Lazard Australian Equity Team – Quarterly Letter AUG Letter from the Manager 2021

The Australian Equity Team’s quarterly letter discusses Exhibit 1 the biggest issues we are seeing in investment markets Value Factor Returns Relative to Index today. This quarter’s letter looks at: ASX S&P500 1. Performance over the full financial year 2020/21, Q3 2020 -3.2% -2.0%

2. How our portfolios are now positioned, and Q4 2020 9.3% 9.3%

3. The modern slavery issues at . Q1 2021 -2.2% 10.8% 1. Financial Year Review Q2 2021 -2.7% -3.4% The financial year ended June 2021 has been one of Total f21 0.6% 14.7% most frustrating and disappointing for us since the YTD 2021 -4.9% 7.1% year ended June 2008. As of 30 June 2021. Frustrating, as the sharp rotation towards value in Table 1: Equal-weighted value factor returns over f21, from UBS, Goldman Sachs and Macquarie Bank. the weeks following the 9 November 2021 vaccine Each quarter is the average returns from these different sources. announcement by BioNTech and Pfizer was not sustained into the second half of the financial year in , despite rapid upward earnings revisions for Disappointing, as some of our international cyclical holdings did value stocks (including many of our holdings) and the not perform as well as many domestic cyclicals over financial year much larger and sustained value performance in the 2021. This was most disappointingly for our energy holdings. US. Rapidly recovering energy prices drove S&P500 Energy Index One value sector for which prices recovered were the returns to over 42% over just the first six months of 2021, making banks, which helped the MSCI Australia Value index this the best performing GICS sector in the US (and globally) by a over the financial year 2021—just the four major large margin. banks accounted for 53% of this index at end of June In contrast, the ASX200 Energy Index fell and recorded a -1.4% 2021. total return in the same six-month period1. This was despite an Following five years of underperformance for the average earnings per share (EPS) upgrade of ~110% across our banking sector, we took the opportunity to reallocate , Whitehaven Coal and holdings an additional 10% of our portfolio into this sector (c/f 20% for the ASX200) to end June 2021, for example. At over the second half of 2020. After accounting for July 2021 spot energy prices, furthermore, EPS run-rates are a the bank recovery, the remaining value stocks in the further 60% to 500% higher than even those 30 June 2021 EPS MSCI Australia Value marginally lagged the market, expectations. As an inevitable consequence, these three stocks however, in contrast to events in the US. traded at an (simple arithmetic) average 20-25% spot free cash flow (FCF) yield in July 2021, which incidentally implies that if Exhibit 1 shows equal-weighted factor returns (an all the other stocks in our portfolio had no free cashflows at all, the average of the quarterly factor total return data from portfolio spot FCF yield would still be almost 5%. UBS, Macquarie Bank and Goldman Sachs)—the divergence between the US and Australia was very While we do not expect present spot thermal, coking and wide over 2021 YTD, although even in the US the LNG prices to be maintained in the long run, it is nevertheless value recovery ended in mid-May 2021. noteworthy that in September 2020, Whitehaven Coal may turn out to have traded at an enterprise value of less than 1x forward earnings before interest, taxes, depreciation, and amortization (EBITDA).

LR33518 2

It is our strong view that while the energy sector price recovery in Exhibit 2 Australia may have been delayed, it is not cancelled. Valuations did not mean revert

One stock that has particularly disappointed over financial year ROE (%) 2021 has been AMP, which now trades on 11 times next year’s 40 consensus earnings, which represents a 42% discount to the ASX 80th Percentile Forward P/E market, on 0.86 times book value and about 1 times net tangible Harmonic Mean of 80th Percentile Forward P/E assets (NTA), despite the fact that close to half the NTA presently 30 generates no earnings (due to A$0.73ps of gross cash and A$0.40ps of equity investments, less A$0.60ps of corporate debt). 20 Returns to portfolios with high active share tend to be lumpy. Over the last 20 years, about one fifth of our portfolio positions have been sold in the context of take-overs or other corporate 10 ASX 20th Percentile Forward P/E events, yet this has not been the case over the last two years. In July Harmonic Mean of 20th Percentile Forward P/E 2021, however, and Oil Search have disclosed 0 being the subject of take-over bids, while Athene Group have taken 1997 2001 2004 2007 2011 2014 2018 2020 a 15% stake in Challenger Financial and has applied to APRA for As of 30 June 2021. approval to acquire a further 3%. 80th and 20th percentile forward P/E ratios for the ex-resources ASX100 index Source: UBS. Where then are we at the end of this frustrating and disappointing 12-months? As always, the future is uncertain, and given the presence of Exhibit 3 COVID-19, its various mutations and the consequences of the Valuations did not mean revert MMT-style policy interventions over the last 15 months, probably 3 more so than usual. We can be more definitive about the state of ASX100 (ex-Resources) Forward 80th vs 20th Percentile P/E Ratio (Dec 1997 to June 2021) markets, however, and list two important features of the financial landscape as concerns the Australian stock market.

1. The Two–Tiered Market 2 As noted above, style returns over financial year 2021 converged, but valuations did not mean-revert. In other words, valuation spreads did not significantly widen further, but neither did they narrow from the record levels as at end of last financial year. This 1 can be seen in Exhibit 2. Dec-97 Jun-01 Jun-05 Jun-09 Jun-13 Jun-17 Jun-21

The record valuation gap reached in the September quarter of 2020 As of 30 June 2021. moved broadly sideways over the remainder of financial year 2021, Ratio of 80th to 20th forward P/E ratio across the ex-resources ASX100. with a drop in November 2020 followed by a 80% percentile Source: UBS. forward P/E record in April 2021. Relative developments over the past 12-months can be more easily discerned by examining at 86 times forward PE (Exhibit 6) set new all-time record-high the ratio of the 80% to 20% percentile forward P/Es, as shown in forward P/E ratios as of end June 2021, both in absolute terms and Exhibit 3. The November 2021 value rally and the overall sideways relative to the S&P/ASX 200 Index. movement of the valuation spread are very clear. On a 47 times forward P/E the ASX Health Care sector, for Examination of prior wide valuation spreads suggests that the example, trades at a 138% premium to its own 31-year history, behavior over financial year 2021 was not unusual near peaks, a 147% premium to the current MSCI AC World Health Care when the volatility of the spread often rises. This volatility drove index and a 173% premium to today’s S&P500 Healthcare relative returns as shown in Exhibit 4. index—in other words, the Australian Health Care sector level Consistent with the observation that the growth bubble remains would have to fall 63% for it to trade at the same expected P/E as tightly inflated, are S&P/ASX 200 Index sector multiples. Both the the US index today. S&P/ASX Health Care sector at 47 times forward price/earnings (PE) (Exhibit 5) and S&P/ASX Information Technology sector 3

2. The US Market Backdrop Exhibit 4 Volatility drove relative returns The US stock market has now reached the highest valuations recorded over the 100 years for which we have records (a (%) 8 Changes to Dispersion and Relative Performance conclusion based on different indicators, including the Tobin’s over the last 3 quarters of F21 Q ratio, and the percentage of stocks trading at more than 10 times revenues) —depending on whether one takes an optimistic 4 or pessimistic view, long-run analysis tends to project very low to significantly negative annual returns for the next decade. 0 This comes at a time when the market is facing higher risks than usual, including inflation fat tails, bond prices on significant -4 Change to Dispersion (%) negative yields, anti-trust/regulatory actions against very SAF Relative Performance (%) large index weight companies, corporate tax rises and more -8 redistributive policies. Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 In addition, speculation and financial frothiness—whether that be As of 30 June 2021 Monthly Select Fund excess returns relative to the ASX200 Accumulation index, junk bond credit spreads at record lows, covenant-lite lending at and changes in the 80th to 20th percentile forward P/E ratio across the ex-resources ASX100. 90%+, Reddit/meme-stocks, SPACs, crypto-currencies/Dogecoin, Source: UBS, Lazard, FactSet loss making IPO’s at greater than 80%, record insider selling, record IPO volumes, record margin debt, record retail stock market participation, record budget deficits or record US broad Exhibit 5 money growth—is at levels only to be compared to perhaps the High multiples in tech sector late 1920s or late 1960s. More than one member of the Lazard's Australian Equity team has experienced the 1987 run- and the 100 ASX InfoTech Sector Forward P/E (x) dot.com boom and the present episode clearly exceeds those in 80 terms of financial excess. Info Tech P/E Average What happens next? 60 We can imagine two paths for the market over the next few years. 40 It’s different this time 20

0 The present late-cycle divergence of multiples shown in Exhibit Jun-01 Jun-05 Jun-09 Jun-13 Jun-17 Jun-21 2 may be permanent and we could look back at 2020 as the year As of 30 June 2021 that 200 years of stock market history ended and a new era began; Forward P/E ratio of the ASX200 Information Technology sector. an era in which the top 40% or so of Australian stocks trade on Source: UBS 35-40x forward P/Es. Why might such a transition occur? • What would permanently negative real rates imply for bond We briefly consider two suggestions. investors? And could such ultra-loose policy be inflationary? 1. Some commentators argue that permanently zero nominal • If rates fell entirely due to lower growth, there would be no interest rates and negative real rates may bring about such a duration effect and thus no differential second order multiple change. This suggestion raises obvious questions: divergence. This is what has been observed in Japan. Overall, across markets there is a correlation between very low rates • Real interest rates have been positive across all nations for and lower P/Es, presumably reflecting economic difficulties. hundreds of years, except for relatively short (decade-scale) intervals. • If this was the explanation of the growth market, it would also imply that it would fully reverse if rates rose. • A discount rate driven “duration” effect has only second order differential impacts; that is, all P/Es should rise, although long-duration securities should rise by more and multiples should rise in precise mathematical ratios. This has not been observed. 4

Others, inspired by the dramatic successes of the US internet Exhibit 6 platform monopolies, argue that all or many digital businesses will High multiples in health care sector evolve into high-margin quasi-monopolies. We believe this thesis also has some problems: 50 ASX Healthcare Sector Forward P/E (x) • This suggestion implies an end to competitive capitalism 40 Healthcare P/E (at least for ~40% of our listed market), with no societal Average anti-trust response. It also implies an end to the creative tech 30 cycle in which better ‘mouse-traps’ are invented, and which 20 then replace prior tech leaders (from Nokia to Blackberry to Apple). 10 • This suggestion of ever-increasing margins implies that returns 0 to capital grow at the expense of the returns to labour without Jun-94 'Jun-98 Jun-02 Jun-06 Jun-10 Jun-14 Jun-18 Jun-21 any societal response. As of 30 June 2021 • The Australian high P/E stocks are not all—or even by a Forward P/E ratio of the ASX200 Healthcare sector. Source: UBS.As of 9 November 2020 substantial minority—internet “Platform/Software as a service Source: Lazard and S&P (Saas)” stocks. • Not all internet/digital stocks can come out on top in this The large-scale MMT programs associated with the COVID-19 winner-takes-all-at-high-margins-forever vision. It’s either crisis have clearly super-charged a bubble that was already building listed Seek (55x forward P/E), LinkedIn, Indeed or Jora. It’s over 2018 to 2019 in the US, and to a lesser extent global, stock listed RealEstate.com (50x forward P/E) or listed Domain. markets. Deeply negative real interest rates, vast fiscal support com (55x forward P/E), or it could be HomeSales.com.au. and broad money growth of over 30% have created an explosion The same “fallacy of composition” was noted in 2000, when of speculation (the total market value of the over 10,000 crypto- all internet connected stocks were deemed to be winners. currencies are valued at more than sub-prime was in 2007), equity • This suggestion also implies that tech is more inflationary, as supply (over US$1tr over the last five quarters or 4-5x the rate monopoly margins grow and grow. This is, incidentally, the pre-COVID-19) and corporate earnings (revenues up ~20% and opposite of the expectation in the 2000 tech boom. EPS 110% yoy for Q2 2021 so far in the US). • In such a winner-take-all-forever world, what would stop the This sweet spot of free money, the flood of newly-created liquidity, US mega-monopolies taking over the entire Australian online earnings growth2 and assurances of continued fiscal and monetary landscape? Which retailer could catch up with Amazon, and support makes for a perfect environment for high valuations, which payments company could challenge PayPal or Apple speculation and optimism. The sweet spot is likely to end with Pay? some degree of hangover, however, as the newly created money creates excess demand, which can lead to input price inflation and None of this is to deny that there will be excellent businesses with labour shortages. great moats in the tech sector, but as usual we should expect this to be rare. It is clear, for example, that unsecured buy now pay later Whatever the outcomes this time are, history suggests that peaks of credit is a business with no moats at all. valuations and speculation are not permanent—perfect conditions always end and give way to less conducive times, equity supply Furthermore, it’s worth noting that even if multiples remained responds to high prices and eventually overwhelms demand, as two-tiered as over the last 18 months, value would no longer over-investment in the hot sectors lead to competition and lower under-perform—value has out-performed over multiple decades returns, extreme multiples make way for more normal valuations. with no net change in relative multiples. In addition, the returns from stock transitions would increase for value portfolios. If the MMT policy interventions over 2020 and 2021 lead to higher inflation (say, of above 3%), then this boom could end in It’s not different this time a particularly dramatic mean-reversion events as interest rates rise and liquidity tightens, that is, it could be of a larger amplitude then Rather it’s an often-told, yet perennially new, story of speculation even the 2000-2003 mean reversion. at the end of a very long bull market. The S&P500 Index has now produced a cumulative annual return of 17.8% for over twelve It’s important to keep in mind that at every bubble peak in the years, or about double the long-run rate, for a total 652% gain past, conventional thinking did not identify it as such (otherwise (nominal GDP has risen 53% over this period, in comparison). it would not have developed)—many market participants either believed that it finally was different this time, or were skeptical but 5 unwilling to stand against the overwhelming tide of the bubble and Ansell – Modern Slavery its accompanying narrative. Considerations Yet others were probably knowingly engaging in “rational speculation”, which refers to individuals who recognize the Ansell is a global manufacturer of protective industrial and medical – excess and understand its inevitable end, but who reason that this gloves. Ansell has 13 manufacturing plants and 10 are Malaysia, environment may allow them to make a lot of money very quickly. Sri Lanka, and Vietnam (three in Brazil, Lithuania, and Portugal). We have now seen three periods over the last financial year during Due to the location of these plants, modern slavery is an issue which the Lazard Select Australian Equity Fund was up 2-3% in and risk we need to be alert to. This risk is particularly acute in two days in the absence of any company specific news—each were Malaysia, where Ansell has four plants. days when investors were suddenly questioning the free money bull Malaysian factories rely on approximately 3 million migrant market story. Many know that it will end and which way to jump workers. Many of these workers pay recruiters large sums of money when it does! for these jobs and must take on loans to do so. This is known as While this observation is encouraging, the current extended debt-bondage, a form of modern-day slavery, and can result in episode is trying our clients’ patience, and—indeed—our own. At workers to be exploited while they pay off their debts. This has long such times, we do well do recall that past turning points (such as been an issue for Malaysian glove makers, with abusive working March 2000 or November 2007) also came later than we’d hoped conditions commonplace. or expected and that there were plenty of ups and downs that we In our assessment, Ansell is clearly operating at a higher standard tend to forget in retrospect: than the rest of the industry. • Half a year after the NASDAQ peak in March 2000, value Ansell has four manufacturing plants in Malaysia. Many of these had not made any gains in Australia and we well remember workers want overtime to maximise their work hours over short our disappointment at the time at having slightly lagged the periods so as to maximise earnings during the time spent away market over the post-March 2000 period. from their homes. In fact, Ansell’s adherence to legal rest day • By June 2008, the market had already fallen about 22% from requirements and overtime limitations, often leads to employees its October 2007 peak, yet we ended the financial 13% behind preferring to work for other local companies who offer additional the index. overtime (without rest days despite regulations to the contrary). In both these cases, dramatic multi-year gains lay ahead, so while In financial year 2020, Ansell used outside consultants to do a we are frustrated by the fact that we are only ahead by ~5% over comprehensive risk assessment of its factories. In January 2021, the last three quarters, this 12-year-old bull market took three or Ansell repaid recruitment fees of migrant workers and now four years to get to this stage and the unwind will probably take a has a “Zero Recruitment Fee Policy”, thereby reducing debt similar time. Patience and discipline are always required in equity bondage concerns. Ansell offers competitive compensation and investing, but they are absolutely critical at more extreme times. an attractive work environment to retain employees and to recruit and attract a dependable workforce. Ansell’s factories usually Portfolio Thematics offer incentives including free or deeply discounted commissary meals, transportation, religious and holiday celebrations, health These are the broad five themes running through our portfolios screenings, gifts for expectant mothers, and scholarship programs (Exhibit 7): for the children of employees. There are two major risks for Ansell, arising from modern slavery considerations. Firstly, operating to a higher standard does raise its cost structure versus Malaysian competitors and makes it difficult for them to compete. Secondly, related to this, is the use of Malaysian glove makers in its supply chain for some production, particularly for single use gloves (demand for which is growing rapidly). Interestingly, ESG data provider Sustainalytics concludes that Ansell is Low Risk in ESG. While Ansell is currently managing its risk in this area, we would not share Sustainalytics’ view that this is a low risk. This is an issue that we monitor closely and believe it to be material to its valuation. 6

Exhibit 7 Thematics in Portfolio

Stock Positions Rationale Risk Consideration Energy Woodside Oil (LNG) • There is real structural change in relation to LNG and coal Petroleum • The real oil price has recovered strongly from multi-decade as we transition to a lower carbon economy. This has lows, driving strong earnings. Equity valuations were most investment implications over the short and long-term. Oil Search attractive over similar timeframes. • Most forecasts have LNG growing in volume terms out to • Even with an energy transition, significant new investment 2050. Whitehaven Coal is needed. Industry saw large capex cuts post COVID- • About 75% of global coal consumption occurs in our 19 limiting supply. From these levels energy has eastern hemisphere and is expected to be broadly stable outperformed historically. over the next decade. • Longer-term, coal volumes in Asia will decline and we Coal account for this in our valuation. • Strong economic growth has increased demand with constrained supply resulting in high coal prices. Whitehaven Coal is producing significant free cash flow at current prices. We value Whitehaven Coal on current coal reserves (nil value attributed to > 2 billion tonnes of coal resources), high discount rates and with conservative coal prices. Quality Resources • High quality companies with good cost positions, strong • Increasing scrutiny on companies licensed to operate balance sheets and production growth optionality. with increasing environmental (Samarco Fundão tailings Alumina dam), social/cultural impact (Juukan Gorge) and therefore governance and capital allocation comes under further scrutiny. Stable Cash Flows and Defensive Earnings • Historically, these companies all have stable cash flows • Toll road traffic is sensitive to employment numbers, and and defensive earnings. more specifically, employees travelling to work, however, Spark • Regulatory returns reflect current costs of capital and these are long-life assets and we are long-term investors, Infrastructure provide a fair return on assets. so we are prepared to be patient as these companies • Traffic is starting to recover, although we believe this will emerge from the pandemic. be a choppy recovery. Our traffic forecasts do not have a • Regulatory resets have lowered returns for utilities but full recovery to CY19 levels until end CY23. debt costs have also fallen and balance sheets are strong. Emerging from the crisis SKYCITY • Small positions in companies that will benefit from a • The timing of the recovery from the COVID-19 pandemic normalisation in economic activity in 2021 and beyond. and/or vaccine will impact this trajectory. Eagers • Stocks offering large earnings growth over many years as • Resilient Re-Openers–Emerging from the crisis Automotive economies re-open. Ample liquidity to handle a choppy or delayed re-opening of the economy. • Companies with strong balance sheets to withstand hit to revenue. GPT Group

Vicinity Centres Financials - Benefiting from improving economic growth AMP • Banks have re-rated lower over the last two years and are • Worsening economic conditions leading to up-tick in bad now attractively priced even with only modest growth debts ANZ Bank projections. • Falls in net interest margin • AMP has stabilised in recent months and remains very • Stock specific risk for AMP and QBE National Australia attractively priced. Bank • QBE is trading at very low levels and should benefit from the start of rate premium cycle. QBE Insurance

Westpac Banking

Computershare

As of 30 June 2021 The securities mentioned are not necessarily held by Lazard for all client portfolios, and their mention should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio. 7

Appendix 1 Performance Annualised

Since Inception 3 Months (%) 1-Year (%) 3-Year (%) 5-Year (%) 10-Year (%) (%) (7 June 2002) Lazard Select Australian Equity (Gross) 2.82 22.06 1.90 7.51 10.27 9.25 S&P/ASX 200 Index 8.29 27.80 9.59 11.16 9.26 8.72 MSCI Australia Value Index 7.52 39.40 8.88 9.62 9.43 7.62

(1 November 2003) Lazard Australian Equity Unconstrained (Gross) 2.17 19.89 2.12 6.76 9.69 8.45 S&P/ASX 200 Index 8.29 27.80 9.59 11.16 9.26 9.21 MSCI Australia Value Index 7.52 39.40 8.88 9.62 9.43 8.39

(17 October 2000) Lazard Australian Equity (Gross) 4.09 23.24 4.45 7.86 9.51 9.78 S&P/ASX 200 Index 8.29 27.80 9.59 11.16 9.26 8.41 MSCI Australia Value Index 7.52 39.40 8.88 9.62 9.43 7.27

(1 September 2018) Lazard Australian Equity Income (Gross) 5.38 24.26 N/A N/A N/A 4.07 S&P/ASX 200 Index 8.29 27.80 N/A N/A N/A 9.10 MSCI Australia Value Index 7.52 39.40 N/A N/A N/A 8.91

As of 30 June 2021 Performance is presented gross of fees in AUD. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Please refer to the Important Information section for more information about each composite.

Appendix 2 Attribution

Select – 3 Month Attribution Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 11.0 0.5 AMP 5.5 -1.2 QBE Insurance 9.4 0.4 Woodside Petroleum 6.9 -0.9 Sydney Airport(u) 0.0 0.1 2.2 -0.9 3.8 0.1 Alumina 5.4 -0.8 APA Group(u) 0.0 0.1 0.0 -0.6 of Australia(u)

Select – 12 Month Attribution Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%)

CSL(u) 0.0 1.8 AMP 5.5 -4.2 Whitehaven Coal 11.0 1.3 Aurizon 3.5 -1.5 Virgin Money 1.4 0.9 Alumina 5.4 -1.4 A2 Milk(u) 0.0 0.7 Commonwealth Bank 0.0 -1.3 of Australia(u) (u) 0.0 0.7 Woodside Petroleum 6.9 -1.1 u - Attribution through underweight position. Attribution is based upon a representative portfolio and is versus the benchmark noted. Attribution analysis is provided for illustrative purposes only, as values are calculated based on returns gross of fees. Performance would be lower if fees and expenses were included. Past performance is not a reliable indicator of future results. 8

Appendix 2 Attribution

Australian Equity Unconstrained – 3 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 8.0 0.4 AMP 4.6 -1.0 QBE Insurance 5.4 0.2 Costa Group 2.1 -0.9 Computershare 4.1 0.1 Woodside Petroleum 6.6 -0.9 Sydney Airport(u) 0.0 0.1 Alumina 4.6 -0.7 Rio Tinto 4.2 0.1 Commonwealth Bank 0.0 -0.6 of Australia(u) Australian Equity Unconstrained – 12 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) CSL(u) 0.0 1.8 AMP 4.6 -3.4 Whitehaven Coal 8.0 1.0 Aurizon 4.0 -1.8 Virgin Money 1.5 0.8 Commonwealth Bank 0.0 -1.3 of Australia(u) Newcrest Mining(u) 0.0 0.7 Woodside Petroleum 6.6 -1.1 2.1 0.5 Alumina 4.6 -1.1

Australian Equity – 3 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 3.1 0.2 Costa Group 1.8 -0.8 Sydney Airport(u) 0.0 0.1 AMP 2.9 -0.6 QBE Insurance 4.1 0.1 Woodside Petroleum 3.9 -0.5 IOOF 1.0 0.1 Alumina 3.0 -0.4 Rio Tinto 4.8 0.1 Oil Search 3.0 -0.4

Australian Equity – 12 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) CSL(u) 3.1 0.9 AMP 2.9 -2.1 Virgin Money 1.5 0.9 Aurizon 3.1 -1.5 Newcrest Mining(u) 0.0 0.7 Fortescue Metals(u) 0.0 -0.8 Whitehaven Coal 3.1 0.6 Atlas Arteria 3.5 -0.7 SKYCITY Entertainment 2.5 0.6 0.0 -0.7

Australian Equity Income – 3 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) New Hope 4.3 0.7 Costa Group 2.8 -1.6 Whitehaven Coal 4.7 0.5 AMP 3.4 -0.7 IOOF 3.5 0.4 Commonwealth Bank 0.0 -0.6 of Australia(u) Smartgroup 3.9 0.3 Alumina 3.7 -0.5 QBE Insurance 4.3 0.1 Aurizon 4.0 -0.5

Australian Equity Income – 12 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Reliance 0.0 1.9 AMP 3.4 -2.3 CSL(u) 0.0 1.8 Aurizon 4.0 -1.8 0.0 0.9 Commonwealth Bank 0.0 -1.3 of Australia(u) A2 Milk(u) 0.0 0.7 Atlas Arteria 4.1 -0.9 Metcash 3.1 0.7 Fortescue Metals(u) 0.0 -0.8 u - Attribution through underweight position. Attribution is based upon a representative portfolio and is versus the benchmark noted. Attribution analysis is provided for illustrative purposes only, as values are calculated based on returns gross of fees. Performance would be lower if fees and expenses were included. Past performance is not a reliable indicator of future results. As of 30 June 2021 Source: Lazard, Factset, S&P Letter from the Manager

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Notes 1 This is despite the much greater oil exposure of the US Energy sector, in comparison to our gas dominated Australian stocks. Electric vehicles are a negative for oil (petroleum), but a positive for gas (electricity). Gas is a transition fuel, while oil is not. The US Energy sector has significant Atlantic basin exposure, while the Australian sector has exposure to the growing Asia-Pacific energy market. 2 Labour is the largest cost for almost all businesses, while household incomes directly and indirectly drives the revenue lines for most companies. By sending out cheques to households, government have created an environment in which firm revenues can increase significantly without any increase in economy-wide labour costs – fiscal policy has added a new source of money to the usual circular flow of funds in the economy. This excess demand will, of course, lead to supply shortages and labour market tightness. In 2000, 39% of all investment in the US market was undertaken by tech stocks, while commodity investment was only 12% of market capex. This was a time to buy commodity companies. In 2010, tech investment was down to 27% of all capex, while commodity (including energy) capex was at 33%. This was a good time to buy tech. Today 41% of all market capex is in tech, while commodity related capex is only 11%. Capex amongst US energy companies is at an all-time low of 44% of depreciation – a rate 60% below prior low points and only a quarter of average levels. Natural depletion rates for oil projects are 5-7% pa.

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