CFSGAM Ex-20 Australian SMA Model Portfolio Monthly Factsheet 31 August 2019 For Adviser use only

Portfolio Description Monthly return (%) A portfolio of 20-50 stocks that is benchmarked against the S&P/ASX 300 Portfolio Benchmark Accumulation ex the S&P/ASX Top 20 Index. As a result, the Portfolio will not 10.0% hold the larger financials and resource companies that dominate the S&P/ASX Top 20 Index, focussing instead on the small to medium sized companies in 5.0% its benchmark. Up to 10% can be held in cash with a minimum of 1%. 0.0%

Investment Strategy -5.0% We believe stronger returns are achieved by investing in growing companies that generate consistent returns and reinvest above their cost of capital. -10.0% Indepth industry, stock and valuation analysis is the foundation of our process. -15.0% By tapping into the broader opportunity set of the S&P/ASX 300, the Portfolio is able to diversify away from the larger financials and resources companies that dominate the S&P/ASX 20 Index and focus on medium to small cap, 03/2018 06/2018 09/2018 12/2018 03/2019 06/2019 quality Australian companies with strong balance sheets, earnings growth and Top 10 holdings (%) high or improving returns on invested capital. Stock Weight Investment Objective * The a2 Milk Company 5.3 To provide higher long-term capital growth with some income by investing in 4.7 the broader set of Australian companies in the S&P/ASX 300, but outside the REA Group 4.7 S&P/ASX 20 Index. The Portfolio aims to outperform the S&P/ASX 300 James Hardie 4.6 Accumulation Index ex the S&P/ASX Top 20 Index over rolling three year WiseTech Global 4.6 periods before fees/taxes. 4.1 Key Investment Personnel and Experience (Industry / Firm) Domino's Pizza 3.6 3.6 Dushko Bajic Head of Australian Equities, Growth (1996 / 2014) Sydney Airport 3.5 David Wilson Deputy Head (1987 / 2015) Northern Star Resources 3.3 Christian Guerra Head of Research (1996 / 2016) Risk Characteristics Product Overview Period 1yr SI Inception date 23 March 2018 Standard deviation (%) 16.1 14.9 Benchmark S&P/ASX 300 ex 20 Accumulation Index Benchmark standard deviation (%) 12.7 10.9 Number of stock holdings Typically 20-50 Tracking error (%) 5.9 6.9 Minimum investment As per platform provider Sharpe ratio 0.4 0.7 Managed account fee (p.a.) ** 0.75% Information ratio 0.0 0.7 Performance summary (%) Beta 1.2 1.2 Period 1mth 3mth 6mth 1yr SI Net return -0.9 8.5 14.8 7.5 17.3 Benchmark return -1.5 6.2 10.9 7.8 12.4 Excess net return 0.6 2.4 3.9 -0.3 5.0

* Investment objective is not a forecast and returns are not guaranteed ** Additional fees and charges may apply. Please consult your platform provider CFSGAM Ex-20 Australian SMA Model Portfolio

Growth of AUD 10,000 Investment Since Inception

Portfolio Benchmark $13,000 $12,500 $12,000 $11,500 $11,000 $10,500 $10,000 $9,500 $9,000 03/2018 06/2018 09/2018 12/2018 03/2019 06/2019

Top 5 attributors to performance (1 month) Top 5 detractors to performance (1 month) Stock Value added Stock Value added WiseTech Global 0.64% The a2 Milk Company -1.32% James Hardie 0.56% -0.53% Megaport 0.48% Nearmap -0.52% Nanosonics 0.46% Corporate Travel Management -0.49% Domino's Pizza 0.42% Monadelphous -0.41%

Performance returns are calculated net of management fees and transaction costs. Performance returns for periods greater than one year are annualised. Past performance is not a reliable indicator of future performance. Data source: Colonial First State Global Asset Management 2019 Data as at: 31 August 2019

Market Review

Market positivity pushing Australian equities in reach of all-time highs at the end of July came to an abrupt end as investors shunned equities globally in the first half of August and, closer to home, there was little to excite shareholders with a generally disappointing earnings season in . As the month progressed, investors became less bearish over the global outlook, and the S&P/ASX 300 ex S&P/ASX Top 20 Accumulation Index recovered from its initial ~6% decline to end the month -1.5% lower.

At the sector level, returns were widely distributed with Energy (-5.5%) and Real Estate (+3.1%) at the extremes. In the Energy sector, nearly three- quarters of constituents dragged on performance as oil prices declined 6% in August. Liquefied Natural Gas continued along its longer-term downward trend, plunging -33.3% as trade discussions between the US and China, a major natural gas customer, escalated. WorleyParsons stumbled -23.0% as management flagged several business segments “are being tempered by macroeconomic global uncertainty” and failed to ease investor concerns with the absence of any quantitative FY20 guidance.

Consumer Staples (-4.5%) was another poor performing sector as the weaker retail environment dragged the majority of constituents lower. Bellamy’s Australia (-25.7%) declined in the lead-up to its FY19 results as newsflow correctly suggested that it had been a tough year. Bellamy’s noted revenue growth had been inhibited by greater trade destocking than initially expected, delays to its regulatory accreditation and increasing competition in China. As a result, revenue fell by 19% while underlying net profit crashed 36% with a doubling of marketing spend and an increased headcount.

Sectors typically described as defensive, such as Real Estate and Health Care, performed well in August as their constituents’ trading updates were more encouraging than those in other sectors. (LLC) helped drive the outperformance of the Real Estate sector, surging +19.4% after delivering a strong second-half FY19 result with the key highlights being an improved balance sheet and an increased development backlog. Management also announced that it will be selling its Engineering and Services business segment with several parties currently undertaking due diligence. The announced sale was well received by the market, given its troubled past and the view that this will enable LLC to focus on its core businesses segments.

Within the Health Care sector, PolyNovo (PNV) and Nanosonics (+21.1%) were the best performers with both companies’ FY19 results exceeding market expectations. Impressive revenue and EBITDA growth were the drivers of PNV’s +26.9% rally, with the key takeaways being the improvement in gross margin to 90% and the expectation that PNV will be EBITDA breakeven in FY20.

Employment data improved in July with a 41.1k increase in the number of jobs while the participation rate reached a new high of 66.1%. The release of the positive jobs data has seen markets slightly wind back their expectations of a rate cut in September and October. Further boosting domestic sentiment was the upside surprise of second quarter wages data – wages rose 0.6% in Q2 and was 2.3% higher year-on-year. The tone from the Reserve Bank of Australia (RBA) in recent weeks suggests they have maintained their dovish outlook, but are looking to assess the state of the economy after the back-to-back rate cuts in June and July.

Portfolio Performance

The Australian ex Top 20 model portfolio marginally underperformed its benchmark, the S&P/ASX 300 ex the S&P/ASX “Top” 20 Accumulation Index, in August, but continues to deliver positive alpha over longer timeframes.

Contributing to the Fund’s underperformance were the Fund’s overweight positions in market laggards such as The a2 Milk Company (A2M) and aerial imaging company, Nearmap (NEA). Investors were disappointed with A2M’s (-20.9%) FY19 result despite achieving impressive revenue (41%) and profit (48%) growth. The market instead chose to focus on management’s forward earnings guidance that suggested FY20 earnings margins would be similar to the second half of FY19 given a step-up in marketing costs. This came as a surprise to the market as investors downgraded their forward earnings expectations. We remain attracted to the company’s robust growth outlook, with improving market share in key geographies. Our view is that CFSGAM Ex-20 Australian SMA Model Portfolio the near-term marketing spend will help establish A2M as a global market leader over the medium-term. NEA (-19.0%) experienced a similar fate after delivering FY19 revenue above expectations, but its loss was also above analyst forecasts as it increases its brand awareness in the US by spending more on sales and marketing. The business provides high-resolution 2D and 3D imaging of buildings and infrastructure and its camera system is considered by analysts to be best-in-class. The company enjoys a market leadership position in Australia and is in the early stages of breaking into the much larger US market. We believe the sales and marketing investment will help to drive stronger growth in North America and maintain our overweight in the company.

Offsetting the detractors above were the overweight positions were its overweight positions in WiseTech Global (WTC) and (JHX). Both stocks benefited from the release of encouraging FY19 results as they realised unexpectedly strong revenue and EBITDA growth. Contributing to WTC’s revenue growth was new customer wins with the company now servicing 43 of the 50 top global third-party logistics providers. WTC also gave above-market forward guidance and took the opportunity to announce the early beta testing of its new CargoWise Nexus platform in late CY20. This will provide additional growth opportunities for the business going forward. Investors reacted positively to JHX’s first-quarter FY20 earnings result as operational efficiencies and above market volume growth meant earnings were above consensus expectations. Another positive was the FY20 guidance provided by management, which closely matched consensus expectations, and provided comfort that a credible execution plan is in place to help grow the business.

Portfolio activity

Over August, we exited a number of positions for a range of stock specific reasons. We have fully sold down our shares in share-registry and related services provider, (CPU). The stock had benefited from the higher interest rates in the US, UK and Canada as the company earns more interest income on the $US21bn of clients’ cash that it held, on average, over the first half of the financial year. With interest rates now heading down, we decided to exit the company. We also sold out of (CGC), Australia’s largest horticultural company. On the back of recent profit downgrades, we were concerned over market prices for CGC’s produce broadly and particularly mushrooms. We felt there was potential for another downgrade, which subsequently occurred later in August, and had been steadily trimming our position accordingly. Similarly, we have also been steadily trimming our exposure to energy producer, (OSH), as there is now increased uncertainty over the timing of its LNG expansion in Papua New Guinea with the recent change in leadership there. We sold our remaining holdings in August.

Proceeds from the above sales have been used to build up positons in diversified property developer, and cloud connectivity services provider Megaport (MP1). MP1 recently provided a quarterly cash flow report that confirmed it was solidly meeting its KPIs and gaining traction across each of its three regions, consistent with our investment thesis. The company uses software defined networking (SDN) to facilitate cloud connectivity with an installed presence in almost 250 data centres across North America, Europe and Asia-Pac. Technology partners include AWS, Microsoft (Azure) and Google (Cloud).

Market outlook

As detailed in August’s Chart of the Month, a generally disappointing earnings season came to an end in Australia with the significant upgrades/downgrades ratio for large cap Industrials being particularly weak, suffering their worst earnings season result since February 2012. Having said that, the results were not as bad as feared as a number of companies still outperformed even though they missed earnings expectations. A good example was Australia’s leading online real estate classifieds company, REA Group, which reported a 19% increase in monthly searches - indicative of a recovery in the housing market according to management – and rallied appreciably in spite of marginally missing expectations. There are rising hopes that we are now through the worst of the downgrades with the impact of tax cuts and falling interest rates expected to bolster spending and earnings over the next six months (see this month’s Chart of the Month in the August Market Watch for further insights).

Economists are not expecting any changes to Australia’s cash rate when the Reserve Bank of Australia (RBA) meets in early September (which has since been confirmed). This is despite the expectation that Australia’s second quarter GDP figures will show the lowest annual growth since September 2009 (also confirmed) and will likely cause a downgrade to the RBA’s outlook. For the immediate future, economists are expecting the RBA to be on hold for a short period as they assess the impact of the recent interest rate and tax cuts on the economy and prepare for a cut later this calendar year and again in early 2020 to bring interest rates down to 0.5%. CFSGAM Ex-20 Australian SMA Model Portfolio

Portfolio Beta measures the portfolio's sensitivity to benchmark movements. Mathematically, it is the covariance of the portfolio vs the benchmark divided by the variance of the benchmark. The covariance and variance are ex ante calculations based on current weights and historic patterns of return over the past five years. www.firstsentierinvestors.com.au For further information

Head of Business Development Australia and Key Account Manager - VIC/TAS Harry Moore +61 3 8618 5532 Nicholas Everitt +61 3 8628 5668 Head of Investment Sales and Key Accounts Business Development Manager - VIC/TAS Chris King +61 2 9303 2018 Jack Heinz +61 3 9675 6102 Key Account Manager - NSW Key Account Manager - QLD Angela Vincent +61 2 9117 1068 Quin Smith +61 4 5509 5505 Paul Sleiman +61 2 9303 3489 Key Account Manager - WA/SA/NT Nathan Robinson +61 4 0327 2440

This document has been prepared by Colonial First State Managed Infrastructure Limited (ABN 13 006 464 428, AFSL 240550) (CFSMIL) which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG). A copy of the Financial Services Guide for CFSMIL is available from First Sentier Investors on its website. This document contains general information only. It is not intended to provide you with financial advice and does not take into account your objectives, financial situation or needs. Before making an investment decision, you should consider, with a financial adviser, whether the information in this document is appropriate in light of your investment needs, objectives and financial situation. The information contained in this document is intended for institutional and wholesale client use only. It is not intended for use by any person who is a retail client as that term is defined under the Corporations Act 2001 (Cth) and must not be made available to any other person without CFSMIL's express written consent. Any opinions expressed in this material by CFSMIL are the opinions of CFSMIL only and are subject to change without notice. Such opinions are not a recommendation to hold, purchase or sell a particular financial product and may not include all the information needed to make an investment decision in relation to such a financial product. Investors are not able to invest directly into a CFSMIL strategy or portfolio (Portfolio). MUFG and its subsidiaries do not guarantee the performance of any Portfolio or the repayment of capital by any Portfolio. Investments in any financial products that provide access to any such Portfolios are not deposits or other liabilities of MUFG or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested. Past performance information provided reflects the performance of a portfolio and not any individual managed account. Returns will differ for any individual managed account compared to the portfolio depending on matters such as inception date, fees and brokerage costs payable, adherence to model portfolio weights, portfolio implementation timing and fees payable. The past performance information does not take into account any taxes that may be payable in connection with any returns or gains made from any portfolio. Past performance is not indicative of future performance. To the extent permitted by law, no liability is accepted by CFSMIL, MUFG or their respective affiliates for any loss or damage as a result of any reliance on this information. This document contains or is based upon information that we believe to be accurate and reliable, however neither CFSMIL, MUFG nor their respective affiliates offer any warranty that it contains no factual errors. No part of this document may be reproduced or transmitted in any form or by any means without the prior written consent of CFSMIL. In Australia 'Colonial', 'Colonial First State' and 'CFS' are trade marks of Colonial Holding Company Limited and these trade marks are used by First Sentier Investors under licence. Copyright © CFSGAM Services Pty Limited 2019, (part of First Sentier Investors) All rights reserved.