Factsheet Pendal Australian Long/Short Fund Equity Strategies ARSN: 121 948 810 October 2020 About the Fund Performance The Pendal Australian Long/Short Fund (Fund) is an actively managed portfolio (%) Total Returns Benchmark of Australian shares investing in both long and short positions. The Fund utilises (post-fee) (pre-fee) Return Pendal’s existing Australian equity research capabilities to capture additional 1 month 1.71 1.74 1.93 sources of value-add by using both buy and sell ideas. 3 months 1.54 1.76 0.98 Investment Return Objective FYTD 0.70 0.95 1.48 The Fund aims to provide a return (before fees, costs and taxes) that exceeds 6 months 6.59 6.80 8.67 the S&P/ASX 200 (TR) Index over the medium to long term by taking both long and short positions in Australian shares. The suggested investment timeframe is 1 year (pa) -8.17 -7.55 -8.15 five years or more. 2 years (pa) 4.47 5.13 4.67 How the Fund is managed 3 years (pa) 3.81 4.49 4.09 5 years (pa) 6.63 7.50 6.80 Pendal’s investment process for Australian shares is based on our core investment style and aims to add value through active stock selection and fundamental company research. Pendal’s core investment style is to select Sector Allocation (as at 31 October 2020) stocks based on our assessment of their long term worth and ability to Energy 4.2% outperform the market, without being restricted by a growth or value bias. Our Materials 23.1% fundamental company research focuses on valuation, franchise, management quality and risk factors (both financial and non-financial risk). Industrials 10.0% Consumer Discretionary 6.9% The Fund aims to generate investment returns by taking advantage of Pendal’s Consumer Staples 5.6% buy and sell ideas using a strategy that combines a long and a short portfolio Health Care 10.6% known as a long/short strategy. To take advantage of the buy ideas, a long portfolio is created consisting of securities that are bought and held, consistent Information Technology 1.8% with our view that these securities will outperform the market. These securities Telecommunication Services 4.5% are referred to as long positions. Financials ex Property Trusts 24.6% To take advantage of our sell ideas, a short portfolio is constructed with short Property Trusts 4.6% positions. Short positions are created by selling securities in a process called Cash & other 4.1% short selling, where we believe these securities will underperform the market. To implement the Fund’s short strategy, the Fund does not borrow money. Top 10 Holdings (as at 31 October 2020) However, it does borrow securities from a securities lender with the intention of CSL Limited 8.7% buying back the securities from the market and returning them to the lender at a BHP Billiton Limited 7.2% price lower than the sale price. Commonwealth Bank of Australia 6.3% Short selling is used by us when we expect that the price of a security will fall. If Limited the price of the security falls in value, the Fund will make a profit because it buys Westpac Banking Corporation 5.8% the security back from the market for less than it was sold. This can be ANZ Banking Group Limited 4.0% contrasted with the Fund’s long positions, where the Fund makes a profit from Telstra Corporation Limited 3.7% an increase in the price of a security. National Australia Bank Limited 2.9% The Fund may have long positions of up to 135% and short positions of up to Macquarie Group Limited 2.9% 35% of the Fund’s net asset value. This means that at any given time, the Qantas Airways Limited 2.8% Fund’s gross exposure to securities held both long and short may range from Aristocrat Leisure Limited 2.5% 95% to 170% while generally maintaining a net market exposure of around 100%. Other Information The Fund may use derivatives to reduce risk and to act as a hedge against Fund size (as at 31 Oct 2020) $306 million adverse movements in a particular market and/or in the underlying assets. Derivatives can also be used to gain exposure to assets and markets. Date of inception November 2007 Investment Team Minimum investment $25,000 Pendal’s nineteen member Equity team is one of the largest in the Australian Buy-sell spread1 fund’s management industry. The portfolio manager for the Fund is Jim Taylor, For the Fund's current buy-sell spread information, visit who has more than 25 years’ industry experience. www.pendalgroup.com Distribution frequency Half-yearly APIR code RFA0064AU 1 The buy-sell spread represents transaction costs incurred whenever you invest or withdraw funds, and may vary from time to time without notice. Investment Guidelines Market review Risk Limits: Relative to S&P/ASX 200 (TR) Index The S&P/ASX 300 Accumulation index gained +1.9% over October; although -4% was wiped off the market during the last Investable universe ASX and NZX listed stocks, large cap and week of the month. Resources (-1.2%) continued to underperform small cap, (or those to be listed within 12 Industrials (+2.7%) as performance miners and energy companies months), cash, derivatives remained lackluster. Investment Allocation Australian equities The continued surge in new Covid cases in the US and Europe led Long: 95 - 135% to the start of lockdowns in the latter. Meanwhile Pfizer announced Short: 0 - 35% that the interim results of its vaccine trial would be delayed. In the Net long exposure max 100% US there were some speculation that the election may be tighter Cash: than people expected a few weeks ago, while results season has 0 - 5% been a touch disappointing thus far. The key issue is how the combination of the pandemic, US election and policy responses Stock Numbers Long Portfolio 30-70 will impact on the potential for rotation within the market. The Short Portfolio up to 40 market is at historical extremes when it comes to the Ex-ante tracking error 3 - 8% outperformance of growth over value and also on the latter’s valuation premium. Min/max active sector position +/- 10% Min/Max active long stock position +/- 6% Domestically, the Australian Federal budget was stimulatory, as expected. On balance, the scale of injection was probably a touch Max active short stock position - 6% larger than consensus was looking for. The scale of measures, BARRA risk factors +/- 0.8 std. dev. which will drive the budget deficit close to 12%, demonstrates the willingness of policy makers to underpin the economy. The shift in mindset away from fiscal prudence and balance budgets is 2 Management Costs material and suggests that there is more the government can do if required. Issuer fee3 0.50% pa Turning to sector performance, there were five sectors finishing the Performance fee 4 15% x the Fund’s performance (before month in the red, led by Industrials (-3.5%). The rise in long-term fees) in excess of the performance hurdle bond yields – from 0.68% to 0.85% for the US 10 years – dragged on the infrastructure names. Transurban (TCL, -4.6%), Sydney 2 You should refer to the latest product disclosure statement for full details of fees Airport (SYD, -7.0%) and Atlas Arteria (ALX, -7.1%) were amongst and other costs you may be charged. the largest performance detractors within their sector. The 3 This is the fee we charge for overseeing the operations of the Fund and acceleration in Covid cases and the newly declared lock-down in managing the assets of the Fund. The Issuer fee is paid from the assets of the Fund and is reflected in the unit price of your investment. France also weighed on investor sentiment for ALX. 4 The Fund's performance fee is 15% of the Fund's performance in excess of the Elsewhere, Materials (-1.1%) and Energy (-1.0%) both pulled back, performance hurdle. The performance hurdle is the performance of the as some of the sector heavyweights such as BHP (-5.1%), Rio benchmark (S&P/ASX 200 (TR) Index) plus the issuer fee. If a performance fee is payable, it is charged in addition to the issuer fee. The fee is calculated each Tinto (RIO, -2.0%), Origin Energy (ORG. -7.0%) and Santos (STO Business Day based on the investment performance and value of the Fund on -3.1%) all recorded losses. Partially offsetting some of these that day. If we are entitled to a performance fee, it is paid to us as at 30 June losses, markets approved of the intended merger of gold miners each year. Northern Star (NST, +8.9%) and Saracen (SAR, +9.1%). The resulting company will be a clear number two in Australia behind Newcrest (NCM, -6.4%). Ampol (ALD, +8.3%) also outperformed Risks following its announcement of a review of its refining operations, An investment in the Fund involves risk, including: potentially with a view to closing the Lytton refinery in Brisbane. Market risk - The risk associated with factors that can influence the The notion that this would do more to encourage government direction and volatility of an overall market, as opposed to security- support for remaining refining capacity in Australia also benefited specific risks. These factors can affect one country or a number of countries. Viva Energy (VEA, +7.2%). Security specific risk - The risk associated with an individual asset. On the other end of spectrum, Financials (+6.3%), Information International investments risk – The risk arising from political and Technology (+8.6%) and Consumer Staples (+4.6%) were the best economic uncertainties, interest rate movements and differences in performing sectors.