Fund Review Lincoln Australian Income Fund March 2020 Month in review Markets descended into panic over the month as the World Health Whilst a temporary dividend cuts will feel painful, it is a required step for Organization declared COVID-19 a global pandemic. The market correction businesses to preserve capital in a stressed economic environment. The was swift, with the ASX200 index falling as much as 27% before stimulus packages announced by the Federal Government are critical experiencing a strong rally late in the month. The Lincoln Australian measures to assist vulnerable businesses and workers in their time of Income Fund (Fund) finished the month -16.49%, outperforming its need. This extraordinary monetary stimulus will provide financial markets benchmark* index by 3.97%. with liquidity and reduce risks in the system. However, companies Soaring new cases across Europe and the US has put a spotlight on that came into this period with levered balance sheets, unsustainable Government preparedness for such events as health care systems are pay-out ratios and thin operating margins will be forced into painful pushed to the brink. The postmortem of the pandemic will indicate that the recapitalisations or restructures. These type of black swan events expose Tim Lincoln western world was too slow to react, but as we enter the month of April, companies that have relied on cheap debt to run their business. Through Co-Founder, we are cautiously optimistic that strict shutdown measures implemented our quantitative methodology and financial health ranking, we protect our investors from these companies who lack the financial preparedness to Executive throughout the month have curbed transmission rates. weather this type of environment. Chairman and Travel bans have wreaked havoc on airliners, booking agents and Chief Investment the tourism sector collectively, whilst the progressive shutdown of Together we will get through this difficult period, share prices will rebound Officer non-essential services has forced the hospitality and retail industry and dividends will resume in the not too distant future. Relative to our to temporarily close its doors. This has led to a sharp increase in peers^, we have navigated the market correction extremely well, and we unemployment. REITs with property portfolios exposed to retail and believe our portfolio of high quality, financially strong businesses are well office are likely to see rental payments disrupted and lease contracts positioned to perform just as well when markets inevitably rally! renegotiated. Banks are expected to increase bad debt provisioning, whilst Kind regards, also making concessions to impacted workers and small businesses on repayment terms. This disruption has put a strain on cash flows; therefore, we anticipate a significant, albeit temporary, reduction in dividends across most sectors. With REITs and Banks traditionally being the big payers in this quarter, we expect the upcoming June distribution will likely be Tim Lincoln reduced from previous years. Co-Founder, Executive Chairman and Chief Investment Officer Performance to 31 March 2020 Lincoln Australian Income Fund Suitable for Investors seeking a reliable income and reduced exposure to equity market risk Investment objective Higher yield than the S&P/ASX 200 Accumulation Index inclusive of franking credits and some capital growth over the long-term Distribution frequency Quarterly Income Total Return Total Return (Inc. Franking Credits) Fund Distribu- Benchmark Total Total Retail Total Return Total Fund Total Fund Total Return tion Yield(a) Dividend Wholesale Fund Benchmark(f) Return Return Benchmark Yield(b) Fund Return(d) (Wholesale)(e) (Retail)(e) (b) Return(d) 1 month 1.71% 0.72% -16.79% -16.85% -20.65% -16.49% -16.55% -20.47% 3 months 1.81% 1.43% -19.25% -19.42% -23.10% -18.81% -18.98% -22.76% 1-year 5.80% 5.20% -14.32% -15.01% -14.42% -13.11% -13.80% -13.29% 3 years p.a. 8.41% 5.58% 0.17% -0.63% -0.56% 2.28% 1.47% 0.84% 5 years p.a. 8.89% 5.71% -0.56% -1.35% 1.39% 1.72% 0.92% 2.82% Financial year to date 4.24% 4.12% -19.74% -20.22% -20.74% -18.81% -19.30% -19.88% Since Inception p.a. (c) 10.09% 5.79% 5.67% 4.85% 6.60% 8.24% 7.41% 8.12% Data referred to in the performance commentary above (a) Distribution Yield calculates the total cash distribution paid to investors inclusive of franking credits. relates to the Lincoln Australian Wholesale Income Fund (b) S&P/ASX 200 Accumulation Index inclusive of franking credits. Source: Macquarie Equities unless otherwise stated. (c) Inception 2 April 2012 (d) Net of all fees, excluding franking credits Past performance is not an indicator of future performance. (e) Net of all fees, inclusive franking credits (f) S&P/ASX 200 Accumulation Index excluding franking credits. Performance highlights As the Federal and State Governments began the process of a shut down, consumers somewhat irrationally flocked to supermarkets to stock up on food and other staples, best illustrated by the hoarding of toilet paper. Coles Group is an obvious beneficiary to this madness and subsequently performed strongly in March, rising 7%. Iron ore producers have held up remarkably well during the downturn, this likely a result of some COVID-19 supply side issues and the progressive phasing out of lockdown measures in China. Shorter term income stocks, Fortescue Metals (7%) and Rio Tinto (1%) helped the Fund outperform over the month. The shutdown has forced the hospitality and the retail industries to close doors, leading to a sharp increase in the temporarily unemployed. REITs with property portfolios exposed to retail and office will see lease payments disrupted. Banks are expected to increase bad debt provisioning and make concessions to impacted workers and small businesses. Portfolio companies most sensitive to this have included Credit Corp (-57%), Accent Group (-49%), Charter Hall (-45%), Growthpoint Property (-41%), the Banks (c-30%), Premier Investment (-27%). Fund Review Lincoln Australian Income Fund March 2020 Lincoln Australian Income Fund holdings as at 31 March 2020 Strategy update Code Company Portfolio % The Fund Team continued to build a position Large Diversified Industrials 21.08% in Jumbo Interactive (JIN) over the course of the month, viewing the share price weakness TLS Telstra Corporation Limited 4.77% as a good yield opportunity. We don’t expect APA APA Group 4.21% significant disruption to their business during the COL Coles Group Limited 4.18% shutdown. WES Wesfarmers Limited 3.20% To fund the purchase, small reductions were AST AusNet Services 2.61% made in ASX Limited (ASX), Commonwealth Bank (CBA), Insurance Australia Group (IAG), SKI Spark Infrastructure Group 2.11% Magellan (MFG) and Suncorp (SUN). 25.44% Large Financials The Fund Team will make decisions on the MQG Macquarie Group Limited 3.95% tactical allocations of the portfolio leading MFG Magellan Financial Group Limited 3.73% into the June quarter dividends. Specific considerations into the magnitude of likely ASX ASX Limited 3.16% dividend cuts and prospects for capital raisings IAG Insurance Australia Group Limited 2.83% will be at the forefront of our decision-making CBA Commonwealth Bank of Australia 2.57% process. We will keep investors fully informed in ANZ Australia & New Zealand Banking Group Ltd 2.46% our monthly commentary and quarterly webinars. SUN Suncorp Group Limited 2.41% WBC Westpac Banking Corporation 2.18% NAB National Australia Bank Limited 2.15% Large Resources 12.77% BHP BHP Group Limited 4.38% FMG Fortescue Metals Group Ltd 4.35% RIO Rio Tinto Limited 4.04% Small Industrials 11.92% SPK Spark New Zealand Limited 5.27% JIN Jumbo Interactive Limited 3.28% PMV Premier Investments Limited 2.46% AX1 Accent Group Limited 0.91% Small Financials 2.05% CCP Credit Corp Group Limited 2.05% Property Stocks 17.73% RFF Rural Funds Group 4.13% CLW Charter Hall Long Wale REIT 3.65% VVR Viva Energy REIT 3.11% BWP BWP Trust 2.95% CHC Charter Hall Group 2.78% GOZ Growthpoint Properties Australia 1.11% Small Resources 2.44% RRL Regis Resources Limited 2.44% Hybrids / Corporate Bonds 1.22% ANZPE ANZ Capital Notes 2 0.88% BENPF Bendigo and Adelaide Bank Convertible Preference Share 3 0.18% BENPE Bendigo and Adelaide Bank Convertible Preference Share 2 0.16% Cash 5.35% Fund Review Lincoln Australian Income Fund March 2020 Key data Lincoln Wholesale Australian Income Fund Lincoln Retail Australian Income Fund APIR code ETL0324AU ETL0323AU Like more information? Fund inception 2 April 2012 2 April 2012 Talk to us today to: Minimum initial $250,000 $20,000 Start a Savings Plan investment Top up your current investment Management costs 0.95% p.a. 1.75% p.a. Learn more about Lincoln Managed Entry/exit fees Nil Nil Investments and Stock Doctor Distribution frequency Quarterly Quarterly Call 1300 676 333 Entry/exit unit price1 $0.8679/$0.8619 $0.8268/$0.8210 Visit lincolnindicators.com.au Fund size1 $335.59m Email [email protected] Responsible entity Equity Trustees Ltd Investment manager Lincoln Indicators Pty Ltd 1 As at 31 March 2020. * The Fund’s benchmark is the S&P/ASX 200 Accumulation Index inclusive of Franking Credits. ^ https://www.morningstar.com.au/Funds/FundReport/12178 Important information. This information is issued by the Investment Manager, Lincoln Indicators Pty Ltd (Lincoln) ABN 23 006 715 573, as Corporate Authorised Representative of Lincoln Financial Group Pty Ltd ABN 70 609 751 966, AFSL 483167. The Responsible Entity of the Fund is Equity Trustees Limited ABN 46 004 031 298, AFSL 240975, a subsidiary of EQT Holdings Limited ABN 22 607 797 615, a publicly listed company on the Australian Securities Exchange (ASX: EQT).