Quarterly Investment Update Antares High Growth Shares Fund – June 2021 For adviser use only Highlights for the quarter Performance: The Fund returned 9.6% (net of fees) for the June quarter, outperforming its benchmark by 1.3%. Contributors to performance: Positive contributors – Aristocrat Leisure, Telix Pharmaceuticals, Megaport, Boral, Woodside (not owned); Negative contributors – Incitec Pivot, Qantas, ANZ, Resmed (not owned) and Altium (not owned). Stock activity: Buys/additions – Ansell, Downer and TPG Telecom ; Sells/reductions – BlueScope Steel, Boral, Endeavour Group and Worley Fund snapshot Inception date 7 December 1999 Benchmark S&P/ASX 200 Total Return Index To outperform the benchmark (after fees) over rolling Investment objective 5-year periods Investment returns as at 30 June 20211 Period 3 months 1 year 3 years pa 5 years pa 10 years pa Since inception pa Net return2 % 9.6 39.9 9.2 12.6 10.0 11.0 Gross return3 % 9.9 41.9 10.5 13.9 11.2 12.5 Benchmark return % 8.3 27.8 9.6 11.2 9.3 8.5 Net excess return % 1.3 12.1 -0.4 1.4 0.7 2.5 Gross excess return % 1.6 14.1 0.9 2.7 1.9 4.0 1 Past performance is not a reliable indicator of future performance. Returns are not guaranteed and actual returns may vary from any target returns described in this document. 2 Investment returns are based on exit prices, and are net of management fees and assume reinvestment of all distributions. Contributors to performance Pleasingly the Fund enjoyed another strong quarter, returning 9.6% (net of fees) vs the benchmark return of 8.3%. The Fund’s strong annual return of 39.9% (net of fees) was 12.1% ahead of the benchmark’s return of 27.8%. As Figure 1 illustrates, the S&P/ASX 200 price return of 24.0% over the last twelve months is the strongest over the last two decades; and we are pleased to have delivered returns in excess of this over the last twelve months. 1 Figure 1: S&P/ASX 200 Price Return Source: Bloomberg, Antares; June 2021 Positive Positive contributors to performance included our overweight position in Aristocrat Leisure (ALL) that delivered another strong result during the quarter. The company delivered an EBITDA increase of around 6%, however what was most pleasing was the tremendous performance of its high growth and high multiple Digital business which grew EBITDA by over 48%. Also positive was Telix Pharmaceuticals (TLX). The Fund was overweight TLX, which outperformed the benchmark by more than 30% in the quarter. The biotech company had positive news flow including commencement of the Phase III clinical trial for their prostate cancer therapy and news that TLX’s late cycle review / registration meeting with the FDA for their prostate cancer diagnostic imaging product brought forward no material issues of concern. We expect approval and sales in the USA this quarter. Megaport (MP1) enjoyed a strong quarter. The company provided information to the market about its Megaport Virtual Edge product and announced a number of key distribution relationships with the likes of Cisco. This has materially reset expectations upwards for MP1’s earnings profile. The product is exciting as it allows traditional wide area networks to now connect seamlessly to the cloud, thereby assisting local operations of branch type business make better decisions and provide better customer experiences. MP1 also benefitted from the decline in longer term inflationary expectations globally which encouraged the market to embrace its longer-term growth options. Figure 2: Fund attribution – June quarter Source: Antares, June 2021 Antares High Growth Shares Fund Quarterly Investment Update – June 2021 2 Negative Detracting value for the quarter were our overweight positions in Incitec Pivot (IPL), Qantas (QAN) and ANZ. During the quarter IPL issued an earnings downgrade which saw its share price fall substantially. As the market became increasingly concerned with the spread of the Delta Covid variant, QAN and other travel stocks that require the opening up of the economy suffered. The banks were relatively lacklustre during the quarter having enjoyed strong performances over previous quarters hence our overweight in ANZ detracted from performance. Stock activity A summary of stock activity over the quarter is presented in Table 1. (Commentary may not be provided on some positions where we have an imminent intention of buying or selling.) Table 1: Stock Activity Portfolio Trades Buy / Close Sell / Initiate Long ANN, DOW, TPG BLD, BSL, EDV, WOR Short ASX, MFG, XRO ALQ, ARB, PMV, SFR, SCG During the quarter Woolworths (WOW) demerged its drinks and hospitality assets, Endeavour Group (EDV), which we subsequently sold. We remain committed to our WOW position. We also exited our Boral (BLD) position during the quarter and introduced Downer EDI (DOW) into the portfolio. As shown in Figure 3, Boral has outperformed the market over the last two years with a total return of almost 40% vs the benchmark return of 23%, while over the same period DOW has fallen by 11%. Figure 3: Boral (BLD) and Downer EDI (DOW) share price performance Source Bloomberg, Antares, June 2021 BLD’s recent price rise has been driven by its major shareholder, Network Investment Holdings, a wholly-owned subsidiary of Seven Group Holdings (SGH), outlining an unsolicited off-market takeover offer to acquire all of the issued shares in Boral that SGH does not already own, for $6.50 per share. At the time of our sale BLD was trading at over 10x EV / forecast EBITDA, higher than any time over the last three years. With BLD trading at a premium to the proposed takeover price we decided to exit the stock and deploy the proceeds into DOW. At the time DOW was trading at around 7x forecast EBITDA, representing more than a 30% discount to BLD. Antares High Growth Shares Fund Quarterly Investment Update – June 2021 3 Figure 4: Boral vs Downer EDI EV/EBITDA (x) Source Bloomberg, Antares, June 2021 There are a number of attributes that have drawn us to DOW beyond an attractive valuation: • Buyback - DOW is conducting a 10% buyback which on some estimates is 6% EPS accretive • The sale of DOW’s contract mining and laundry businesses has reduced its carbon footprint by around 35% • Exposure to government stimulus through road maintenance, rail and major capital works • An improving return on equity (ROE) profile that is forecast to exceed DOW’s cost of capital • A growing dividend yield; currently around 3.5% • The ongoing transformation process of selling cyclical, capital intensive businesses and transitioning to government- backed urban services with more predictable earnings. We exited BlueScope (BSL) during the quarter having owned it for some time now and have benefited from its strong performance. BSL has been the beneficiary of strong global steel prices, driven by a resurgent housing market in Australia and disciplined supply and strong demand in the US. Indicative steel margins, as illustrated in Figure 5, are at all-time highs (grey line) in the US and although off their peak remain elevated in Australia (orange line). Although the good times may remain stronger for longer they are likely to mean-revert in the longer term, taking the BSL share price with them. Figure 5: BlueScope share price vs steel price spreads Source: Bloomberg, Antares 2021 During the quarter we exited our position in Oil Search (OSH). Our position in OSH was instigated in April 2020 and the deeply discounted capital raising at $2.10 per share. We exited our holding at over $4 per share. OSH’s growth aspirations are still appealing to us however given the risk, both operational and financial, along with the reduced upside to our target price we decided to exit the stock. Following a period of underperformance we introduced TPG Telecom (TPG) into the portfolio. There are a number of stock specific and industry trends that have attracted us to the stock. Antares High Growth Shares Fund Quarterly Investment Update – June 2021 4 • After many years of strong price competition and reduced profitability, rational behaviour appears to have broken out in the mobile market • Infrastructure assets in space are being sought after by investors lifting valuations • Synergies yet to be extracted from the Vodafone acquisition • Earnings and returns should lift over the next few years driven by the return of international roaming revenue, increased revenue per user across both fixed and mobile, synergy benefits. Ansell (ANN) is another stock we added to the portfolio during the quarter. There is a duality to ANN that we think is underappreciated and hence mispriced by the market. ANN has two main exposures; its healthcare glove business is exposed to the health sector that we think will benefit for years to come given the behavioural changes underway as a result of Covid. Significant leverage also resides within its industrial glove division that is exposed to the global manufacturing recover that is currently underway. Within the short side of the portfolio, we bought back some of the residual positions in some of the highly priced growth companies that were sold off last quarter as the market transitioned to value, these include ASX, Magellan Financial Group (MFG) and Xero (XRO). Shorts initiated over the quarter include: Sandfire Resources (SFR) – where we feel the market will be disappointed with the sequencing of projects resulting in 6-18 month period where copper production will be significantly lower than expected. Premier Investments (PMV) – that has been the beneficiary of the stay at home trend that has inflated profits and multiples. The announced change in management may also cause operating momentum to dislocate, something that is not in the price.