Fund Update - 30 June 2020 Australian Mid Cap Fund - Class B

Fund Objective The Fund aims to outperform the composite benchmark of 70% of the S&P/ASX Mid Cap 50 Total Return Index and 30% of the S&P/ASX Small Ordinaries Total Return Index over a three to five year period (after management costs and before tax).

Since 1 3 1 3 Inception* Performance Net (%) Month Month Year Year p.a. Australian Mid Cap Fund - Class B 3.22 24.90 -0.19 4.72 5.00 Mid Cap Composite Benchmark 2.34 28.38 -1.31 6.11 6.09 Excess Return 0.88 -3.48 1.12 -1.39 -1.09 * Inception date - 15 May 2017

Fund Details Characteristics

APIR Code ETL8772AU Number of Stocks 56 Fund Size (AUD m) $75 Portfolio Dividend Yield 2.54% Fund Currency AUD Stock Range Typically 40-60 Distribution Frequency Semi-Annually Industry Range Unconstrained Management Fee 1.10% p.a. Cash Range 0-10% Performance Fee 15% p.a. Buy Sell Spread +/-0.25% Minimum Investment (AUD) $20,000

Sector Allocation Top 10 Positions

Cash 1.35% Communication Weight % Real Estate 4.36% Services 13.16% Resmed Inc 5.10 Materials 21.14% Consumer 4.21 Discretionary 9.53% Northern Star Resources Ltd. 3.93 Consumer Staples Waste Management Ltd. 3.89 2.88% Saracen Mineral Holdings Ltd. 3.48 Ltd. 3.19 Energy 2.55% Charter Hall Group 2.86 Information Financials 5.35% Magellan Financial Group Ltd. 2.62 Technology 10.48% .Com Ltd. 2.55

Health Care 11.92% Ltd. 2.53 Industrials 17.28%

Growth of AUD 10,000 Contact 14,000 13,000 12,000 Phone: 02 8227 7400 11,000 10,000 Email: [email protected] 9,000 8,000 Website: www.paradice.com

May-17 Feb-18 Dec-18 Sep-19 Jul-20Jun-20 Australian Mid Cap Fund - Class B Mid Cap Composite Benchmark

Disclaimer This information is prepared by Paradice Investment Management Pty Ltd (ABN 64 090 148 619, AFSL No. 224158) (Paradice, we or us). This material is not intended to constitute advertising or advice (including legal, tax or investment advice) of any kind. These materials are not to be distributed and must not be copied, reproduced, published, disclosed or passed to any other person at any time without the prior written consent of Paradice. Equity Trustees Limited (ABN 46 004 031 298, AFSL No. 240975) (Equity Trustees) is the responsible entity of, and issuer of units in, the Paradice Australian Mid Cap Fund - Class B (ARSN 620 055 138) (Fund). Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX:EQT). In deciding whether to acquire, or to continue to hold, units in the Fund please read the current product disclosure statement available from Paradice. Past performance of the Fund is not a reliable indicator of future performance. The value of an investment in the Fund may rise or fall. Returns are not guaranteed by any person. Total returns are calculated before tax and after ongoing management costs. We encourage you to think of investing as a long-term pursuit. In preparing this information, we have not considered your investment objectives, financial situation or needs and therefore the Fund may not be suitable for you. You should have regard to your own individual objectives, financial situation and needs and, if necessary, seek independent professional advice before you make any investment decision. Neither Paradice, Equity Trustees, nor any of their respective related parties, directors or employees, make any representation or warranty as to the accuracy, completeness, reasonableness or reliability of the information contained in this publication or accept liability or responsibility for any losses, whether direct, indirect or consequential, relating to, or arising from, the use or reliance on any part of this material. Any rates of return, forecasts or estimates contained in this publication are not guaranteed. The content of this publication is current as at the date of its publication and is subject to change at any time. It does not reflect any events or changes in circumstances occurring after the date of publication. Commentary

MARKET REVIEW appeal; although this potentially also reflects concerns around the longer-term impacts from extremely loose monetary policy. For the purpose of comparison, commentary is quoted in AUD terms except where stated otherwise. The Paradice Mid Cap Composite Index (70% S&P/ASX Midcap 50 Total Return and 30% S&P/ASX Small Ordinaries Total Return) The June 2020 quarter is likely to be remembered as one of the most returned 28.4% for the quarter, outperforming the broader unusual and unpredictable periods in markets of most living investors’ Australian market index by approx. 12% and closing down only careers. We signed off our March commentary “hoping for a much 1.3% for the financial year; a staggering performance when better end to 2020” and looking at the performance of equity markets considering the challenges that have faced the country during the you would believe this has been delivered. There is much in the world past 12 months. The dynamics here reflect similar trends to to give pause though, with the outlook for ongoing Government and overseas, with the IT sector leading performance alongside gold central bank responses to COVID-19 a key determinant in likely and consumer discretionary names. Australian authorities have performance near-term. been equally as pro-active in underwriting the domestic economy which, coupled with a comparatively very low case The S&P/ASX 200 Total Return Index rallied 16.5% through the June count (reflecting in part the benefits of being an island nation) quarter, the second-best quarterly performance since the turn of the leaves Australia well positioned to withstand the slowdown in global century. The MSCI ACWI Net Total Return notched a similar milestone, demand. returning 19.2% (in US dollar terms) for the period, with both now having recovered a large amount since their March lows. Across the A more unique aspect to the performance in Australia has been the ~ globe, the Nasdaq was the notable leading index, gaining over 30% (in $50bn of equity raised during the quarter by listed corporates – a US dollar terms) for the quarter and surprising many pundits who higher percentage of existing market capitalisation than any other expected this corner of the market – where there is a greater market on the planet. This approach partly reflects the lack of a deep concentration of loss-making and early-stage companies dependent corporate bond market in Australia (other countries have seen more on open and liquid capital markets to survive – would come under elevated levels of debt issuance as an alternative to equity), but also pressure during the pandemic. Instead, the response to the pandemic the vast sums of capital available via institutional superannuation has seen growth for many of these companies accelerate, as society funds and heightened demand from retail investors in what is now a shifted to working from home and depending on online methods of very yield constrained investing environment. Whilst we had acquiring and transacting goods, not to mention digital anticipated capital raisings to occur and increased our cash communications replacing traditional face to face contact. It seems accordingly last quarter, the quantum raised has facilitated a likely that at least part of this behavioural shift will last well beyond the more rapid repair of balance sheets – even in the most troubled pandemic. sectors of travel and retail – than we had envisioned. We have also been selective in which deals we participated in, particularly It was not just the performance of the IT sector, but the broad rally in towards the end of the quarter where discounts narrowed to a point risk-assets globally, which has sparked fierce debate amongst new that associated earnings dilution was no longer being accounted for. and experienced investors alike. For now, investor confidence has been underwritten by monetary policy rates being reset to or close to The portfolio closed out the financial year by outperforming the zero across most developed markets, central banks stepping in as benchmark by over 2%, though to describe the absolute performance buyers of Government bonds, corporate debt and even equities to as ‘flat’ belies the extreme volatility that markets have experienced ensure capital markets remain open, and the unprecedented levels of particularly thus far in 2020. With the effects of the COVID-19 Government stimulus being applied to offset the demand destruction pandemic still being felt globally, and many economies and job losses emanating from mandated social lockdowns. remaining reliant on supportive but, arguably, unsustainable policy measures, such volatility is likely to continue colouring There has also been hope that such shutdowns will be shorter than performance for the foreseeable future. More on this in the outlook initially feared even without the delivery of an effective vaccine, driving section. a sharp recovery in the share prices of most companies impacted by lockdown measures and border controls. However, a more recent re- PERFORMANCE acceleration of cases in the US particularly has brought this into question and was likely a factor behind equity markets consolidating The top relative contributors to performance for the quarter are as earlier outperformance towards the end of the quarter. Confidence is follows: also likely to be further challenged as we enter August reporting season and shareholders are faced with the significant earnings hit Alacer Gold (AQG) – Overweight Gold stocks have performed well that most companies stand to deliver, and it’s noteworthy that the gold throughout the COVID-19 period as a safe haven asset. Alacer also price (US$1,779/oz at time of writing) has continued to rally towards announced a merger of equals with SSR Mining during the quarter historic highs through the market recovery despite its typical defensive creating a large, diversified and well-funded group. Commentary

as extended rent relief for businesses forced to shut again, with the Incitec Pivot (IPL) – Underweight Discounted equity raising coupled Government scheduled to provide an update later this month. The with weak product pricing due to end market softness has combined to banking sector has also recently announced extensions of loan deliver a tough earnings outlook for the company. payment deferrals, although only for those that can continue to demonstrate an inability to pay. As for central banks, they have been Whitehaven Coal (WHC) – Underweight The thermal coal price has vocal (both in Australia and offshore) in their willingness to sustain been very weak amidst broader demand weakness and environmental accommodative policy settings for as long as they deem required. concerns, putting in jeopardy the profitability of Whitehaven’s existing operations as well as the feasibility of its planned expansion projects. This interplay between social restrictions and stimulus policies will continue to drive markets in an environment where earnings for FY-20 The top relative detractors from performance for the quarter are as appear to have largely been written off by the investment community. follows: As we head into the August reporting season, we think it’s highly unlikely that corporates will give much in the way of forward guidance (APT) – Underweight Notwithstanding apparent exposures to potential economic recession, the combination of aggressive fiscal save for year-to-date trading updates, and given the significant stimulus and artificially reduced demand due to travel lockdowns has influence that stimulus and lockdowns are having on company delivered a spike in e-commerce demand in categories where APT is earnings, it is likely to be difficult for the market to find a fundamental well represented. Stimulus measures also appear to have removed the earnings anchor for valuations. risk of bad and doubtful debts spiking near-term. The large volume of capital raisings seen in the past quarter has Fisher and Paykel Healthcare (FPH) – Overweight FPH is a rare helped shore up the balance sheets of many corporates, and we have direct beneficiary of COVID-19, making respiratory humidifiers which been selective participants in stocks where we are attracted to the directly treat the impacts of the virus and are in short supply. The longer-term prospects of the business model and raisings facilitated an company has upgraded guidance 3 times recently and is set for a opportunity to add to existing positions or enter new positions at more strong year in FY21, though underperformed during the strong June attractive valuations. In some instances this is requiring us to look quarter as the stock has behaved more defensively during the COVID through the current pandemic impacts, though valuations have allowed -19 period. us to accommodate the risk of a more drawn-out recession in our investment thinking, and post the crisis we expect a number of these (EVN) – Underweight Gold stocks outperformed due to their safe haven status. Our key positions in the sector are will be proven as excellent investment opportunities at the time. We Saracen (SAR), Alacer (AQG) and Northern Star (NST) which all are taking the same approach to the overall portfolio, focussing on performed relatively well. companies with resilient business models and cashflow, and avoiding those where we have concerns over their balance sheet or capital OUTLOOK positions.

Many developed world nations including the US, UK and Australia, are Longer term, the market will eventually have to consider the legacy of attempting to reopen their economies post an apparent peak in higher global debt levels and lower for (even) longer interest rates. For COVID-19 case counts. Pockets of resurgence have already begun to now, this appears to be playing out in the broad-based rally in equities appear, and it is unclear whether Governments will be prepared to more broadly, but the tech and gold sectors particularly within this, a retreat to full lockdowns again in the event the virus spread regains trend that seems likely to continue until the current crisis passes. momentum. Emerging nations, where Governments are less able to Should the pandemic become out of hand again in the western world, fund economic lockdowns, are struggling to contain the pandemic. leading to another round of severe lockdown measures, this may Until such times as a vaccine is developed, or society reaches a level shake the current momentum in the market, and it is a risk we are not of herd immunity to allow life to return to normal, markets are likely to willing to ignore at this juncture. remain heavily focused on whether fiscal and monetary measures remain in place.

Australia is facing a similar balancing act, and at time of writing Victoria has moved back to more severe lockdown measures due to a resurgence in their case count. There are already calls for the Federal Government to extend stimulus packages including JobSeeker as well