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First Sentier Ex-20 Australian Share Portfolio

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First Sentier Ex-20 Australian Share Portfolio First Sentier Ex-20 Australian Share Portfolio Quarterly Factsheet 30 June 2021 For Adviser use only Portfolio Description Monthly return (%) A portfolio of 20-50 stocks that is benchmarked against the Portfolio Benchmark S&P/ASX 300 Accumulation ex the S&P/ASX Top 20 Index. As a 20.0% result, the Portfolio will not hold the larger financials and resource companies that dominate the S&P/ASX Top 20 Index, focussing 10.0% instead on the small to medium sized companies in its benchmark. Up to 10% can be held in cash with a minimum of 1%. 0.0% -10.0% Investment Strategy We believe stronger returns are achieved by investing in growing -20.0% companies that generate consistent returns and reinvest above their -30.0% cost of capital. Indepth industry, stock and valuation analysis is the foundation of our process. By tapping into the broader opportunity 12/2019 12/2018 12/2020 03/2021 06/2021 03/2019 03/2018 06/2019 09/2019 06/2018 09/2018 03/2020 09/2020 set of the S&P/ASX 300, the Portfolio is able to diversify away from 06/2020 the larger financials and resources companies that dominate the Top 10 holdings S&P/ASX 20 Index and focus on medium to small cap, quality Stock Australian companies with strong balance sheets, earnings growth and high or improving returns on invested capital. Afterpay Touch BlueScope Steel Investment Objective * EML Payments To provide higher long-term capital growth with some income by James Hardie investing in the broader set of Australian companies in the S&P/ASX Megaport 300, but outside the S&P/ASX 20 Index. The Portfolio aims to OZ Minerals outperform the S&P/ASX 300 Accumulation Index ex the S&P/ASX Top 20 Index over rolling three year periods before fees. Pro Medicus REA Group Key Investment Personnel and Experience (Industry / Firm) WiseTech Global Dushko Bajic Head of Australian Equities, Growth (1996 / 2014) Xero David Wilson Deputy Head (1987 / 2015) Sorted alphabetically Christian Guerra Head of Research (1996 / 2016) Performance summary (%) Period 3mth 6mth 1yr 2yr 3yr SI Product Overview Net return 12.4 9.2 38.2 25.4 20.8 22.5 Inception date 23 March 2018 Benchmark return 7.4 8.9 24.9 8.8 8.4 9.8 Benchmark S&P/ASX 300 ex 20 Accumulation Index Excess net return 5.0 0.3 13.3 16.7 12.4 12.7 Target Asset Allocation ** Australian shares 90-99% / Cash 1-10% Number of stock holdings Typically 20-50 Risk Characteristics Minimum investment As per platform provider Period 1yr 2yr 3yr SI Managed account fee (p.a.)*** 0.75% Portfolio standard deviation (%) 17.2 25.7 23.3 22.2 Benchmark standard deviation (%) 11.5 23.1 20.1 19.2 Standard Risk Measure Tracking error (%) 11.2 9.9 9.4 9.0 Risk band / label 7 - Very High Portfolio Sharpe ratio 2.2 1.0 0.9 0.9 Suggested time frame 7 years Information ratio 1.2 1.7 1.3 1.4 Beta 1.1 1.0 1.1 1.1 * Investment objective is not a forecast and returns are not guaranteed. ** The target asset allocation should only be used as a guide. The portfolio managers aim to maintain each portfolio within target investment allocation ranges, however, the actual asset allocation may vary from the target investment allocation. *** Additional fees and charges may apply. Please consult your platform provider. First Sentier Ex-20 Australian Share Portfolio 30 June 2021 Growth of AUD 10,000 Investment Since Inception Portfolio Benchmark $20,000 $15,000 $10,000 $5,000 $0 12/2019 12/2018 12/2020 03/2021 06/2021 03/2019 03/2018 06/2019 09/2019 09/2018 06/2018 03/2020 06/2020 09/2020 Top 5 attributors to performance (3 months) Top 5 detractors to performance (3 months) Sector Attr. Sector Attr. Health Care 1.49% Consumer Staples -0.29% Materials 0.83% Financials -0.24% Information Technology 0.73% Industrials -0.06% Utilities 0.56% Energy 0.09% Communication Services 0.33% Real Estate 0.33% Performance returns are calculated net of management fees and transaction costs. Performance returns for periods greater than one year are annualised. Past performance is not a reliable indicator of future performance. Data source: First Sentier Investors 2021 Data as at: 30 June 2021 Market Review Rising earnings expectations was a consistent theme throughout the June quarter as economic data improved and global PMIs reached touching distance of, or in some regions even set, record highs. Higher than expected inflation data temporarily drove equities lower in May, however investors were quick to realise its likely transitory nature given the price declines experienced in 2020. Leading into quarter end, Australian equities continued to move higher as inflation fears subsided, commodity prices rallied and long-term bond yields moved lower. By the end of the quarter, the S&P/ASX 300 Accumulation Index has risen +8.5% with each month contributing positively. Strong performances from the online classifieds companies REA Group (REA), Domain (DHG) and Seek (SEK) drove the Communication Services sector +11% higher. All three companies have benefited from improved earnings expectations given the strength in the Australian housing market and recovering employment activity. While subsiding inflation concerns and lower bond yields were beneficial for the Information Technology sector (+10%), constituents largely rose off the back of positive stock-specific updates and improved earnings expectations. The electronics design software company Altium (ALU) was the best performer, rising +39% after receiving a takeover offer from the US software company Autodesk. While the offer valued ALU at more than a 40% premium to the previous day’s closing price, ALU’s board voted to reject the proposal on the basis that it undervalued the business’ growth prospects. Australia’s largest Buy-Now- Pay-Later (BNPL) firm Afterpay (APT) rallied +16% given a positive third-quarter trading update, which highlighted strong growth in underlying sales as active customers and merchants continued to rise, and news of its latest product expansion. APT will selectively offer virtual cards to US-based customers, enabling them to use Afterpay at the most popular and largest merchants in the country. The majority of constituents in the Utilities sector (-5%) declined in the June quarter. AGL Energy fell -15% as it downgraded its FY21 guidance, cancelled its special dividend program and confirmed its intention to separate its electricity generation and retailing businesses. Origin Energy, which recently transitioned from the Energy sector to Utilities, declined -4% following a downgrade to earnings guidance as it experienced continued headwinds in its energy markets business and an adverse price movement in a gas supply contract. The Energy sector (+0.5%) also underperformed despite normalising OECD stockpiles, a result of improving demand and OPEC+ supply cuts, pushing oil and gas prices higher. Beach Energy (BPT) was the worst performing constituent, falling -28% as its third-quarter result highlighted lower production, lower sales volumes and a 25MMboe downgrade to its Western Flank oil and gas reserves (about 5% of total reserves). Portfolio Performance The Ex-20 Australian Share Portfolio delivered a return of +12.4% in the June quarter, outperforming its benchmark, the S&P/ASX 300 ex “Top 20” Accumulation Index, by +5%. The Portfolio has performed strongly since its inception, where it has outperformed its benchmark by more than +12% p.a. The Portfolio continues to benefit from strong stock selection as our growth and quality focus combined with a fundamental research approach helps identify companies with above-market growth potential, high-quality earnings and robust balance sheets. Contributing to the Portfolio’s outperformance were the overweight positions in the cloud connectivity services provider Megaport (MP1) and the leading radiology software provider Pro Medicus (PME). MP1 rallied +66% in the June quarter as it benefited from a strong third-quarter result and an investor update that showcased its latest product offering. The third-quarter result highlighted ongoing growth in installed data centres, customers and ports thanks to its global footprint and high-quality network. As a result, MP1 delivered a 10% increase in underlying monthly recurring revenue, its second highest quarterly increase ever. Management noted that the strong demand had continued into the next quarter as the digital transformation accelerates. In June, MP1 showcased its latest evolution of the Megaport Virtual Edge (MVE), which covered: its SD-WAN solution, in collaboration with various industry leading vendors; First Sentier Ex-20 Australian Share Portfolio 30 June 2021 case studies for both small and large enterprises; expected pricing; and MP1’s sales plan. With MP1’s network serving as the ‘underlay’ over which SD-WAN providers can sell networking services, and having already inked deals with four major vendors that account for ~50% of the SD-WAN market, MP1 is well- positioned to benefit from a fast-growing industry as enterprises increasingly use cloud-based technology. PME rallied +42% through the June quarter as it announced an eight-year contract with The University of Vermont Health Network (UVM) and a research collaboration agreement with Mayo Clinic. The contract with UVM will see PME’s core Visage 7 product implemented on a transaction-based model across UVM’s six hospitals with a minimum guaranteed contract value of A$14m. The research agreement with Mayo Clinic, one of the leading academic healthcare networks in the US, will focus on the development and commercialisation of Artificial Intelligence in radiology. Both deals validate PME’s unique and market leading imaging technology and opens the door for future growth opportunities.
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