MULTI-ASSET MONTHLY. End of July 2018 SUMMARY ECONOMIC AND MARKET REVIEW

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1 FOR WHOLESALE CLIENTS ONLY. NOT TO BE DISTRIBUTED TO RETAIL CLIENTS. NOT TO BE REPRODUCED WITHOUT PRIOR WRITTEN APPROVAL. PLEASE REFER TO ALL RISK DISCLOSURES AT THE BACK OF THIS DOCUMENT. MULTI-ASSET MONTHLY Insight broad opportunities strategy (AUD proxy) End of July 1 SUMMARY July was a good month for the strategy, which experienced a strong positive. Our equity, real asset and total strategies all made positive contributions. The US-China trade dispute continued to cast a shadow over financial markets through the month, but its impact was offset by the easing of Chinese fiscal and monetary policy, improved relations between the US and European Union (EU), and a better-than-expected US earnings season. US corporate earnings rose around % in the year to Q, rather than the % that was expected. ECONOMIC AND MARKET REVIEW In many respects, July reminds us of the famous Yogi Berra quote it s déjà vu all over again. We say that because the month was again dominated by geopolitical issues principally the US trade dispute with China and, to a lesser extent, the EU. We won t list all of the developments on this front, as we expect readers to be well-versed in these. Suffice it to say, there have been a number of developments that saw measures and retaliation to measures step up a level. If we d known what would happen on this front at the start of the month, we probably would have expected it to be difficult for risk assets. But, in the event, that hasn t proved to be the case. The US dollar was fairly stable over the month, helping global equities outside of China to perform well (see Charts and on page 3). Emerging market equities, which had already fallen sharply, were particularly helped by a more stable dollar and bounced around %, after a near % fall in June. The lack of a negative market response to developments on the trade front probably reflects a number of factors. First, this is an issue that has been rumbling on for some time so linear developments in this dispute have less shock value. Second, and perhaps more important, the Chinese have responded to the potential negative growth effects of US tariffs etc. by loosening monetary and fiscal policy. More specifically, reductions in reserve ratio requirements have been followed by a record increase in lending under the Medium Term Lending Facility, the announcement of new tax cuts and infrastructure spending, and a shift in the monetary policy stance from prudent to neutral in part reflecting the fact that the exchange rate has been allowed to weaken steadily through the month, and by around 9% from its peak in April (charts on this can be found in the outlook section). A third factor is that progress appeared to have been made with respect to the US-EU trade dispute, at least a first glance (we ll come back to this later on). Finally, while all this was taking place, the US results season turned out better than expected, with earnings growth coming in at around %, rather than the % that was forecast. Earnings news from other regions was also fairly positive (see Charts 1 and ). Central banks had the potential to spook markets during the month, but the message from the European Central Bank was little changed from its last meeting, while the Bank of Japan made small changes to its bond yield target and asset purchase programme that markets largely took in their stride (not least because they had feared something more aggressive). Chart 1: Global equity earnings 1 month forward EPS Re-rating (difference) Index Annual change - percent Annual change - percent -1 MSCI World S&P Eurostoxx FTSE 1 Topix MSCI EM -1 Source: Bloomberg and Insight Investment as at 1 August, 1. 1

2 ECONOMIC AND MARKET REVIEW CONTINUED The chairman of the Federal Reserve (Fed) prompted some market debate following his semi-annual testimony to Congress et al by describing a policy of gradual rate hikes as appropriate for now. Some thought those words were bearish (linked to the strength of the economy), others dovish (linked to the potential for trade issues to slow global growth). Over time, they (sensibly) came to be seen as not really adding much to the rate debate. In the UK, Brexit once again cast a shadow over sterling assets. The prime minister s latest plan prompted the resignations of a number of senior cabinet members, and led to a number of close votes/amendments in Parliament. A second referendum continues to gain support whilst being ruled out by Mrs May. Put all of this together and the result was a backdrop that turned out to be good for equities (as outlined earlier). Bond yields generally rose a little at both the -year and 1-year horizon, with the US curve slightly flatter. Commodities had a poor month despite the stability of the dollar with energy and industrial metal prices both down between % and %. The fall in the former reflected an increase in oil supply by OPEC members and an unexpectedly large increase in US oil inventories. On the foreign-exchange front, the sterling and Japanese tradeweighted indices both fell around 1%. The fall in the former reflected Brexit issues, the latter changing views on global risk and central bank policy. Key economic releases US Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Policy rate Man. sentiment Inflation Eurozone Policy rate Man. sentiment Inflation UK Policy rate Man. sentiment Inflation Japan Policy rate Man. sentiment Inflation Australia Policy rate Man. sentiment Inflation Source: Bloomberg, Thomson Reuters and Insight Investment. Key financial market metrics Feb 1 Equities monthly change Mar 1 Apr 1 May 1 Jun 1 Jul 1 S&P Eurostoxx FTSE Nikkei ASX KOSPI Bond yields - percent US 1-year DE 1-year UK 1-year JP 1-year AU 1-year KR 1-year Exchange rates - level EURUSD GBPUSD USDJPY USDAUD USDKRW 1,3 1, 1, 1,77 1,11 1,119 Source: Bloomberg, Thomson Reuters and Insight Investment. Chart : S&P Index quarterly earnings per share 3 3 Annual change - percent 1 1 Q1 11 Q Annual change - percent Positive surprise - % of total Source: Bloomberg and Insight Investment as at 1 August, 1.

3 ECONOMIC AND MARKET REVIEW CONTINUED Chart 3: Global 1-year bond yields during July 1 Change during the month - bp Germany USA UK Japan China Change during the month - bp Source: Bloomberg and Insight Investment as at 1 August, 1. Chart : Global equity markets during July 1 Change during the month - % LATAM EUR ex. UK US World EM UK Japan Asia ex. JP China Change during the month - % Source: Bloomberg and Insight Investment as at 1 August, 1. Chart : Global trade-weighted exchange rates during July Change during the month - % Change during the month - % - Euro area US UK Japan China Source: Bloomberg and Insight Investment as at 1 August,

4 STRATEGY PERFORMANCE AND ACTIVITY DRIVERS OF STRATEGY PERFORMANCE The strategy generated a of +.% in July. The strategy s total strategies component was the primary driver, although all other components equities, fixed income and real assets were also positive. Within total strategies, positions benefitting from a rangetrading environment in a variety of asset classes (German government bonds, US and European credit spreads, and a number of regional equity markets) all gained. While trade disputes continued throughout the month, the easing in Chinese fiscal and monetary policy, improved relations between the US and EU, and a better-than-expected US earnings season helped our broad equity exposures deliver a positive contribution during the month. After a flat June, real assets were a strong contributor, with weakness from commodities more than offset by particular strength in our infrastructure holdings as the weakness and negative sentiment we saw earlier in the year unwound, and the focus ed to attractive valuations and cash-flow profiles. With yields rising marginally, our government bond exposures gave back some profits to end the month a small negative contributor. However, exposures to investment grade and high yield bond markets were positive and offset this. As the negative sentiment towards emerging markets abated somewhat, performance recovered slightly to be the largest positive contributor within our fixed income exposures. STRATEGY ACTIVITY Over the month we added positions that would benefit the strategy if UK and South African equity markets continue to trade within pre-defined ranges, and another position that will benefit if European equity markets retrace some of their recent gains. We also took the opportunity from a move lower in volatility to add some protection positions designed to benefit if there is a material risk-off move in developed equity markets. Reflecting moderating but still positive growth dynamics, we edged our exposure to commodities lower, which is now towards the lower end of its historic range. We retained the broader strategy s asset allocation over the month, and continued adding positions in total strategies as opportunities arise during bouts of volatility. We believe this leaves the strategy well positioned for the choppy investment environment that we expect to persist over the coming months. Performance as at end July 1 Broad opportunities strategy (AUD proxy) 1 month 3 month 1 year 3 year (%p.a.) year (%p.a.) Bloomberg AusBond Bank Bill index Performance as per calendar year Broad opportunities strategy (AUD proxy) YTD RBA CPI Trimmed Bloomberg AusBond Bank Bill index Source: Insight and Bloomberg. The Insight broad opportunities strategy s have been adjusted by the difference between USD and AUD Libor to derive an AUD proxy. No currency adjustments have been made to the underlying investments. Inception date: 31 December. Returns are gross of fees. 1 The RBA CPI Trimmed Mean is seasonally adjusted and updated quarterly. Figure updated to 3 June 1. As at 9 September 1, Bloomberg acquired the UBS Australia Bond Index family. Performance of the Insight broad opportunities strategy (AUD) since launch Returns, rebased to Dec Dec Dec Dec 1 Dec 1 Dec 1 Dec 1 Insight's broad opportunities strategy (AUD proxy) Source: Insight Investment. As at 31 July 1. Gross s. Performance rebased as at 31 December, as a result of a change in investment team leadership. Performance shown is the long-term track record of Insight s overall multi-asset strategy and is intended to illustrate the team s capabilities. The track record has a base currency of USD which has been adjusted by interest rate differentials to derive an AUD proxy. No currency adjustments have been made to the underlying investments. Selected trades made during the month Cash (Bloomberg AusBond Bank Bill index) Trades put on in the month Range-trading positions on UK, South African, European and US equities Increased size of high yield vs investment grade relative-value position Emerging market FX basket Trades expired / closed in the month Protection trades on European and US equities closed Reduced commodities exposure Source: Insight Investment as at 1 August, 1

5 ECONOMIC AND MARKET OUTLOOK ECONOMIC OUTLOOK As we move into August, trade disputes continue to cloud the economic outlook. Last month, we suggested the US holds the upper hand in its negotiations with China because its economy is growing far more robustly making the impact of any traderelated slowdown easier to cope with. The US also imports far more from China than China imports from the US meaning it can impose tariffs on a larger range of goods than the Chinese (see Chart 7, below). That hasn t changed. Indeed, US Q GDP growth came in at a punchy.1% towards the end of the month. But that doesn t mean President Trump will have it all his own way. The Chinese could impose other restrictions focusing on US companies operating in China, for example (something that has already begun). More to the point, ahead of the introduction of additional tariffs, the Chinese have found alternative suppliers for, and imposed their own retaliatory tariffs on, products that hit supporters of President Trump hard. The best example of this is soybeans. The introduction of Chinese tariffs on this product its second-largest import from the US at a value of $1.3bn last year along with a ramping up of soybean purchases from Brazil, has resulted in a sharp fall in soybean prices (see Chart ). The fallout, in terms of the impact it has had on US farmers a key support group for President Trump led the president to announce a $1bn aid package. There has been some improvement in price since the US and the EU struck a deal under which the EU has said it will buy more US soybeans. But, in reality, nothing has really been agreed. The US and the EU are only going to start talking about trade issues with tariffs on autos, a key product for the EU, excluded from those discussions. So much could still go wrong. More to the point, who exactly will be buying the US soybeans? Member states? The EU itself? Indeed, it s not at all clear to us that this is a promise that can be kept. The point of all this is to emphasise that trade wars are clearly not as universally positive as the US president would have us believe. Pressures soon emerge in areas that were perhaps unexpected and/or are greater than expected. To the extent that issues like these prompt a rethink, so that the US steps back from the brink, they could be viewed as a positive short-term effect. Indeed, that could explain why Mr Mnuchin recently suggested the US would like to re-start talks with the Chinese. We hope this is what is happening although a later comment about increasing the planned tariff rate on a further $bn of Chinese goods suggests we are probably not quite there yet. Our central view remains that the trade war will run for a while yet, with further tariffs and restrictions added by both sides. We hope that s wrong. But if it isn t, global growth will be a little lower than would have been the case. The latest batch of purchasing managers indices (PMIs) for manufacturing point to a further reduction in global activity, but most countries remain firmly within the growth moderation zone (balances above, but falling see Chart 9). We continue to think this is in part related to the past tightening of Chinese financial conditions, and expect this to continue to exert an influence for a little while yet before the recent loosening of Chinese monetary and fiscal policy has the opposite effect (Charts 1 to 1). As growth moderates, inflation should continue to surprise on the downside (a key theme in the data over recent months). That, in turn, should mean the major central banks the Fed in particular end up raising rates a touch less than expected. MARKET OUTLOOK Over the course of the year, our view that growth would moderate rather than collapse; that inflation would rise, but not dramatically; and that rates would, therefore, not have to go as high as some were suggesting seems broadly on track. The market implications of this have been a shift to a more challenging investment environment than the one we enjoyed throughout last year when a synchronised acceleration in global activity was the order of the day. From an asset-allocation stand-point, this suggests more divergence in terms of prospects and performance (a theme that trade tensions are amplifying), and a higher chance of pockets of volatility. Such pockets of volatility are not easy to navigate, but present opportunities for alternative strategies that either offer a high degree of asymmetry in their pay-off profiles, or wide buffers to protect ourselves should further weakness persist. Indeed, we switched our focus towards total strategies in Q1 1 to take advantage of heightened levels of equity market volatility to avail ourselves of positions that might benefit should markets rebound or enter more of a range-trading environment. More recently, however, equity market volatility has retrenched, significantly. As a result, we see opportunities in a more limited set of total strategies in the developed equity market space, but should the investment environment improve, we have scope to add directional exposures. More broadly, however, our strategy remains focused on taking advantage of periodic volatility shocks and opportunities across asset classes where the wider ranges we can avail ourselves of via total strategies trades sit well in what we see as late cycle market dynamics. Heightened volatility in emerging markets is providing a different range of opportunities across asset classes. The risk of spiralling protectionist actions from the US-led trade dispute is likely to be an impediment to risk-asset performance in some markets, even if underlying fundamentals are more supportive. But as we saw last month, even some stability in the US dollar was enough to improve sentiment in areas where asset prices have weakened. The growth backdrop and trajectory of central bank policy is sufficient to suggest slightly higher yields, but the lack of inflationary pressure indicates government bonds should retain a place as a diversifying asset at least in the near term. The 1- year US Treasury briefly topped 3% earlier in the year, which, in the context of other asset class valuations, offered material attraction. Our bias would be to add should a similar opportunity present itself again. From a strategy-construction standpoint, we believe real assets provide an additional source of diversification. Infrastructure investments have the potential to provide long-term predictable income streams with some inflation linkages and the weakness we saw earlier in the year has been replaced by a renewed focus on attractive valuations. Trade-related friction is adding an additional layer of volatility and uncertainty to specific elements of the commodity complex, and, for now, that lessens their appeal. Nonetheless, cash, volatility and real assets are useful building blocks should the expected correlation of government bonds to equity switch from being negative (when rates positions diversify equity risk) to positive which is likely if, for example, inflationary risks build.

6 ECONOMIC AND MARKET OUTLOOK CONTINUED Chart 7: US trade with China Imports from China Exports to China USD billion 3 3 USD billion Source: Census Bureau and Insight Investment as at 1 August, 1. Chart : The soybean market USD per bushel 1,1 1, 1, 9 9 Soybean price: lhs Chinese imports of soybeans from Brazil: rhs 1, 1, 1, 1, Metric tonnes - s Aug-17 Oct-17 Dec-17 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Source: Bloomberg and Insight Investment as at 1 August, 1. Chart 9: Purchasing managers' indices of manufacturing activity Developed countries Asia Index Index Germany US Vietnam Taiwan UK Spain India China Italy France Indonesia South Korea Source: Bloomberg and Insight Investment as at 1 August, 1.

7 ECONOMIC AND MARKET OUTLOOK CONTINUED Chart 1: European manufacturing PMIs versus Chinese financial conditions Range of UK plus core EA exc. Germany PMIs: lhs Germany PMI: lhs 11 1 Index - level Chinese financial conditions one year earlier: rhs Jan-13 Jan-1 Jan-1 Jan-1 Jan-17 Jan-1 Jan-19 Jan- Source: Bloomberg and Insight Investment as at 1 August, Index - level Chart 11: USDCNY offshore USDCNY offshore - level....7 The Renminbi has fallen.% from its April peak....7 USDCNY - offshore level Aug-17 Oct-17 Dec-17 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Source: Bloomberg and Insight Investment as at 1 August, 1. Chart 1: China Medium-Term Lending Facility Rmb - billion Rmb - billion Jan-1 Jul-1 Jan-17 Jul-17 Jan-1 Jul-1 Jan-19 Source: Bloomberg and Insight Investment as at 1 August, 1. 7

8 THE INVESTMENT TEAM Insight s broad opportunities strategy is managed by a team of 1 dedicated portfolio managers. They sit within Insight s investment division which comprises over front-line investment professionals. The team is able to harness investment ideas from all the specialist investment units within the firm ensuring that the strategy benefits from a rich source of investment ideas. The team is specialised in asset allocation, macroeconomic analysis and portfolio construction and has developed a clear and transparent investment process that allows ideas to be channelled into a robust portfolio specifically designed to meet its objectives. IMPORTANT INFORMATION RISK DISCLOSURES Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be due to exchange rate fluctuations. The performance results shown, whether net or gross of investment management fees, reflect the reinvestment of dividends and/or income and other earnings. Any gross of fees performance does not include fees and charges and these can have a material detrimental effect on the performance of an investment. Any target performance aims are not a guarantee, may not be achieved and a capital loss may occur. Funds which have a higher performance aim generally take more risk to achieve this and so have a greater potential for the s to be significantly different than expected. Portfolio holdings are subject to change, for information only and are not investment recommendations. ASSOCIATED INVESTMENT RISKS Multi-asset Derivatives may be used to generate s as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment. Investments in bonds are affected by interest rates and inflation trends which may affect the value of the portfolio. The investment manager may invest in instruments which can be difficult to sell when markets are stressed. Property assets are inherently less liquid and more difficult to sell than other assets. The valuation of physical property is a matter of the valuer s judgement rather than fact.

9 Find out more Bruce Murphy Director, Australia and New Zealand Rob Thompson Head of Adviser Distribution asia-pacific/australia Telephone calls may be recorded. Call charges may vary by provider. This document is a financial promotion and is not investment advice. This document must not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or otherwise not permitted. This document should not be duplicated, amended or forwarded to a third party without consent from Insight Investment. Insight does not provide tax or legal advice to its clients and all investors are strongly urged to seek professional advice regarding any potential strategy or investment. For a full list of applicable risks, and before investing, investors should refer to the Prospectus or other offering documents. Please go to Unless otherwise stated, the source of information and any views and opinions are those of Insight Investment. Telephone calls may be recorded. For clients and prospects of Insight Investment Management (Global) Limited: Issued by Insight Investment Management (Global) Limited. Registered in England and Wales. Registered office 1 Queen Victoria Street, London ECV LA; registered number 79. For clients and prospects of Insight Investment Funds Management Limited: Issued by Insight Investment Funds Management Limited. Registered in England and Wales. Registered office 1 Queen Victoria Street, London ECV LA; registered number For clients and prospects of Pareto Investment Management Limited: Issued by Pareto Investment Management Limited. Registered in England and Wales. Registered office 1 Queen Victoria Street, London ECV LA; registered number Insight Investment Management (Global) Limited, Insight Investment Funds Management Limited and Pareto Investment Management Limited are authorised and regulated by the Financial Conduct Authority in the UK. Insight Investment Management (Global) Limited and Pareto Investment Management Limited are authorised to operate across Europe in accordance with the provisions of the European passport under Directive /39 on markets in financial instruments. For clients and prospects based in Singapore: This material is for Institutional Investors only. This documentation has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, it and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of Shares may not be circulated or distributed, nor may Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor pursuant to Section 3 of the Securities and Futures Act, Chapter 9 of Singapore (the SFA ) or (ii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. For clients and prospects based in Australia: This material is for wholesale clients only and is not intended for distribution to, nor should it be relied upon by, retail clients. Both Insight Investment Management (Global) Limited and Pareto Investment Management Limited are exempt from the requirement to hold an Australian financial services licence under the Corporations Act 1 in respect of the financial services; and both are authorised and regulated by the Financial Conduct Authority (FCA) under UK laws, which differ from Australian laws. If this document is used or distributed in Australia, it is issued by Insight Investment Australia Pty Ltd (ABN , AFS License No. 31) located at Level, 1 Bligh Street, Sydney, NSW. 1 Insight Investment. All rights reserved. IC 9