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Pendal Monthly Commentary Pendal Australian Shares Portfolio April 2021

Market commentary Portfolio overview The S&P/ASX 300 gained 3.7% in April. Overall equities Australian Shares Portfolio gains remained solid, but there was a reversal in trend of Investment The strategy employs a bottom up, previous months as growth stocks tended to outperform. strategy fundamental approach to build a diversified portfolio of Australian shares where the This is likely linked to falling bond yields. Central banks majority of active risk and outperformance successfully jawboned the market away from the view that the is driven by stock selection. strong growth pulse would see tapering and rate hikes ahead Investment The objective of the Model Portfolio is to of schedule. objective outperform the S&P/ASX 300 (TR) Index on a rolling 3 year period by 3% per annum. The economic recovery in the US is huge, fuelled by stimulus, Benchmark S&P/ASX 300 (TR) Index re-opening, pent-up demand and the fact that the most recent surge in Covid cases did not lead to major stress on health Number of stocks 15-35 (32 as at 30 April 2021) systems. Sector limits A-REITS 0-30% Cash 2-10% Earnings upgrades in the US reporting season have been # strong. Dividend Yield 3.73% Income target No target This growth is feeding inflationary expectations, reflected at

the moment in the prices of commodities. As a result we expect yields will continue to climb higher in coming months. Top 10 holdings This is likely to see rotation away from growth and back to Code Name Weight value and cyclicals. BHP BHP Billiton Limited 10.63% Technology (+9.8%) was the best-performing sector for the CSL CSL Limited 6.80% month. There were strong gains for the WAAAX stocks. WBC Banking Corporation 6.46% ANZ ANZ Banking Group Limited 5.70% Materials (+7.5%) also outperformed. A strong iron ore price CBA of Ltd 5.56% helped BHP, and Fortescue. TLS Corporation Limited 5.07% Gold also bucked the recent trend as defensives gained favour, with solid gains for Newcrest and Northern Star. XRO Limited 4.58% QAN Airways Limited 3.79% Energy (-4.7%) was the weakest sector despite a steady oil JHX Plc 3.75% price. NEC Co Ltd 3.46% The deteriorating situation in played a role here. The Source: Pendal as at 30 April 2021 global recovery may be more spread out with the divergence in health situations in different parts of the world. Top 5 overweights versus S&P/ASX 300 Consumer Staples (-2.4%) also underperformed. Code Name Weight BHP BHP Billiton Limited 3.75% Supermarkets are starting to cycle the strong sales numbers from 2020. This is a broader trend for retail. We are starting to XRO Xero Limited 3.75% see some distinction between companies managing this QAN Qantas Airways Limited 3.34% decline in sales growth well and those facing more NEC Nine Entertainment Co Ltd 3.25% challenges. TLS Telstra Corporation Limited 3.10%

Top 5 underweights versus S&P/ASX 300 Code Name Weight WES Limited (not held) -3.00% NAB Limited -2.64% WOW Woolworths Group Limited (not held) -2.43% RIO Rio Tinto Limited (not held) -2.20% CBA Commonwealth Bank of Australia Ltd -2.17% Source: Pendal as at 30 April 2021

The Portfolio’s dividend yield represents the weighted average 12-month forward-looking dividend yield of the portfolio holdings (excluding cash), as at the date of the Factsheet. Each ndividual security’s dividend yield is calculated using market consensus Dividend Per Share (DPS) before tax and franking credits, collated by Pendal and divided by the closing market rice of the security as at the date of the Factsheet. The portfolio dividend yield therefore is only an estimate, and does not reflect the actual returns of the Fund, which will be affected by market movements in the price of individual securities, the returns on other assets such as cash holdings and variances of individual security's actual dividends from the forecasted DPS.

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Performance

1 month 3 month 6 month 1 year 3 year 5 year Since inception*

Pendal Australian Shares Portfolio 3.88% 10.85% 24.50% 35.79% 10.28% 12.44% 10.67%

S&P/ASX 300 (TR) Index 3.70% 7.64% 20.62% 31.58% 9.69% 10.39% 8.55%

Active return 0.18% 3.21% 3.88% 4.21% 0.59% 2.05% 2.12%

Source: Pendal as at 30 April 2021 *Since Inception – 15 June 2015 Performance returns are pre-fee. Investors should contact their platform provider for applicable fee rates. Past performance is not a reliable indicator of future performance.

Top 5 contributors – monthly Top 5 detractors – monthly

Code Name Value added Code Name Value added XRO Xero Limited 0.28% QAN Qantas Airways Limited -0.23% MND Monadelphous Group Limited 0.20% MTS Trading Limited -0.23% WOW Woolworths Group Limited (not held) 0.20% STO -0.15% VEA Group limited 0.16% APT Limited (not held) -0.15% EVN Limited 0.13% JBH JB Hi-Fi Limited -0.14%

Top 5 contributors – 1 year Top 5 detractors – 1 year

Code Name Value added Code Name Value added NEC Nine Entertainment Co Ltd 1.85% EVN Evolution Mining Limited -1.25% XRO Xero Limited 1.43% APT Afterpay Limited (not held) -1.10% JHX James Hardie Industries Plc 1.33% ALX -0.96% A2M Limited (not held) 0.81% CSL CSL Limited -0.77% WOW Woolworths Group Limited (not held) 0.55% NAB National Australia Bank Limited -0.71% Source: Pendal as at 30 April 2021 Underweight positions are in italics.

Stock specific drivers of monthly performance relative to benchmark Three largest contributors Three largest detractors Overweight Xero (XRO, +11.9%) Overweight QANTAS (QAN, -2.8%) XRO is among our preferred technology growth names. Its Rapid deterioration in India’s Covid situation has weighed visibility on earnings and competitive positioning gives valuation on travel stocks including Qantas. QAN delivered a positive support in our view. Xero benefited from the growth rotation in update mid-month. But the market focused on the variation April. On the company front recent acquisitions in Europe should in Covid situations across the world which means help with its push onto the Continent. Its development of a international travel may take longer to ramp up. broader SME platform beyond the accounting function offers an Nevertheless the domestic outlook remains good, additional avenue of growth. particularly given QAN’s stronger competitive position. Overweight Monadelphous (MND, +22.6%) Overweight Metcash (MTS, -3.5%) MND surged after reaching an out-of-court settlement with Rio Comments from COL that they are seeing supportive trends Tinto over liability for the Cape Lambert fire. This had been an in a return to CBD and major centre shopping weighed on overhang since Rio launched legal actions against MND in MTS, which has benefited from the trend to local shopping August last year. The settlement is confidential, but at IGAs. We are yet to see conclusive data. We think recent management have said the amount is covered by insurance. investment in shopping formats and price mean MTS will be able to hang on to some of its gains. The revamped Underweight Woolworths (WOW, -3.8%) hardware strategy also offers an avenue of growth. WOW released a trading update that was better than the market Overweight Santos (STO, -1.7%) expected. But it still illustrated the base effect of cycling very strong sales this time last year. Coles also released an update STO issued a supportive production update which that suggested shopping trends that hurt COL disproportionately emphasised the work management has done to offset were reversing. This remains to be seen, but it was enough to macro challenges. Nevertheless the energy sector lagged close some of the valuation discount between COL and WOW. the market in April as the deteriorating situation in India and other emerging markets raised doubt about global demand.

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Market outlook The portfolio was able to deal with the sudden rotation in market drivers reasonably well. Some of re-opening stocks that helped drive recent outperformance — such as Qantas (QAN), JB Hi-Fi (JBH) and Nine (NEC) — finished behind the index in April. But this was offset by growth exposures such as Xero (XRO) and Domain (DHG) and exposure to gold miners. We have entered something of a consolidation phase in recent weeks. This is not surprising given the market’s strong run. But we still see plenty of support for equity markets looking forward. The surge in stimulus is feeding through to very strong economic data in the US and substantial earnings revisions. There is a narrative of “peak growth”, which may be a contributing factor in the market’s recent pause for breathe. But we see a strong economic pulse extending for some time yet, given the scale of investment in areas such as renewable energy and re-shoring supply chains. Growth rates will necessarily slow from current levels but we think they will remain elevated. This is driving strength in earnings which is reducing valuation ratios. Price/earnings ratios for the US and Australia remain towards the top end of historical ranges, but are less extended than a few months ago. We are mindful that interest rates are far lower now (and likely to remain so) than in past episodes of high-aggregate valuations. It’s notable that several pockets of froth and excess earlier in the year — such as speculative technology, renewable energy ETFs, IPO ETFs and crypto currency — have rolled over in recent weeks. In combination with the earnings recovery this helps calm fears around a material correction in equity markets. The recent rotation emphasises how important it is to remain mindful of high macro uncertainty and how quickly things can change. It highlights the importance of a balanced and diversified portfolio that is still able to express strong conviction in idiosyncratic stock ideas. Defensive and growth parts of the portfolio stepped up in April, protecting gains made by other parts in recent months. We remain optimistic on the outlook for equities and expect growth will give up recent market leadership. But some exposure here is important in carefully selected stocks with company-level opportunities. While this uncertainty is a challenge, it is also an opportunity. Dispersion in returns is high in the market. We believe it’s a fertile market for active managers.

New stocks added or stocks sold to zero during the month Add new position in (DHG) Domain Group (DHG) provides property-related solutions and services across a number of platforms. We see an opportunity to take a position in a growth company benefiting from internal innovation and a favourable external cycle, leading to more use of its products. DHG is best known for the Domain.com.au online residential listings platform. It also owns the “Allhomes” and “Commercial Real Estate” platforms in this space. It has a print and online media advertising franchise and provides a number of “solutions” services. These services help agents manage inspections and sales leads. Home buyers are offered help with loans, insurance and utilities connections. Domain also provides property market data and research services. The residential listing environment has been tough for the past few years. Average new weekly listings — a key driver of revenue — have trended down since their peak in FY2016 in response to a cooling housing market. Covid exacerbated this trend, leaving FY20 listings 20-25% below mid-cycle. This is reflected in housing turnover running at 3-4%, which is low by historical standards. DHG has done a good job of managing this volume headwind. Part of this has been via strong cost control. The company has also looked to optimise “depth penetration” — the degree to which agents will adopt premium products — to help offset the cyclical headwind. It has managed this through better sales execution and product extension — demonstrating improving return on investment to agents. Domain impresses with a smart strategy as the number two player in its market. Depth penetration has consistently accelerated in most States since FY19. Developments in the “solutions” segment — while still at an early stage — offers a pathway to generate unique data and value-add for agents. This results in a virtuous feedback into their core listings product. As a result of all this, DHG has returned to its peak level of revenue from its digital businesses, even though listings are well below peak levels.

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In addition to this self-help and product innovation we believe the cycle is turning in DHG’s favour. The down-cycle in listings has lasted three years. There is a natural cycle in the supply/demand fundamentals in the housing market, which suggests a return to mid-cycle listings in FY23/FY24. In this instance a number of factors — such as a strong buyer interest and pricing environment and changes in stamp duty — may accelerate this rebound. The upshot is we see an opportunity to add a growth company at reasonable valuation — based on mid-cycle listings —with leverage to an improving cycle and the benefits of product innovation driving increased market penetration.

Sell Coca Cola Amatil to zero The portfolio is taking profit in Coca Cola Amatil (CCL). We added CCL to the portfolio last year as part of our exposure to stocks that had leverage to the re—opening of economic activity. At the time, the stock was still about 30% below its pre-Covid highs and had not participated in the rebound. The market’s key concern was the impact on margin from a mix shift from on-the-go sales (convenience stores and restaurants) to supermarkets. Our research suggested a recovery in on-the-go volumes would be better than market valuation suggested. Management also moved quickly to restructure the company and take out costs to help mitigate the mix-shift effect. In October the value we recognised in the company was emphasised by a takeover offer from Coca Cola European Partners (CCEP). The offer price of $12.75 was at a significant premium to the trading price. However in our view it only reflected the stock’s inherent value on the normalisation of volumes, implying no offer premium. Following negotiation, CCEP improved the offer price in February 2021. The stock price has reacted and now risen to appoint that reflects a reasonable control premium. With the takeover now priced in, we have crystallised profits and will rotate the capital into new opportunities.

For more information contact your key account manager or visit pendalgroup.com

This monthly commentary has been prepared by Pendal Institutional Limited ABN 17 126 390 627, AFSL 316455 (Pendal) and the information contained within is current as at the date of this monthly commentary. It is not to be published, or otherwise made available to any person other than the party to whom it is provided. This monthly commentary relates to the Pendal Australian Shares Portfolio, a portfolio developed by Pendal. The portfolio composition for any individual investor may vary and the performance information shown may differ from the performance of an investor portfolio due to differences in portfolio construction or fees. Performance figures are shown gross of fees and are calculated by tracking the value of a notional portfolio. Past performance is not a reliable indicator of future performance. This monthly commentary is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their or their clients’ individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information in this commentary may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this commentary is complete and correct, to the maximum extent permitted by law neither Pendal nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.