Ellerston Overlay Australian Share Fund (OASF) Performance Report | July 18

PERFORMANCE SUMMARY

1 3 1 3 Years 5 Years Strategy Since Investment Objective Gross % Month Months Year p.a. p.a. Inception p.a. The Investment objective for the Ellerston Overlay ASF is to OASF -0.31 -3.52 15.01 9.60 9.58 12.26 outperform the S&P/ASX 200 Accumulation Index (Benchmark). Benchmark 1.39 5.84 14.59 7.98 9.17 11.49 Investment Strategy Past performance is not a reliable indicator of future performance. The Fund uses a benchmark- MARKET COMMENTARY independent, high conviction approach that looks beyond Market Overview investing in the Top 20 Australian equity stocks in order to capture July saw global markets rebound after the torrid month of June. Once again, developed markets outperformed the neglected opportunities and emerging markets. In a reversal of last month, Australia underperformed the major developed markets, but still uses derivatives to enhance closed in positive territory. As trade war tensions rose in July, with the US publishing a list of $200 billion of income Chinese imports that would be subject to tariffs, emerging markets initially sold off. They quickly rebounded off their lows in June, partly driven by the moderation in US dollar strength. Tech was under pressure in the US and Key Information the geopolitical concerns of recent months were off the front pages, simmering in the background. Strategy Inception 4 January 2012 USA Date

The S&P 500 Index and the Dow Jones Industrial Average Index ended July up 3.7% and 4.8%, respectively. Fund Net Asset $1.1423 The US market was supported by strong earnings and widening margins, as companies reported results that Value generally beat expectations. At the end of July, year-on-year blended earnings per share growth (comprising reported results and estimates for unreported companies) for the S&P 500 Index was tracking at over 21%. Liquidity Weekly

Notable firms reporting included Amazon, which recorded its best quarterly profit number in its history, with net Application Price $1.1451 sales increasing by 39% for Q2. The NASDAQ’s performance (+2.2%) was impacted by the selloff in the so- called FAANGs, with Facebook hit the hardest, down 11.2% over the month and recording a scary 19% drop in Redemption Price $1.1394 a day after it disappointed on revenue, user growth figures and earnings. Sentiment towards the FAANGs may be turning and we’ve previously highlighted the stellar performance of the technology-led NASDAQ over the No Stocks 19 long-term and over recent years especially. Strong price momentum coupled with high valuations could make that segment susceptible to a sustained switch in sentiment. But not all FAANGs are the same, with Apple Management Fee 0.90% continuing to find favour with investors and hitting new all-time highs, approaching US$1trillion in market capitalisation. Buy/Sell Spread 0.25% US June activity indicators were mixed. The manufacturing ISM bounced to 60.2 (previously 58.7), the composite non-manufacturing ISM also beat expectations, coming in at 59.1 (previously 58.6) and non-farm Performance Fee 15% payrolls beat consensus at 213,000 in June. Disappointingly, June housing starts dropped unexpectedly by 12.3% month-on-month. Firm AUM Over $5 Billion

The Trump administration’s unpredictability on trade has constantly been in the spotlight during the month after reports that talks between Washington and Beijing were set to resume were quickly overtaken by a threat to raise tariffs. As investors continue to weigh the impact of the trade dispute, Fed Chairman Jay Powell was trying to nurture the second-longest US expansion on record by slowly reducing the amount of support that monetary policy provides to growth.

Ellerston Capital Limited Level 11 Ph: +61 2 9021 7797 [email protected] APIR Code: ECL0012AU ABN 34 110 397 674 179 Elizabeth Street Fax: +61 2 9261 0528 www.ellerstoncapital.com AFSL 283 000 Sydney NSW 2000

Europe

European equity markets rebounded strongly in July, with the Euro STOXX 50 Index up 3.9%. This was driven by a rebound in the major bourses, with France’s CAC 40 rising very strongly, up 6.9%, and Germany’s DAX up an impressive 4.1%. The UK’s FTSE 100 also joined in the rally and was up a solid 1.5% ,despite continued Brexit uncertainty and the resignation of the Foreign Secretary, a staunch supporter of Brexit. Markets in Europe were supported by stronger corporate earnings, including the well-received results from Swiss banking heavyweight Credit Suisse and increased forecasts from Lufthansa, which saw that company’s share price soar. Activity indicators remained resilient, with the Eurozone manufacturing PMI of 55.1 up on the previous month and beating consensus. Inflation held steady at 2%. The European Central Bank’s July policy meeting resulted in no change to guidance, with quantitative easing still scheduled to end in December. Asia

As witnessed last month, fears of a trade war continued to have a dampening effect on Asian equities. Korean stocks were hit again, with the KOSPI Composite Index down 1.3% in July and down 8.8% and 10.6% over three and six months respectively. The Hang Seng finishing down 0.5% in the month. A moderation in the US dollar saw emerging markets rebound off their June lows. Japan’s Nikkei 225 was up 1.1%. Chinese economic data was mixed, with the manufacturing PMI retracing to 51.1 in June (previously 51.1) but the trade surplus was higher than expected. The Chinese yuan continued to depreciate against the US dollar, largely driven by market concerns over slowing Chinese growth. Q2 real Chinese GDP growth came in at 6.7% compared to 6.8% in Q1. Global Markets’ Performance in July 2018

Source: JP Morgan, Bloomberg. Commodities

Crude oil prices fell US$5.2 per barrel in July following a strong rally in June, after supply concerns in Libya were eased and Saudi Arabia reported a large jump in output. July saw bulk commodities deliver mixed results, with iron ore firming (+4.9%), but coking coal saw prices fall sharply, down 13.2%. Gold prices fell again in July to US$1224/03. With the exception of tin, all base metals declined, with the LME metals index down 5%. Bonds

Bond yields bounced in July driven primarily by reports that the Bank of Japan (BOJ) was considering modifying their yield curve control policy. The BOJ’s intention was to maintain the extremely low levels of short and long-term interest rates for an extended period of time and doubled the plus or minus 10 basis points band for JGBs. This was more dovish than the market expected. US 10-year bonds saw yields nudge higher by the end of July to 2.96%, up from 2.86% at the end of June. The Australian curve flattened again, with the spread between long-term rates and short-term rates narrowing during the month by 9 basis points.

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Australia

The Australian market started the new financial year in positive territory, with the S&P/ASX 200 Accumulation Index closing up 1.4%. The ASX 200 Resources Accumulation Index was a drag on the market returning a very modest +0.1%. The ASX 200 Industrial Accumulation Index performed best , up 1.7%, while the Small Ordinaries Accumulation Index took the wooden spoon ending the month in negative territory, with a return of -1.0%. Returns in July were led by positive returns from the Telecommunications (+7.9%), led by TPG Telecom (+11.4%), Industrials (+3.5%) and Consumer Discretionary (+2.1%) sectors, while Utilities (-1.4%), Information Technology (-1.2%), Consumer Staples (-0.5%) and Materials (-0.1%) were a drag on returns. The Financials sector was in positive territory, too (+2.1%), led by the big four banks rallying and this was a key contributor to the overall market’s performance. The top five stocks that contributed to the index’s return were Commonwealth Bank of Australia (+21 points), Australia and New Zealand Banking Group (+18 points), BHP Billiton (+18 points), Telstra (+16 points) and National Australia Bank (+15 points). The bottom five stocks that detracted from the index’s overall return were Insurance Australia Group (-7 points), Evolution Mining (-6 points), Rio Tinto (-6 points), Scentre Group (-4 points) and a2 Milk (-4 points). The Reserve Bank of Australia (RBA) chose to keep the cash rate unchanged at 1.5% and continued to forecast GDP growth to average a bit above 3% in 2018 and 2019. However, it cautioned that “one uncertainty regarding the global outlook stems from the direction of international trade policy in the United States”. On the domestic front, the Australian economy added 51,000 jobs in June, the strongest monthly increase since November 2017, with the unemployment rate steady at 5.4%. The Australian dollar rose very modestly against the US dollar to 0.7424, up 1.4% in trade weighted terms, as the widening interest rate differential was offset by rising iron ore prices. COMPANY SPECIFIC NEWS The Market Misses

Asaleo Care (AHY -49.8%)

AHY again demonstrated its lack of ability to work with key retailers, this time falling foul of price increases. A surge in input costs led AHY to lift prices, unfortunately competitors did not follow and promotional slots with the dominant retailers were lost. The firm’s tissues division caused most of the problem. This saw a savage 30% cut to FY18 guidance from $119 million to $80-$85 million and an exacerbated impact on the stock price. This was the company’s second profit warning in eight months. Sigma Health (SIG -39.5%) A trading update from Sigma at the beginning of the month highlighted that negotiations with the Chemist Warehouse Group had broken down and its largest contract would not be extended beyond June 2019. Moreover the company highlighted that soft trading conditions in pharmacy distribution during May and June would impact the FY18/19 year and guided to EBIT of $75 million, approximately 15% below current consensus. That disappointment was compounded by FY20 EBIT guidance of just $40-50 million, reflecting the loss of the all-important Chemist Warehouse contract. Bellamy’s Australia (BAL -29.2%)

BAL had a tough month as concerns built about a delay in attaining CFDA registration in China and a loss of market share to competitor a2 Milk. Whilst both issues may prove temporary for the group, elevated valuations were enough to see the stock pull back sharply. Evolution Mining (EVN -20.5%)

EVN shares slumped during the month as substantial shareholder La Mancha International continued to reduce its exposure and sold down a further $261 million EVN shares at $2.84 in a block trade (representing 5.4% of the issued capital). Sandfire Resources (SFR -19.4%)

Metals had a tough month in July and copper and gold producer SFR felt the brunt of the markets concerns. Aggravating the impact, the company presented an underwhelming outlook for FY19 with lower production and higher costs, the classic negative jaws. Nufarm (NUF -19.3%)

One of the Fund’s core holdings, NUF, was another to feel earnings pressure, this time led by the worsening drought conditions across Australia. A very difficult winter crop season for farmers meant demand for crop protection was nascent, cutting its ANZ divisional EBIT from $51.6 million in FY17, to just $5-10 million in FY18. The approximately 15% cut to group earnings to an underlying EBIT of $255-$270 million was reflected in the share price movement. See activity section for more detail. Appen (APX -18.8%)

After being one of the stars of FY18 (+238%), APX appeared to get caught up in some profit taking and concerns around the global tech sector. As a significant provider of AI technology to the social media and tech giants, any change in the growth and rating expectations of these celebrated names had a clear knock-on effect.

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The Market Hits

Afterpay Touch (APT +51.7%)

Proving how difficult Australia’s technology sector is to pick, APT again shot the lights out. Sales through its credit platform jumped to over $763 million in 4Q18, up a staggering 171%. More importantly, its US business got off to a good start with $11 million in sales in June and signed up 400 retailers in the US to its platform. The company expects to deliver EBITDA of $33-$34 million in FY18, implying a lofty valuation of over 95 times EV/EBITDA. Technology One (TNE +16.2%)

TNE recovered after a tough few months as it calmed investor fears over its accounting policy changes and reiterated its FY18 guidance for 10-15% NPAT growth. The changes implemented by the company included capitalising a portion of R&D expenses (in-line with peers), offset by expensing SaaS and licencing fees upfront. Cimic Group (CIM +14.3%)

CIM announced its 1H18 results with NPAT up 12% to $363 million, driven a solid Construction result, a very strong performance from its Mining division and by higher margins. In addition, the company finished with work-in-hand just shy of $35 billion, winning more than $7 billion of work during the half. Underscoring the significant amount of infrastructure build currently being undertaken in Australia, CIM has identified $80 billion of work currently up for tender and an eye-watering $330 billion of future opportunities. Super Retail Group (SUL +14.1%)

In what was generally a better month for the consumer discretionary names, SUL led the charge, building on its positive trading update in May. A stronger print in monthly retail sales from the ABS highlighted clothing and footwear as two of the better categories. Mayne Pharma Group (MYX +13.8%)

After a couple of years in the doldrums, MYX returned to the winners list as broker upgrades combined with an accretive acquisition helped to fuel enthusiasm. Whilst executing on the US$20 million deal will be the litmus test for the new management team, particularly given the notoriously difficult generic space, the market is giving the company the initial benefit of the doubt. TPG Telecom (TPM +11.4%)

After two horrendous years for telecommunications (-35% in FY18 and -26% in FY17), the sector finally saw some love in July, up almost 8%. The best performing name was TPM. The Government set competition limits for the pending 5G spectrum auction, which on the surface, should allow all players the ability to secure capacity. This should be a positive for TPM’s efforts to become the 4th player in the lucrative mobile market. Brambles (BXB +11.3%)

BXB was another name on the turnaround train, finally posting its best month in more than a year. Driving the improved performance was noise of competitor price increases in the US, as higher lumber and transport costs impacted sector profitability. With BXB trading at a discount to the market and a significant discount to its historical rating, the shares rallied ahead of its FY18 results.

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FUND PERFORMANCE

Returns1 (%) Gross Benchmark Excess Net

1 Month -0.31 1.39 -1.70 -0.35

3 Months -3.52 5.84 -9.37 -2.87

Rolling 12 Months 15.01 14.59 0.42 14.31

2 Years (p.a.) 10.76 10.90 -0.15 10.02

3 Years (p.a.) 9.60 7.98 1.62 8.78

5 Years (p.a.) 9.58 9.17 0.41 8.63

Since Inception* (p.a.) 12.26 11.49 0.76 11.17

Since Inception* (cum) 114.07 104.66 9.41 100.78

The Fund’s return of -0.31% in July underperformed the benchmark return of 1.39%. During the month, Nufarm (NUF, -19.3%) shares fell sharply after the company provided a disappointing trading update to the market, which was the main cause of the Fund’s underperformance this month. As a result of extended dry weather conditions in Australia (the driest autumn in over 100 years) and no decision yet to obtain French Government derogation approval for neonicotinoids, NUF cut its previous FY18 EBIT guidance of 5% year-on-year growth (implying around $317 million), to a range of $255-270 million. Additionally, NUF stated that it was carrying higher net working capital of $200-$300 million versus the prior corresponding period and increased gearing levels. As a result, it is currently reviewing the impairment implications for the Australian business. While market observers had been expecting a negative earnings impact from the harsh weather conditions in Australia following disappointing recent trading updates from distributors Elders and Ruralco, the magnitude of the impact was much larger than expected (EBIT of $5-10 million versus $52 million in the prior corresponding period). This is in part due to higher channel inventories leading to increased competition and therefore significant margin pressure and adverse mix. In relation to neonicotinoids, the market had been expecting that NUF would receive the required derogations from the French Government, having successfully obtained derogations in Romania and Hungary. Unfortunately, the approval was not forthcoming and hence NUF was unable to invoice any sales of its Imidacloprid-based seed treatment product for the key European autumn planting season, resulting in an earnings shortfall of approximately $12 million. Importantly, these issues do not change our longer term positive investment thesis on NUF, as the Australian business is likely to recover from the poor winter cropping environment over the medium-term as seasonal conditions revert. NUF trades on a PE ratio of 14 times approximately on FY19 earnings, compelling value considering the strategic appeal of its franchise which has a global distribution footprint in a sector consolidating at both the top and second-tier levels. Despite its short-term, weather induced earnings pressure, the company is trading on a very attractive multiple of just 6 times FY19 consensus EBITDA, which we believe is totally mispriced given FY19 consensus EBITDA growth of 37%, and a very significant discount to UPL’s recent US$4.2 billion acquisition of Platform Specialty Chemical’s Agricultural Solutions business, that implied a look-through valuation of 10 times EBITDA. In our view, the integration of the European Century Portfolio and FMC acquisitions remain on track, essentially transforming NUF from a sub-scale distributor, to one of the largest off-patent crop protection businesses in both Europe and globally, equally essential for customers and alliance partners looking for an alternate supplier in a consolidating market. When coupled with its North American and Latam expansion, this will drive solid medium-term growth. Furthermore, the current share price implies zero to negative value for the Omega 3 business, which we feel is incorrect and where significant upside exists (as previously articulated). We believe NUF’s 20%+ share price pull back more than captures the reduced short-term earnings outlook and normally, the best time to buy agricultural stocks is when it hasn’t rained for a prolonged period and everything is seemingly going wrong.

1 Returns are calculated using the Fund's redemption price and are net of fees and expenses. Returns are also calculated on the basis that distributions are reinvested. Returns of the Fund may include audited and un-audited results. The benchmark was changed to the S&P/ASX200 Accumulation Index on 4 January 2012. Past performance is not a reliable indicator of future performance. *Since Inception is 4 January 2012.

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Additionally, when scanning the current landscape for investment opportunities, it’s often helpful to look into the rear-view mirror and see what has worked recently and what is not working. After accounting for market beta, monitoring quant factors can be helpful, as they generally do a good job of explaining stock returns. When we look to these factors, we find that momentum has significantly outperformed value over the last year, and is approaching extreme levels. As shown below, the ratio of these two factors is approaching 20 year highs and has sharply accelerated in the CYTD. Price momentum factor divided by value factor, approaching 20 year highs

Source: UBS, Factset. 12 month price momentum / composite value factor. Based on ASX200 Price Momentum accelerated during 2018 CYTD

Source: UBS, Factset. 12 month price momentum / composite value factor. Based on ASX200

Whilst we make no claims regarding our ability to time quant factor returns, we believe these extreme levels are unsustainable, and see some compelling opportunities which will benefit from this relationship reverting to more normalised levels.

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Securities Held -1.6%, NUF ████████████████████████████████████████████████ ████████████ JBH, 0.4% -0.4%, GNC ████████████ █████████ TWE, 0.3% -0.2%, HSO ██████ █████████ TAH, 0.3% -0.2%, ORG ██████ ██████ LNK, 0.2% ███ JHG, 0.1% ███ QBE, 0.1% Securities Not Held -0.1%, TLS ███ ███ IAG, 0.1% -0.1%, ANZ ███ ███ EVN, 0.1% -0.1%, CBA ███ ███ WOW, 0.1% -0.1%, BHP ███ ███ SCG, 0.1% -0.1%, NAB ███ ███ TCL, 0.1%

The main detractors were overweights in Nufarm (NUF -19.3%), GrainCorp (GNC -3.5%), Healthscope (HSO -1.4%) and Origin Energy (ORG -2.6%). Additionally, having zero holdings in Telstra (TLS +8.4%), ANZ Bank (ANZ +3.8%), Commonwealth Bank (CBA +2.6%), BHP Billiton (BHP +2.8%) and National Australia Bank (NAB +3.4%) each had a small negative impact on performance. The main contributors to this month’s performance, that were not enough to offset the above negatives, were overweight positions in JB Hi-Fi (JBH +5.9%), Treasure Wine Estates (TWE +5.9%), Tabcorp Holdings (TAH +4.7%), Link Administration (LNK +4.8%), Janus Henderson Group (JHG +4.8%) and QBE Insurance (QBE +3.7%). In addition to the above, having zero holdings in Insurance Australia Group (IAG -5.7%), Evolution Mining (EVN -20.5%), Woolworths (WOW -1.4%), Scentre Group (SCG -3.2%) and Transurban (TCL -2.3%) were positive contributors to performance. FUND ACTIVITY

NEW STOCKS ADDED STOCKS EXITED

 Suncorp Group

 Rio Tinto

POSITIONS INCREASED POSITIONS DECREASED

 Link Administration  Primary Health Care  QBE insurance Group  Dulux Group  Fletcher Building  Star Entertainment Group  Nufarm  Origin Energy

We exited the Fund’s holding in Suncorp Group (SUN +2.6%). SUN has rallied strongly since we introduced the stock to the portfolio in February 2018 at around $12.90 cum dividend. We identified then that the stock offered attractive upside from our entry level, as it would benefit from a firming domestic general insurance (GI) rates cycle and the fact that SUN’s GI business looked totally mispriced, trading at a 5 PE point discount to its closest peer Insurance Australia Group (IAG). We also expected that the bank would continue to deliver solid growth and profitability, and a key driver of earnings and value going forward was the group’s cost-out program. Additionally, the life business was under strategic review. Since February, firmer GI rates, increased confidence of good progress on their cost-out program, and realisation of value from the life business, have seen the stock re-rate to 19 times PE in FY18 and trade around our assessed fundamental value of between $14.50 and $15.00. The shares appear to be pricing in a potential return of up to $1 billion of capital if it can successfully divest its life assets in Australia. We remind investors that this business is subject to natural hazards, which are difficult to predict and where claims costs in Australia and New Zealand exceeded their allowance in the 1H18. We have maintained our valuation discipline and used this re-rating to sell out of SUN, achieving a return of approximately 19% in a very short period of time. We also sold out of our residual position in Rio Tinto (RIO +2.3%). We have previously articulated our belief that commodity prices may have peaked. When RIO reported its 1H result in early August, it missed earnings, EBITDA and cash flow forecasts. Better than expected capital returns didn’t placate the market. With upward cost pressures and peaking commodity prices, we believe the stock is fully valued. We believe that significant cost inflation will be a recurring theme across the resources sector during the reporting season, with key input prices such as diesel, energy, wages and steel prices on the rise.

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FUND STRATEGY AND OUTLOOK

Major uncertainties facing investors are: the effect of central bank tapering, tighter monetary and financial conditions, a slowdown in Europe, ever- present geo-political tensions, escalating trade war fears and a pending Federal election domestically sometime midway through next year. The most dominant immediate factor roiling regional share markets and the Australian dollar currently are trade jitters after the US recently dialled up their threats of retaliatory tariffs on US$200 billion of Chinese goods to 25% from an initially proposed 10% level. The Chinese immediately responded with comments that they would not be intimidated by “blackmail”. Putting aside all the pre-eminent superpowers engaging in trade “sabre rattling”, all we know is that a full blown trade war would be a lose/lose outcome and major negative for global growth. Our strategy against this backdrop remains unchanged as per last month - we will continue to focus on stocks with superior medium-term earnings growth that also offer attractive valuation upside. At this early juncture in our domestic reporting season, the risks for the high PE segment of the market remain. There is a slim margin for error (as Facebook demonstrated) and any slight earnings disappointment over the medium-term (against these very lofty PE ratios) will not end well, as many of these ‘market darlings’ are priced for perfection. Seek Limited will be the first of the growth stocks to kick off the reporting season and we will be watching with keen eyes. The market is expecting ~19.5% growth in NPAT for FY19 (Post month end, Seek guided to flat NPAT for FY19, coupled with higher capex / reinvestment in its core operating business). We have tried to position the portfolio to benefit when markets eventually “normalize” and mean revert, as investors again focus on strict valuation metrics. The worm must turn. As an addendum to the points mentioned above and our previously highlighted views on high PE stocks and momentum, the following charts highlight this trend. The chart on the left reveals that “tech” represents a large proportion of the ‘winners’. This potentially represents a significant market issue as this momentum trade captures the intersection of fundamental hedge funds, quantitative hedge funds (with a momentum bias) and active and passive funds. An unwinding of these positions could be contagious for equity markets. The chart on the right demonstrates that value is in the very bottom quartile, with momentum and growth outperforming substantially. The spread between the top quartile performing stocks (momentum) has widened even further from the bottom quartile performing stocks (value).

In terms of formulating strategy, decelerating growth, rising inflation pressures and tightening policy continue to paint a cautious backdrop for most risk assets. For Australia, the outlook for domestic equities in FY19 appears somewhat subdued, as a pending credit squeeze will no doubt weigh on the consumer, housing and the banking sector. The Resources sector, which has enjoyed a stellar run over the last two years, looks overbought, with the bulks and base metals complex looking extended. Against this backdrop and the market flirting with all-time highs, we will stick to our bottom up knitting and continue to pick stocks that we believe offer superior earnings growth, good turnaround prospects and compelling valuation upside.

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Once again, we have provided our segmented portfolio positioning below:

 Quality Franchises/Defensive characteristics Solid companies with strong/leading market positions and credible management with good balance sheets Treasury Wines, Dulux, Tabcorp and Link Administration  Quality Business, but cyclical in nature facing certain headwinds Companies with strong market positions and strategic assets, but very sensitive to economic conditions/seasonality/weather Graincorp, Nufarm, JB Hi-Fi and Star Entertainment  Turnarounds Sound businesses that have historically generated poor returns, have been badly managed, under-earned versus their potential, are in transition, and where we think earnings/returns will improve over the medium-term QBE, Fletcher Building, APN Outdoor (under takeover), and Healthscope (takeover approach)  Deep Value Cyclical and Resource Plays Stocks trading at discounts to NPVs, with self-help and growth optionality, where much of the heavy lifting has been done, at a turning point in the cycle BlueScope Steel, Woodside Petroleum and Origin Energy  Zero Banks (a position held for some years now)

We reinforce what we said last month and that is, we remain confident that the stocks in the portfolio should weather any downturn reasonably well (if it ever comes) and are working diligently to deliver outperformance for all our investors.

Warm Regards,

Chris Kourtis Portfolio Manager

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1. PORTFOLIO FEATURES

80% Size comparison Chart vs ASX 200 Portfolio ASX 200 Active

60% 58.5% 48.9%

40% 35.9%

28.1%

19.9%

19.4% 13.0%

20% 11.6%

8.6%

6.9%

2.0% 2.0% 0.0% 0% Top 20 21 - 50 51 - 100 101 - 200 201 - 300

-20%

8.3% -

51.5% Mid - Caps

-40% -

-60% * Size Comparison Data as at 3 July 2018

Active Sector Exposures* TOP 10 HOLDINGS** BLUESCOPE

FLETCHER BUILDING

25% GRAINCORP 20% 15% HEALTHSCOPE 10% 5% JB HI-FI 0% (5%) LINK ADMINISTRATION (10%) (15%) NUFARM (20%) (25%) ORIGIN ENERGY

TABCORP HOLDINGS

Cash

Other Energy

Utilities TREASURY WINE ESTATES

Materials

Financials

Industrials Real Estate HealthCare

ConsumerStaples

Telecommunication… ASSET CLASS EXPOSURES InformationTechnology ConsumerDiscretionary EXPOSURE (% OF NAV) Net

EQUITY 97.81 * Active sector exposures are determined by subtracting fund sector weights from benchmark weights. Positive percentages represent over-weight sector exposures relative to benchmark and negative percentages represent under-weight sector exposures relative to the benchmark. LONG OPTION 0.0 ** Top 10 Holdings are listed in alphabetical order. SHORT OPTION (2.67)

EFFECTIVE CASH 4.86

GRAND TOTAL 100%

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ABOUT THE ELLERSTON OVERLAY ASF

The Fund aims to achieve its performance objectives by adopting a fundamental “bottom-up” investment approach to stock selection whilst delivering additional income where possible, through option strategies. Because of the nature of the strategy, at least 75% of the Fund’s exposure is aligned to the portfolio of the Ellerston Australian Share Fund. The Investment opportunities for the Fund are identified by analysing and understanding the factors affecting (amongst other things): business model, industry structure, management team and overall valuation.

Ellerston Capital typically favours businesses that can sustain high returns or improve their return on capital and looks to invest in businesses with a market value below the value we attribute to them.

Benchmark weightings do not drive our stock decisions; our approach is totally benchmark independent.

FUND FACTS

STRATEGY FUNDS UNDER MANAGEMENT $237 MILLION

FUNDS UNDER MANAGEMENT – ASF UNIT TRUST $27 MILLION

APPLICATION PRICE $1.1451

REDEMPTION PRICE $1.1394

NUMBER OF STOCKS 19

INCEPTION DATE 4 January 2012

For further information, please contact: MELBOURNE OFFICE Level 4, 75-77 Flinders Lane,

INSTITUTIONAL CONTACT Melbourne VIC, 3000 Melinda Carter +61 3 9002 2041 SYDNEY OFFICE [email protected] Level 4, 75-77 Flinders Lane, Melbourne VIC, 3000 RETAIL CONTACT Andrew Seddon RECEPTION +61 3 9002 2073 Ph: +61 2 9021 7797 [email protected] E: [email protected]

DISCLAIMER This newsletter has been prepared by Ellerston Capital Limited ABN 34 110 397 674 AFSL 283 000, trustee of the Ellerston Overlay Australian Share Fund, without taking account the objectives, financial situation or needs of individuals. Before making an investment decision about the Ellerston Overlay Australian Share Fund (Fund) you should read the Fund’s Information Memorandum dated 11 January 2012 which can be obtained by contacting [email protected] and obtain advice from an appropriate financial adviser. Units in the Fund are issued by Ellerston Capital Limited. This information is current as at the date on the first page. The inception date for the Fund is 1 July 2011. This material has been prepared based on information believed to be accurate at the time of publication. Assumptions and estimates may have been made which may prove not to be accurate. Ellerston Capital undertakes no responsibility to correct any such inaccuracy. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information. To the full extent permitted by law, none of Ellerston Capital Limited, or any member of the Ellerston Capital Limited Group of companies makes any warranty as to the accuracy or completeness of the information in this newsletter and disclaims all liability that may arise due to any information contained in this newsletter being inaccurate, unreliable or incomplete. Past performance is not a reliable indicator of future performance.

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