the price over the time frame this "short" is held. SECTOR CHARACTERISTICS The Zenith Alternative – CTA sector consists of “Commodity LIQUIDITY RISK: This is the risk that a or asset Trading Advisor (CTA)” funds, also known as "managed cannot be traded quickly enough, due to insufficient trading futures". The primary driver of most managed futures strategies volumes in the market. When trading volumes are low, sellers is trend following or momentum investing, that is buying assets can significantly impact the price of a security when attempting which are rising and selling assets which are declining. These to quickly exit a material position. strategies are typically applied to liquid exchange traded REGULATORY RISK: There are risks that derivatives futures contracts on various commodities, equity indices, exchanges change rules and regulation which may impact the currencies and / or fixed interest instruments. trading programs of CTA managers. For example, this may One of the most powerful attributes of managed futures is the include imposing limits on the size of speculative positions in strategy exhibits its best performance in extreme up and futures markets by the US Commodity Futures Trading extreme down markets. For this reason a managed futures Commission. strategy is seen as beneficial to most investor portfolios given The ASIC Regulatory Guide 240 ‘Hedge Funds – Improving they typically deliver uncorrelated returns (relative to equity and Disclosure' comes into effect from 1 January 2014 and sets out fixed interest markets) and add diversification. mandatory industry definitions regarding hedge funds. The Zenith benchmarks all funds in this sector against the Dow implications of RG240 are potentially significant for the Fund if Jones Credit Suisse Managed Futures Index $A, to measure current investors are prevented from holding the Fund due to the Fund against its peers set. A secondary benchmark is also asset allocation constraints around the use of hedge funds. considered, the UBS Bank Bill Index, given most are This could potentially force large scale redemptions. Such attempting to deliver a return above cash. actions can impact the tax position of remaining investors. MARKET RISK: CTAs will be exposed to movements in equity PORTFOLIO APPLICATIONS markets, commodity prices, interest rates, economic conditions Zenith believes one of the key attractions of this Fund and and various other factors. CTAs in general is their historical low to negative correlation with traditional asset classes such as equity and bond markets. FUND RISKS Furthermore, CTAs have historically performed well during Zenith has identified the following key risks associated with the extreme market conditions. Based on the potential correlation Fund. Other risks may also exist and accordingly the following benefits that CTAs can provide, Zenith believes an allocation list is not intended to be all inclusive. within a broadly diversified portfolio can reduce overall portfolio risk while enhancing returns. VOLATILITY RISK: The strategy employed by the Fund can be volatile. Annualised long-term volatility on Winton's flagship Winton implicitly attempts to limit the Fund's sensitivity to global fund is targeted at 10% p.a. equity markets, which Zenith believes should enhance its diversification benefits. CURRENCY RISK: The units in the Fund are dominated in Australian dollars (AUD) and the majority of the Fund's assets Investors should however be mindful that these types of are held in an AUD cash account. The margins posted to investments exhibit high levels of risk on an absolute basis as implement futures positions may be held in foreign currency, they employ significant amounts of leverage and can be mainly $US, and as such movements in the $A / $US and other volatile. Zenith recommends CTA funds be used as a satellite currencies have a small impact on the value of units in the allocation within a broader balanced or growth investment Fund. portfolio. The Fund may also be used to complement the existing Alternatives portion of an investor's portfolio, and may STRATEGY RISK: The returns from the Fund will be affected blend well with hedge funds that have little exposure to by the performance of the Winton trading strategy. Winton may momentum or trend following factors. fail to achieve its performance or risk objectives. While CTA managers historically tend to have a low correlation with equity Due to the expected volatility of the Fund, Zenith suggests it and bond markets, returns can be volatile and in the short-term should be used within the growth component of a portfolio with may be highly volatile. a minimum five to six year investment timeframe in mind. KEY PERSON RISK: As with most Fund Managers, key The Fund's portfolio turnover is expected to be high, which is person risk needs to be considered at Winton. In Zenith's view, not unexpected for a strategy of this type. As a result, the David Harding is important to the ongoing success of the firm major component of the Fund's return will be delivered via and his departure would be a material loss based on income distributions and will be less suitable for investors on experience and strong long-term track recording in managing higher marginal tax rates. CTAs. Importantly, Harding retains a significant proportion of the equity in the Winton business and therefore has a strong RISKS OF THE INVESTMENT incentive to remain with the firm. Furthermore, we note the depth and experience around Harding, specifically, Chief SECTOR RISKS Investment Officer, Matthew Beddall. The broad risks of investing in CTAs include: CAPACITY RISK: Other risks involved in managing CTAs are LEVERAGE RISK: CTAs use implicit leverage through its use the cost of trading and capacity risk. These risks are especially of futures. This can amplify potential losses as well as gains.

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pertinent to managers with significant level of funds under board. Zenith considers this a positive as it should ensure that management (FUM) because as FUM grows so does market management of the firm and the research culture remain impact and slippage costs (the difference between estimated unchanged. and actual transaction costs). Importantly, Winton suspended Winton has funds under management (FUM) of US$25.2 billion applications into its flagship fund between January 2006 and as at 30 September 2014, with the majority of FUM held within September 2006, when slippage costs increased. During this the CTA strategy (US$24 billion). period Winton revamped its execution systems and subsequently slippage has reduced and the firm has enjoyed a The Fund is an Australian unit trust offered to investors via a sustained period of strong performance relative to peers. PDS. The Macquarie Fund is run as a separately managed account by Winton. As a result, investor funds are not placed Winton's current level of FUM is approximately 7.6% (as at 30 alongside those of Winton’s overseas investors. The Fund’s September 2014) of the CTA market based on the size of the excess cash is held in overnight deposit accounts with Deutsche market according to BarclayHedge. This is an important Bank, CBA, Westpac, ANZ and HSBC. Margin collateral is held measure as CTAs are typically highly correlated to one another with Macquarie. and there is a risk of "crowding" of certain trades. It is however, important to note that a number of profit seeking market Zenith notes that there are some differences between the Fund participants such as global macro funds do not report to and Winton’s flagship offering, the Winton Futures Fund (WFF). BarclayHedge. In addition, prices in the markets in which CTAs The key difference is that the Fund lacks a cash equities trading trade are not purely driven by investment related profit seekers, component (as opposed to futures trading), which was first with a range of other buyers and sellers including: corporations, implemented in the flagship fund in April 2010. Other minor governments and private individuals. differences include currency, different liquidity terms and different underlying margin accounts. Winton has not outlined a specific capacity figure at which it will close to new investors. Winton has not done this as it believes The cash equities component currently constitutes 29% of the that its ability to manage capacity is, to a degree, related to the risk budget of the WFF and is seen as an area of focus for success of its ongoing research initiatives in this area. For Winton as it aims to achieve a greater risk return profile and example, part of Winton’s research is focused on the studying of diversification by source of returns. The cash equities the mechanics of open interest in order to better understand component remains fully systematic and exploits non-trend liquidity in global futures markets, looking beyond Winton at the following factors such as size, value, momentum and quality. industry as a whole. Winton is currently investing approximately 50% of its research capability on the cash equities component. While Zenith is comfortable with Winton’s approach of dynamically assessing capacity we would be concerned if there Macquarie has advised that the decision to exclude the cash were rapid and sustained increases in FUM growth. Accordingly, equities component from the Fund at this stage is based on we will continue to monitor Winton’s FUM level closely. maintaining a more pure trend following exposure and awaiting a longer track record for the cash equities component. QUALITATIVE DUE DILIGENCE Macquarie remains open to reconsidering the implementation of the cash equities component as its actual track record continues ORGANISATION to build. Winton Capital Management (Winton) is a global systematic Given the increased importance and attractiveness of Winton's investment manager founded by David Harding in February cash equities component, Zenith believes that by not employing 1997. His previous start-up was the CTA manager AHL, which the cash equities component the Fund is not benefiting from he co-founded with Michael Adam and Martin Lueck in 1987. Winton's research effort and proprietary investment strategies. AHL was sold to the over a buy-out period However, we note that the Fund remains adequately serviced by (beginning in 1989 and ending in 1994). Winton's research efforts and therefore maintains its competitive Winton is a private, limited company and remains majority advantage over its peers. owned by its original founders David Harding 55.35% and Osman Murgian 18.45%. While Harding remains active in the INVESTMENT PERSONNEL business, Murgian is a passive investor with outside business Name Title Tenure interests. Murgian was also one of the original shareholders and directors of AHL. 16.41% of the firm is collectively owned by the David Harding Founder & President 17 Yr(s) employee group, most of whom own shares. Importantly, a large proportion of research personnel own shares and/or have Matthew Beddall Chief Investment Officer 13 Yr(s) options on equity, and Harding remains committed to the The key individual within Winton is its founder, David Harding, continuation of transferring portions of his equity to staff over who has a long and successful track record managing CTAs and time. remains at the helm of Winton's research team. Directly The remaining 9.79% of firm equity is owned by a private supporting Harding is Matthew Beddall who is the Chief investment fund run by Goldman Sachs Asset Management Investment Officer (CIO) and on the Main Board of Directors. (GSAM). Winton sold the 9.79% stake in July 2007 with the view For the past 10 years, Beddall has been extensively involved in that it would enhance the investment community's view of the all aspects of the research process. He has led the development firm's capabilities and would improve employee retention by of much of the software that underlies the design and running of providing an independent third party value on the firm. GSAM's Winton's trading strategy and oversees a large section of the stake in the firm is entirely passive with no representation on the research department.

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Outside Harding and Beddall, there are eight key senior other market participants. Winton contends that its competitive investment professionals who sit on the Investment advantage lies in being able to capture the behavioural Management Committee, which Beddall chairs. The committee regularities which cause market behaviour to deviate from oversees Winton’s investment management framework and, in randomness. Winton aims to identify small inefficiencies that particular, the investment management strategies, including the exist from time to time and translate these into long-term gains trading systems, the market and sector targets and the by holding a diverse portfolio and employing intelligent risk investment risk targets and limits. targeting. The firm’s research function is overseen by the Research Winton employs a systematic trading approach which utilises Management Committee which is co-led by Harding and both trend following and non-trend following models to generate Beddall. The committee also supports the Executive Committee trade ideas. Trend following stems from studies of behavioural in its consideration of all investment research activities and science, whereby prices tend to move persistently in one meets every six weeks. Based on our understanding of the role direction or another in response to information. Winton believes of these committees and Beddall's contribution, we believe that the effects of trending are systematic and therefore they present the key person risk associated with Harding remains significant, exploitable inefficiencies where indicators can be found with although it is lower than we have previously perceived it to be. robust predictive values. The research team numbers 124 investment personnel (as at 31 Non-trend following models derive their forecasts or signals from May 2014) and Zenith considers a dedicated team of this size to ideas outside of technical analysis or price movements. These be a significant advantage in managing CTA funds. Winton is models remain purely systematic and can be based on a variety clearly a research focused CTA manager, having invested of factors (e.g. fundamental factors). The aim of implementing heavily in this area with an annual research budget in-excess of non-trend following models is to diversify the portfolio and to US$15 million. improve the Sharpe ratio, or the Fund's risk/return profile. The research team is split between four locations, , Once Winton's quantitative models (which are collectively known Oxford Science Park, and Zurich, with David as the Program) have identified and captured particular trends, Harding spreading his time across all UK offices. Winton they are translated into portfolio positions via Winton's believes that there is no natural cap on the size of the research proprietary trading systems. team it would ideally like to employ. Rather, Winton will continue to hire research people where they are needed to improve the SECURITY SELECTION quality of research. The investible universe for Winton comprises hundreds of global futures markets, including: In addition to the research team, there is a 13 member trading and trading technology team (plus 26 people in IT) who are • Base metals responsible for execution. This team maintains a 24 hour • Currencies dealing desk. In reality, the trading process is highly automated through . Trades that are manually processed • Equities tend to be in those markets which are relatively less liquid or • Crops exposed to event risk. Winton places a great deal of emphasis on retention of key staff • Bonds through measures such as the implementation of a share • Energies purchase scheme, ensuring employees have an attractive work environment, implementation of a flexible annual leave system, • Livestock regular company offsites for bonding and general discussions, • Precious metals and a focus on attracting the very best academic candidates on offer. Winton maintains strong academia connections with it • Interest rates sponsoring the Professor of the Public Understanding of Risk at The core forecasting component of the Program is the Cambridge University. generation of trend-following signals for each investable market Zenith believes Winton's research team is extensively resourced using statistical analysis of the market price histories. These and is of a high calibre, which is seen as essential to ensure the signals operate over multiple time horizons looking to exploit Fund remains competitive relative to peers in the CTA space. both shorter and longer-term trends, and are combined to create a directional system, which in aggregate is biased to the longer- INVESTMENT PROCESS term. The objective of the Fund is to generate long-term absolute The trend following component accounts for approximately 60% returns from a specialist managed futures strategy and has a of the Program's long-term risk budget. The remaining 40% of targeted volatility of 10% p.a. the Program's long-term risk budget is allocated to non-trend Winton's philosophy is that markets are not perfectly efficient, following models which derive their forecasts or signals from and price movements do not follow unpredictable "random ideas outside of technical analysis or price movements. These walks". While patterns in market behaviour are hard to discern, models remain purely systematic and can be based on a variety Winton believes that they do exist and can provide a source of of factors. Carry strategies are examples of such models. When profit for those able to exploit them. Winton also believes that a approaches expiry and converges upon its the most consistent way to profit from these market spot price, there is a small degree of predictability in its price inefficiencies is through attaining a knowledge advantage over movements. Carry strategies can be used to exploit interest rate differentials between countries and also the roll yield along the

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maturity curve for commodity and fixed income asset classes. improvement in trading execution. The aim of implementing non-trend following models is to Zenith believes Winton's portfolio construction process is logical diversify the portfolio and to improve the strategy's risk/return and ensures a diversified and repeatable portfolio outcome. profile. At the very core of the Winton investment process is research. RISK MANAGEMENT Not traditional fundamental research but a focused examination Winton does not believe in minimising risk, but in targeting it of scientific empirical research into markets. The research cycle through a sophisticated daily monitoring and system adjustment. is a continuous and multifaceted venture aimed at maintaining At a portfolio level, the acceptable level of risk is determined by Winton's competitive advantage. Winton's research is the level of gearing. A trading system such as Winton's can be proprietary information for internal purposes only and is not operated at any level of volatility simply by varying the margin to disclosed to external parties and thus Zenith is unable to directly equity ratio employed. The strategy targets a volatility level of gauge its quality. However, Zenith gains comfort from the fact approximately 10% p.a. and Winton will leverage or de-leverage that Winton's research is directed by the group's founder David the portfolio to achieve its risk target. Harding who has developed a long and impressive track record Given futures contracts are margined investments, they can at Winton and as a co-founder at AHL. involve a high degree of leverage. Most contracts typically Ongoing research projects are conducted by the team to both require a deposit of between 2% and 15% of the value of the improve the existing models and to develop new models. Given contract purchased or sold. The margin to equity ratio refers to Zenith's belief that the CTA market is highly fluid and models the percentage of used as margin, and factors can become outdated or arbitraged away quickly, the higher the margin to equity ratio the greater the level of Zenith considers it imperative that a CTA research team be leverage (or risk). Winton’s daily margin/equity ratio has typically experienced and well structured. In addition, having a larger fluctuated between 5% and 10% over the last five years. The team allows Winton to conduct a deeper level of research and same trading strategy can be pursued at a higher or lower streamline new projects. leverage (or gearing), by targeting the desired level of risk through setting its margin to equity ratio. Overall, Zenith believes Winton's trade idea generation process is comprehensive, diversified and well supported by Winton's Other portfolio risk / investment guidelines include: high calibre research team. Zenith notes however, that given • The Fund has a strict limit of no more than 50% of the Fund's Winton's overall trade idea generation contains a larger non- NAV committed as initial margin at any one time trend following component relative to its peers, it may underperform in market environments which are more conducive • Margin requirements should not exceed 7% for each market to pure trend following models. • Margin requirements should not exceed 12.5% for a sector PORTFOLIO CONSTRUCTION The system also manages risk inherently through the size of the The Fund's strategy has the capacity to trade in hundreds of positions. A proprietary volatility forecasting tool operating at an individual futures markets at any given time, including equity individual market level forms a direct input into the size of each indices, bonds and short-term interest rates, currencies and position established. The trading system within the diversified commodities. The Fund aims to be highly diversified and is program is the primary tool for risk management and it is under subject to investment guidelines which are outlined in the “Risk continual development/improvement and relies heavily on the Management” section. Winton does not target a specific rate of experience and expertise of Winton's research team. return or a Sharpe ratio but does target a certain level of daily Risk management for the strategy is also manifested in the risk (by running a daily asset allocation process) by leveraging Group Risk Committee (GRC), which meets monthly, with or de-leveraging the portfolio to achieve this risk target. Harding and Beddall in attendance. The GRC aims to oversee Winton targets a volatility level of 10% p.a., which Zenith Winton’s risk management framework and, in particular, the considers to be low relative to its peers. The Fund's positions, effectiveness of risk management, governance and compliance derived from the recommended trades identified by Winton's activity within the firm. The GRC also monitors the Fund’s trend following and non-trend following models, are subject to adherence to: the 10% p.a. volatility target and scaled according to the • Mandate constraints volatility of the underlying markets, which are calculated daily by Winton's proprietary forecasting model. • Open interest and capacity (including assessing the trading footprint) The magnitude of portfolio turnover for a managed futures manager can be quite different to other asset class. CTAs can • Scenario analysis and Value at Risk (VaR) reports produce tens of thousands of trades per annum. Winton will • Margin to equity (leverage) typically trade each individual market several times per day and runs a 24 hour dealing desk. Approximately 95% of orders are In addition, the GRC reviews profit and loss reports and the traded electronically (with 90% algorithmically traded) with the financial security of its trading counterparties. remainder entered through trading desks and/or relayed directly From time to time, Winton may deem that there is a dislocation to a trading floor. Where the trading desk implement trades, they between markets and its investment model output. In these are given limited discretion on the timing of trades although no instances, at the discretion of Harding, system overrides are discretion exists on the type or nature of the trade, which is applied. Overrides are typically risk reducing rather than return driven entirely by the models. The trading team closely monitors seeking actions. In general, Zenith takes a negative view all electronic trading and their experience leads to ongoing towards discretionary overrides of systematic investment

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strategies, however, we note that Winton has typically added Auditor value through these decisions. Ernst & Young Zenith believes Winton has appropriate risk constraints in place Investment Manager and has robust risk management systems in place to ensure the Fund's risk position remains within desired levels. Winton Capital

ADMINISTRATION & OPERATIONS Compliance Advisor The Fund has no redemption fees. Winton Capital is responsible for the compliance of the Winton Diversified Trading Program. If redemption requests exceed 10% of units issue on a given day, Macquarie may stagger the processing of withdrawal Macquarie Investment Management Limited is responsible for requests over a number of days. the compliance of the Fund. The RE may suspend withdrawals from the Fund should the Pricing Fund's assets become illiquid. The Fund’s derivative assets (exchange traded futures and Operations options on futures) are exchange traded. Since the Fund does not trade unlisted or over the counter (OTC) derivatives, Zenith Zenith is comfortable with Winton’s operations with respect to its has the view that pricing is reliable. Macquarie determines the derivatives trade process from order generation to order market value of the fund each business day and listed securities execution through to post execution. are valued at the last sale price of their primary exchange and Service Providers cash is priced at face value with interest accrued daily. The Macquarie Fund is run as a separately managed account by Investment prices are also obtained from an independent Winton Capital. As a result, investor’s money is not placed source. alongside those of Winton’s overseas investors. The Macquarie Transparency Fund employs its own service providers for clearing and Macquarie is transparent with the documentation provided custodianship. These arrangements are entered into on an including the provision of the Due Diligence Questionnaire, and arm's length basis. Macquarie believes that this allows them to compliance documents. Macquarie provides monthly fund incorporate these processes into their overall compliance reviews which outlines performance and margin allocations by framework and provide cost efficiencies through economies of sector. scale. Expenses from service providers such as legal, fund accounting, custody and unit registry are borne by Macquarie, Compliance not the Fund. Macquarie Investment Management Limited is Winton has as long history of regulation and compliance with responsible for the Fund’s custody, settlement, IT, compliance, directors and senior management conducting regular meetings administration and customer service. across key disciplines. Winton is authorised and regulated by We believe Macquarie Bank, as the Clearer, has not been able the Financial Conduct Authority in the UK, is registered with the to achieve the efficiencies of Winton's global provider, Newedge. US Commodity Futures Trading Commission, is a member of The size of the Australian fund and the requirement for daily the National Futures Association in the US and is a SEC liquidity increases the cost that local investors pay. While this Registered Investment Advisor. The CTA industry is heavily inefficiency impacts the final returns to unit holders, other regulated, which requires Winton to be very open, which Zenith differences in returns between the Australian dollar unit class views favourably. and the US dollar class offered offshore are due to a number of Winton has in place a trading policy of how it deals with reasons. This includes but is not limited to a difference in total detecting and rectifying system errors which Zenith believes is MER, currency impact, allowable trading instruments (WFF important. Winton executes millions of client trades per annum trades options, CFD's and cash equities), AUM, timing of cash and there is therefore a higher likelihood of errors occurring. flows, restrictions/constraints etc. Errors are investigated and logged, and measures are taken to Zenith will closely monitor Macquarie Bank’s future performance avoid the occurrence of similar errors in the future. Errors are in this area and if the Australian fund continues to lag for this reviewed by the Chief Group Risk Officer. Additionally, routine reason then we will be forced to re-assess our rating (despite reviews on error logs are conducted by the Heads of our strong opinion of the underlying investment manager, Compliance. Winton also has established an independent audit Winton). process which requires an annual operational review. Newedge is a joint venture between Societe Generale and Winton's group risk, internal audit and compliance teams are led Credit Agricole. by the Chief Group Risk Officer. Two Co-Heads of Compliance are responsible for the day-to-day aspects of the department's Clearing Broker responsibilities. Macquarie Bank Macquarie has a compliance plan for the Fund which describes Administrator the procedures applied in operating the Fund to ensure Macquarie Investment Management Limited compliance with the Corporations Act and the Fund’s constitution. A compliance committee oversees Macquarie’s Custodian procedures for complying with the compliance plan, the Bond Street Custodian Limited (part of the Macquarie Group) constitution and the Corporations Act.

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Personal trading is underperforming and there are new entrants into the Fund. This is a relatively rare structure and Zenith believes may Winton requires all employees to obtain prior approval for trades disadvantage new investors as outperformance is not before they trade. Personal Account (PA) transactions must also guaranteed. not under any circumstances conflict with client dealings and client orders must take priority over any PA dealing. A sell spread of 0.05% applies to the Fund. Winton has implemented an electronic system which monitors (The fees mentioned above are reflective of the flagship version all PA investments. This enables the compliance department to only, fees may differ when the product is accessed through an monitor on a daily basis any correlations between the trades alternate investment vehicle such as a platform.) executed for Winton’s Investment Programs and PA investments. Fees Type Fund Sector Average Winton's employees are able to access the electronic system (Wholesale Funds) from Winton’s intranet homepage, enabling them to enter all the Management Cost 1.88% p.a. 1.76% p.a. details and submit the PA investments request electronically. Both Winton’s Co-Heads of Compliance will receive email Description notification of all PA investment requests automatically, which 20.5% of net profit with HWM they then either approve or revoke. If the trade is approved, the Performance Fee employee has one business day to execute the trade. All investments have a required holding period of a minimum of 90 days. The PA investments system is updated upon receipt of the contract note/statement which is sent to the compliance department independently by the broker. A copy of transactions/holdings report must additionally be provided once every six months. All employees are required to provide a declaration confirming whether any PA investments have been undertaken at least every six months for that period. Disaster recovery Winton ensures continuity of trading by maintaining a full off-site mirror (outside London) of operational facilities as part of its disaster recovery plan. The procedures in place mean that Winton could be fully operational at this site within 1.5 hours.

INVESTMENT FEES The sector average management cost (in the table below) is based on the average management cost of all flagship CTA funds surveyed by Zenith. Fees applicable on this Fund include a management cost of 1.88% p.a. Although very high in absolute terms, Zenith considers the management cost to be competitive relative to its major CTA peers and broadly in line with other Alternatives products available in the Australian market. In addition, a performance fee of 20.5% is payable on net profit generated by futures trading in the Fund (excluding returns generated by cash holdings) and is subject to a high water mark. Zenith notes that the Fund does not have a regular reset built into the high water mark. Whilst Winton's performance fee structure is approximately inline with its peers, given it targets a lower level of volatility relative to those peers, Zenith believes that when assessed on a fee per unit of risk/return basis, Winton's overall fee structure is more expensive relative to peers. The Fund also has a variable buy spread which may not appeal to all. The structure acts to eliminate the immediate benefit new investors gain when investing in the Fund when it is trading under its high water mark. The spread therefore acts as a "pre- payment" of performance fees for new investors and is aimed at removing the total burden from existing investors when the Fund

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PERFORMANCE ANALYSIS Report data: 31 Oct 2014, product inception: May 2007

Monthly Performance History (%, net of fees)

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC FUND YTD BM1 YTD BM2 YTD 2014 -1.28 1.94 -0.87 1.81 1.70 0.14 -1.78 3.93 0.71 3.35 9.92 2.23 10.30 2013 2.35 -0.02 1.89 3.06 -0.87 -1.32 -0.98 -2.41 2.33 2.42 3.11 0.75 10.59 2.87 -1.04 2012 0.80 -0.71 0.00 0.20 1.40 -3.76 4.15 -0.77 -2.08 -2.33 1.22 1.73 -0.40 3.97 0.55 2011 0.56 1.70 0.29 2.78 -1.73 -2.38 4.82 2.09 1.07 -2.30 1.39 1.84 10.34 5.00 -0.18 2010 -2.38 2.31 4.81 1.60 0.46 1.44 -2.81 4.98 0.61 2.52 -1.68 3.42 15.95 4.66 15.28 Benchmark 1: Bloomberg AusBond Bank Bill Index, Benchmark 2: Dow Jones Credit Suisse Hedge Fund Managed Futures $A (Hdg) Growth of $10,000 ABSOLUTE PERFORMANCE ANALYSIS

Return Incpt. 5 yr 3 yr 1 yr

Fund (% p.a.) 10.40 9.74 7.73 14.19

Benchmark 1 (% p.a.) 4.57 3.87 3.29 2.66

Benchmark 2 (% p.a.) 6.42 4.79 3.72 13.18

Best Month - Fund (%) 7.21 5.04 4.15 3.93

Worst Month - Fund (%) -4.36 -3.76 -3.76 -1.78

Positive Months - Fund (%) 63.33 65.00 61.11 75.00

Risk Incpt. 5 yr 3 yr 1 yr

Monthly Histogram Standard Deviation

Fund (% pa) 8.25 7.55 6.63 6.14

Benchmark 1 (% pa) 0.47 0.27 0.21 0.03

Benchmark 2 (% p.a.) 10.72 10.55 9.06 7.49

Downside Deviation

Fund (% p.a.) 3.46 3.32 3.14 2.06

Benchmark 1 (% p.a.) 0.00 0.00 0.00 0.00

Benchmark 2 (% p.a.) 5.53 5.77 5.41 3.38

Risk/Return Incpt. 5 yr 3 yr 1 yr

Sharpe Ratio

Minimum and Maximum Returns Fund 0.71 0.78 0.67 1.88

Benchmark 1 0.00 0.00 0.00 0.00

Benchmark 2 0.17 0.09 0.05 1.40

Sortino Ratio

Fund 1.68 1.77 1.41 5.59

Benchmark 2 0.34 0.16 0.08 3.12

All commentary below is as at 31 October 2014. The objective of the Fund is to generate long-term total returns from a specialist managed futures strategy and has a targeted volatility of 10% p.a. The Fund has consistently generated strong outperformance

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over its peer benchmark (as represented by the Dow Jones DRAWDOWN ANALYSIS Credit Suisse Managed Futures Hedge Fund Index AUD) over all periods of assessment. Drawdown Analysis Fund BM1 BM2

Impressively, Winton has generated a positive absolute return Max Drawdown (%) -9.32 -13.53 despite a difficult trading environment for CTA funds in general over the past three years. Zenith notes that part of the Months in Max Drawdown 6 4 outperformance can be attributed to the Fund having a lower trend following component relative to its peers and Harding's Months to Recover 9 14 discretionary decisions to override the trading models. The Fund targets an annualised volatility level of 10% p.a., as Worst Drawdowns Fund Benchmark 1 Benchmark 2 measured by Standard Deviation. However, Zenith notes that the Fund's volatility has been materially lower than its target in 1 -9.32 -13.53 more recent times. The lower realised volatility achieved by the Fund over the past three years was due to the fact that the 2 -6.16 -9.23 majority of markets in which the Fund trades were not conducive 3 -5.47 -8.25 to trend following conditions (i.e. most markets displayed weak signal strength). In more normalised market conditions, Zenith 4 -5.11 -6.84 expects volatility to be closer to its target. 5 -4.08 -6.35 This Fund has achieved both a positive Sharpe Ratio and Sortino Ratio over a longer time frame which indicates strong All commentary below is as at 31 October 2014. risk-adjusted returns relative to its peer benchmark. The Sortino ratio is an extension of the Sharpe ratio. While the Sharpe ratio The Fund's relatively lower volatility target, strong risk takes into account any volatility in the return of an asset, the management systems and diversity of markets and models have Sortino ratio differentiates positive and negative return contributed to the Fund experiencing lower drawdowns than the orientated volatility. That is, volatility associated with positive managed futures index. This has resulted in the Fund historically returns is considered more desirable. recovering from its drawdowns relatively quickly.

RELATIVE PERFORMANCE ANALYSIS

Relative Performance vs BM1 Incpt. 5 yr 3 yr 1 yr

Excess Return (% p.a.) 5.83 5.87 4.44 11.53

Beta 3.17 0.03 -2.48 -11.58

R-Squared 0.03 0.00 0.01 0.00

Correlation 0.18 0.00 -0.08 -0.06

Relative Performance vs BM2 Incpt. 5 yr 3 yr 1 yr

Excess Return (% p.a.) 3.98 4.95 4.01 1.01

Beta 0.64 0.61 0.60 0.67 INCOME/GROWTH ANALYSIS R-Squared 0.69 0.73 0.68 0.67 Income / Growth Returns Income Growth Total Correlation 0.83 0.86 0.82 0.82 FY to 30 Jun 2014 7.40% 1.43% 8.83% All commentary below is as at 31 October 2014. FY to 30 Jun 2013 4.91% 2.06% 6.97% The Fund has produced material levels of excess return relative to its peer benchmark when assessed over all periods of FY to 30 Jun 2012 5.97% 0.81% 6.79% assessment. The Fund does not target specific income levels. Zenith expects the Fund to be able to generate positive absolute returns in normalised market conditions over a full market cycle, Where applicable, the Fund typically distributes income semi- although typically CTAs will provide the strongest returns in annually (June and December). trending markets (up or down) and may provide less favourable The Fund's portfolio turnover is expected to be high, which it is returns in narrow, range bound markets. not unexpected for a strategy of this type. As a result, the major component of the Fund's return will be delivered via income distributions and will be less suitable for investors on higher marginal tax rates.

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REPORT CERTIFICATION Date of issue: 5 Dec 2014

Role Analyst Title

Author Quan Nguyen Senior Investment Analyst

Sector Lead Bronwen Moncrieff Head of Research

Authoriser Bronwen Moncrieff Head of Research

ANALYST DISCLOSURE As at the time this report was issued, the Analyst or the report Authoriser holds interests in either the product, the product issuer or a relevant related party. The Analyst/Authoriser certifies that the extent of the holding is non-material in nature and has been undertaken in accordance with Zenith's Trading Policy and RG79.149(c).

RATING HISTORY

As At Rating

5 Dec 2014 Recommended

12 Dec 2013 Recommended

11 Apr 2013 Recommended

1 May 2012 Highly Recommended

11 Apr 2011 Highly Recommended

15 Feb 2010 Highly Recommended

Last 5 years only displayed. Longer histories available on request.

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ZENITH RESEARCH METHODOLOGY & REGULATORY COMPLIANCE

Zenith Investment Partners (“Zenith”) ABN 60 322 047 314 provides the following guidelines on Zenith’s processes and procedures relating to research services, research methodologies and conflict of interest management. Detailed information on Zenith’s Research Methodology & Regulatory Compliance can be accessed via the Zenith website.

SCOPE OF RATING The Zenith rating referred to in this document is limited to “General Advice” (as defined by section 766B of Corporations Act 2001) for Wholesale clients and based solely on the assessment of the investment merits of the financial product on this basis. This advice has been prepared without taking into account the objectives, financial situation or needs of any specific person who may read it. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Zenith advises that investors should seek their own independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation or needs. Investors should obtain a copy of, and consider, the product PDS before making any decision. This report is prepared exclusively for clients of Zenith. The material contained in this report is subject to copyright and may not be reproduced without the consent of the copyright owner. The information contained in the report is believed to be reliable, but its completeness and accuracy is not guaranteed. Zenith accepts no liability, whether direct or indirect arising from the use of information contained in this report.

SERVICES & EXPERTISE Zenith is the holder of Australian Financial Services License No. 226872 which was issued by the Australian Securities & Investments Commission (ASIC) on 10 April 2003 for the purposes of providing General Advice as defined under the Corporations Act 2001. Further information on the services we are licensed to provide and our expertise can be found on the Research Methodology & Regulatory Compliance page of the Zenith website.

CURRENCY OF RATING This Research Report and Rating is current as at the date it is issued and is valid until it is updated, replaced or withdrawn. Research Reports will be subject to future updates on an ongoing basis unless the Rating is Withdrawn. The Rating may be subject to change without notice and clients are advised to check currency via the Zenith website. Further information on Currency of Ratings is available on the Zenith website.

COVERAGE POLICY Zenith’s coverage policy defines the investment universe of products which are potentially eligible to receive an investment rating. This universe primarily focuses on those products available to financial advisers via the major wrap platforms and master trusts. Products predominantly encompass Unlisted Managed Funds and Listed Managed Investments available via the ASX. Zenith also includes in its coverage policy products in several asset classes which are traditionally only available directly ‘off- platform’. These asset classes include sectors such as Unlisted Direct Property Funds and products in the Alternatives asset class including Hedge Funds and Private Equity Funds. Detailed information on Zenith’s coverage policy, processes, sector classifications and current coverage list can be found on the Research Methodology & Regulatory Compliance page of the Zenith website.

CONFLICT POLICY Zenith maintains a Conflict Management Policy regarding the provision of non-research services to Product Issuer’s, Fund Managers or other related parties relevant to the investment being rated. This policy relates to the provision of; • Underwriting, managerial, consultancy or market making services to such parties; • Whether such parties are a corporate client of Zenith; • Whether such parties are related or otherwise associated with Zenith. Any conflicts relating to these issues will be prominently disclosed on the relevant Zenith Product Assessment Report. Further details on Zenith’s Conflict Policy can be found on the Research Methodology & Regulatory Compliance page of the Zenith website.

FEE FOR SERVICE Zenith charges an upfront flat fee to the Product Issuer, Fund Manager or other related parties to produce research on funds that conform to our Research Methodology (Direct business model). This fee is to compensate Zenith for the work required to undertake the process and is not linked to the rating outcome. Fees are generally standardised within each sector however a small number of sectors (typically those dealing with real assets) are charged based on individual complexity. Further details on how the fee for service arrangement is managed can be found on the Research Methodology & Regulatory Compliance page of the Zenith website and also in Zenith’s Financial Services Guide (FSG). Zenith has charged Winton Capital a fee to produce this report.

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ANALYST CERTIFICATION & DISCLOSURE Analyst remuneration is not linked to the rating outcome. Analysts holdings in investment products must be non-material and done in accordance with Zenith’s Trading Policy. The Analyst certifies that the views expressed in the Product Assessment accurately reflect their personal, professional opinion about the financial product to which this report refers.

ZENITH RATING DISTRIBUTION The following chart shows the current breakdown of Zenith’s ratings as at the date of viewing. Ratings are based on the relevant fund peer group as determined by Zenith and include Parent funds only. Users can access more detailed information on ratings spreads on the Research Methodology & Regulatory Compliance page of the Zenith website.

Ratings Methodology Zenith’s ratings are based on the output of a proprietary scoring model. This model and its broad factors are shown in the following diagram. Please note we do not disclose the weightings of factors and sub-factors change for each sector. This information should be used as a guide only.

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Ratings Bands Based on the scores assigned by Zenith’s analysts for the above mentioned proprietary scoring model, a rating of Highly Recommended, Recommended, Approved or Not Approved is applied to all funds that have undergone full due diligence by the Zenith research team. As shown in the following table the ratings are determined based on the overall score out of 100. Funds may also be screened prior to conducting full due diligence based on qualitative or quantitative concerns as Zenith’s research model aims to focus on the best investments in each sector.

Rating Scoring Output (%) Confidence in Meeting Objectives Zenith Approved List

Highly Recommended >= 80 Very High YES

Recommended >= 70 - 79 High YES

Approved >= 55 - 69 Moderate YES

No previous rating held. The fund has passed Zenith’s preliminary screen however Not Rated - Declined N/A the issuer has declined to participate in a full due diligence review.

Previous Zenith rating withdrawn due to either: Zenith downgrading the rating to Not Rated - Withdrawn N/A below investment grade; the issuer electing to cease ongoing coverage; the fund has been closed to investment; or the fund has been terminated and wound up.

No previous rating held. The fund has either passed Zenith’s preliminary screen but failed the full due diligence process; failed Zenith’s preliminary screen making it Not Rated - Screened Out < 55 ineligible for a full due diligence review; or is yet to be included in Zenith’s preliminary screen or sector review process.

Previous rating removed where there has been a significant event that Zenith Redeem N/A strongly believes will severely impacts the product to such an extent that investors are advised to redeem (withdraw) their investment. The performance of the investment in this report is not a representation as to future performance or likely return.

ABSOLUTE RISK RATING The Absolute risk rankings should be viewed as a guide to potential capital volatility (in both gains and losses) of the relevant investment strategy (Zenith Asset Class / Sub Asset Class classification) of this product. A number of factors have been considered in setting this risk level. For liquid asset classes, we have typically used the underlying historical return volatility of the product’s benchmark if the benchmark is a reasonable proxy for returns for this strategy. Where the risk of an investment cannot be reasonably estimated by historical benchmark return analysis, we have made a qualitative assessment of absolute risk and considered factors such as illiquidity risk, transparency, strategy risk, operational risk etc.

Funds classified as Very High risk are exposed to sectors with very high historical absolute volatility (typically a 16+% p.a. plus standard deviation over a rolling 20 year period). Where the VERY HIGH risk of an investment cannot be reasonably estimated by historical return analysis, we have considered a range of qualitative risks in assigning a Very High absolute risk level.

Funds classified as High risk are exposed to sectors with high historical absolute volatility (typically a 8-16% p.a. standard deviation over a rolling 20 year period). Where the risk of an HIGH investment cannot be reasonably estimated by historical return analysis, we have considered a range of qualitative risks in assigning a High absolute risk level.

Funds classified as Moderate risk are exposed to sectors with moderate historical absolute volatility (typically a 4-8% p.a. standard deviation over a rolling 20 year period). Where the risk MODERATE of an investment cannot be reasonably estimated by historical return analysis, we have considered a range of qualitative risks in assigning a Moderate absolute risk level.

Funds classified as Low risk are exposed to sectors with low historical absolute volatility (typically a 2-4% p.a. standard deviation over a rolling 20 year period). Where the risk of an LOW investment cannot be reasonably estimated by historical return analysis, we have considered a range of qualitative risks in assigning a Low absolute risk level.

Funds classified as Very Low risk are exposed to sectors with very low historical absolute volatility (typically a <2% p.a. standard deviation over a rolling 20 year period). Where the risk of VERY LOW an investment cannot be reasonably estimated by historical return analysis, we have considered a range of qualitative risks in assigning a Very Low absolute risk level.

RELATIVE RISK RATING The relative risk rankings should be viewed as a guide to the relative risk of a product within its sector. The relative risk levels are listed from high to low and are intended to provide some insight into the potential divergence of the investment’s return profile relative to its assigned benchmark.

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