Lazard Australian Equity Team – Quarterly Letter FEB Letter from the Manager 2021

The Australian Equity Team’s quarterly letter discusses Exhibit 1 the biggest issues we are seeing in investment markets Long-Run Outperformance of Value Factor today. This quarter’s letter looks at: Excess Return Value Factor: 1825 - 2020 Fama-French: • Value drawdowns, economic crisis and reflation, 6 1927-2020

• How our portfolios are now positioned, and 4 Cowles: Goetzmann:SAE Active Weight (RHS) - Top Third • Our engagement with Mayne Pharma over 1871-1927 Excess Return 2 1825-1871 diversity in its board.

0 1. Value Drawdowns, Economic - Bottom Third Excess Return Crisis and Reflation -2

New long-term data suggests an important role for -4 1826 1856 1886 1916 1946 1976 2006 financial crises/debt overhangs in subsequent value As of 31 December 2020 drawdowns. Here we examine how past periods have Source: Two Centuries Investments ended and the striking similarities we see today. To this end, we view reflation as the most important topic in markets today. The global synchronisation of 195 Years of Data expansive fiscal programs may end one era and usher “The further backward you can look, the further forward you are likely in a new investment regime. to see” – Winston Churchill So far, the zero cost of money and liquidity of Drawing on US data from 1825 to 2020, it is now possible to the modern monetary theory (MMT) response to place the magnitude of today’s investment markets in a longer- COVID-19 has greatly increased trading, margin term context. In our view, there are interesting patterns between lending, speculation and frothiness on global stock economic events and style extremes, which are relevant to us today. markets. If the COVID-19 MMT spending does indeed lead to reflation and perhaps even inflation, the The Long Run Averages associated tightening of monetary conditions required may well lead to an abrupt end to market speculation. Exhibit 1 shows the full history that is now available, with a common definition of high third (“value”) vs low third (“growth”) dividend yield as the style factor employed across the full period. The additional historical record shows that the long-term outperformance of value has extended back close to 200 years, with

The Data Prof Kenneth French’s data site at Dartmouth College provides detailed data on many markets and his US style return data commencing in 1926 is well known. A long time ago, Cowles1 had collected data on 1871 to 1926 returns and this has more recently been extended yet further back to 1825 by Prof William Goetzmann2 at Yale University and other researchers. Careful examination of price and dividend records from the NYSE has allowed these researchers to compile total return series and have made possible the calculation of value vs growth returns using dividend yield as the value factor. The data itself is available in raw form at Prof Goetzmann’s site at Yale University: https://som.yale.edu/faculty- research/our-centers-initiatives/international-center-finance/data/historical-newyork

LR33518 2 the 3.3% pa long-short difference accumulating to greater than Exhibit 2 560x difference over the full period. Seen from this very long-term Value Drawdowns perspective, the record can appear like a relentless and inevitable (%) Value Factor Drawdowns: 1825 - 2020 win for equities priced on low expectations relative to growth 0 peers, but these very long averages hide much of the dynamics that are relevant to investors over five to ten year periods. -20 The Cycles

Let us then focus on the drawdowns of value relative to growth, -40 which is shown in Exhibit 2. } Graham-Newman This longer-term history provides some context to the recent 1936 - 1956 20%/y 1841: 1862: 1904: 2020: -60 -50% -49% 1932: drawdown against value. In particular, it suggests that reversals -59% -54% -59% even of the magnitude of the current event may be a one in 40 1833 1863 1893 1923 1953 1983 2013 year outcomes (five times in ~200 years). As of 31 May 2020 Source: Two Century Investments The contrast between the drawdown graph, which shows value in drawdown 90% of the time and the vast cumulative gains is a great illustration of the contrast between the medium term and Debt overhangs may lead to low rates and government attempts long-term dynamics of markets – 90% of the time value was in to provide liquidity – cheap money is an important element in drawdown, but overall it recorded a relative gain of over 50,000%! speculative excesses. It may also be due to the fact that economic and policy extremes result in one-way trends for some years with Reversals from growth booms have often been completely less of the usual economic mean-reversion that usually characterises unexpected, very rapid and dramatic in their magnitudes across market economies – economies in post-crisis “secular stagnation” history, unfolding as an optimistic growth narrative collapses may be less competitive and dynamic. and high prices adjust, or as oversold markets rally sharply in a recovery. The Experience of 1890 to 1904 A connection between financial crisis The longest, deepest and most dramatic drawdown against value and growth stock booms was the 14 year period ending in 1904. There are some similarities between that era and our own recent past, and it is thus worthwhile A listing of the five great value drawdowns shown above (peaking to provide some historical background. in respectively 1841, 1862, 1904, 1932 and today) suggests The start of the value drawdown in 1890 was preceded by a an interesting possible connection between financial crises and financial crisis and the reintroduction of the gold standard in subsequent value drawdowns: the 1880s - and unfolded over the decade-long lingering 1890s • The 1841 drawdown of 50% was preceded by the crisis of “stagnation” (it wasn’t in the US a fully-fledged depression as it 1837, which left a legacy of debt and a decade of depressed was in ), just as the GFC marked the start of the current economic activity. value under-performance in the US and the so-called “secular stagnation” era. • The 1862 drawdown of 49% was preceded by the financial crisis and panic of 1857 and its legacy, and was probably also The 1890s depression was characterized by adebt overhang influenced by the early Union reversals in the unfolding US exacerbated by deflation driven by the slow growth of US gold Civil War. holdings – in the era of the gold standard, base money could only increase at the rate of gold accumulation and the rapid growth • The 54% drawdown of 1932 was due to the 1929 crash and of the US economy (industrialisation-driven productivity and resulting depression. population) exceeded this growth in the money supply. The • The longest lasting drawdown started in 1890 and culminated resulting deflation greatly worsened the impact of high debt levels in 1904 (and is expanded on further below). and led to increasing social tensions and economic inequality. What might be responsible for such an association - why Two bitterly fought presidential elections between the Democrats might value drawdowns tend to follow financial and economic led by William Jennings Bryan (famous for his “Cross of Gold” dislocation? While there is clearly not enough evidence to allow speech) and the Republicans led by McKinley, in 1896 and 1900 systematic analysis one might be tempted to suggest two possible both ended in wins for the status quo. While the Democrats causal links. lost the elections, they won the economic debate, however, and 3 after McKinley’s assassination, Republican Theodore “Teddy” Exhibit 3 Roosevelt’s second term was characterised by largely progressive US Excess Broad Money Growth policies. In addition, the 1899 gold strike in Alaska/Klondike eased deflation and the Witwatersrand, South Africa gold fields, (%) 30 which had only produced ca 50kt of gold per annum in the 1890s US Excess Broad Money Growth 25 increased production to 250kt pa by 1910. As a result, reflation (M2 Growth less Real GDP Growth - March 1960 to Dec 2020) characterised the second half of the 1910s. 20 15 The 1890s also saw the rise of many industrialmonopolies in the 10 US, including in tobacco (American Tobacco), steel (Carnegie’s US Steel), oil (Rockefeller’s Standard Oil), rail (Northern 5 Securities Company), sugar and meat-packing. President Teddy 0 Roosevelt acted against these, bringing 44 antitrust suits, breaking -5 the Northern Securities Company, the largest railroad Apr-60 Aug-68 Dec-76 Apr-85 Aug-93 Dec-01 Apr-10 Aug-18 monopoly and regulating Standard Oil, the largest oil and refinery As of 31 December 2020 company (it was later broken up in 1911), amongst others. Source: Lazard Asset Management Long term interest rates fell over the 1890s depression and reached a 100 year low of 3.7% in 1900. Following the increase in the money supply, rates started to rise from 1900. Exhibit 4 Does Excess Money Drive Inflation?

Average US Annual Excess Average Annual Similarities to Today Broad Money Growth US Inflation

We see several similarities between the 1890-1904 and 2008-2020 Mar 1960 to June 1967 2.2% 1.6% periods, including a private debt overhang, markets dominated by July 1967 to Dec 1982* 6.3% 7.2% powerful monopolies, falling interest rates, disinflation/deflation Jan 1983 to Dec 2019 3.0% 2.7% and increasing inequality and social tensions. In the early 1900s Mar 1960 to Dec 2019 3.8% 3.7% these were overcome by increases in the money base and more Expected Year to Jan 27.5% progressive (including anti-trust) policies. 2021

In the current era, fiat money means that deflation never took hold Source: St Louis Fed (FRED) database, LAMP calculations. The high inflation era extended from the time of the ramp-up of Vietnam War spending and LBJ’s “Great (and that interest rates fell much further, to negative real levels, Society” spending in 1967 to the end of the Paul Volker recession in 1982. due to central bank ability to set the rate). More recently, however, in response to COVID-19, MMT-style reflationary fiscal policies have been enacted and a Democratic presidential election win may government spending and inflation associated with the US Civil result in anti-trust actions and more redistributive policies. War ended the 1862 drawdown against value with 100%+ relative value gains. Over the six years from 1904 to 1910, value beat growth by about 140% (in the context of a deep bear market), setting new all-time These three examples suggest that fiscal and monetary reflation cumulative records by about 1912. By 1920, value had beaten may play a role in eventually overcoming the deleterious after- growth by 600% from the 1904 low. Over the whole cycle (peak shocks of the cresting of a credit cycle. to peak) from 1890 to 1920, value outperformed by 3.6% pa, Perhaps the “COVID-19 War” will be seen in retrospect to have very close to the 195-year average rate – no trace of the largest and done the same in this era. In 1929, US federal government debt longest growth boom remained. held by the public stood at only 20%, but reached 110% in Reflation and Lessons for Today? 1945. In 2007, federal debt held by the public was 30% of GDP and it is expected to reach 110% by 2021. The budget deficit in It is only this new long-term data that has made clear the WWII peaked at 27% of GDP. In 2020, the US deficit may be seemingly important role of financial crises/debt overhangs in approximately 18% of GDP (with a ca. 10% deficit to come in value drawdowns. 2021). We described above how the 1904 drawdown ended, and it is “There is a chance that macroeconomic stimulus on scale closer to worth remembering that many economic historians have argued WWII than normal recession levels will set of inflationary pressures that it was only WWII (and the associated vast government we have not seen in a generation, with consequences for the value of spending) that finally overcame the post-1929 deflationary the dollar and financial stability.” – Former US Treasury Secretary stagnation period. Similarly, the high government deficits, Larry Summers, February 2021 4

Unlike in the gold standard era, every dollar of this new federal Historically our portfolios have exhibited strong multi-year debt has been monetised by the Fed. The rapidity with which outperformance subsequent to peaks in valuation dispersion. COVID-19 ushered in MMT policies of remarkable scale, the fact November 2020 was a month of note in this regard. Post the that any suggestion of the need to balance budgets is now decried announcement of three potentially efficacious COVID-19 as “austerity” and the global synchronization of such policies vaccines, we saw a strong reversal in the types of stocks leading suggest that they may indeed end one era and usher in a new market performance. The size of this reversal was significant investment regime. compared to similar moves historically, which were often part of a longer term change in stock market leadership. While by The dramatic scale of the COVID-19 MMT programs around no means a guarantee that fundamental valuation is again a key the western world are already having significant financial and driver of stock performance, the experience Q4 2020 is very economic consequences – one out of every five US dollars in encouraging and validates our repeated historical experience that circulation was created in 2020, and President Biden’s spending extreme valuation dispersions do correct and provide tailwind of plans may raise this to one in every four by the end of 2021. performance for our portfolios. Unfortunately, almost none of this vast US spending has been on investment, but has instead gone into consumption, with the result Opportunities that the US external deficit is rising and that China, the world’s largest exporter, has recorded 19% export growth in a year when In spite of what we believe to be are extreme market conditions we the rest of the world was reported to be in deep recession. can still build portfolios of attractive businesses trading at relatively compelling valuations. Last quarter, we wrote that we can broadly Commodity prices and energy in particular have risen sharply break these companies into five themes. A new and significant due to this demand and if vaccination programs allow the change is our increased exposure to banks. global economy to revert toward normality over 2021, more of the unspent household stimulus will find its way into the real We have increased our holdings in , ANZ and National economy. Australia Bank. In our Select and Unconstrained strategies we are broadly at S&P/ASX 200 Index weight in aggregate across the four The risks to inflation are clearly higher than before and US bond banks. Within this cohort, we are underweight Commonwealth market break-even inflation rates are already at the highest level in Bank, and slightly overweight the remaining three. seven years (at ~2.3% pa, relative to the 2020 low of ~1.0%). We have held a large underweight position in the four Australian In the short to medium term, excess broad money growth (how banks since 2015, however we now view the sector much more much the money supply has grown relative to the growth in favorably. Firstly, how the market prices the sector has changed. the real economy) is not a useful predictor of inflation, but over ANZ, NAB and Westpac have significantly de-rated over the last extended periods (and internationally, for rapid increases) it five years relative to the wider Australian market, with the relative provides a reliable guide, as shown in Exhibit 4. P/B multiple falling by between 50% and 60% from early 2015 to Historically, we have observed that the return of inflation can lead end of September 2020 and the relative forward P/E ratio falling to dramatic value rallies. If the new Democratic administration from a ca 14% discount over 2000-2015 to a 37% discount by the follows the lead of the 2020 House report4 on the US tech end of the third quarter of 2020. And secondly, the prospects of monopolies, this may amplify this dynamic. the sector have drastically improved over the last twelve months. Early in the pandemic, the banks expected large bad debts and 2. Portfolio Today took commensurate credit charges which lowered profits. The experience has been much more benign, and these charges, we Government shut-downs to contain COVID-19 have led to the believe, will not feature going forward and may even become in a largest economic contraction in the developed world since the tail wind from writebacks. Great Depression. In an attempt to counter this shock, large fiscal and monetary support measures have been announced globally. Similarly, regulator-imposed dividend caps will likely be removed These opposing drivers were behind the steep sell off in equity leading to strong dividend growth and attractive yields. Finally, markets seen in February and March 2020 and the strong bounce wide ranging policy support from low rates to home buyer schemes that has continued from April to December 2020. This market appears to be increasing demand for housing credit which will recovery was narrowly focused, pushing to extremes the market improve top line growth when market expectations are quite trends that had been dominating since 2017. As we have noted modest. previously this resulted in valuation dispersion or differentials These are the broad six themes running through our portfolios within the stock market to be at record breaking levels, even (Exhibit 5): surpassing the experience of the TMT boom in 2000/2001. 5

Exhibit 5 Thematics in Portfolio

Stock Positions Rationale Risk Consideration Energy Woodside Oil (LNG) • There is real structural change in relation to LNG and coal Petroleum • The real oil price is at multi-decade lows. as we transition to a lower carbon economy. This has • Even with an energy transition significant new investment undoubted investment implications over the short and is needed. long-term. • Most forecasts have LNG growing in volume terms out to Whitehaven Coal Coal 2050. • Seaborne coal supply reduced in response to the low • About 75% of global coal consumption occurs in our commodity prices in 2020. Rebounding economic growth eastern hemisphere and is expected to be broadly stable is improving demand, leading to higher coal prices. WHC is over the next decade. producing significant free cash flow at current prices. • Longer-term, coal volumes in Asia will decline and we account for this in our valuation. Quality Resources • High quality companies with good cost positions, strong • Increasing scrutiny on companies license to operate balance sheets and production growth optionality. with increasing environmental (Samarco Fundão tailings Alumina dam), social/cultural impact (Juukan Gorge) and therefore governance and capital allocation comes under further scrutiny. Stable Cash Flows and Defensive Earnings • Historically, these companies all have stable cash flows • Toll road traffic is sensitive to employment numbers, and and defensive earnings. more specifically, employees travelling to work, however, Spark • Regulatory returns reflect current costs of capital and these are long-life assets and we are long-term investors, provide a fair return on assets. so we are prepared to be patient as these companies Infrastructure • Traffic is starting to recover, although we believe this will emerge from the pandemic. be a choppy recovery. Our traffic forecasts do not have a • Regulatory resets have lowered returns for utilities but full recovery to CY19 levels until end CY23. debt costs have also fallen and balance sheets are strong.

Aurizon COVID-19 Beneficiaries Coles • We see a structural shift in demand from food service to • The timing of the recovery and/or COVID-19 vaccine will retail. impact this trajectory. • We believe some of this will persist beyond the pandemic. • This only presents a small benefit but these are some of the few names (aside from overvalued pure online plays) that are not hurt by the pandemic. Group Resilient Re-Openers SKYCITY • Small positions in companies that will benefit from a • The timing of the recovery from the COVID-19 pandemic normalisation in economic activity in 2021 and beyond. and/or vaccine will impact this trajectory. • Stocks offering large earnings growth over many years as economies re-open. Ample liquidity to handle a choppy or delayed re-opening of the economy. • Companies with strong balance sheets to withstand hit to revenue. Financials Westpac • Banks have re-rated lower over the last two years and are • Worsening economic conditions leading to up-tick in bad now attractively priced even with only modest growth debts National Australia projections. • Falls in net interest margin Bank • AMP has stabilised in recent months and remains very • Stock specific risk for AMP and QBE attractively priced. ANZ • QBE is trading at very low levels and should benefit from the start of rate premium cycle. AMP

QBE

As of 31 December 2020 The securities mentioned are not necessarily held by Lazard for all client portfolios, and their mention should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio. 6

3. Recent Engagement - Mayne Pharma In November 2020, our Analyst, Philippe Tison met with the Mayne Pharma Chairman, Roger Corbett. The business is US-centric and the pharma portfolio has a large focus on women’s health. This will be especially true if the FDA approves the commercial release of Nextstellis, a natural, oral-based contraceptive (licensed from Mithra). We have had some concerns with the composition of the Board. We felt it was not fit-for-purpose. We made the following points to the Chairman. • The Board has six non-executive directors, only one of whom is female. This is at odds with a business with a large focus on women’s health products. • None of the non-executive directors have executive experience in women’s health or dealing with the FDA. The Chairman’s career has predominantly been in Groceries. • Five of the six directors are over the age of 65. • Four of the six directors (including the Chairman) are based in Australia. The head office is in - although the CEO is based in the US). The Chairman confirmed to us the oldest director would be retiring in the next 12 months and he would be replaced with a US-based director. He also said that he had unanimous Board support for another three-year cycle. We stated that we were unlikely to be able to support another three years. He also stated that if Nextstellis gets FDA approval, then Mithra (from whom Mayne gets the license to distribute it in the US) will have a 10% stake in Mayne and they intend appointing a female director with appropriate skills. In a follow-up conversation with the Investor Relations team later that week, we again stated that we would find it difficult supporting the Chairman’s re-election for another three year term. We emphasised the need for urgent Board renewal. Following our discussions, Mayne issued a press release on Board renewal and succession planning. Final Outcome Roger Corbett (Chairman) and Bruce Mathieson will step down within 12 months and be replaced by US-based directors, including a US Chairman. A Deputy Chairman will be based in Australia. “These appointments will seek to add further diversity, expertise and competence in the US pharmaceutical sector.” The Mithra appointment will support these criteria. 7

Appendix 1 Performance Annualised

Since Inception (%) 3 Months (%) 1-Year (%) 3-Year (%) 5-Year (%) 10-Year (%) (7 June 2002) Lazard Select Australian Equity (Gross) 20.91 -9.84 -0.78 6.95 9.53 8.97 S&P/ASX 200 Index 13.70 1.40 6.73 8.73 7.84 8.25 MSCI Australia Value Index 22.95 -1.20 2.06 5.72 7.85 6.91

(1 November 2003) Lazard Australian Equity Unconstrained (Gross) 18.14 -7.42 0.02 6.19 9.05 8.22 S&P/ASX 200 Index 13.70 1.40 6.73 8.73 7.84 8.72 MSCI Australia Value Index 22.95 -1.20 2.06 5.72 7.85 7.63

(17 October 2000) Lazard Australian Equity (Gross) 16.45 -6.49 1.50 6.16 8.54 9.47 S&P/ASX 200 Index 13.70 1.40 6.73 8.73 7.84 7.97 MSCI Australia Value Index 22.95 -1.20 2.06 5.72 7.85 6.61

(1 September 2018) Lazard Australian Equity Income (Gross) 16.40 -2.30 N/A N/A N/A 0.83 S&P/ASX 200 Index 13.70 1.40 N/A N/A N/A 5.53 MSCI Australia Value Index 22.95 -1.20 N/A N/A N/A 3.54

Performance is presented gross of fees in AUD. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Please refer to the Important Information section for more information about each composite.

Appendix 2 Attribution

Select – 3 Month Attribution Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 11.4 3.6 0.0 (-1.0) of Australia (u) Alumina 8.8 1.4 QBE Insurance 7.3 (-0.9) CSL (u) 0.0 1.1 2.7 (-0.7) 7.9 0.8 Fortescue Metals (u) 0.0 (-0.4) AMP 6.0 0.7 4.1 (-0.4) Group

Select – 12 Month Attribution Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%)

Coles Group 3.6 1.0 Whitehaven Coal 11.4 (-3.3) Rio Tinto 5.1 0.9 QBE Insurance 7.3 (-2.5) Metcash 2.5 0.7 Woodside Petroleum 7.9 (-2.1) (u) 3.4 0.7 Alumina 8.8 (-1.5) Costa Group 2.1 0.7 Fortescue Metals (u) 0.0 (-1.5)

Australian Equity Unconstrained – 3 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 8.5 2.5 Commonwealth Bank 0.0 (-1.0) of Australia (u) Alumina 7.4 1.2 Aurizon 3.7 (-0.8) CSL (u) 0.0 1.1 Fortescue Metals (u) 0.0 (-0.4) Woodside Petroleum 7.2 0.8 QBE Insurance 4.2 (-0.4) Virgin Money 1.0 0.5 (u) 0.0 (-0.4)

u - Attribution through underweight position 8

Appendix 2 Attribution

Australian Equity Unconstrained – 12 months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) 3.3 1.3 Whitehaven Coal 8.5 (-2.3) Metcash 2.7 0.9 Woodside Petroleum 7.2 (-1.7) Costa Group 2.0 0.7 QBE Insurance 4.2 (-1.7) Rio Tinto 5.1 0.7 Fortescue Metals (u) 0.0 (-1.5) Oil Search 2.0 0.4 Virgin Money 1.0 (-1.3)

Australian Equity – 3 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 3.7 1.1 Aurizon 3.1 (-0.7) CSL (u) 3.4 0.6 Fortescue Metals (u) 0.0 (-0.4) Alumina 3.5 0.5 Commonwealth Bank 4.8 (-0.4) of Australia (u) Virgin Money 1.3 0.5 QBE Insurance 3.7 (-0.4) (u) 0.0 0.5 Afterpay (u) 0.0 (-0.4)

Australian Equity – 12 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Coles Group 3.2 1.0 Fortescue Metals (u) 0.0 (-1.5) Metcash 2.7 0.8 Afterpay (u) 0.0 (-1.2) Costa Group 2.0 0.7 QBE Insurance 3.7 (-1.1) Rio Tinto 5.0 0.6 Woodside Petroleum 4.3 (-1.1) Insurance Australia Group (u) 0.0 0.4 Aurizon 3.1 (-1.0)

Australian Equity Income – 3 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Whitehaven Coal 4.5 1.3 Commonwealth Bank 0.0 (-1.0) of Australia (u) CSL (u) 0.0 1.1 Aurizon 3.7 (-0.8) 0.0 0.7 Fortescue Metals (u) 0.0 (-0.4) Alumina 4.5 0.7 QBE Insurance 3.6 (-0.4) Newcrest Mining (u) 0.0 0.5 Afterpay (u) 0.0 (-0.4)

Australian Equity Income – 12 Months Top 5 Contributors Weight (%) Attribution Effect (%) Top 5 Detractors Weight (%) Attribution Effect (%) Costa Group 3.9 2.4 Whitehaven Coal 4.5 (-1.7) Metcash 3.9 2.0 Fortescue Metals (u) 0.0 (-1.5) Reliance 0.0 1.8 Flight Centre 0.0 (-1.4) Coles Group 3.2 1.3 QBE Insurance 3.6 (-1.3) Westpac Banking (u) 3.8 1.0 Afterpay (u) 0.0 (-1.2)

u - Attribution through underweight position As of 31 December 2020 Source: Lazard, Factset, S&P Letter from the Manager

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Notes 1 “Common Stock Indexes”, A. Cowles, 1939, Principia Press. 2 See, for example, “The first 50 years of the US Stock Market: New Evidence on Investor Total Returns including Dividends, 1793 to 1843”, Edward F McQuarrie, Jan 2018 (https://papers. ssrn.com/sol3/papers.cfm?abstract_id=3209440) for a review of the data and methodologies. Pre-1825 there were only limited stock numbers and only prices have been compiled, but from 1825 comprehensive price and dividend data becomes available for a significant number of listed companies. Prof Goetzmann’s original paper on the methodology was “A new historical database for the NYSE 1815 to 1925: Performance and Predictability”, Journal of Financial Markets, 2001, and contains high and low dividend index returns (https://citeseerx.ist.psu.edu/ viewdoc/download?doi=10.1.1.364.1278&rep=rep1&type=pdf). 3 All graphics from “Value Investing: Even Deeper History”, by Mikhail Samonov of Two Century Investments, https://www.twocenturies.com/blog/2020/5/11/value-investing-even-deeper- history. 4 See https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf. The chair of the House Democratic Inquiry wrote: “To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”

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