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 – , Telix Pharmaceuticals, Megaport, , Woodside (not owned); Negative contributors – , , ANZ, Resmed (not owned) and (not owned).

Stock activity: Buys/additions – , Downer and TPG Telecom ; Sells/reductions – BlueScope Steel, Boral, Endeavour Group and

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 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 (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 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 (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 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 (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.

Outlook Figure 6 charts the long-term performance of the S&P 500 index overlayed with periods of US recession. As illustrated, times of severe negative returns for the index are often coincident with periods of US recession. Although sell-offs do occur outside these periods they are generally short lived. Our central case remains that we are not headed into a recession over the next 12- 18 months hence we remain relatively positive towards equities.

Figure 6: Relationship between S&P 500 performance and US recessions

Source: Bloomberg; June 2021

Antares High Growth Shares Fund Quarterly Investment Update – June 2021 5 We also have a firm belief that it is the business, and more specifically the industry, cycle that drives the market and its leadership. When looking at some of these broad indicators, such as the ISM indices presented in Figure 2, there is nothing indicating an imminent contraction in growth.

Figure 7: ISM Indices

Source: Bloomberg; June 2021

However, what is clear is that growth has likely peaked. Whether we look at China or the US or other developed countries, growth has been strong and the rates of growth achieved over the last year are unlikely to be repeated. This also suggests that best returns from the market have also been achieved - the S&P/ASX200 return for the 12 months to 30 June 21 was the strongest in 20 years.

Table 2: Historic and Consensus Forecast GDP growth

Country 2019 2020 2021 2022 2023 Majors (YoY%) 1.6 -4.5 5.4 4 2.1 Countries Australia (YoY%) 1.9 -2.4 5.1 3.2 3 Canada (YoY%) 1.9 -5.3 6.2 4.1 2.1 Eurozone (YoY%) 1.3 -6.5 4.5 4.2 2 Japan (YoY%) 0 -4.7 2.6 2.5 1.2 United Kingdom (YoY%) 1.5 -10.1 6.8 5.3 1.8 United States (YoY%) 2.2 -3.5 6.6 4.1 2.4 Source: Bloomberg; July 2021

Our positive medium-term view is supported by:

• Global vaccination roll-out (and continued efficacy)

• Policy, although tighter is still not tight

• Savings rates that are still very strong

• Producer price inflation appears to be cresting

• Wage inflation remains consistent with levels observed over the last few years.

Turning our attention to valuations one might be cautious given the high level of global indices and multiples. However, if we look relative to bonds, and look to the equity risk premium as an example, investors are being compensated for taking on the additional risk. As shown in Figure 8, the equity risk premium (calculated simply as the earnings yield less the risk-free yield) has hovered around 3-4% for almost the last decade and continues to trade around these levels.

Antares High Growth Shares Fund Quarterly Investment Update – June 2021 6 Figure 8: Australian and US Equity Risk Premium

Source: Bloomberg; Antares June 2021

Strategy

As always, we maintain an eye on valuation anomalies and continue with our healthy obsession to generate insights on companies that are miss-priced by the market. At the end of the quarter the best description of our portfolio positioning is broad and diversified without any particular skew towards a sector, style or theme.

We have made some changes to the portfolio during the quarter that have resulted in a more diversified portfolio. We have reduced some of the “pointy end cyclical” exposure with the removal of Worley (WOR) and Boral (BLD) and a reduction in our BlueScope (BSL) weight. Conversely, we have added positions that are arguably more defensive in exposure such as Ansell (ANN) and TPG. To be clear this is not a view on the market direction but just an outcome of the mispricing we have identified from a bottom up perspective.

Furthermore, on the short side of the portfolio we have increased the short exposure to the Covid beneficiaries such as ARB, Premier (PMV) and Sandfire Resources (SFR). Although this cohort come from a range of industries, all have benefitted from the behavioural changes brought about by covid; something that we feel will begin to turn as vaccination rates increase around the globe.

One thematic we have tried to maintain in the portfolio has been our exposure to the decarbonisation theme. The portfolio has a number of positions that should benefit from this global policy dynamic, stocks include; IGO, (ILU), Paladin (PDN) and Novonix (NVX). Our view remains that at some point in the second half of 2021 there will be a correction in the iron ore market.

Our relatively large Communication Services overweight is made up of Seek (SEK), (NEC) and (TLS). Although TLS has performed well we still believe there is more shareholder value to be realised as mobile earnings should inflect higher this half year and further asset sales of “infrastructure style” assets are realised at higher prices than implied by the current share price.

The fund’s GICS exposure relative to the benchmark and portfolio fundamentals are presented in table 3

Antares High Growth Shares Fund Quarterly Investment Update – June 2021 7 Table 3: Portfolio Statistics - Antares High Growth Shares Fund

High Growth Shares at 30 Over/underweight Portfolio % Index % June 2021 %

Energy 2.6 3.0 -0.4

Materials 23.5 20.3 3.2

Industrials 10.9 6.6 4.3

Consumer discretionary 4.9 8.2 -3.3

Consumer staples 7.3 5.2 2.1

Health care 13.0 10.1 2.9

Financials ex REITs 27.6 30.0 -2.4

Information technology 5.4 4.2 1.2

Communication services 11.3 4.2 7.1

Utilities -1.4 1.5 -2.9

Real Estate 2.2 6.7 -4.5

SPI Futures / Options -8.3 0.00 -8.3

Cash 1.0 0.00 1.0

Total 100.0 100.0 100.0 Source: Antares Equities, Factset June 2021

Antares High Growth Shares Fund Quarterly Investment Update – June 2021 8 LEGAL DISCLAIMER

Important information: Antares Capital Partners Ltd ABN 85 066 081 114, AFSL 234483 (‘ACP’), is the Responsible Entity of, and the issuer of units in, the Antares High Growth Shares Fund ARSN 090 554 082 (‘the Fund’). An investor should consider the current Product Disclosure Statement (‘PDS’) when deciding whether to acquire, or continue to hold, an investment in the Fund, whether an investment in the Fund is an appropriate investment for the investor and also consider the risks associated with any investment. We recommend investors obtain financial advice specific to their situation. 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. Any projection or other forward looking statement (‘Projection’) in this report is provided for information purposes only. No representation is made as to the accuracy or reasonableness of any such Projection or that it will be met. Actual events may vary materially.

Any opinions expressed by ACP constitute ACP’s judgement at the time of writing and may change without notice. ACP is part of the IOOF group of companies (comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate) (‘IOOF Group’). The capital value, payment of income and performance of any financial product offered by any member of the IOOF Group including but not limited to Antares, are not guaranteed. An investment in any product offered by any member of the IOOF Group including but not limited to Antares, is subject to investment risk, including possible delays in repayment of capital and loss of income and principal invested.

This document has been prepared in good faith, where applicable, using information from sources believed to be reliable and accurate as at the time of preparation, no representation or warranty (express or implied) is given as to its accuracy, reliability or completeness (which may change without notice). Any opinions expressed in this document constitutes ACP’s judgement at the time of issue and is subject to change. ACP believe that the information contained in this document is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this communication.

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. Any projection or other forward looking statement (‘Projection’) in this document is provided for information purposes only. No representation is made as to the accuracy or reasonableness of any such Projection or that it will be met. Actual events may vary materially. Any opinions expressed by ACP constitute ACP’s judgement at the time of writing and may change without notice.

In some cases the information is provided to us by third parties, while it is believed that the information is accurate and reliable, the accuracy of that information is not guaranteed in any way. None of ACP, any other member or the IOOF Group, or the employees or directors of the IOOF Group are liable for any loss arising from any person relying on information provided by third parties. This information is directed to and prepared for Australian residents only. ACP disclaims all responsibility and liability for any loss, claim or damage which any person may have and/or suffer as a result of any persons reliance on any information, predictions, performance data and the like contained within this document, whether the loss or damage is caused by, or as a result of any fault or negligence of ACP, it’s officers, employees, agents and/or its related bodies corporate. Bloomberg Finance L.P. and its affiliates (collectively, ‘Bloomberg’) do not approve or endorse any information included in this publication and disclaim all liability for any loss or damage of any kind arising out of the use of all or any part of any such information.

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Antares High Growth Shares Fund Quarterly Investment Update – June 2021 9