Chester High Conviction Fund January 2020 Market Commentary

1 month (%) 3 months (%) 6 months (%) 1 year (%) p.a Since Inception pa % Since Incept Accum %

Chester HCF (after MER) 0.14 4.91 9.75 20.38 11.88 35.00 S&P/ASX 300 Accumulation Index -2.03 0.75 3.28 23.77 9.44 27.26 Value added (after MER) 2.16 4.16 6.45 -3.39 2.44 7.74 *The inception date of the Chester High Conviction Fund was April 26th, 2017, the NAV at December 31st, 2019 was 1.3017 “Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk. The most valuable lessons are learned in tough times..” Howard Marks, Oaktree Capital

“OK Boomer”. Perhaps the phrase that captures the essence of 2019? Millennials and Gen Z children have been using this phrase for the past 12-18 months as a derogatory term to dismiss the advice and wisdom of Baby Boomers. Of course, Baby Boomers and their offspring (Gen X children) are the first to lament the ideals and work ethic of the younger generation. Millennials see the Baby Boomers as having outdated, judgmental and condescending attitudes towards the youth of today. Which, of course, they do. “OK Boomer” is then used as a dismissive retort by Gen Z’s to any unsolicited advice given by a Boomer. You can imagine our surprise then when lecturing our 12 year old daughter at the dinner table recently she decided it was time to dish out an “OK Boomer”. To which we recoiled in horror, as we are merely Gen Xers.

But maybe (at the risk of offending pretty much every client), maybe the Millennials have a point? Baby Boomers as a generation have enjoyed an unprecedented era of no inflation and debt accumulation like no generation ever before it. Those with assets have gotten richer, those without assets have gotten poorer in a relative sense. The global stock market (MSCI World) has increased 150% over the past decade, Australian house prices are up almost 80% in Melbourne and Sydney while debt accumulation has also doubled (across the 4 major central banks), refer to chart 1 below. The rise in inequality we find to be the most challenging aspect of what we do. The capitalist in us cheers the rising asset prices, while the socialist in us worries profoundly about the ability for our children’s generation to enjoy the same lifestyle and opportunities we have been afforded. Capitalism is going to face some very tough choices over the coming decade. The US election in November will effectively be a referendum on which way the country heads into the next decade.

For every crisis in the past 10 years post the GFC, central banks have resorted to the same playbook, which is to print more money. Certainly the strong returns experienced in 2019, were solely due to the increase in all major central bank balance sheets and a very sharp reversal of a hawkish stance by Jerome Powell in January 2019. In fact to calm the overnight lending markets in New York, the Federal Reserve added USD112bn to its balance sheet in December 2019 alone, a mere 3 months after it stopped taking USD50bn a month out of the financial system. Which leaves us with a dilemma. As long as central banks are determine to smooth volatility and continue to inject such large sums of money into the system, we expect asset prices (equities) to keep rising. With interest rates so low, there remains limited alternatives and equities still remain attractively priced relative to fixed interest (or cash). With inflation nowhere to be seen, currently a tight labor market causing wage inflation appears the only obstacle.

Herb Stein once observed, “if something cannot go on forever, it will stop”. We cannot foresee when this central bank liquidity will stop, or even what level of debt accumulation is needed before withdrawing from these academic experiments. It has created an enormous tailwind for low interest rates (bond yields falling) and with that, spectacular returns for long duration assets (property, healthcare, infrastructure, technology etc). But we are very mindful of the fact that if something cannot go on forever, it will stop.

Our preferred investment thesis is to be more contrarian in nature than trend following, so our natural inclination is to seek stocks or sectors that have not enjoyed the same level of passive flows as other sectors that have become overwhelmingly expensive. Thus to us, glancing at chart 1 below we can observe the strong returns in financial assets (equity markets) while real assets (oil, copper, corn and wheat) have experienced a forgotten decade. The contrarian in us suggests that better times are ahead for real assets, and hence look to allocate a portion of our capital towards these sectors. We also highlight the HSCEI (Chinese stocks listed in Hong Kong) as returning only 26% across the decade. There is certainly value there. We believe that the US dollar will be influential in this thought process over the coming years. Chart 1 Asset Class 2009 2019 % change Asset Class 2009 2019 % change S&P500 Total Return Index 1837.5 6553.6 257% US cash rate 0.25 1.75 Nasdaq Total Return Index 2378.3 10539.0 343% US 10 yr 3.7856 1.9175 ASX300 Accum Index 33915.0 71658.0 111% US Unemployment rate 9.90% 3.50% HSCEI Total Return Index 17907.7 22511.0 26% HSI Total Return Index 44382.3 81652.6 84% US Federal Reserve Balance Sheet 2.23 4.17 87% FTSE 3590.8 7838.0 118% US Public Debt USD Tn 12.3 23.2 89% MSCI World Index 2796.0 6909.7 147% US Budget Deficit Tn -1.4 -0.984 Global Central Bank Debt (US, JPN, EURO, CHINA) US Tn 9.4 19.4 106%

AUD 0.898 0.702 -22% Aust cash rate 3.75 0.75 GBP 1.617 1.326 -18% Aust 10yr 5.703 1.309 RMB 6.820 6.963 2% Australian Unemployment rate 5.53 5.23

Gold USD/oz 1097.0 1517.2 38% Oil USD/bbl 79.4 61.1 -23% Iron Ore USD/t 105.3 91.5 -13% Copper USD/lb 334.7 279.7 -16% Wheat USD/bushel 544.8 554.5 2% Corn USD/bushel 417.0 390.0 -6% Source: Chester Asset Management Chester High Conviction Fund January 2020 Market Commentary

Back to the Millennials. Perhaps we have been too harsh on the Baby Boomers. Millennials have had it easy for their entire iPhone fueled life. In fact perhaps they have been the biggest beneficiary of this low interest rate environment. Given the cost of capital is so low, the funds being thrown at venture capital and “disruptive technologies” has never been more prominent. But if we are Millennials, we order our Uber Eats on our iPhone, after working all day in our WeWork serviced office. At night we’ll watch all our friends on TikTok, while our helicopter Gen X parents follow us on Life360. On the weekend we’ll stream Netflix on our iPad and catch an Uber to our Airbnb holiday house. A wonderful lifestyle, built with amazing companies, funded by investors (excluding Apple). Including Tesla, all these companies (ex Apple) would not exist unless interest rates were so low and equity and debt investors were so tolerant of losses. Uber will still lose USD8.6bn in 2019, the others are still loss making apart from Netflix, which is only recently profitable after pouring huge capital into its market leading content.

Service inflation will really take hold once these companies actually need to turn a profit for their investors (Uber can’t sustain prices 20-25% below taxis). We know Millennials are digital and tech savvy, mobile, and seek instant gratification. They will as a rule favor investments in sustainable businesses, clean energy, health and experiences. But will they still support these companies if prices are rising 15-20% pa as required to actually justify the business case? The contrarian in us also believes that no Millennial has ever needed to or owns any hard assets, but they probably own a lot of tech companies trading on 8-10x sales (that is tongue firmly in cheek!).

Stock markets used to enjoy a level of correlation with the underlying economic fundamentals, but as we have witnessed over the past decade, the more central banks intervene in asset prices, the level of actual price discovery (or freedom) becomes more challenging. We have witnessed a deterioration in the economic backdrop across both and the US over the past 6 months, with new car sales to us, a leading indicator of underlying consumer confidence. Hence the disconnect between underlying economic fundamentals and stock prices which continue higher. If Australia cuts interest rates again in February (a 50/50 probability), the spread between the cash rate (currently 0.75%) and the dividend yield on the ASX300 (currently 4.4%) would widen, only making the stock market more attractive on a relative basis. The reason the RBA would cut interest rates again is because new car sales, job ads, business confidence and advertising remains soft as we start 2020, not to mention the economic and social impact of the bushfires. The impact of which, like all Australians, we have found both confronting and profoundly moving.

Maybe both the RBA (Australia) and the Fed (US) can engineer a housing led recovery in the respective economies, then we can look forward to better economic prospects in 2020. But it appears that interest rates are still too high for any irrational exuberance in housing to occur (and certainly, credit growth remains challenging which will be a leading indicator of better underlying economies).

The other pertinent point to make is the geopolitical backdrop, which with Donald Trump at the helm, feels consistently like we are living through a B grade movie script. The video footage of the Donald in 2011 proclaiming that President Obama would start a war with Iran just to get re-elected is something that is impossible to make up. Just two weeks after an impeachment trial, it now becomes necessary to take out an Iranian military leader and known terrorist (for the past 10 years)? What happens on this stage from here is anyones guess. Suffice to say, owning gold remains a strong hedge against further unrest. We are currently of the view that the November election in the US is Trumps to lose, but there are a myriad of reasons why this could change over the course of the year. We do believe given the radical differences between the left leaning Democrats and Trump, creating extreme ideology both ways, the outcome for the US economy is very important in setting the direction of economic policy for the next 4 years.

The Portfolio

The CHCF posted a 4.9% gain in the December quarter, relative to the 0.75% increase in the ASX300 Accumulation Index. The strategy performance has improved over the past 6 months, which we attribute to being patient as some of our higher conviction ideas (Mineral Resources, Eureka Group etc) have started to deliver meaningful returns. We are encouraged by the valuation support across the portfolio which should hold it in good stead into 2020, with several stock specific catalysts we are excited by. Mineral Resources (MIN) has a long history of delivering returns for shareholders through a mining services business (crushing tonnes of Iron ore or Lithium), which we believe underpins the current share price, while it also operates its own commodity businesses in iron Ore and lithium, where in the right cycle, very strong cash flows are generated. We believe 2020 is one of those years. Over the past 3 months the CHCF has also benefited from the Asian exposure (which was very challenging through FY19), with Alibaba starting to be recognised for the strong cash flow growth and industry position it has. It remains compelling value in a global context. We do believe on a range of measures, the valuation dispersion between Asian markets and the US market will eventually lead to a strong period of outperformance for Asian equities, hence this allocation (around 10% of the fund exposure) will provide strong alpha opportunities over the coming year.

We have written up our thesis on Oceana Gold in this quarterly as a way of explaining not just the underperformance, but highlighting our investment process, which ties in a strong emphasis on valuation (particularly in cyclical stocks) with a position we believe the market is mispricing, and a management team we regard highly. SmartGroup (SIQ) was a frustrating investment, as it has been aggressively sold down on what the market (and us) perceives as very poor communication with a 25% shareholder sell down in October, into the CEO stepping down in November, into a 2020 profit downgrade in December. It reflects extremely poorly on a business that should be relatively defensive (providing novated leases and salary packaging services to the government sector and not for profit businesses). The liquidity at the end of December was 8.6%.

Top 3 Holdings Portfolio Breakdown Top 3 Portfolio Attribution Bottom 3 Portfolio Attribution Unibail Rodamco Westfield Materials 14.3% Mineral Resources Oceana Gold Mineral Resources Consumer Staples 12.0% CSL Limited SmartGroup Corp Real Estate 10.7% Eureka Group Holdings Comet Ridge Ltd Chester High Conviction Fund January 2020 Market Commentary

Accumulated Performance by Financial Year - Same Strategy

FY14 FY15 FY16 FY17 FY18 FY19 Since Inception Since Inception FY20 (%) (%)# (%) (%) (%)* (%) (%) Accum return (%) p.a. Same Strategy (after all fees) 11.2 24.5 17.4 11.2 28.3 -6.4 9.7 138.4 +15.4 S&P/ASX 300 Accumulation Index 7.8 5.6 0.9 9.1 13.2 11.4 3.3 63.3 +8.4

Value added (after all fees) +3.5 +18.9 +16.5 +2.10 +15.1 -17.8 +6.4 +75.1 +7.0 # The inception date of SGH Australia Plus was the 8th of October, 2013, where Rob Tucker was the sole Portfolio Manager, until his departure on February 28th, 2017. * The inception date of the Chester High Conviction Fund was April 26th, 2017, hence FY17 reflects 8 months of of SGH Australia Plus and 2 months of the CHCF. We note this is a statement of fact of the performance achieved by the fund during the time which Rob Tucker was the sole Portfolio Manager making active decisions on the SGH Australia Plus portfolio. We note performance is the record of the firm not the individual however past performance has been constructed from publicly available unit price data. Past performance is not necessarily indicative of future performance and should not be relied upon in making investment decisions. Combined performance using the same strategy - SGH Australia Plus and the Chester High Conviction Fund

$260,000 15.4% CAGR SGH Australia Plus Track record - 138.4% $240,000 October 2013 to Feb 2017

$220,000

$200,000

$180,000 8.4% CAGR 63.3% $160,000

$140,000

$120,000

$100,000 Oct-19 Oct-18 Apr-19 Oct-17 Apr-18 Oct-16 Apr-17 Oct-15 Apr-16 Oct-14 Apr-15 Oct-13 Apr-14 Jun-19 Jun-18 Jun-17 Jun-16 Jun-15 Jun-14 Feb-19 Feb-18 Feb-17 Feb-16 Feb-15 Feb-14 Aug-19 Aug-18 Dec-18 Aug-17 Dec-17 Aug-16 Dec-16 Aug-15 Dec-15 Aug-14 Dec-14 Dec-13 Dec-19

Same Strategy ASX300 Accum Index

Note this graph is representative only of the combination of the same Portfolio Manager running the same strategy, and would only represent actual returns for unit holders that invested money at inception of SGH Australia Plus, withdrew those funds at the end of February 2017 and then invested all those initial funds again at inception of the Chester High Conviction Fund in April 2017. Note, this depicts returns after fees. The Chester High Conviction Fund Philosophy - It’s different

For active managers to outperform long term, the fund has to be truly different from the benchmark. This High active share strategy has had an active share of over 80% since inception. Broadly speaking, the top 20 stocks are mostly mature, low growth companies. For funds to perform well Mid cap bias over an extended period, exposure to mid caps and small caps is essential. Our experience in Asia has shaped the desire to access superior growth rates with high quality industry Diversify with select Asian exposure structures. Historically less than 10% of the fund, it provides strong diversification benefits. The strategy has always allocated capital to non correlated exposures. Mostly this has been an allocation Capital preservation focus to gold equities, while cash and the option of a short ETF exposure offer downside protection. Allocating capital to management teams that think like owners is more likely to ensure longer term suc- Back owners of capital cess. Alignment of interests is crucial. Managers must take a long term view. While a portfolio can be appropriately diversified with approximately 20 stocks, our mid cap bias and Concentration in few ideas Asian exposure sees slightly more companies with a 25-40 stock portfolio we are comfortable with. As a team, Chester has worked together for over 8 years, we each know our role and the strengths and Own our decisions weaknesses of each employee. We are proud of the culture we have built. Keep it simple Ultimately, we allocate capital to sectors, companies and business models that we understand. Do we have a different view than the prevailing wisdom of the market? Backing ourselves in unloved or Focus on insights undiscovered stories has been the most consistent source of alpha generation of this strategy. We seek to invest alongside companies that either generate predictable cash flows in high quality industry Focus on cash flows positions, or determine an appropriate margin of safety where valuation is paramount. Chester High Conviction Fund January 2020 Market Commentary

What we are thinking about... differentiated nature of the portfolio construction which often makes it uncorrelated with Australian equity peers. It is different, 1. The US Fed BS - We always seem to start here. Why? We think which is both by design and conviction that what we do has this is the primary driver of equity market returns. If it’s not the worked over many years. economy (it’s not) then it must be liquidity. The Fed is now the lender of last resort to the overnight money market operations as 6. The thesis for investing in Asia -This ties in nicely to a thesis other banks have been forced to step back. At a time when there of a weaker USD, but the underperformance of emerging markets are enormous amounts of Chinese owned US Treasuries maturing, (EM) vs developed markets over the past decade suggests the Fed can’t afford either higher interest rates, or wants a the relative value in EM may be something to consider in the stronger dollar. 2020’s. We have always taken a very consistent approach to our non Australian exposure (always being less than 15% of the 2. The US Dollar - From a macro perspective, this ties into the fund) and is very stock specific in our thinking. Just maybe the problem the Fed has in managing the volatility of the repo underperformance of Asia is set to reverse? market. Essentially if the Fed is forced to continue to provide up to another USD500bn of liquidity over the next 6 months (that’s 7. Real Assets vs Financial Assets - We revisit this line of thinking over one third of the market cap of the ASX300, to put in context), on page 15 with a graph that highlights the discrepancy of how then logic suggests the most likely outcomes are 1) asset prices much commodities (both hard and soft) have underperformed go up; and 2) the USD goes down, as there is another USD500bn financial assets (measured by the S&P500) over the past decade. in circulation. While logic doesn’t always transpire, it appears as Most of this is inflation related combined with record low interest though the conditions are in place for a weaker US dollar, relative rates. We always spend time pondering the alternative. What to the Euro, Yen and the RMB. Broadly speaking it would be a very happens if this trend reversed? It appears far fetched currently, strong backdrop for commodity (both hard and soft) exposure and but capital markets often mean revert over time. emerging markets in general. 8. The Dogs of 2019 - This thesis always gains some press at 3. Does Trump just need a war, whether its a trade war or the turn of a calendar year, as a systematic approach to idea a real war? - Outside Federal Reserve changes to liquidity, the generation it is something we have always considered. Namely, US election will remain central to framing the next decade for search through the worst performing stocks in one particular year all developed world investors. It does appear that the upcoming on the potential they mean revert over the coming 12 month election will be a referendum of sorts as to what form of society period. It appeals to the contrarian in us, so we have done the the US people want. It is too early to rule out a Democratic exercise on page 11 to highlight several stocks that will go on our election victory, in which case the rules of engagement for capital watchlist for further research in 2020. markets would be vastly different to those under Trump. Maybe 9. Company Visits - We don’t normally highlight this, as it isn’t Trump does need a war to focus the voters’ attention on how seen as something particularly unique to Chester, which is fund “strong and capable” he is. managers getting out to see companies. We do place a strong

4. How good is Australia? - The past 3 weeks just reminds us emphasis on seeing as many companies as possible, while trading of all the positive aspects of being an Australian citizen. Given off quantity with quality (hopefully). A one on one meeting is far the unfathomable devastation across the Eastern seaboard over superior to a group lunch or presentation as it allows us to focus the New Year period, the response from the public has been on the aspects of the company that are important to us. We list all remarkable. It is hard to determine the actual impact of the the companies we have seen or spoken to on page 10. bushfires on the economy as a whole for some time, albeit we 10. Charts that make you go hmmm - In a very obvious attempt expect the total impact to be modest, given the limited damage to to write less, we have included a page of charts we have come major metropolitan areas. Certain agricultural issues (Milk supply) across that simply make us ponder. We subscribe to the notion and perhaps some short term supply chain concerns, along that a picture can tell 1000 words...so the less we say the better. with the prospect of insurance damage (and the corresponding increase to premiums in 2021). Possibly the biggest winners will 11. Leadership - Given leadership is very topical as we start 2020, be the supermarkets, as food inflation increases on a scarcity we recently found an old book of ours written about Vince factor. But the sentiment uplift of an RBA rate cut might help. Do Lombardi, a famous NFL coach with the Green Bay Packers. the odds change in Feb? We think yes. We offer a summary of what Lombardi describes as “non negotiables”. The values that leaders should impress upon We highlight our 5. Revisiting our portfolio construction - their constituents. Across any walk of life, they remain valuable portfolio construction philosophy on page 5 as it has been very principles. They are on page 15. consistently applied over the past 6+ years. We also highlight the Chester Asset Management Chester High Conviction Fund Expanded opportunity & risk management set January 2020 Market Commentary

SameCOMPANY strategy ‘TYPE’ - consistent allocation across 6+ years SECTOR CATEGORISATION Chart 2 Company type 03 Sector categorisation Companies & positions uncorrelated to, or with –ve Gold ‘Bear’ ETFs correlation to, the ASX200 ‘DEFENSIVES’ Cash (residual) Energy Companies with less Commodities (excl. Gold) ‘CYCLICALS’ Consumer Discretionary (most) predictable cyclical free cash Building Materials flows 01 Media

Healthcare Technology Infrastructure Companies with relatively Financials predictableChester Asset free cash Management flows Gaming ASIA Consumer Staples ‘PREDICTABLES’ Telecommunications Paper & Packaging Real Estate Portfolio positions through time: by cashflow ‘type’ Defence 0% - 20%

Chart 3 SGH AustSGH Australia Plus + Fund CHCFChester High Conviction Fund Portfolio Characteristics FY20 100% 90% PE 19.8 80% 6 Yield 2.5% 70% 60% ROE 14.5% 50% eps growth FY20/FY19 18.9% 40% 30% Annualised volatility since inception 9.5% 20% 10% Sharpe ratio since inception 1.35 0% Up months outperformance 52% Down months outperformance 82%

'PREDICTABLES' 'CYCLICALS' 'DEFENSIVES' no of stocks at end of 2019 38 We have highlighted this philosophy as we find it helpful in explaining how we construct the portfolio, as it has been done very consistently across the period we have been running this strategy. Of course, it is overly simplistic when assigning an individual stock to a category, but we try to keep it simple! On average 65% of the fund has been allocated to stocks where we see relatively predictable cash flow growth. Our names that have been long term positions in the fund using this framework have been CSL, Macquarie Bank, , Alibaba and , while more recently (over

the past 12 months), Chorus and Aristocrat Leisure have been added to the8 fund. All names with extremely strong industry positions if not monopolies. They have demonstrated an ability to generate consistent cash flow growth with entry prices that we deemed to capture a favorable risk reward outcome. The cyclical component (on average 15% of the fund) naturally provides more volatility and hence we try to manage the allocation accordingly. Some of the portfolio’s most successful positions and least successful positions have been derived from this allocation. It has been a very trying time for most cyclical sectors over the past 5 years where clearly the most successful strategies have only been allocating to the long duration predictable sectors (healthcare, technology, infrastructure etc). Cyclical sectors most often provide the best valuation (or perceived valuation) and if allocating to these sectors, we need a very high degree of conviction in the valuation support. This can either be from the cash flows being generated, or the assets in the ground. Some of our mistakes have been valuing the assets in the ground for resource companies, simply when the market has no interest. The allocation to the cyclical sectors over the past few years has includedJames Hardie (a long term holding), Mineral Resources, and small cap Comet Ridge, which has been a poor investment to this point. We remain patient with this position as we believe the strategic nature of their gas reserves in the Bowen Basin in Queensland make it a compelling (if not private equity style) investment, as it could take another 18 months for the valuation to be realised. But we will be disappointed if we don’t ultimately at least double our investment. We believe the fund has been successful in navigating the down markets better than the benchmark (beating the benchmark 82% in down months) largely as a result of having a defensive sleeve (on average 15-20% of the fund) in the portfolio. This consists of either a cash residual, gold equities or the ability to hold short ETF’s - all of which are generally negatively correlated with the broader equity markets. In fact, the fund was too defensively positioned through the first half of 2019 with too much cash and a short position that detracted from performance. We removed the short position in the 4th quarter as it appears the liquidity injection into the financial system will force asset prices higher. We had held this position for more than 3.5 years, but have removed it, for the time being. Gold has always been a portion of the fund, partly as we believe it provides non correlated exposure to the rest of the market, but largely because we remain cynical as to how central banks ever change their willingness to print more money to stifle volatility, for which gold remains a strong store of value in a world where real yields are negative. Allocating capital to the best value (and best managed) gold assets listed in Australia has been a strong source of performance for us over many years, albeit usually between 4-8% of the funds capital. Chester High Conviction Fund January 2020 Market Commentary

Stock Selection - Oceana Gold (OGC) Oceana Gold is an established gold producer with its major asset, Haile located in South Carolina, USA (approx 40% of our NAV) while its other two producing assets Waihi and Macraes are located in NZ (approx 43% of our NAV). It also owns an asset, Didipio, in the Phillipines, which has been placed on care and maintenance until a dispute with the provincial government is resolved. This Description asset contributes approx 17% of our NAV. OGC will produce around 400k oz of gold in 2020, which will rise to 550-600koz by 2022 as Waihi resumes its production from a new ore body and the Didipio issues are resolved. Our entry period has been over the past 4 months. When we assess gold companies, given the cyclicality of the underlying commodity price, we are heavily focussed on the quality of the assets, which is a combination of the ore body (the geology, grade, geographic location and resource), the cost of extraction Quality and therefore the margin derived by mining and the management team track record and tenure. In summary, How big is it, where is it? Can they get it out easily and cheaply? Can this team do it? The most important consideration we give to gold companies when assessing the investment thesis is relative value. How cheap is this gold stock relative to others. It’s very much driven by the competition for capital. As it stands now, OGC is by far the cheapest Valuation of all the gold stocks under our coverage, with our NPV currently at AUD5.15/share, which is an 87% premium to the current share price. OGC is currently unloved for two reasons. An updated mine plan at Waihi (NZ) that sees the mine shut down for 9-12 months as they relocate the main ore body to a new resource 800m away. It continues to suffer as the Didipio mine has yet to be restarted, which is around 100koz of gold production pa. Our take on this (at the current price) is one of patience and optimism. The share price is incredibly weak because of the eps downgrades from these two events. There has been material director buying over the past 3 months, which we take as a very strong sign. On the back of the recent investor day (which led to the heavy sell off), Insight we believe the market is missing two key points. The Waihi life of mine plan should be far stronger than all analysts are currently forecasting. A new ore body in this region (WKP) is showing spectacular, world class grades, which could take the Waihi annual pro- duction from 80-100koz to over 200koz pa. This is underestimated by the market. We also hold the view that the Dipidio operation has been heavily discounted by the market, while the company (and us) believe the issue will resolve itself over the first quarter. Our detailed note on OGC has been published on our website or can be accessed here https://www.livewiremarkets.com/wires/ underappreciated-and-unloved-gold

Chart 4 OGC Sum of the Parts Valuation Chart 5 2020 is a low patch for OGC production Valuation as at 1/01/2020

Unrisked NAV Risked NAV Per Share OGC Production (Au) Asset (AUDm) Risking (AUDm) (AUDps) 700,000 Producing Assets

Haile 1,356 100% 1,356 2.20 600,000 Didipio 814 75% 611 0.99 Waihi - Risked Mid Case 1,345 85% 1,143 1.85 Macraes 309 100% 309 0.50 500,000

Producing Assets 3,824 3,418 5.54 400,000

Development and Exploration Assets oz 300,000 Other and resources - 50% - - Exploration & Other resources 759 32% 246 0.40 200,000 Development and Exploration 759 246 0.40

Corporate/ Other 100,000 Cash / (Net Debt) (185) 100% (185) (0.30) Ongoing Exploration - 50% - - - Corporate G&A (348) 100% (348) (0.56) Other/ Investments 45 100% 45 0.07 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Corporate (488) (488) (0.79) Haile Didipio Waihi Macraes Other Total 4,095 6.64 3,176 5.15 Chart 6 Chester vs the market on valuation

Chester 1/1/2020 Sell Side Variance Unrisked Risked NAV NAV A NAV B NAV C NAV D NAV E NAV F NAV G NAV Avg NAV Dif (CAM - Asset (AUDm) Risking (AUDm) (AUDm) (AUDm) (AUDm) (AUDm) (AUDm) (AUDm) (AUDm) (AUDm) Avg) Dif % Haile 1,356 100% 1,356 1,984 1,303 1,321 1,294 1,338 1,319 1,079 1,377 (21) -1.6% Didipio 814 75% 611 433 471 660 526 806 725 433 579 32 5.2% Waihi (CAM Mid case risked) 1,345 85% 1,143 324 262 537 351 364 731 769 477 666 58.3% Macraes 309 100% 309 604 356 192 286 369 307 350 352 (43) -14.0%

Exploration & Other resources 250 N/A 250 354 685 571 300 290 220 292 387 (137) -55.0% Cash / (Net Debt) (188) 100% (188) (262) (201) (155) (33) (9) (202) (158) (146) (43) 22.6% Corporate G&A (348) 100% (348) (354) (363) (495) (227) (470) (284) (221) (345) (3) 0.9% Other/ Investments 47 100% 47 (7) 60 49 (8) - 103 18 31 16 34.0% Total 3,584 3,179 3,076 2,573 2,680 2,489 2,688 2,919 2,562 2,712 466 14.7%

WACC 5.0% 2.5% 7.0% 5.0% 9.0% 10.0% 5.0% 6.0% 6.4% Gold Price Assumed 1,450 1,500 1,510 1,350 1,440 1,600 1,500 1,500 1,486 AUD:USD LT 0.70 0.68 0.69 0.75 0.70 0.70 0.68 0.68 0.70 Chester Valuation / Broker Target Price 5.16 4.85 4.75 5.00 4.10 4.40 4.80 4.15 4.65 Source: Chester Asset Management * This is not a securities recommendation or a solicitation to buy this security. It merely provides historical representation of the consideration the fund undertakes when selecting securities for its portfolio. Chester High Conviction Fund January 2020 Market Commentary

Stock Selection - Catapult (CAT) Catapult (CAT ASX) is a global technology company that provides wearable devices, data monitoring and analysis software for professional sporting teams. Its stated objective is to own the technology suite for elite sport analytics (wearable devices, video analysis and athlete management systems). Description Catapult is the global market leader in its field supplying over 3000 team globally with 46% of teams in soccer, 10% in US Football, 9% in Rugby and various other sports the rest. The USA is the largest market with 42% of teams closely followed by Europe. Asia Pac is the fastest growth region. Integrated performance analytics provides an edge to elite sporting teams that every other team needs in a technological arms race. With video analysis, athlete management tools and wearable technology, CAT has an ecosystem in elite sport that is very difficult to replicate. While circa 65% of the revenue stream is SaaS (Software as a service) recurring revenue, the other 35% of the revenue is comprised of hardware sales annually (wearable devices). The ambition of the company is to increase the component Quality of recurring revenue up towards 90%, which would significantly increase the enterprise value of the company on an ongoing basis. The new CEO, Will Lopes, has come from Amazon subsidiary Audible (as the Chief Revenue Officer) which has a strong background in SaaS revenue streams. With very little price inflation over the past 5 years, we believe that as CAT achieves further penetration with cross selling (selling more than one product to the same team), the bundled offering will enhance the ability to pass through price increases more readily. Admittedly, the current focus is on penetration. We value CAT at AUD2.50/share DCF derived (WACC 9%, TGR 3%). Chester projected earnings implies 14x FY21 EBITDA based on the current AUD1.80 share price, with revenue growth of 20% compound over the next 3 years, we see 40% upside from here Valuation conservatively. If we look at CAT on a similar basis to other SaaS businesses these trade on 8-10x EV/Sales (it’s not how we value businesses), but CAT is currently trading on 3x EV/Sales and assuming it can get to 4-5x EV/Sales given its market leadership posi- tion, we see an upside case towards AUD3.00 per share, now CAT is operating cash flow positive. With a conservative addressable market of around 10,000 professional (and college) sporting teams, CAT is notionally 30% pen- etrated, but has the depth of value added services to cross sell its products to each team. Currently only 153 teams globally sub- Insight scribe to more than one service, which represents an easier upsell than penetrating new markets. The prosumer product (for elite amateurs) will provide further penetration into new markets, while the near term focus will likely be on deepening the penetration of sales into US sports and the US college system.

Chart 7 CAT Free cash flow - Chester assumptions Chart 8 Penetration of products 40

35

30

25

20

AUD mn 15

10

5

0 FY20 FY21 FY22 FY23 FY24 -5

Source: Chester Asset Management Source: Catapult Chart 9 CATs global reach - no of teams by sport Chart 10 CAT share price over the past 5 years $4.50

$4.00

$3.50

$3.00

$2.50

$2.00

$1.50

$1.00 entry period $0.50 selling period

$0.00 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 May-15 May-16 May-17 May-18 May-19 Source: Catapult Source: Chester Asset Management * This is not a securities recommendation or a solicitation to buy this security. It merely provides historical representation of the consideration the fund undertakes when selecting securities for its portfolio. Chester High Conviction Fund January 2020 Market Commentary

Chester High Conviction Fund top ten holdings as at January 2020 Chart 11 FY1 FY2 FY20 Yield FY21 Yield FY1 FY2 FY 1 ROE FY 2 ROE FY1 FY2 FY1 PER FY2 PER Sales Growth Sales Growth DPS Growth DPS Growth EPS GROWTH EPS GROWTH Aristocrat 10.4% 6.2% 1.9 2.1 22.2% 12.7% 40.36 35.91 18.2% 10.0% 21.6 19.7

Atlas Arteria 33.2% 165.0% 3.8 4.3 29.1% 12.7% 5.40 11.25 47.6% 197.6% 65.1 21.9

Chorus -1.2% 0.5% 3.7 3.8 4.3% 2.9% 4.97 5.46 -19.2% 8.6% 62.2 57.3

CSL Limited 6.7% 12.6% 1.0 1.2 4.7% 20.4% 35.97 34.00 10.8% 17.8% 42.8 36.3

Eureka 13.8% 6.5% 2.2 2.5 nm 20.0% 7.40 8.90 4.3% 16.7% 15.8 13.6

Karoon nm 350.4% 0.0 0.0 nm nm 1.49 8.61 nm 660.7% nm 6.2

Macquarie Group 3.7% 3.2% 4.3 4.5 -0.5% 4.5% 15.98 15.74 -0.9% 3.7% 16.2 15.7

Mineral Resources 45.2% -2.1% 4.7 4.7 44.3% 0.0% 24.02 11.78 157.8% -41.4% 7.5 12.8

Synlait Milk 25.6% 13.5% 0.0 0.0 nm nm 17.09 17.50 6.1% 21.6% 17.2 14.1

Unibail Rodamco 11.2% 5.7% 7.9 8.2 0.0% 2.8% 5.65 5.76 -4.5% 3.3% 11.3 11.0

Source: Chester Asset Management, Bloomberg consensus data as of January 10th, 2020. Note stocks are listed in alphabetical order We have listed here our top ten holdings at the time of publication. We currently hold 38 positions. Note we don’t often illustrate this much detail as we find that our stock weights can change over the course of a quarter or year. We broadly hold positions between 1% and 6% depending on our conviction level on the stock and the market capitalisation. Our conviction level is dictated by the broad art of combining 1/ the appropriate valuation of the stock, with 2/ our assessment of the quality of the assets and management team, overlayed by 3/ our expectation (or insight) of the earnings direction. I.e., do we think the market is mispricing earnings? For our thesis to hold, we require at least 2 of these 3 factors to be validated for the investment case.

To explain that in more detail we have used a slide from our presentation material (chart 7). Most of the stocks currently held in the top 10 holdings are classified as “Predictable” (Healthcare, Consumer Staples, Real Estate or Infrastructure) while the “Cyclical” stocks are Mineral Resources and Karoon Energy, which is a recent purchase. When we are allocating capital to those sectors that are more predictable in nature, our primary focus is the quality of the industry position they hold. We determine this by asking ourselves 7 questions around pricing power, barriers to entry, threat of disruption, etc. We also ask a range of questions around the management incentive structure and track record. Once we decide that a company is well positioned, we then seek at least one other “thesis” to hold true. For predictable companies, we need to be convinced around the quality first, and then valuation or edge. For cyclical or defensive (gold) companies, we need to have a high degree of confidence in the valuation support first (as by definition, we cannot be sure of how predictable the cash flows are). We then seek a degree of conviction around the management team and whether we have a unique insight (“edge”) to those particular assets. Thus for the cyclical stocks, it is primarily a valuation driven decision first.

The one stock that may look out of place amongst the top 10 holdings is Eureka Group (EGH), a small retirement village operator that we have held for over 2 years. We have waited very patiently for the thesis to play out, while the new management team under Murray Boyte has effectively had to turn the company around after malpractice and related party transactions with the previous management. We were attracted to it initially because of the discount to book value (buying it at 0.7x book value) while actually we see reason why the book value of the assets shouldChester be a lot higher Asset (cap rate Managementcompression). The cash flows of the assets are highly predictable, and recycling capital into cash generating assets will drive earnings materially higher on a 3 year view from here. It meets all three criteria outlined below. Predictable cash flows that are well managed…Applied (highly impressive with team)the lessonswith valuation learned support from and a highexperience degree of confidence earnings are in an upgrade cycle. Chart 12 ‘PREDICTABLES’ ‘CYCLICALS’ ‘DEFENSIVES’

‘DEFENSIVES’ ‘DEFENSIVES’

‘CYCLICALS’ ‘CYCLICALS’ ‘CYCLICALS’

‘PREDICTABLES’ ‘PREDICTABLES’ ‘PREDICTABLES’

SELECTION CRITERIA SELECTION CRITERIA SELECTION CRITERIA

1 2 2 QUALITY QUALITY QUALITY

2 2 1 2 1 2 VALUE EDGE VALUE EDGE VALUE EDGE

PORTFOLIO EXAMPLES PORTFOLIO EXAMPLES PORTFOLIO EXAMPLES

CSL , ALX, MQG MIN, JHX OGC

1 = Critical 2 = Very Important Source: Chester Asset Management 13 Chester High Conviction Fund January 2020 Market Commentary

How we assess a sector in detail Chart 13

Contractors - Valuation Summary Date: 31/10/2019 Contractors

Model Market Modelled TGR Ref NPV Price Mkt Cap Net Debt EV 19 Cash 20 ND/ EST 20 EST 20 Act 2019 Est 2020 Est 2021 Act 2019 Est 2020 Est 2021 Financial Business Mgmnt Insight Company ~ Key Exposures (FY19) Link Price Shares WACC Assumed (1x) Diff. (AUDm) (AUDm) (AUDm) Convers EBITDA ROE Yield PE PE PE EV/EBITDA EV/EBITDA EV/EBITDA Quality Quality Quality Score - Life Sciences: 45% ALS Limited ALQ 8.07 482.4 9.0% 3.0% 8.00 -1% 3,893 632 4,525 93.7% 1.5 17.2% 3.1% 21.8 19.4 16.7 12.8 11.7 10.3 5 7 7 7 - Gold: 37% - Construction: 40% Cimic CIM 33.01 323.7 10.0% 3.0% 40.00 21% 10,685 -1,619 9,066 52.0% -1.1 28.4% 5.1% 13.7 12.8 12.5 4.4 4.4 4.4 5 4 4 5 - Mining Process: 29% - Transport: 37% Downer DOW 8.05 594.7 10.0% 3.0% 7.90 -2% 4,787 1,004 5,791 89.0% 1.0 11.0% 3.9% 16.4 14.0 13.5 6.8 6.4 6.2 6 6 7 5 - Facilities: 26% - Coal: 65% (Met 42%) Emeco EHL 1.79 323.2 10.0% 3.0% 2.15 20% 577 432 1,009 107.0% 1.5 32.7% 0.0% 9.1 6.0 6.2 4.7 4.2 4.0 5 5 5 3 - Gold: 14% - Gold: ~50% Imdex IMD 1.59 388.0 10.0% 3.0% 2.25 42% 617 -23 594 81.0% -0.8 14.4% 2.3% 21.8 17.3 13.9 11.4 9.5 7.9 9 7 6 7 - Copper: ~20% - Urbanisation: 60% Lend Lease LLC 18.69 564.0 10.5% 3.0% 26.00 39% 10,541 1,425 11,966 36.0% 0.8 13.8% 3.6% 13.1 13.8 12.8 9.0 9.4 8.8 6 7 8 8 - East coast Infra: 10% - Iron Ore: 80% Mineral Resources MIN 14.30 188.1 10.0% 3.0% 25.00 75% 2,690 -124 2,566 70.0% -0.3 24.9% 6.9% 13.1 6.8 8.8 5.7 3.7 4.2 9 6 8 6 - Lithium: 15% - Hydrocarbons: 37% Monadelphous MND 15.34 94.4 10.0% 3.0% 14.90 -3% 1,448 -126 1,322 51.0% -1.2 16.6% 1.1% 26.6 19.9 18.1 12.4 10.8 10.0 9 6 8 4 - Iron Ore: 23% - Mining: 45% NRW Holdings NWH 2.25 376.8 10.0% 3.0% 2.60 16% 848 35 883 95.0% -0.3 24.9% 4.7% 13.9 9.5 9.0 6.1 4.9 4.6 8 6 6 6 - Civil: 40% - Gold: 69% Perenti PRN 2.29 686.3 10.5% 3.0% 2.45 7% 1,572 534 2,106 89.1% 1.4 7.4% 3.6% 12.0 10.3 9.6 6.1 4.9 4.7 6 5 6 5 - Nickel: 9% - Mining: 40% Seven Group SVW 18.76 339.4 10.0% 3.0% 20.00 7% 6,367 1,997 8,364 59.0% 1.8 15.4% 2.4% 13.1 12.3 11.3 9.3 9.0 8.5 5 6 5 5 - East coast Infra: 25% - Hydrocarbons: 50% WOR 13.66 520.2 10.0% 3.0% 16.70 22% 7,106 1,647 8,752 49.0% 1.5 7.6% 2.7% 24.0 15.1 12.9 18.3 9.7 8.6 5 7 5 5 - Chemicals: 40% All USD amounts are adjusted to AUD at a flat 0.70 exchange rate Source: Chester Asset Management, as of June, 2019

We include this pack as a way of highlighting some of the detail that we undertake when selecting stocks. We have always started our search to narrow down our universe of stocks with a megatrend framework seeking strong thematic tailwinds. With this in mind, we have illustrated here some of the work that we put into reviewing each sector, with this review looking at the contractors sector, which ties into the megatrend of “urbanisation”. Most of these companies above have a significant amount of work that stems from economic development (either engineering, construction or development), while several are equipment suppliers (Emeco, Seven Group and Imdex) to commodity explorers, drillers or producers. The work also fits our framework of being slightly contrarian, whereby many of these stocks have not participated in the strong returns generated in 2019, simply because they are in the wrong sectors, but undeniably, there is strong valuation support across a lot of these names.

We generally undertake such detailed sector reviews once every 12 months, in sectors where we can find value. With the case in the contractors, we see merit from a contrarian perspective. We gravitate towards stocks that either offer a significant discount to valuation, or have strong earnings surprises ahead of them. So while we look at each stock in detail once per year, from this work we will narrow down the focus list to around 7-8 stocks in each sector that form our watchlist of approximately 80-90 stocks. The stocks currently on our watchlist or in the portfolio from the above work include ALS Limited, Imdex, Lend Lease, Mineral Resources, NRW Holdings, Seven Group and Worley. We have published detailed notes looking at Lend Lease and Mineral Resources that can be found on our website.

In aggregate, we find the contractors sector to offer far greater margin of safety than many other sectors that we look at presently. There are three aspects to how we assess a stock for investment, the first one being a discount to valuation (which is captured in the price differential above). Note we also highlight what WACC we use for each stock as this will vary by sector and by size. For example, most of the stocks above are assessed using a WACC of either 10% or 10.5% to account for the greater uncertainty in the cash flow generation (as by and large these stocks are more cyclical in nature, although we do see the Life Sciences division of ALS Limited (ALQ) to have largely predictable cash flows (hence using a 9% WACC for ALQ), and the pipeline of Lend Lease’s (LLC) development business suggests LLC’s earnings stream (once the construction business has been fully divested) is actually relatively predictable. We have penalised LLC (using a 10.5% WACC) with this valuation as it was done prior to the exit of the construction business, which we deemed relatively high risk. A clean exit would have been far more preferable than the outcome they have currently announced.

Once we assess a reasonable basis for a valuation we then use a qualitative ranking system that assesses the industry structure from a business quality perspective, assess management using our own ranking system largely based on how they are compensated and their track record and then the balance sheet or financial assessment.

The last component of the framework assigns a rating to whether we think the earnings outlook is stronger or worse than consensus expectations, based on our own due diligence. We call this our insight or “Edge”. Note of all the stocks above, we assessed Imdex (IMD - an emerging equipment supplier to the largest drilling companies and mining companies globally, with a fully integrated cloud based software solution to enable real time assessment of drilling results out in the field) to have a very high likelihood of seeing earnings upgrades. We see a strong likelihood that FY21 earnings need to be upgraded as the market starts to understand the opportunity in front of IMD with their new product suite and engagement from their largest customers. LLC formed a strong investment thesis in August as we found the broking community was very slow to embrace the long term visibility of earnings associated with the development pipeline, including the large projects in conjunction with Google in San Francisco (refer to September quarterly for further detail). We then select stocks for the portfolio based on a combination of the above framework. Does it have valuation support? Is it a high quality business? Will earnings expectations surprise? We need at least two of these characteristics to make an investment case, while three would suggest the sweet spot for a high conviction portfolio weight. Chester High Conviction Fund January 2020 Market Commentary

Company Visits through 2019 Chart 14 51JOB INC BUREAU VERITAS FIRST COBALT CORP CORP LTD PILBARA MINERALS LTD STAR ENTERTAINMENT GRP LTD/T A2 MILK CO LTD BWX LTD FLEXIGROUP LTD MACMILLIAN SHAKESPEARE PINCHME.COM STAVELY MINERALS ACCENT GROUP LTD CANN GROUP LTD TRAVEL GROUP L LTD POINTS BET HOLDINGS STEADFAST GROUP ADAIRS LTD CAPITOL HEALTH LTD FLUENCE CORP MARLEE MINERALS POLUS GROUP ADELAIDE BRIGHTON LTD CARBON REVOLUTION LTD MAYNE PHARMA GROUP LTD POLYNOVO LTD STRANDLINE RESOURCES LTD CARNARVON PETROLEUM LTD G8 EDUCATION LTD MCMILLAN SHAKESPEARE LTD PRAEMIUM LTD SUN COMMUNITIES AGL ENERGY LTD .COM LTD GALAXY RESOURCES LTD PRIVATE LTD PREMIER INVESTMENTS LTD LTD ALACER GOLD CORP-CDI CASTILLE RESOURCES GALILEE ENERGY MEGAPORT LTD PRIMERO GROUP LTD ALIBABA GROUP HOLDINGS CATAPULT GROUP GOLD ROAD RESOURCES LTD METALS X PRO MEDICUS LTD SUPERLOOP LTD ALKANE RESOURCES CENTRAL PETROLEUM LTD PROSPA GROUP SYDNEY AIRPORT ALS LTD CHAMPION IRON LTD GRAINCORP LTD-A METERORIC RESOURCES PSC INSURANCE GROUP SYNLAIT MILK LTD ALTHEA GROUP HOLDINGS CHINA MERCHANTS PORTS GTN Ltd METRO MINING PURE ALUMINA LTD SYRAH RESOURCES LTD AMA GROUP LTD CHORUS LTD GUD Holdings MINERAL RESOURCES LTD PUSHPAY HOLDINGS LTD PLC-CDI CITADEL GROUP HANSEN TECHNOLOGIES LTD GROUP AIRWAYS LTD TASSAL GROUP LTD LTD CLASS LTD HOLDINGS LTD MOMO INC QBE INSURANCE GROUP LTD TECHNOLOGY ONE LTD ANTA SPORTS PRODUCTS WASTE MANAGEMENT L HAZER GROUP MONEY3 CORP QMS LTD TELIX PHARMACEUTICAL AP EAGERS LTD COCA-COLA AMATIL LTD HELLOWORLD TRAVEL MOUNT GIBSON IRON LTD LTD CORP LTD APA GROUP COCHLEAR LTD HONG KONG BROADBAND NANOSONICS LTD RAMELIUS RESOURCES TEMPLE & WEBSTER APPEN LTD CODAN LTD HONG KONG EXCHANGES & CLEARING LTD LTD TENCENT HOLDINGS ARB CORP LTD LTD HUB24 LTD NEARMAP LTD REA GROUP LTD TERRAGEN ARISTOCRAT LEISURE LTD COLLINS FOOD GROUP HUON AQUACULTURE LTD NEOMETALS LTD READYTECH HOLDINGS THINK CHILDCARE LTD ARQ Group COMET RIDGE LTD HYLEA METALS LTD NETWEALTH GROUP LTD RED 5 LTD TITOMIC LTD ASX LTD OF AUSTRAL IDP EDUCATION LTD NEW CENTURY RESOURCES LTD REDBUBBLE LTD TPG TELECOM LTD ATLAS ARTERIA LTD IMDEX LTD LTD REGIS HEALTHCARE LTD GROUP ATOMOS LTD COOPER ENERGY LTD IMF BENTHAM LTD NEWS CORP REGIS RESOURCES LTD LTD AUDINATE GROUP LTD CORE LITHIUM LTD LTD NEXTDC LTD RELIANCE WORLDWIDE CORP LTD TRISTAR AURELIA METALS LTD CORPORATE TRAVEL LTD INDEPENDENCE GROUP LTD NIB HOLDINGS LTD RESMED INC-CDI UNIBAIL-RODAMCO-WESTFIEL/CDI HOLDINGS LTD HOLDINGS LTD INFOMEDIA LTD NICKEL MINES LTD RETAIL ZOO AUSSIE BROADBAND LTD LTD INGENIA COMMUNITIES GROUP CO HOLDIN RIDLEY CORP VINTAGE ENERGY AUST AND NZ BANKING GROUP CSL LTD INGHAMS GROUP LTD NORTHERN STAR RESOURCES LTD LTD VIRGIN AUSTRALIA LTD TRIP.COM GROUP INTEGRAL DIAGNOSTICS NRW HOLDINGS LTD RURAL FUNDS GROUP VIRGIN MONEY UK PLC - CDI AUSTRALIA VANADIUM DACIAN GOLD LTD INVOCARE LTD NUCHEV LTD SAMSONITE INTERNATIONAL VITA GROUP AUSTRALIS OIL & GAS LTD DAIRY FARM INTERNATIONAL IONEER LTD LTD SANDFIRE RESOURCES NL LTD AVEO GROUP LTD DAMSTRA HOLDINGS IPH LTD OCADO GROUP SANTOS LTD WATTLE HEALTH AVITA MEDICAL LTD DATA#3 LTD IRESS LTD OCEANAGOLD CORP-CDI SARACEN MINERAL HOLDINGS LTD LTD BAIDU INC DOMAIN HOLDINGS AUSTRALIA LT ISIGNTHIS LTD OFX GROUP LTD SEEK LTD WEIBO CORP BAPCOR LTD DOMINO'S PIZZA ENTERPRISES L -CDI LTD SELECT HARVESTS LTD LTD LTD DOWNER EDI LTD GROUP-CDI OOH!MEDIA LTD SENEX ENERGY LTD WEST AFRICAN RESOURCES LTD LTD DRONESHIELD LTD JAPARA HEALTHCARE LTD ORA BANDA RESOURCES SERVICE STREAM LTD WESTGOLD RESOURCES LTD BELLEVUE GOLD LTD DUBBBER CORP JB HI-FI LTD LTD LTD BANKING CORP BHP GROUP LTD ECLIPX GROUP LTD JD.COM LTD SEVEN WEST MEDIA LTD WHISPIR LTD BID ENERGY LTD ECOFIBRE JERVOIS MINING OROCOBRE LTD SG FLEET GROUP LTD WISETECH GLOBAL LTD BINGO INDUSTRIES LTD ELDERS LTD JUMBO INTERACTIVE LTD ORORA LTD SILVER LAKE RESOURCES LTD LTD BISALLOY LTD ELECTRO OPTIC SYSTEMS KAROON ENERGY LTD OTTO ENERGY SIMS GROUP WOOLWORTHS GROUP LTD LTD ELLUME KOGAN.COM LTD OVER THE WIRE HOLDINGS SKYCITY ENTERTAINMENT GROUP WORLEY LTD BLIECHIP LTD EMECO HOLDINGS LTD LATITUDE FINANCIAL OZ MINERALS LTD SMARTGROUP CORP LTD XERO LTD LTD EML PAYMENTS LTD GROUP PACT GROUP HOLDINGS LTD LTD YY CORP BOSS RESOURCES ENERO GROUP LI NING CO PENDAL GROUP LTD SOUTHERN CROSS MEDIA ZHEJIANG EXPRESSWAY BRAMBLES LTD ESTIA HEALTH LTD LIFE360 PERENTI GLOBAL LTD GROUP ZIP CO LTD BRAVURA SOLUTIONS LTD EUREKA GROUP HOLDINGS LIFESTYLE COMMUNITIES LTD PERSEUS RESOURCES SPEEDCAST INTERNATIONAL LTD LTD LTD LINK ADMINISTRATION HOLDINGS PHOSLOCK ENVIRONMENTAL TECHN SPLITIT PAYMENTS BUBS AUSTRALIA LTD EXPERIENCE CO LTD LIVETILES LTD PIEDMONT LITHIUM LTD Source: Chester Asset Management There are many ways to generate investment ideas, but we are big believers in the simple philosophy of seeing as many companies as possible. We narrow our watchlist down to 80-90 stocks across our team, but seeing companies is simply the best way to solidify our thinking about a particular stock or sector. The idea generation that prompts the company contact can be varied. It may be generated from a macro perspective, i.e. if the prospect of owning gold shares is attractive, then we review the investible universe for the best 6-8 gold companies to see, and then we narrow the portfolio holdings down to 2-3 ideas that we think provide the best exposure to that theme. We have described this process with the contractors on the previous page.

It may be cross referencing a stock or industry position, i.e. talking to Pointsbet and Tabcorp about the wagering market, and then cross referencing those discussion with unlisted players (Sportsbet). We haven’t listed here the contacts we talk to that are unlisted. It may be because the stock screens as excessively mispriced from a valuation perspective (either too expensive or too cheap) within the industry sectors we are looking at, or it may just be a new industry or technology that is of interest to learn more about. Sometimes ideas can be generated when it is least expected.

In the past 12 months as a team Chester has seen over 300 companies, with many of those companies having at least 2 contacts, with most portfolio holdings having up to 6 contact points for the period, for a total company meeting schedule of over 560 meetings or calls. Where possible we prefer to hold one on one meetings, or conference calls as it is a much better use of our time to focus on the areas we want to focus on, rather than group presentations. At least 70% of our meetings are in a one on one meeting or direct phone calls with senior management (CEO or CFO). We do find the larger the market cap, the less likely it is for a boutique fund manager to obtain access to senior management in a one on one situation (i.e. BHP), but we find the larger the market cap of the company, the more diversified the portfolio of assets and hence there is less room for gaining any unique insights to the broad group from one company contact. On the other hand, we find some of our best ideas are generated with undiscovered or unloved small and mid caps where we feel we can generate a unique insight into that particular company, while being able to back a management team that we have better access to. Chester High Conviction Fund January 2020 Market Commentary

The Dogs of 2019 Chart 15 The best and worst of 2019 "Losers" "Winners"

Company Name TSR 2019 Sector Company Name TSR 2019 Sector

SOUTH32 LTD -19.40% Mining AVITA MEDICAL LTD 696.30% Healthcare OFX GROUP LTD -20.29% Consumer Finance POLYNOVO LTD 231.09% Healthcare PACT GROUP HOLDINGS LTD -21.61% Paper & Packaging ZIP CO LTD 224.77% Financial Services AMP LTD -21.84% Financial Services EML PAYMENTS LTD 208.46% Financial Services SMARTGROUP CORP LTD -21.85% Industrials ALACER GOLD CORP-CDI 202.37% Gold CIMIC GROUP LTD -23.66% Industrials MEGAPORT LTD 193.44% Technology CARDNO LTD -24.49% Industrials BWX LTD 182.28% Consumer Staples LTD -25.26% Banks PERSEUS MINING LTD 176.19% Gold BLACKMORES LTD -30.49% Consumer Staples RAMELIUS RESOURCES LTD 162.77% Gold NAVIGATOR GLOBAL INVESTMENTS -32.62% Financial Services WESTGOLD RESOURCES LTD 160.23% Gold G8 EDUCATION LTD -32.86% Consumer Discretionary CODAN LTD 156.01% Industrials SUPERLOOP LTD -33.74% Technology FORTESCUE METALS GROUP LTD 155.13% Mining FAR LTD -34.33% Energy DATA#3 LTD 147.33% Technology AURELIA METALS LTD -36.03% Gold NICKEL MINES LTD 147.17% Mining DACIAN GOLD LTD -36.40% Gold MAGELLAN FINANCIAL GROUP LTD 141.93% Financial Services WHITEHAVEN COAL LTD -38.89% Mining CHAMPION IRON LTD 141.44% Mining NEW HOPE CORP LTD -39.59% Mining SILVER LAKE RESOURCES LTD 141.44% Gold SEVEN WEST MEDIA LTD -40.00% Consumer Discretionary AFTERPAY LTD 136.13% Financial Services ST BARBARA LTD -40.24% Gold AUDINATE GROUP LTD 130.14% Technology ECLIPX GROUP LTD -40.33% Industrials PHOSLOCK ENVIRONMENTAL TECHN 127.89% Industrials OCEANAGOLD CORP-CDI -42.80% Gold NANOSONICS LTD 123.59% Healthcare MAYNE PHARMA GROUP LTD -43.87% Healthcare KOGAN.COM LTD 123.24% Financial Services PALADIN ENERGY LTD -45.00% Mining BUBS AUSTRALIA LTD 113.04% Consumer Staples PILBARA MINERALS LTD -55.20% Mining JUMBO INTERACTIVE LTD 107.08% Technology AMAYSIM AUSTRALIA LTD -56.02% Communication Services GOLD ROAD RESOURCES LTD 106.15% Gold GALAXY RESOURCES LTD -57.37% Mining PRO MEDICUS LTD 105.42% Healthcare COSTA GROUP HOLDINGS LTD -64.10% Consumer Staples NRW HOLDINGS LTD 100.00% Industrials NEW CENTURY RESOURCES LTD -66.87% Mining LOVISA HOLDINGS LTD 99.19% Consumer Discretionary SPEEDCAST INTERNATIONAL LTD -67.70% Communication Services AUSTAL LTD 96.40% Defence SYRAH RESOURCES LTD -67.82% Mining XERO LTD 90.39% Technology Source: Bloomberg, Chester Asset Management This type of analysis is always rolled out at the start of a calendar year, it’s very simple to do, and generally tells you very little about a potential investment. Still, it is an exercise we do every year, as we look for idea generation from various sources, and this happens to be a relatively straight forward one (and doesn’t give away any IP!). The Dogs of the Dow Theory uses the underperforming stocks from the previous year and combines them with the highest dividend yield of those stocks to rebalance a 10 stock portfolio at the start of each calendar year. It is not our intention or desire to run such a framework, this is merely a screening tool for further investigation.

It has also been relatively challenging being a contrarian over the past few years, as there has been no sign of any real mean reversion on a sector basis, although there are always individual stocks that have a stronger year the year following a very poor year. James Hardie (JHX) was the poster child for this (and us) in 2019, after falling 33% in 2018, it subsequently rebounded 84% in 2019, to finish just outside the top 30, which is where we have cut these tables off.

So what do we glean out of the above tables? Given we like to start with a contrarian bent, trying to find underperforming stocks that we can rationalise as to why they have performed poorly and finding evidence of why we think they can perform better in the period ahead. Oceana Gold (OGC) fits into this category for 2020. Admittedly we did purchase it over the course of the past 4 months, doing something that no investor particular wants to do (in averaging down - i.e buying more as the price falls), but we do think it is set up for a stronger period (as discussed on page 5). Our initial purchase was looking at the relative value of Gold Road (GOR - which we held for 2.5 years) as we sold it above AUD1.40 to switch into OGC. We also held Alacer Gold and Westgold for much of the 2019 year as a part of our gold holdings (or defensive sleeve).

The dominant theme of the Dogs of 2019 came from Mining stocks across a range of base metals, coal, uranium and EV exposures (lithium and graphite). While we feel it’s too early to wade back into some of these resource names, we are mindful of the enormous leverage in these exposures if the underlying commodity price starts moving. Referring back to our portfolio construction framework, given these stocks are cyclical in nature, we would only look to have limited exposure in select ideas should this transpire. Admittedly we have previously held a couple of these names in the past 12 months (Speedcast, New Century) only to cut them on concerns over the underlying cash flows. Probably the main theme running through many of these underperformers is balance sheet leverage, and while it is highly unlikely we revisit Speedcast with the current management team, it would have to significantly improve its balance sheet before we even considered it. For us then, we would look to add several of these names onto our watchlist (and some are already there), but the ones that stand out for potential 2020 strong returns for us would be Eclipx, as it looks extremely cheap with a new management team focused solely on shareholder value, New Century, again, extremely cheap as a leveraged Zinc position, but not until we see positive cash flow,Blackmores , with evidence of management execution as it is currently ceding share to Swisse, and potentially Pact Group, but only on the event of balance sheet recapitalisation.

On the other side of the equation is the outperforming stocks of 2019, which are shown on the right hand side of the chart above. This table is full of Healthcare, Technology and Gold names, along with the Financial Service segment (AfterPay, Zip Co). While the trend can be your friend, we would be very cautious suggesting many of these stocks actually perform strongly again in 2020. Amongst them are some nonsensical valuations (Avita and Polynovo to start with) which historically ends in tears. We may be wrong (and often are). Chester High Conviction Fund January 2020 Market Commentary

US Economy - Housing to drive it? Chart 16 The Fed Balance Sheet driving everything Liquidity has been at the forefront of this recent move higher, with the Fed injecting USD360bn into the financial system over the past 4 months, largely to dampen the volatility from the overnight repo market, but also, to offset the lack of other natural buyers of US Treasuries in such scale. We have recently seen research that suggests the Fed needs to continue this “non QE” program throughout 2020, given the maturing US 10yrs the Chinese purchased at the end of the financial crisis (largely as the result of the massive trade imbalance). Meanwhile the lack of inflation (even with full employment) suggests the Fed most likely on hold in 2020, but given the liquidity being injected into the system on a monthly basis, there does appear to be pressure on the downside to the USD, largely as a result of this huge supply into the market, while interest rate differentials have narrowed. Trump will be very focused on the relative interest rates of the US to the rest of the world, and his best chance of gaining economic momentum into the 3rd quarter is to see a strong housing market (chart 20). There is room for a strong upturn in housing construction with full employment and lower interest rates. Source: Double Line Chart 17 Does the US dollar react to lower rates? Chart 18 Commodities highly corelated with USD

Source: Double Line Source: Double Line

Chart 19 Initial Jobless Claims a leading indicator Chart 20 US housing can be the economic driver

Source: Double Line Source: Credit Suisse Chester High Conviction Fund January 2020 Market Commentary

Australia Chart 21 Chart 21 illustrates what is well known (as does the CSL chart on page ASX Industrials PER at record highs 15), that ASX Industrials are expensive relative to history. The bulls will argue that this simple chart doesn’t take into account the interest rate environment, which is absolutely correct, as the lower interest rates go down, the relative value of equities remain compelling (relative to term deposits and bonds). The reason interest rates are going down is shown by the next 3 charts, with earnings, in aggregate weakening considerably over the past 6 months, while the domestic environment for car volumes and job seekers can only be described as soft. The one lever the interest rate outlook can change is the willingness of investors to borrow money (if they can access the credit, which is a big if) and tighten the demand for housing. Given that AUD1.0m spent on residential housing creates approximately 8 jobs, while AUD1.0m spent on infrastructure only creates 3 jobs, the easy fix to support an ailing economy is the housing market. It might be the only trick we have, but at least the Australian budget is in a very strong position thanks to the terms of trade and as such, we are one of the few economies globally that has the firepower to roll out a fiscal Source: Goldman Sachs spending program. We will need it. Chart 22 Investors accessing credit will drive housing in 2020 Chart 23 EPS downgrades at odds with record ASX300

Source: Macquarie Research Source: Goldman Sachs Chart 24 Structural or cyclical? Chart 25 Rate Cuts are coming in Feb?

Source: Macquarie Research Source: Macquarie Research Chester High Conviction Fund January 2020 Market Commentary

Asia Chart 26 Is Asian growth more sustainable? Taking the long view (which isn’t often done anymore), we see strong relative value in the Asian region, compared to the US market. Chart 27 illustrates the widening PE gap between the S&P 500 PER and the HSCEI PER (the Hong Kong China Enterprise Index, for all Chinese stocks listed in Hong Kong). We are of the view that this PE gap narrows over the coming decade. While many commentators fret about the debt accumulation in China, we are of the view that the US has been just as fiscally irresponsible over the past 20 years. Both have structural debt issues that cannot be easily unwound. Chart 26 highlights that over the past 20 years, in fact the Asia Ex Japan Index has been a marginally higher returning asset class than the S&P500, without the volatility. We would be very much of the view that the MSCI Asia Ex Japan Index outperforms the S&P500 again in the 2020’s. Economic growth across the region is more sustainable with a rising middle class income and growth rates that far exceed the US economy, while valuations remain very compelling.

Source: Matthews Asia Chart 27 Does the gap between the US and China widen? Chart 28 Chinese car sales starting to recover? HSCEI Index 1Yr FMD PER SPX Index 1 YR FWD PER 25

20

15

10

5

0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Source: Bloomberg, Chester Asset Management Source: Goldman Sachs Chart 29 Funds flowing back into Asia over the past 12 months Chart 30 Chinese credit growth still very controlled

Source: Goldman Sachs Source: Credit Suisse Chester High Conviction Fund January 2020 Market Commentary

Charts that make you go hmmm... Chart 31 Choose your own WACC for CSL $350.00 12.0 It’s actually just a way for us to not have to write as much. We come CSL 6% WACC = across many charts over the course of our readings and being relatively AUD330 11.0 $300.00 CSL 7% WACC = CSL 1YR FWD 10.0 visual, subscribe to the notion that a picture can tell 1000 words. AUD290 PER 44X Much of our thinking is framed by “lines that move up or down” so we will $250.00 9.0 CSL 9% WACC = 8.0 start showing a select range of charts that we have come across...without AUD220 $200.00 7.0 having to explain them! 6.0 $150.00 CSL 1YR FWD 5.0 PER 20X $100.00 4.0

3.0 $50.00 2.0

$0.00 1.0 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 May-14 May-15 May-16 May-17 May-18 May-19 CSL share price (LHS) CSL 1YR FWD EPS (RHS)

Source: Chester Asset Management Chart 32 Carsales.com (CAR) earnings expectations Chart 33 S&P500 vs Commodities - mean reversion?

$19.00 $0.85 S&P500 (LHS) Global Commodity Index (GSCI - RHS) 3500 12000 $18.00 $0.80 3000 $17.00 10000

$16.00 $0.75 2500 8000 $15.00 $0.70 2000 $14.00 6000 1500 $13.00 $0.65 4000 $12.00 1000 $0.60 $11.00 2000 500 $10.00 $0.55 0 0 Jul-19 Jul-18 Jan-20 Jan-19 Jan-18 Jun-19 Jun-18 Oct-19 Oct-18 Apr-19 Apr-18 Sep-19 Sep-18 Feb-19 Feb-18 Dec-19 Dec-18 Aug-19 Aug-18 Nov-19 Nov-18 Mar-19 Mar-18 May-19 May-18

CAR Share Price (LHS) CAR 1YR FWD EPS ESTIMATES (RHS) Feb-70 Feb-72 Feb-74 Feb-76 Feb-78 Feb-80 Feb-82 Feb-84 Feb-86 Feb-88 Feb-90 Feb-92 Feb-94 Feb-96 Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16 Feb-18 Source: Bloomberg, Chester Asset Management Source: Bloomberg, Chester Asset Management Chart 34 Does Liquidity drive markets? Chart 35 Do ASX defensives keep delivering? Global Liquidity Tns (LHS) S&P500 (RHS) 8.1E+13 3400

8E+13 3200 7.9E+13

7.8E+13 3000

7.7E+13 2800 7.6E+13 2600 7.5E+13

7.4E+13 2400 7.3E+13 2200 7.2E+13

7.1E+13 2000 Jul-19 Jul-18 Jan-19 Jan-18 Jun-19 Jun-18 Oct-19 Oct-18 Apr-19 Apr-18 Sep-19 Sep-18 Feb-19 Feb-18 Dec-19 Dec-18 Aug-19 Aug-18 Nov-19 Nov-18 Mar-19 Mar-18 May-19 May-18 Source: Bloomberg, Chester Asset Management Source: Goldman Sachs Chester High Conviction Fund January 2020 Market Commentary

Leadership Leadership has been a topical conversation over summer, given the tragedy over the bushfire season, which has brought out the very best in the Australian people, and often, the worst in the political debate around climate change. We won’t enter the debate, other than to say, the risk of doing nothing is significantly higher than the risk of doing something. Thus we see this as an asymmetric bet, with a significant amount to lose on the downside if nothing is done.

That being said, we recently re-read one of our favorite books on leadership, “The Lombardi Rules” focusing on the traits and habits of Vince Lombardi, one of the iconic NFL Coaches, winning 5 NFL Championships with the Green Bay Packers in the 1960s. The NFL Superbowl Trophy is named after him, having died suddenly in 1970 at the age of 57.

1/ Ask yourself the tough questions - Get to know yourself. By understanding your strengths and weaknesses, you are more likely to surround yourself with others that can compliment your own traits. Learn from failure. Failing can make you ask yourself the toughest questions of all. Being able to answer them honestly helps you learn more from failure than success. 2/ Look the truth head on - Don’t try to be something you’re not. People have an unerring nose for dishonesty. To be successful, you must be honest with yourself and others. Don’t compartmentalise. Your conduct matters at all times. If you compromise your principles in your private life, it may affect your professional life as well. This means authenticity is everything. 3/ Play to your strengths - Choose your own path. It doesn’t have to be the path less traveled, but it has to be the right one for you. It’s not a failure if you’ve learnt something. Every experience can teach you something, and often the hardest lessons are the most important. 4/ Write your character - Building character takes discipline, which takes daily renewal and practice. Living the principles everyday will ensure these principles stand you in good stead in times of crisis. As part of this, identify your heroes. Heroes embody qualities of character that are important to us, and compel us to examine more closely how we conduct our own lives. 5/ Think Big Picture - Link your goals to vision. Goals must be anchored in conviction. Make sure your goals are closely linked to your mission, if they aren’t, it will be too easy to throw them away at the first sign of adversity. Don’t be swayed by minor setbacks - Don’t confuse minor shifts with sea-changes. A bump in the road should be navigated without making major route changes. 6/ Be completely committed - Everyone in the team (or organisation) must be completely aligned to the one goal. The commitment from everyone involved must be 100% towards that goal. There is no half measures or excuses. 7/ Work harder than everybody - “The harder you work, the harder it is to surrender”. While this is sports orientated, it also resonates with business. Hard work is discipline, everyday towards the end goal. Invest in your talent. All too often, our culture celebrates success without the effort. In any successful endeavor, over an extended period, there has been a lot of discipline, and hard work. 8/ Be prepared to sacrifice. Sacrifice leads to success. Pay the price - success is worth the cost. Great achievements require courage, determination, drive and a willingness to pay the price. It hurts to fall short of a goal, use the pain to become a stepping stone on the way to the end goal. 9/ Be mentally tough - Never give in. It’s easy to do well when there’s no pressure or stress, but how many of us can be poised when defeat is nipping at our heels. Mental toughness is stability and poise in the face of a career defining challenge. But you have to work at it. Its the singleness of purpose, the ability to stay motivated, no matter what obstacles are placed in your path. 10/ Balance humility and pride - Pride is necessary, it’s a determination to never do less than your best. It’s critical to a successful culture. But beware of hubris. Never lose sight of the dark side of ego - the ego that gets in the way of truth and therefore interferes with leadership. Give credit where it is due, humility is about recognising all those that have contributed to the success. 11/ Lead with integrity - Live what you teach. Great leaders (and coaches) win the hearts of their followers. They do so by being involved up to their necks, and making that commitment clear. Build accountability. Act your integrity. Take responsibility when you screw up, and take credit when you meet with success, and make sure this applies to everyone. 12/ Build team spirit - Emphasise responsibility and loyalty. Teams depend on an extraordinary cohesiveness. Encouraging all members of an organisation to support and aid other members in the pursuit of shared goals will strengthen this bond. Focus on team success rather than personal glory. Strong team members place the interest of the team first. A good leader will exemplify this trait. 13/ Build confidence - Project confidence. Confidence is catching, so is a lack of confidence. If a leader exudes confidence, his troops will follow his lead. A team that starts winning immediately increases its confidence, and immediately increases its chance of winning again. 14/ Know your stuff - Demonstrate competence. When the time comes, show that you know it. Those under you will gain respect for and confidence in your leadership. Build your skills from the bottom up. Even if you don’t feel you’re getting the visibility you deserve, continue to hone your skills and demonstrate your competence. 15/ Act, don’t react - Study the past, live in the present. Find yesterdays lesson, but assume that today is new. Continue learning. The best way to be ready for the challenges of tomorrow is to keep learning today. Relying on the old skills that have worked in the past will backfire, as those skills become obsolete. Seize the moment. Seize the initiative by seeing things for what they are, and act without hesitation on what you see.

All these skills can be equally applied to the business environment, and many of them to funds management. Chester High Conviction Fund Fact Sheet

Fund at a glance What is the Chester High Conviction Fund? Inception date April 2017 • It is a predominantly Australian equities portfolio with the right

Objective To outperform the ASX300 Accumulation Index by 5% to invest up to 20% of its assets in Asia. It will hold between on a rolling 3 year basis 25-40 stocks • A Concentrated, high-conviction portfolio Fee 95bp base fee plus a 15% performance fee based on • Highly Index unaware, with better sector diversification than the outperformance, after fees, of the benchmark. The ASX300 universe performance fee is subject to a highwater mark • Focus on risk adjusted returns and capital preservation Style Tilt towards quality and growth, but with an emphasis • Portfolio managed for after-tax returns on a valuation margin of safety

Investment Invests in a concentrated portfolio of companies The Chester High Conviction Fund is a differentiated Australian strategy offering outstanding long‑term potential. A company’s equity fund in that it has the right, but not the obligation to invest weighting is mainly determined by the likelihood of a in the highest quality companies listed in Asia, without necessarily company achieving superior returns over 5 years. The taking full emerging market risk. We believe our experience in Asia, fund has a predominant bottom up stock picking style having visited China over 40 times in the past 13 years, gives us a overlayed with portfolio diversification and risk unique insight into the most influential driver of the Australian controls. equity and property markets. The approach is long-term, applying a Active Share This is the % of the portfolio that is different from the S&P/ASX 300 index. This will range between 70-90% high conviction methodology that seeks to optimise after-tax returns to investors. Benchmark S&P/ASX 300 Accumulation Index

Number of Will range between 25-40 stocks with up to 20%# The Chester High Conviction Fund is not bound by external indices, Holdings invested in Asia allowing the Fund to invest only in those companies that meet its Investment Generally within the largest 300 companies listed on strict investment criteria. While the fund will look very different to universe the ASX, plus companies listed in Asia with a focus on the benchmark ASX300 index, we believe it will offer greater sector Asian domestic consumption. This increases the diversification and therefore, over the long term, offer more investment universe by 40-50 investible stocks appropriate returns for the level of risk investors are exposed to. Typical We look to invest in companies that display sustainable The Chester High Conviction Fund is run by Chester Asset company earnings growth which is characterised by free cash Management as the Investment Manager, using Copia Investment characteristics flow growth. We look for a valuation margin of safety as capital preservation is a key focus for the fund. Partners as the Responsible Entity and Trustee. NAB is the custodian of the assets. Risk Guidelines • Maximum stock weight • Large Cap = 8% soft, 10% hard A strong focus on capital preservation • Mid/Small Cap = 4% soft, 5% hard The Chester High Conviction Fund will focus heavily on stock specific • Asian Stocks = 2% soft, 3% hard risk and assesses the operational, financial and corporate • No less than 25 stocks, no more than 40 governance risks of each investment on its own merits. • Maximum active sector position = +20% GICS tier 2. That is no more than 20% over weight one industry Why include the Asian stocks? sector. • Up to 100% invested in ASX300 stocks 1. We want access to the best quality companies in Asia, at the right • Between 0% - 20%# invested in Asian stocks price. It is the choice, but not the obligation to invest in emerging • Between 0% - 20% invested in Cash companies with strong local franchises. • Expected Tracking Error 5% – 10% (but not limited) 2. The strong rise in the sheer number of Asians entering the middle • Derivative overlay can be taken as portfolio class and the growth in disposable income suggests that this is a protection multi year trend that is very hard to access by restricting the investible universe to Australian listed stocks. This represents a hard guideline. Price movement may move the exposure above this range. The Chester High Conviction Fund Competitive Advantage 3. Investors appropriately diversify their portfolio by enhancing 1. Portfolio Managers with significant experience in Asia returns with a focus on the domestic demand thematic within Asia. 2. Portfolio Managers with a proven long term track record in stock selection and a small FUM starting base 4. It offers Australian investors a wider opportunity set without the requirement to have money invested in Asia through a pooled 3. Absolute alignment of interest between the portfolio managers vehicle. and the clients as we invest along side our unitholders

Chester High Conviction Fund Fact Sheet

Notes Page

Contacts

Rob Tucker Anthony Kavanagh Luke Howard

[email protected] [email protected] [email protected] 0429 904 888 0421 570 646 0402 007 866

Disclosure Statement: This document is for wholesale investors only. Chester Asset Management may hold positions in companies mentioned in this newsletter. This is general information and is not intended to constitute a securities recommendation. Chester Asset Management is not licensed to give advice and does not warrant that past performance is an indication of future performance. A reference to a Fund or a company as to an outlook, or possible factors affecting future performance should not be relied upon or considered as being a statement of likelihood of future performance. While the information contained in this newsletter has been prepared with all reasonable care, Chester Asset Management accepts no responsibility or liability for any errors or omissions however caused. Performance results are presented after all management and custodial fees and after all performance fees and trading costs. All fees are disclosed in the Information Memorandum and is available upon request. Before you make a decision to invest in the Fund you should obtain an Information Memorandum as it contains crucial information including risks. *We note this is a statement of fact of the performance achieved by the fund during the time which Rob Tucker was the only Portfolio Manager making active decisions on the Australia Plus Portfolio. We note performance is the record of the firm not of the individual however past performance has been constructed from publicly available unit price data.