Quarterly Commentary 30 June 2021

QUARTERLY COMMENTARY 30 JUNE 2021

INVESTMENTS AND SUPERANNUATION

1 of 17 Q2 2021 COMMENTARY

but we have had, and continue to have, no exposure to iron ore miners (as we currently see better long-term value in other companies). This has held back our performance. Despite this, we continue to be very attracted by the portfolio’s positioning and relative return potential.

Rather than focus on a single company thesis in this Quarterly Commentary, we thought readers might like a glimpse of the opportunities that arise as a result of a structural shift to non- fundamental-driven buying and selling of shares (that is, buying and selling that is independent of a company’s earnings SIMON MAWHINNEY, CFA prospects). We discuss one specific example in this commentary. Managing Director & Chief The great reweightings Investment Officer On 11 May this year, MSCI Inc., a global provider and creator of indices, announced the outcome of its semi-annual MSCI Equity Indexes Review. Through this process, 109 securities would be The Allan Gray Australia Equity portfolio is currently heavily added to and 96 securities would be removed from the MSCI tilted towards value and cyclically-exposed companies. Despite ACWI Index, MSCI’s flagship index that covers both the a worldwide rotation into these companies, the portfolio’s developed and developing world. These changes became performance this quarter has been disappointing. effective on 27 May 2021. Any index funds that track the MSCI ACWI Index were forced to buy the companies that were added In Australia, not only has this rotation been modest relative to and sell those that were removed, regardless of price, on the the overseas experience, but it has also mostly been weighted to effective date. Anything else would result in these index funds the performance of seven companies: the big four banks and deviating from the underlying indices they commit to track. three iron ore miners. We have modest exposure to the banks,

Graph 1: TPG Telecom short interest as a percentage of its free float 8%

2% 27 May

0% 01-Jan-21 01-Feb-21 01-Mar-21 01-Apr-21 01-May-21 01-Jun-21

Source: ASIC, six months to 4 June 2021.

2 of 17 Q2 2021 Only two of these 109 additions are listed in Australia: Reece trade. Again, focusing on TPG Telecom, Graph 1 shows this Limited and Domino’s Pizza Enterprises Limited. Only three of clearly, with the short interest increasing significantly from the 96 securities removed are listed in Australia: TPG Telecom early-March 2021 and then dropping dramatically on 27 May Limited, AMP Limited and CIMIC Group Limited. 2021, the index rebalance date.

As the size of index funds has grown, so too has the impact of Generally, the outperformance of the ‘adds’ and these rebalances. This is manna from heaven for hedge funds. underperformance of the ‘removes’ has made this long/short They dedicate considerable resources to predicting (with strategy reasonably profitable over time and especially of late. reasonable accuracy!) which companies are likely to be added This is illustrated in Graph 2. or removed and then position themselves accordingly by buying those companies expected to be added and selling (shorting) Graph 2 shows the indexed returns of four of these companies those expected to be removed. TPG Telecom’s short interest over the past three months, a period straddling the MSCI ACWI reflected in Graph 1 highlights this. Index rebalance effective date. We have included TPG Telecom, Domino’s Pizza, Reece and AMP in the graph, but excluded This financial positioning happens well before the effective date CIMIC. We believe there is a lower potential price impact from of the index rebalance, with the short positions being easily CIMIC’s removal from the index, given the number of shares closed out on the effective date by entering into offsetting affected, and the average daily trading volume, are both positions with the index funds as large swathes of these shares relatively low.

Graph 2: Performance of May 2021 ‘adds’, ‘removes’ and long/short strategy dollar returns 140 30

120 25

100 20 80 15 60 Index 10 40

20 5 Long/short strategy dollar return dollar strategy Long/short

0 0

17-Mar-2124-Mar-2131-Mar-2107-Apr-2114-Apr-2121-Apr-2128-Apr-2105-May-2112-May-2119-May-2126-May-21 02-Jun-21 09-Jun-21 16-Jun-21

TPG Telecom Domino's Pizza Reece AMP Long/short (RHS) Source: FactSet, three months to 17 June 2021.

The graph also shows, in red, the performance of the long/short appreciated strongly from the late-May index rebalance trade strategy over time (for simplicity, we’ve assumed an equal dollar date, but the ‘adds’ have not weakened much. The long/short investment in each of Reece and Domino’s Pizza and an equal rebalance strategy has had a strong payoff (red line) but has but opposite short position in each of TPG Telecom and AMP). only weakened modestly since the rebalance effective date. We expect the gap between these ‘adds’ and ‘removes’ to narrow as The extent of the outperformance of the ‘adds’ is clear relative we move further from the rebalance effective date and the to that of the ‘removes’. More recently the ‘removes’ have impact of the rebalance is diluted.

3 of 17 Q2 2021 Reinforcing the point Approximately 10% of each company’s free float changed hands in a matter of minutes. Buying or selling shares in any Admittedly, analysis like this is short-term focused and company to this degree in the weeks prior to the rebalance (so comprises only four data points. The water is also easily as to enter into offsetting transactions at the rebalance date) muddied by stock-specific noise. Two things counter this would almost certainly have had a material impact on the share pushback: price over such a short trading window. Without such positioning ahead of time, one would expect a much bigger First, when the extent of the trading activity is assessed, it is impact on the trading day itself as a large percentage of the free hard to conclude that the financial positioning in the lead up to float would have to trade at the close. the rebalance effective date would not account for a significant part of the price divergence. Table 1 shows the total number of Second, extending the analysis of the performance of these shares that traded after the 4:00pm close on 27 May 2021, as long/short rebalance strategies over time and by geography index funds performed their rebalancing. confirms the above results.

Table 1: Trading activity post market close, 27 May 2021

Company Shares traded ('000) % Issued shares % Free float Reece Limited 33,487 5.20% 11.60% Domino's Pizza Enterprises Limited 5,385 6.20% 11.00% TPG Telecom Limited 37,856 2.00% 10.50%

AMP Limited 331,711 9.70% 9.80%

Source: Iress, FactSet.

Graph 3 shows the performance of the long/short index Index rebalance announcement date, T = trade date or effective rebalance strategies in Australia for the May 2020 and May date of rebalance and C = the cut-off date for determining 2021 MSCI ACWI Index rebalances, as well as the average eligibility for inclusion in the index). The vertical axis is effectively returns for this strategy across these index rebalances since the cumulative inverse return that the strategy generates. 2013. The horizontal axis represents time (A = MSCI ACWI

Graph 3: Long/short index rebalance strategy returns

20%

10%

-10%

-20%

Cumulative inverseCumulative return -30% May-20 May-21 Average 2013 to 2021

-40% C-20 C-10 C A-10 A-5 A T T+5 T+10 T+15

A = MSCI ACWI Index rebalance announcement date T = Trade (or effective) date of rebalance C = Cut-off date for determining eligibility for inclusion in the index

Source: Jefferies.

4 of 17 Q2 2021 While Graph 3 is a little complicated, we can take from it some • The extreme returns that these strategies generate in interesting observations: Australia can’t be ignored. This may be the product of an increased shift to passive investment in Australia relative to • This strategy has worked well over time, not just recently. In the rest of world. Maybe it’s symptomatic of an absence of fact, recent returns have been far better than the average investment appetite for companies with negative price over the past eight years, as shown by the red and black lines momentum. It might even just be noise. No matter the being significantly below the grey dotted average line. reason, it is likely that a healthy dose of patience will go a long way when it comes to actively deploying capital here. • On average, strategy returns begin to fade after T, the trade Possibly more so than ever in today’s volatile and fickle date of the rebalance, as shown by the red and black lines market. trending downwards around the time of the trade date. This is intuitive. The decision to include or exclude a company • It’s hard not to question the true cost of passive investing. from a sharemarket index does not change its underlying Despite having its merits, index investing is likely to be intrinsic value. This is why we think this selling pressure is costlier than the headline handful of basis points explicit in non-fundamental (that is, it is independent of a company’s the fees one pays. The above activities by those seeking to earnings prospects). profit from index rebalancing clearly adds to the opportunity costs of those replicating an index and, therefore, investors Although not apparent from Graph 3, when looking at results in those index funds. across all markets (not just Australia), this long/short strategy delivers significantly lower, but still positive, returns. Non-fundamental trends like these have pushed the market to extremes. This tends to increase the opportunity for What does all this mean for investors? outperformance, but also makes discipline as important as ever. We continue to position the portfolio accordingly. In our next Quarterly Commentary, we’ll return to our usual stock-specific Other than (hopefully) being vaguely interesting, readers would commentary. be justified in questioning how any of this is relevant for a long- term fundamental investor like Allan Gray. On some levels they’re right. However, there are a number of interesting takeaways from the observations above:

• We’ve always said that a deep understanding of why somebody is selling a company to us or buying it from us is important. This increases the odds of being on the correct side of any particular trade. After all, normally, we are buying from an equally smart, if not smarter, market participant who has taken the exact opposite view to us. This means even fundamental investors (like us) stand to benefit from an understanding of the forces that drive short-term share price movements, like index rebalances in this case, especially when the sellers have non-fundamental considerations and the selling pressure is transitory. On occasion, these can present excellent buying or selling opportunities for companies that are already in the portfolio or those that become cheap enough to warrant inclusion. For example, we used TPG Telecom’s share price weakness in May to accumulate a near 1% position for the Equity portfolio at prices significantly lower than would otherwise have been possible were these rebalancing trading strategies in Australia not as impactful.

5 of 17 Q2 2021 FUND COMMENTARY QUARTER IN REVIEW by JULIAN MORRISON, CFA risk, and opportunity, of a shift in future outcomes versus current expectations - the risk of overpaying and the opportunity Head of Research Relationships and to underpay. To paraphrase the late economist Rüdiger National Key Accounts Dornbusch:

“The [shift] takes a much longer time coming than you think, and Allan Gray Australia Equity Fund then it happens much faster than you would have thought.”

The Australian sharemarket had a strong quarter to June, with We acknowledge that we reiterate our focus on valuation and the S&P/ASX 300 Accumulation Index up 8.5% for the quarter. patience at the risk of sounding boring to our investors. But we The Allan Gray Australia Equity Fund returned 0.5% during the find that immeasurably preferable to the alternative – same period, underperforming its S&P/ASX 300 benchmark by capitulating on that discipline and risking permanent loss of 8%. capital. We see significant latent unrealised value in the Fund versus the market, and thus remain optimistic regarding future The June quarter saw investor preferences return to the long-term prospects. extremes of recent years, after a brief hiatus, pushing various market darlings to even more overpriced levels. At the same Allan Gray Australia Balanced Fund time, out-of-favour companies (many of them cyclically- exposed) are being shunned and remain amongst the most The Allan Gray Australia Balanced Fund returned 2.3% for the attractive opportunities, in our opinion. quarter, underperforming its composite benchmark by 3.9%.

After contributing strongly in the previous two quarters, the While the overall allocation to shares contributed positively to Fund’s overweight positions in the Materials and Energy sectors absolute performance, stock selection in both Australian and were the largest detractors from relative returns from a sector global shares detracted from relative returns. perspective during the June quarter. Within Materials, the Fund’s exposure remains very different from the benchmark. The Fund had 68% in shares at quarter-end. This is after Incitec Pivot, Alumina and Newcrest Mining were amongst the accounting for about 7% of the global share exposure being largest detractors. We added to these positions over the quarter reduced through the use of exchange-traded derivatives, which as lower prices presented buying opportunities. Elsewhere in allows for some protection in those periods where market the Materials sector, recycling company Sims bucked this trend indices fall. and we lightened our holding on its recent strength. The Fund held around 20% in fixed income securities and a Energy companies such as Woodside Petroleum, Oil Search and 5% exposure to gold through an exchange-traded fund at Origin Energy have remained undervalued and, therefore, quarter-end. The fixed income allocation has remained appealing in our opinion. We have also added to some of these significantly shorter in duration than the benchmark – at below on recent underperformance. two years versus almost eight years for the benchmark. This means the fixed income holdings will not perform as well as the The Financials sector also detracted from performance overall benchmark when government bond yields fall – and this was the for the quarter. Among the underperformers were AMP and case in the June quarter. ANZ, which we continue to view as offering good value. QBE was one of the Fund’s larger financial holdings that performed However, it also means that the fixed income portion of the very strongly. We took advantage of higher prices in QBE and Fund remains more defensively positioned than the benchmark other strong performers, and the successful takeover of hygiene (in terms of both relative and absolute returns), in the event that company Asaleo Care, to fund opportunities in more depressed interest rates rise from current historically low levels. names. As with the Equity Fund, we believe potential portfolio value We believe recent years have seen extremes in both investor relative to the market is significant and we continue to manage behaviour and dispersion between loved and unloved shares. for risk with a long-term, valuation-driven perspective. This remains the case today and presents unusually significant

6 of 17 Q2 2021 Allan Gray Australia Stable Fund previous quarter. The remainder is held in cash and money market investments. This can be seen in the graph below, which The Allan Gray Australia Stable Fund returned -0.1% for the shows our allocation between cash and shares over time. quarter, underperforming its RBA cash rate benchmark by 0.1%. The extreme strength in the sharemarket during the June quarter fails to highlight the significant divergence that has built The performance of the Stable Fund is driven by the up over time between different categories of shares. Some performance of our favoured Australian share holdings and the popular shares and sectors are priced at levels that in our view decision on how much is invested in shares versus cash. The are far too optimistic. We therefore remain focused on avoiding broad Australian sharemarket has risen strongly for three those areas and the risks that come with excessive valuation. consecutive quarters now and reached all-time highs in June. Instead, the shares held in the Fund will be those we have The Fund took advantage of the recent strength to lighten some assessed as most attractively priced, where we see the risk of of our stronger-performing positions. permanent capital loss to be lower.

At the end of June, the Fund had around 29% invested in ASX-listed securities, versus around 35% at the end of the

Graph 4: Stable Fund share weighting – share allocation rises where we see value in shares

50 7 ,500

45 7 ,000 6 ,500 40 6 ,000 35 5 ,500 30 5 ,000 25 4, 500

20 Price 300 S&P/ASX Index 4 ,000 Portfolio allocation to shares (%) shares to allocation Portfolio 15 3 ,500

10 3 ,000 Jul-2011 Jul-2013 Jul-2015 Jul-2017 Jul-2019

Portfolio allocation to shares (%, LHS) S&P/ASX 300 Price Index (RHS)

Source: Allan Gray, Bloomberg, as at 30 June 2021.

7 of 17 Q2 2021 EQUITY FUND PERFORMANCE

Allan Gray Australia Equity Fund — Class A units

Allan Gray Australia S&P/ASX 300 Accumulation Equity Fund Index Relative Performance

ANNUALISED (%)

Since Public Launch on 4 May 2006 7.7 6.7 1.0 10 Years 9.5 9.2 0.3 5 Years 9.5 11.3 (1.8) 3 Years 3.6 9.8 (6.2) 1 Year 26.9 28.5 (1.6)

NOT ANNUALISED (%) Latest Quarter 0.5 8.5 (8.0)

Allan Gray Australia Equity Fund — Class B units

Allan Gray Australia S&P/ASX 300 Accumulation Equity Fund Index Relative Performance

ANNUALISED (%)

Since Class Launch on 26 October 2012 10.6 10.3 0.3

5 Years 9.7 11.3 (1.6) 3 Years 4.3 9.8 (5.5) 1 Year 27.9 28.5 (0.6) NOT ANNUALISED (%) Latest Quarter 0.7 8.5 (7.8)

Highest and lowest annual return since launch

Allan Gray Australia Equity Fund - Class A units Return % Calendar year

Highest 55.1 2009

Lowest (45.9) 2008

Allan Gray Australia Equity Fund - Class B units Return % Calendar year

Highest 33.4 2016

Lowest (7.0) 2018

Returns shown are net of fees and assume reinvestment of distributions. Returns are annualised for periods of one year and over. Annualised returns show the average amount earned on an investment in the relevant Class each year over the given time period. Actual investor performance may differ as a result of the investment date, the date of reinvestment of income distributions, and withholding tax applied to income distributions.

The highest and lowest returns earned during any calendar year since the launch of each Class are shown to demonstrate the variability of returns. The complete return history for each Class can be obtained by contacting our Client Services team.

8 of 17 Q2 2021 EQUITY FUND HOLDINGS (CLASS A AND CLASS B)

Fund holdings as at 30 June 2021 Statement of net assets (unaudited) Market Value AUD % of Fund Security 000’s

Woodside Petroleum 174,253 8

Newcrest Mining 160,824 7

Alumina 159,923 7

QBE Insurance Group 139,352 6

Aust. and NZ Banking Group 119,881 5

Sims 114,513 5

National Australia Bank 113,657 5

Metcash 113,565 5

Incitec Pivot 87,262 4

Oil Search 85,209 4

Origin Energy 80,568 4

AMP 72,313 3

Fletcher Building 56,072 3

Virgin Money UK 55,652 3

Worley 55,593 3

Challenger 50,494 2

South32 44,740 2

Nufarm 44,461 2

Westpac Banking 42,755 2

G8 Education 35,084 2

Southern Cross Media Group 29,152 1

Peet 28,690 1

HT&E 27,947 1

SKYCITY Entertainment Group 25,763 1

Suncorp Group 23,407 1

TPG Telecom 22,316 1

Positions less than 1% 175,541 8

Total Security Exposure 2,138,982 97

ASX SPI 200 ™ Futures Contract (09/2021)† 20,766 <1

Net Current Assets 55,344 3

Net Assets 2,215,092 100

Price per unit - Class A (cum distribution) AUD 1.6164

Price per unit - Class B (cum distribution) AUD 1.6261

Total Assets Under Management for the Australian equity strategy (AUD 000’s)‡ AUD 8,041,197 † Futures contracts are fully backed by cash holdings. ‡ Allan Gray Australia Pty Ltd also manages segregated accounts that have substantially the same investment goals and restrictions as the Fund. 9 of 17 Q2 2021 BALANCED FUND PERFORMANCE

Allan Gray Australia Balanced Fund

Allan Gray Australia Balanced Fund Custom Benchmark* Relative Performance ANNUALISED (%) Since Public Launch on 1 March 2017 6.9 9.2 (2.3) 3 Years 4.8 9.0 (4.2) 1 Year 19.6 14.2 5.4

NOT ANNUALISED (%) Latest Quarter 2.3 6.2 (3.9)

Highest and lowest annual return since public launch

Allan Gray Australia Balanced Fund Return % Calendar year

Highest 13.9 2019

Lowest (4.1) 2018

* The Custom Benchmark for the Fund comprises 36% S&P/ASX 300 Accumulation Index; 24% S&P/ASX Australian Government Bond Index; 24% MSCI World Index (net dividends reinvested) expressed in AUD; and 16% JPMorgan Global Government Bond Index expressed in AUD.

Returns shown are net of fees and assume reinvestment of distributions. Returns are annualised for periods of one year and over. Annualised returns show the average amount earned on an investment in the relevant Fund each year over the given time period. Actual investor performance may differ as a result of the investment date, the date of reinvestment of income distributions, and withholding tax applied to income distributions.

The highest and lowest returns earned during any calendar year since the public launch of each Fund are shown to demonstrate the variability of returns. The complete return history for each Fund can be obtained by contacting our Client Services team.

10 of 17 Q2 2021 BALANCED FUND HOLDINGS

Fund holdings as at 30 June 2021 Statement of net assets (unaudited)

Security Market Value AUD 000’s % of Fund

Equity

Domestic Equity

Woodside Petroleum 3,257 3

Alumina 3,127 3

Newcrest Mining 3,000 3

QBE Insurance Group 2,680 2

Sims 2,616 2

Metcash 2,433 2

Aust. and NZ Banking Group 2,413 2

National Australia Bank 2,220 2

AMP 1,863 2

Oil Search 1,703 2

Incitec Pivot 1,626 1

Origin Energy 1,539 1

Worley 1,312 1

Domestic Equity Positions less than 1% 10,349 9

Global Equity

Samsung Electronics 3,027 3

Taiwan Semiconductor Mfg. 2,871 3

AbbVie 2,218 2

Bayerische Motoren Werke 1,805 2

NetEase 1,703 2

Drax Group 1,321 1

British American Tobacco 1,295 1

Global Equity Positions less than 1 % 31,129 28

Total Equity^ 85,505 76 ^ The Fund holds derivative contracts which reduces the effective net equity exposure to 68%.

11 of 17 Q2 2021 BALANCED FUND HOLDINGS

Security Market Value AUD 000’s % of Fund

Fixed Income

Domestic Fixed Income

Australian Government Bonds 18,190 16

Global Fixed Income

Global Fixed Income Positions less than 1 % 1,189 1

Total Fixed Income 19,379 17

Commodity Linked Investments

SPDR Gold Trust 5,569 5 Total Commodity Linked Investments 5,569 5 Total Security Exposure 110,453 98

Cash Equivalents and Term Deposits 1,496 1

Net Current Assets 1,245 1

Net Assets 113,195 100

Price per unit (cum distribution) AUD 1.2195

12 of 17 Q2 2021 STABLE FUND PERFORMANCE

Allan Gray Australia Stable Fund

Allan Gray Australia Relative Stable Fund RBA Cash Performance Distribution

ANNUALISED (%)

Since Public Launch on 1 July 2011 6.1 2.0 4.1 3.9

5 Years 5.1 1.1 4.0 3.4 3 Years 3.4 0.8 2.6 3.0 1 Year 7.5 0.2 7.3 0.2

NOT ANNUALISED (%) Latest Quarter (0.1) 0.0 (0.1) 0.0

Highest and lowest annual return since public launch

Allan Gray Australia Stable Fund Return % Calendar year

Highest 14.4 2016

Lowest (0.5) 2018

Returns shown are net of fees and assume reinvestment of distributions. Returns are annualised for periods of one year and over. Annualised returns show the average amount earned on an investment in the relevant Fund each year over the given time period. Actual investor performance may differ as a result of the investment date, the date of reinvestment of income distributions, and withholding tax applied to income distributions.

13 of 17 Q2 2021 STABLE FUND HOLDINGS

Fund holdings as at 30 June 2021 Statement of net assets (unaudited)

Security Market Value AUD 000’s % of Fund

Woodside Petroleum 11,978 4

Alumina 11,895 4

Newcrest Mining 10,613 3

QBE Insurance Group 6,125 2

AMP 5,573 2

Incitec Pivot 5,145 2

Origin Energy 5,119 2

Aust. and NZ Banking Group 4,536 1

Metcash 3,381 1

Positions less than 1% 30,904 10

Total Security Exposure 95,271 29

Cash and Money Market Instruments 220,538 68

Net Current Assets 8,966 3

Net Assets 324,775 100

Price per unit (cum distribution) AUD 1.2143

14 of 17 Q2 2021 INFORMATION ABOUT THE FUNDS

Allan Gray Australia Allan Gray Australia Allan Gray Australia Equity Fund Balanced Fund Stable Fund

Investment objective The Fund seeks long-term returns To seek long-term returns that The Fund aims to provide a long- that are higher than the S&P/ are higher than the Custom term return that exceeds the ASX 300 Accumulation Index Benchmark. In doing so, the Fund Reserve Bank of Australia cash rate (Benchmark). aims to balance capital growth, (Benchmark), with less volatility income generation and risk of loss than the Australia sharemarket. using a diversified portfolio.

Who should invest? Investors looking for contrarian Investors with an investment Investors with a two-year or investment style exposure to horizon of at least three years longer investment horizon who the Australian sharemarket and who want to easily diversify their are looking for an alternative to who are able to take a long-term portfolio within a single fund and traditional money market and view and endure performance are looking for less ups and downs income generating investments. fluctuations. than investing solely in shares. The Fund’s portfolio can hold a The Fund invests in shares, fixed combination of cash and money income, cash and commodity market instruments (100% to 50%) investments sourced locally and and ASX securities (up to 50%) in globally. pursuit of stable long-term returns.

Dealing Daily (cut-off at 2pm Sydney time. A different cut-off applies if investing via mFund, where applicable).

Buy/sell spread +0.2%/-0.2% +0.2%/-0.2% +0.1%/-0.1%

Fees and expenses (excluding Class A Management fee comprises: Management fee comprises: GST) Management fee comprises: • Fixed (Base) fee – 0.75% per • Fixed (Base) fee – 0.25% per • Fixed (Base) fee – 0.75% per annum of the Fund’s NAV. annum of the Fund’s NAV. annum of the Fund’s NAV. • Performance fee – 20% of the • Performance fee – 20% of the • Performance fee – 20% of the Fund’s outperformance, net Fund’s outperformance, net of Class’ outperformance, net of of the base fee, in comparison the base fee, in comparison to the base fee, in comparison to to the custom Benchmark. A the Benchmark. A performance the Benchmark. A performance performance fee is only payable fee is only payable where the fee is only payable where the where the Fund’s outperformance Fund’s outperformance exceeds Class’ outperformance exceeds exceeds the high watermark, which the high watermark, which the high watermark, which represents the highest level of represents the highest level of represents the highest level of outperformance, net of base fees, outperformance, net outperformance, net of base since the Fund’s inception. of base fees, since the Fund’s fees, since the Class’ inception. inception.

Class B Management fee comprises: • Fixed (Base) fee – Nil. • Performance fee – 35% of the Class’ outperformance in comparison to the Benchmark. A performance fee is only payable where the Class’ outperformance exceeds the high watermark, which represents the highest level of outperformance, since the Class’ inception.

Minimum initial investment AUD 10,000/AUD 500 per month on a regular savings plan.

Additional investment AUD 1,000/AUD 500 per month on a regular savings plan.

Redemption No minimum applies for ad hoc redemptions. A minimum of AUD 500 per month applies on a regular redemption plan. Investors must maintain a minimum account balance of AUD 10,000.

15 of 17 Q2 2021 NOTICES

Sources US and European Persons The source for the S&P/ASX 300 Accumulation Index and the The Funds do not accept US persons as investors and are not S&P/ASX Australian Government Bond Index is Standard & marketed in the European Economic Area (EEA). Investors Poor’s. “S&P” is a trademark of S&P Global, Inc.; “ASX” and “ASX resident in the EEA can only invest in the Fund under certain 300” are trademarks of ASX Operations Pty Limited (“ASXO”); circumstances as determined by, and in compliance with, and “S&P/ASX300” exists pursuant to an arrangement between applicable law. ASXO and Standard & Poor’s. Other The source for the MSCI World Index is MSCI Inc. “MSCI” is a Equity Trustees Limited, AFSL No. 240975 is the issuer of units trademark of MSCI Inc. in the Allan Gray Australia Equity Fund, the Allan Gray Australia Balanced Fund and the Allan Gray Australia Stable Fund and The source for the JP Morgan Global Government Bond Index has full responsibility for each Fund. Equity Trustees Limited is is J.P. Morgan Securities LLC. “JP Morgan” is a trademark of a subsidiary of EQT Holdings Limited, a publicly listed JPMorgan Chase & Co. company on the Australian Stock Exchange (ASX:EQT). Allan The third party information providers do not guarantee the Gray Australia Pty Limited, AFSL No. 298487 is the Funds’ accuracy, adequacy or completeness of this information, and no investment manager. Each Fund’s Product Disclosure Statement further distribution or dissemination of the index data is and Information Booklet (together, PDS) are available from permitted without express written consent of the providers. www.allangray.com.au or by contacting Client Services on None of those parties shall have any liability for any damages 1300 604 604 (within Australia) or +61 2 8224 8604 (outside (whether direct or otherwise). Australia). You should consider the relevant Fund’s PDS in deciding whether to acquire, or continue to hold, units in the Returns fund. Fund returns are gross of all income, net of all expenses and This report provides general information or advice and is not an fees, assume reinvestment of distributions and exclude any offer to sell, or a solicitation to buy, units in the relevant Fund. applicable spreads. Where the report provides commentary on a particular security, Risk Warnings it is done to demonstrate the reasons why we have or have not dealt in the particular security for a Fund. It is not intended to Managed investment schemes are generally medium to long- be, nor should be construed as, financial product advice. This term investments. Past performance is not indicative of future report is current as at its date of publication, is given in good performance. Each Fund’s unit price will fluctuate and the faith and has been derived from sources believed to be reliable Fund’s performance is not guaranteed. Returns may decrease and accurate. It does not take into account your objectives, or increase as a result of currency fluctuations. When making an financial situation or needs. Any implied figures or estimates are investment in a Fund, an investor’s capital is at risk. Subject to subject to assumptions, risks and uncertainties. Actual figures the disclosure documents, managed investment schemes are may differ materially and you are cautioned not to place undue traded at prevailing prices and can engage in borrowing and reliance on such information. Subject to applicable law, neither securities lending. Allan Gray, Equity Trustees Limited nor any of its related parties, their employees or directors, provide any warranty of accuracy Fees or reliability in relation to such information or accept any liability The base fee and the performance fee (if applicable) are to any person who relies on it. Fees are exclusive of GST. Totals calculated and accrued daily, and paid monthly. A schedule of presented in this document may not sum due to rounding. fees and charges is available in the relevant Fund’s disclosure documents.

16 of 17 Q2 2021 INVESTMENT MANAGER RESPONSIBLE ENTITY AND ISSUER

Allan Gray Australia Pty Ltd Equity Trustees Ltd ABN 48 112 316 168, AFSL No. 298487 ABN 46 004 031 298, AFSL No. 240975

Level 2, Challis House, 4 Martin Place Level 1, 575 Bourke Street Sydney NSW 2000, Australia Melbourne VIC 3000, Australia Tel +61 2 8224 8604 GPO Box 2307, Melbourne VIC 3001, Australia www.allangray.com.au Tel +61 3 8623 5000 www.eqt.com.au

17 of 17 Q2 2021