LMI Monthly Update. September Changing of the Guard at AFIC - No Change to Ratings

Transcription

1 LMI Monthly Update September 2017 Changing of the Guard at AFIC - No Change to Ratings Ross Barker will retire as Managing Director and CEO of Australian Foundation Investment Company (ASX:AFI) and its sister LICs AMCIL (ASX:AMH), Djerriwarrh Investments (ASX:DJW) and Mirrabooka Investments (ASX:MIR) on 31 December Mr. Barker, who joined AFI and its sister LICs in 2001 will be replaced by Mark Freeman, currently Chief Investment Officer (CIO) of the four LICs. Despite Mr. Barker s long tenure with the four LICs, we don t believe the transition to a new CEO will see many changes. Mr. Freeman has been chief investment officer (CIO) since 2007 and prior to that was a partner with Goldman Sachs JB Were, where he spent 12 years advising the LICs on their investment and dealing activities. Whilst a new CIO has not been announced, we believe Mr. Freeman will continue to play a significant role in the investment process as CEO. As well having sound, well-established processes in place there is a strong investment team with considerable investment experience, supported on the investment committees by directors with significant industry experience. We do not expect to see any changes to these processes. We recently upgraded our rating for AFI to. Our rating for the other three LICs, DJW, AMH and MIR is Plus, although we are currently undertaking a review of MIR and expect to publish a report in coming weeks. Contango Income Generator to Pay Quarterly Dividends Contango Income Generator (ASX:CIE) will move to paying quarterly dividends to its shareholders. CIE has already declared a FY2017 final dividend of 3.5 cents per share (50% franked) which will be paid on 5 October 2017 but will then follow this up with its first quarterly dividend (for the September quarter) to be paid in December CIE already has an attractive dividend yield, with a policy to pay a minimum of 6.5% p.a. on its net tangible asset value, although since inception, dividends have been only 50% franked. We believe the move to quarterly dividend payments will increase the appeal to income focused investors. For the 12 months to 31 August 2017, CIE has delivered a portfolio return (pre-tax NTA plus dividends) of 5.5%. Our rating for CIE remains at Plus. CIE also announced an offer by its Manager, Contango Asset Management (ASX:CGA), to pay a loyalty incentive of 1.5 cents per share to the holders of CIE Vested Loyalty Options who exercised their options on or before 26 September These options have an exercise price of $1.00 and an expiry date of 30 March The loyalty incentive means that investors who took up the offer paid 98.5 cents per share for each CIE share and qualified for the 3.5 cents per share final dividend, as well as the first quarterly dividend. Over the past month, CIE shares have traded a range between $0.97 and $1.01 on a cum dividend basis. The pre-tax NTA for CIE at 31 August was $1.04 and post-tax NTA was $1.02, so investors who exercised their option have acquired shares below NTA. While this is a benefit for these investors, it is slightly dilutive for existing shareholders. There were 12.2m options exercised during the CGA offer period but 21.7m options are still outstanding. They could remain a drag on the share price until they are either exercised, or expire in March Initiating Coverage of Magellan Global Trust IIR initiated coverage of Magellan Global Trust (Proposed ASX Code: MGG) with a Plus rating. Our rating recognises the strong and stable team, proven processes and strong performance track-record. Additionally, we are impressed with the Manager s approach, processes, and track-record in downside risk mitigation and capital preservation. There are also a number of structural features we like about the trust, although fees are at the higher end for a large cap mandate. The MGG offer closed on 29 September with the units expected to start trading on the ASX on 18 October Refer to our full report on MGG for our detailed analysis. Reaffirming Rating for K2 Australian Small Cap Fund We have recently undertaken a review of K2 Australian Small Cap Fund (Hedge Fund), (ASX code: KSM), an Active Exchange Traded Fund (Active ETF) following a reduction in the fee structure for the fund. KSM was established as an unlisted fund in November 2013 and listed on the ASX in December 2015, It is one of two Active ETFs managed by K2 Asset Management Ltd. KSM provides exposure to an actively managed, index unaware, long/short portfolio of ASX and NZ small cap stocks with an absolute return objective, although the portfolio has a long focus and historically short positions have never exceeded 5% of the portfolio at any one time. It has a stable investment team with the members responsible for the KSM portfolio being with the Manager for an average of 11 years. The fee reduction on 3 July 2017 saw the annual management fee fall from 2.05% to 1.31% with the performance fee reduced from 20.5% to 15.38%. The performance fee hurdle has also been amended with performance fees now paid on returns above the high water mark after a net 6% p.a. hurdle. The reduction in both management and performance fees is a positive for unitholders, although the annual management fee is still at the high end of the peer group. We believe the introduction of a performance hurdle in excess of the high water mark is a step in the right direction, however given the portfolio is going to be primarily long, we believe a more appropriate benchmark would be a market index given the investment universe of the Fund. The Fund has performed well since inception generating a portfolio return (NAV growth plus distributions) of 12.3% p.a. to 31 July 2017, compared to a return of 6.1% p.a. by the S&P/ASX Small Ordinaries Accumulation Index. We reaffirm our rating for KSM with the fund suitable for investors seeking exposure to an actively managed portfolio of ASX and NZ small cap stocks with ASX liquidity. Changes to IIR Rating Scale IIR has introduced a new rating to its listed managed investments (LMI) rating scale. The new Investment Grade rating will apply to LMI products that IIR believes are average grade products that have exceeded the minimum requirements of our review process across a number of key evaluation parameters. Such products are expected to have an average risk/return trade-off and should be able to consistently generate average risk adjusted returns in line with stated investment objectives. We will continue to use the, Plus and ratings for LMI s that we believe are better than average products and likely to generate above average risk adjusted returns in line with stated investment objectives. The Not rating will remain for LMI products that have failed to meet the minimum aggregate requirements of our review process across a number of key evaluation parameters. Readers of our reports on individual LMI products should refer to the ratings process outlined in Appendix A of those reports for more details. Successful Listing for VGI Partners Global Investments VGI Partners Global Investments (ASX:VG1) shares commenced trading on the ASX on 28 September The new LIC raised $550m, the maximum amount under the offer after increasing the amount of oversubscriptions it was prepared to accept. Since listing, the shares have traded in a tight band between $1.99 and $2.01, close to the issue price of $2.00. The Manager, VGI Partners, paid the upfront establishment costs and there were no options issued as part of the offer. Accordingly the starting NTA is $2.00 and there is no options overhang to weigh on the share price. Our rating for VG1 is Plus. 1

2 PRICING & PERFORMANCE UPDATE* Best 5-year portfolio returns - % p.a. (#) Discounts & Premiums to pre-tax NTA - %# Australian Large Cap Focus Small/Mid Cap Focus & Others Largest discounts Largest premiums Company 3M 1Yr 3Yr 5Yr Company 3M 1Yr 3Yr 5Yr Company Discount Company Premium WHF FOR BTI WAX 29.8 DUI GFL WIC WAM 24.8 FSI WAX BST MIR 22.5 MLT MIR GC FOR 19.0 ARG AUF FSI GFL 15.1 *Data to 31 August Only includes LICs covered by IIR #Portfolio return = pre-tax NTA + dividends per share. Pre-tax NTA includes tax paid on realised gains. Top Ten Yielding LICs (31 August 17) LIC ASX Div Franking Reserves Name Code Yield % Cover (x) Contango MicroCap CTN Contango Income Generator CIE Westoz Investment Company WIC Hunter Hall Global Value HHV Cadence Capital CDM WAM Capital WAM Djerriwarrh Investments DJW Asian Masters Fund AUF WAM Research WAX Mirrabooka Investments MIR Source: IIR/Company Accounts In last month s LMI Monthly Update we wrote about the fact that few LICs reduced their dividends during the recent reporting season despite many reporting lower earnings. This reflected the fact that most LICs have a level of profit reserves that enables them to smooth dividends by holding back when profits are strong. Our key measure for assessing LIC performance is total portfolio return, being growth in pre-tax NTA plus dividends, however, we understand that many investors in LICs are also focused on receiving attractive, fully franked dividends. So this month we take a look at the 10 highest yielding LICs in our coverage universe (refer to above table) and consider the outlook and sustainability of these dividends. In order to be able to pay dividends, LICs need to generate profits. However, it is possible for LICs to pay out more than they generate in profits in a given year by dipping into retained profit or dividend reserves from prior years. So it is possible for LICs to smooth dividend payments to their shareholders by retaining profits rather than simply paying out 100% of earnings each year. The table above shows our estimates (based on published accounts) of the number of years each LIC could retain its current dividend payments without generating any additional profits. This is a good indicator of dividend sustainability when markets turn down. Coverage of one means that a LIC could maintain its current dividend payout for one year without generating any profit in the current year. Contango MicroCap Dividend Could be at Risk of a Cut The highest yielding LICs in our coverage universe are the two Contango Asset Management (ASX:CGA) managed LICs, Contango MicroCap (ASX:CTN) and Contango Income Generator (ASX:CIE) with yields of 7.0% and 6.6% respectively, albeit only 50% franked. Whilst CTN appears to have reasonable profit reserve cover of 1.8 years, we think this dividend may be under threat given poor performance of the portfolio. As our performance tables on page 5 of this report show, CTN has delivered negative portfolio returns of 11.3% and 1.7% p.a. on a one and three year basis. Whilst performance has been positive in the last three months, we think the performance of recent years could prompt a dividend reduction. Although CIE has slightly less coverage at 1.4 years, we think the dividend is more sustainable. It generated a 5.5% portfolio return on a 12 months basis and many of its portfolio holdings are in companies that deliver stable, relatively attractive dividends (in many cases fully franked) and can to be passed on to CIE s shareholders. Hunter Hall Global Value has the Strongest Cover Hunter Hall Global Value (ASX:HHV) has undergone a period of significant turmoil since the departure of its founder, Peter Hall in December However, stability seems to have returned since the merger of its Manager with Pengana Capital. Like CTN, HHV generated a significant portfolio decline in the past 12 months. However, the new Manager has unwound most of the old portfolio and re-established the portfolio in accordance with its own processes, so hopefully some stability will return. We believe the new manager has stronger risk disciplines around the portfolio, so volatility of return should be reduced. Despite the poor portfolio performance over the past year, we think the fully franked dividend is reasonably safe given more than six years of profit reserve cover. Whilst Asian Masters Fund (ASX:AUF) shows up with a high yield, we note that this is due to a special dividend payment of 5 cents per share in May 2017 versus ordinary dividends of 2.2 cents per share. The LIC doesn t have a history of paying special dividends, so we would not be assuming further specials. The LIC does however appear to have good reserve coverage. Westoz Investment Company (ASX:WIC) also has good coverage at 3.3 years. With this LIC exposed to the West Australian resources driven economy, its returns and earnings can be volatile. It performed strongly over the past year on a rebound in resources but the five year portfolio return is just 3.3%. The full year dividend was dropped back from 9 cents per share to its current level of 6 cents per share in FY2016 and looks sustainable at that level for a time, unless there is another major downturn in resources. The board is targeting a dividend of 6 cents per share for FY2018. At 3.6 years, WAM Research (ASX:WAX) also has strong dividend profit reserve cover. The LIC has been steadily increasing its dividends for a number of years and with a history of delivering strong portfolio returns we don t see any immediate threat to the dividend. WAM Capital (ASX:WAM) has much slimmer reserve cover at 1.1 times, although we note that it too has a history of delivering strong portfolio returns and so is continuously generating new profits from which to pay dividends. However, the dividend could come under threat of a reduction in a severe market downturn. Cadence Capital (ASX:CDM) had a good FY2017 with a portfolio return of 10.0%. However, it was one of the few LICs to reduce its dividend in FY2017 with the full year dividend of 8 cents per share down from 9 cents per share in the prior year. Dividend cover from profit reserves is just one year which doesn t leave much in reserve in the event of a severe and prolonged market downturn. Djerriwarrh Investments was another LIC to reduce its dividend payments in FY2017 due to lower dividend options income. The reduction had been well flagged. Whilst the outlook for DJW s dividend income is slightly better, with 1.1 years of profit reserve cover there is the risk of a further reduction in its dividend payments to shareholders if its own dividend income declines and/or volatility remains low. 2

3 Pricing & Recommendations Australian Share Focus ASX Code Market Cap ($M) * Last Price ($) Dividend Yield Pre-Tax NTA ($)** Pre-tax NTA Prem/Disc 3 Year Avg Prem/Disc Fee IIR Rating Australian Shares - Large Cap Australian Foundation Investment Company AFI 6, % % 2.4% Internal 0.16 Argo Investments ARG 5, % % 3.2% Internal 0.15 Milton Corporation MLT 2, % % 0.8% Internal 0.13 BKI Investment Company BKI 1, % % 1.8% Internal Australian United Investment AUI 1, % % -4.7% Internal Djerriwarrh Investments DJW % % 24.6% Internal Diversified United Investments DUI % % -6.1% Internal 0.13 WAM Leaders Limited WLE % % -0.6% External 1.00 Whitefield Limited WHF % % -7.8% External Plato Income Maximiser PL % % 4.6% External 0.80 Not Rated AMCIL Limited AMH % % -1.1% Internal Wealth Defender Equities WDE % % -8.9% External 0.98 Not Rated Absolute Equity Performance Fund AEG % % 7.3% External na Not Rated Century Australia CYA % % -4.8% External 1.08 Not Rated Ironbark Capital IBC % % -9.0% External 0.65 Not Rated Aberdeen Leaders ALR % % -8.3% External 2.40 Aust Governance Masters Index Fund AQF % % -0.8% External 0.49 Not Rated Flagship Investments FSI % % -15.6% External 0.00 CBG Capital CBC % % -6.7% External 1.00 Aurora Property Buy Write Inc. Trust AUP % % -1.6% External 2.00 Not Rated Australian Shares - Mid/Small Cap WAM Capital WAM 1, % % 13.8% External Carlton Investments CIN % % -11.6% Internal 0.08 Not Rated Mirrabooka Investments MIR % % 14.9% Internal Future Generation Investment Company FGX % % -1.4% External 0.00 QV Equities QVE % % 1.8% External WAM Research WAX % % 11.8% External 1.00 Forager Australian Shares Fund FOR % % 13.4% External WAM Microcap Limited WMI % % 5.1% External 1.00 Not Rated Contango MicroCap CTN % % -8.5% External 1.25 Rating Under Review Westoz Investment Company WIC % % -11.1% External 1.00 Thorney Opportunities TOP % % -7.5% External na Not Rated Naos Emerging Opp Company NCC % % -7.1% External 1.25 Not Rated Contango Income Generator CIE % % -4.1% External Ozgrowth Limited OZG % % -16.4% External 1.00 Not Rated Naos Absolute Opportunities Company NAC % % -8.5% External 1.75 Not Rated Sandon Capital Investments SNC % % -7.0% External 1.25 Not Rated Lion Select Group LSX % % -23.1% External 1.50 Not Rated Acorn Capital Inv Fund ACQ % % -14.9% External na Not Rated WAM Active Limited WAA % % 7.5% External 1.00 Ryder Capital RYD % % -5.1% External na Not Rated Glennon Small Companies Fund GC % % -5.4% External IP Emerging Companies 8EC % % -10.5% External 1.25 Not Rated Katana Capital Limited KAT % % -6.6% External na Not Rated Barrack St Investments BST % % -14.6% External 1.00 Bentley Capital BEL % % -33.0% External na Not Rated Orion Equities OEQ % % -59.9% External na Not Rated Australian/International Shares - Blended Cadence Capital CDM % % 7.6% External Perpetual Investment Company PIC % % -5.9% External 1.00 Clime Capital CAM % % -6.8% External na Not Rated Mercantile Investment Company MVT % % -14.2% External na Not Rated Sunvest Corporation SVS % % -39.2% External na Not Rated 3

4 Pricing & Recommendations International Shares & Specialist Focus International Shares - Diversified ASX Code Market Cap ($M) * Last Price ($) Dividend Yield Pre-Tax NTA ($)** Pre-tax NTA Prem/Disc ($) 3 Year Avg Prem/Disc Fee IIR Rating MFF Capital Investments MFF % % -9.6% External 0.42 Not Rated Platinum Capital PMC % % 8.0% External 1.50 Not Rated PM Capital Global Opportunities Fund PGF % % -12.4% External 1.00 Not Rated Antipodes Global Investment Company Ltd APL % % -0.9% External 1.10 Not Rated Future Generation Global Investment Company FGG % % 0.0% External Templeton Global Growth TGG % % -8.9% External 1.00 Not Rated Hunter Hall Global Value HHV % % -8.8% External 1.50 Contango Global Growth Limited CQG % % 6.3% External Ellerston Global Investments EGI % % -5.4% External 0.75 Not Rated Morphic Ethical Equities Fund MEC % % 6.5% External 1.25 Not Rated Fat Prophets Global Contrarian Fund FPC % % 4.8% External 1.25 Not Rated International Shares - Emerging Markets Platinum Asia Investments PAI % % -2.1% External 1.10 Not Rated Emerging Markets Masters Fund EMF % % 1.9% External Asian Masters Fund AUF % % 0.4% External Ellerston Asian Investments EAI % % -10.1% External 0.95 Not Rated PM Capital Asian Opportunities Fund PAF % % -12.5% External 1.00 Not Rated International - Specialist Argo Global Listed Infrastructure ALI % % -8.9% External 1.20 Not Rated Evans & Partners Global Disruption Fund EGD % % 5.7% External 1.28 Global Value Fund GVF % % -4.0% External 1.50 Not Rated Zeta Resources ZER % % -14.8% External 0.50 Not Rated Global Masters Fund GFL % % -11.0% Internal Aurora Global Income Trust AIB % % -1.3% External 1.33 Not Rated Private Equity Funds US Select Private Opportunities Fund USF % % 4.1% External 2.33 US Select Private Opportunities Fund 2 USG % % 4.0% External 2.33 US Select Private Opportunities Fund 3 USP % % 5.2% External 2.33 Bailador Technology Investments BTI % % -14.5% External IPE Limited IPE % % -1.0% External 1.50 Not Rated Absolute Return Funds Australian Leaders Fund Limited ALF % % 6.0% External na Not Rated Watermark Market Neutral Fund WMK % % -3.9% External 1.00 Not Rated Watermark Global Leaders Fund Limited WGF % % -5.2% External 1.20 Not Rated Arowana Australasian Value Op. Fund AWQ % % -5.3% External 1.00 Not Rated Monash Absolute Investment Company Limited MA % % -5.9% External 1.50 Not Rated Alternative Investment Trust AIQ % % -16.9% External na Not Rated Hastings High Yield Fund HHY % % -13.5% External na Not Rated Aurora Absolute Return Fund ABW % % -7.6% External na Not Rated Other Specialist Blue Sky Alternatives Access Fund BAF % % 1.9% External 1.20 Not Rated URB Investments URB % % 1.3% External 0.50 Duxton Water Limited D2O % % -3.3% External 0.85 Not Rated Thorney Technologies Ltd TEK % % 4.2% External 0.75 Not Rated *Based on fully paid ordinary shares available for trade. **Pre-tax NTA includes tax paid on realised gains. Source: ASX/IRESS 4

5 Performance Australian Share Focus ASX Code NTA (plus dividends) Return (%) Share Price (plus dividends) Return (%) Benchmark Australian Shares - Large Cap 1 Mth 3 Mths 1 yr 3 yrs 5 yrs 1 Mth 3 Mths 1 yr 3 yrs 5 yrs Australian Foundation Investment Company AFI S&P/ASX 200 Acc Index Argo Investments ARG S&P/ASX 200 Acc Index Milton Corporation MLT All Ordinaries Acc Index BKI Investment Company BKI S&P/ASX 300 Acc Index Australian United Investment AUI ASX 300 Acc Index Djerriwarrh Investments DJW S&P/ASX 200 Acc Index Diversified United Investments DUI ASX 300 Acc Index WAM Leaders Limited WLE na na na na S&P/ASX 200 Acc Index Whitefield Limited WHF S&P/ASX 200 Industrials Acc (XJOAI) Index Plato Income Maximiser PL na na na na na na S&P/ASX 200 Franking Credit Adjusted Daily Total Return Index (Tax-exempt) AMCIL Limited AMH S&P/ASX 200 Acc Index Wealth Defender Equities WDE na na na na na Absolute Equity Performance Fund AEG na na na na na Century Australia CYA S&P/ASX 300 Acc Index Ironbark Capital IBC na Aberdeen Leaders ALR S&P ASX 200 Acc Index Aust Governance Masters Index Fund AQF S&P/ASX 100 Acc Index Flagship Investments FSI All Ordinaries Index CBG Capital CBC na na na na S&P/ASX 200 Acc Index Aurora Property Buy Write Inc. Trust AUP RBA Cash Rate Australian Shares - Mid/Small Cap WAM Capital WAM All Ordinaries Acc Index Carlton Investments CIN S&P/ASX 200 Acc Index Mirrabooka Investments MIR S&P/ASX Mid Cap 50 s Acc Index, S&P/ASX Small Ordinaries Acc Index Future Generation Investment Fund FGX na na All Ordinaries Acc Index QV Equities QVE na na na WAM Research WAX All Ordinaries AccIndex Forager Australian Shares Fund FOR na na na 8% Absolute WAM Microcap Limited WMI 1.3 na na na na 3.4 na na na na Contango MicroCap CTN ASX All Ordinaries Acc Index Westoz Investment Company WIC Absolute return focus Thorney Opportunities TOP na na Naos Emerging Opp Company NCC na na Small Ordinaries Acc Index (XSOAI) Contango Income Generator CIE na na na na All Ordinaries Acc Index Ozgrowth Limited OZG Absolute return focus Naos Absolute Opportunities Coy. NAC na na na na na Sandon Capital Investments SNC na na na Lion Select Group LSX na na na Acorn Capital Inv Fund ACQ na na na WAM Active Limited WAA All Ordinaries Acc Index Ryder Capital RYD na na na na na Glennon Small Companies Fund GC na na na na ASX Small Ords Acc Index 8IP Emerging Companies 8EC na na na na ASX Emerging Co. Acc Index Katana Capital Limited KAT na Barrack St Investments BST na na All Ordinaries Accum Index Bentley Capital BEL na Orion Equities OEQ na Australian/International Shares - Blended Cadence Capital CDM All Ordinaries Acc Index Perpetual Investment Company PIC na na na na na Clime Capital CAM na Mercantile Investment Company MVT na Sunvest Corporation SVS na 5

6 Performance International Shares & Specialist Focus ASX Code NTA (plus dividends) Return (%p.a) Share Price (plus dividends) Return (%p.a) International Shares - Diversified 1 Mth 3 Mths 1 yr 3 yrs 5 yrs 1 Mth 3 Mths 1 yr 3 yrs 5 yrs MFF Capital Investments MFF na Benchmark Platinum Capital PMC MSCI All Country World Net Index in A$ PM Capital Global Opportunities Fund PGF na na na Antipodes Global Investment Company Ltd APL na na na na na na MSCI All Country Word Net Index (AUD) Future Generation Global Investment Company FGG na na na na MSCI World Index AUD Templeton Global Growth TGG MSCI All Country World Free Index Hunter Hall Global Value HHV Contango Global Growth Limited CQG -0.6 na na na na -4.5 na na na na MSCI Total Return Index, Net Dividends Reinvested in Australian dollars Ellerston Global Investments EGI na na na na na Morphic Ethical Equities Fund MEC na na na na na na Fat Prophets Global Contrarian Fund FPC na na na na na na International Shares - Emerging Markets MSCI All Countries World Daily Total Return Net Index Increase in value of investment portfolio above previous high Platinum Asia Investments PAI na na na na na Emerging Markets Masters Fund EMF na na MSCI Emerging Mkt Index Asian Masters Fund AUF MSCI AC Asia ex Japan Index Ellerston Asian Investments EAI na na na na na PM Capital Asian Opportunities Fund PAF na na na International - Specialist Argo Global Listed Infrastructure ALI na na na na na Evans & Partners Global Disruption Fund EGD na na na na na na na na na na na Global Value Fund GVF na na BBSW 1 year swap rate + 4 Zeta Resources ZER na na na Global Masters Fund GFL S&P 500 US Index Aurora Global Income Trust AIB UBS Australia Bank Bill Index Private Equity Funds US Select Private Opportunities Fund USF na US Select Private Opportunities Fund II USG na na Absolute Return w H/W Mark US Select Private Opportunities Fund 3 USP na na na na 8% Absolute Bailador Technology Investments BTI na na na na 8% p.a. compound IPE Limited IPE na Absolute Return Funds Australian Leaders Fund Limited ALF All Ordinaries Acc Index Watermark Market Neutral Fund WMK na na na Watermark Global Leaders Fund Limited WGF na na na na na na RBA Cash Rate Arowana Australasian Value Op. Fund AWQ na na na na na Monash Absolute Investment Company Limited MA na na na na na Alternative Investment Trust AIQ na Hastings High Yield Fund HHY na Aurora Absolute Return Fund ABW RBA Cash Rate Other Specialist Blue Sky Alternatives Access Fund BAF na na na URB Investments URB na na na na na na 8% increase in NTA (after ordinary dividends) Duxton Water Limited D2O na na na na na na 8% Absolute Thorney Technologies Ltd TEK na na na na na na Increase in NAV Benchmark Returns S&P/ASX 50 Accumulation Index XFLAI na na na na na na S&P/ASX 200 Accumulation Index XJOAI na na na na na na S&P/ASX 300 Accumulation Index XKOAI na na na na na na All Ordinaries Accumulation Index XAOAI na na na na na na Small Ordinaries Accumulation Index XSOAI na na na na na na S&P/ASX 200 Industrials Accumulation Index XJIAI na na na na na na S&P/ASX 200 Resources Accumulation Index XMJAI na na na na na na RBA Cash Rate at 31 August 2017: 1.5% Source: ASX/IRESS Note: Share Price and NTA are adjusted using adjustment factors provided by IRESS. 6

7 ASX Active ETFs About ASX Active ETFs Active ETFs are a relatively new type of exchange traded product (ETP) traded on the ASX. While traditional exchange traded funds (ETFs) adopt passive strategies that synthetically track the performance of an index or other benchmark, Active ETFs are actively managed funds. The legal structure is the same as a traditional managed fund, but the units can be bought and sold on the ASX just like shares. Unlike listed investment companies, Active ETFs are open ended with the manager acting as market maker. This ensures the units trade close to net asset value. The manager issues new units as required to meet market demand. Pricing & Rating Australian Share Strategies ASX Code Market Cap ($) Last Price ($) Dividend Yield Aurora Dividend Income Trust AOD % Not Rated Betashares Aus Top20 Equity Yield Max Fund YMAX % na 0.59 Not Rated Betashares Australian Dividend Harvester Fund HVST % na 0.65 Not Rated BetaShares Australian Equities Bear Hedge Fund BEAR % na 1.19 Not Rated Betashares Australian Equities Strong Bear Hedge Fund BBOZ % na 1.19 Not Rated Betashares Geared Australian Equity Fund GEAR % na 0.80 Not Rated Betashares Managed Risk Australian Share Fund AUST % na 0.39 Not Rated K2 Australian Small Cap Fund KSM % BetaShares Australian Small Companies Fund (Managed Fund) SMLL % na 0.39 Not Rated Switzer Dividend Growth Fund SWTZ % International Share/Security Strategies AMP Capital Global Infrastructure Securities Fund (Unhedged) GLIN % na 0.95 Not Rated AMP Capital Global Property Securities Fund (Unhedged) RENT % na 0.99 Not Rated BetaShares Geared U.S. Equity Fund - Currency Hedged GGUS % na 0.74 Not Rated Betashares Managed Risk Global Share Fund WRLD % na 0.39 Not Rated BetaShares S&P 500 Yield Maximiser Fund UMAX % na 0.59 Not Rated K2 Global Equities Fund KII % Not Rated Magellan Global Equities Fund MGE % Not Rated Magellan Global Equities Fund (Currency Hedged) MHG % Not Rated Schroders Real Return Fund (Managed Fund) GROW % na 0.90 Not Rated AMP Capital Dynamic Markets Fund (Hedge Fund) DMKT % na 0.48 Not Rated Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) MICH % na 0.95 Not Rated Commodity & Currency Strategies Betashares Strong Australian Dollar Fund (Hedge Fund) AUDS % na 1.38 Not Rated Betashares Strong US Dollar Fund (Hedge Fund) YANK % na 1.38 Not Rated Performance ASX Code NAV (plus dividends) Return (%p.a) Share Price (plus dividends) Return (%p.a) Australian Share Strategies 1 Mth 3 Mths 1 year 3 years 5 years 1 Mth 3 Mths 1 year 3 years 5 years Aurora Dividend Income Trust AOD Betashares Aus Top20 Equity Yield Max Fund YMAX na na na na na % na Betashares Australian Dividend Harvester Fund HVST na na na na na na na BetaShares Australian Equities Bear Hedge Fund BEAR na na na na na Betashares Australian Equities Strong Bear Hedge Fund BBOZ na na na na na na na Betashares Geared Australian Equity Fund GEAR na na na na na na Betashares Managed Risk Australian Share Fund AUST na na na na na na na K2 Australian Small Cap Fund KSM na na na na BetaShares Australian Small Companies Select Fund (Managed Fund) SMLL na na na na na na na na Switzer Dividend Growth Fund SWTZ na na na na na na na na International Share/Security Strategies AMP Capital Global Infrastructure Securities Fund (Unhedged) GLIN na na na na na na na AMP Capital Global Property Securities Fund (Unhedged) RENT na na na na na na na BetaShares Geared U.S. Equity Fund - Currency Hedged GGUS na na na na na na na Betashares Managed Risk Global Share Fund WRLD na na na na na na na BetaShares S&P 500 Yield Maximiser Fund UMAX na na na na na na na K2 Global Equities Fund KII na na na na Magellan Global Equities Fund MGE na na na na Magellan Global Equities Fund (Currency Hedged) MHG na na na na Schroders Real Return Fund (Managed Fund) GROW na na na na na na na AMP Capital Dynamic Markets Fund (Hedge Fund) DMKT na na na na na na na Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) MICH na na na na Commodity & Currency Strategies Betashares Strong Australian Dollar Fund (Hedge Fund) AUDS na na na na na na na na Betashares Strong US Dollar Fund (Hedge Fund) YANK na na na na na na na na NAV ($) Fee IIR Rating 7

8 WHO IS IIR? Independent Investment Research, IIR, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity. IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology. INDEPENDENCE OF RESEARCH ANALYSTS Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts. Supervision and reporting lines: Analysts who publish research reports are supervised by, and report to, Research Management. Research analysts do not report to, and are not supervised by, any sales personnel nor do they have dealings with Sales personnel Evaluation and remuneration: The remuneration of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients. INDEPENDENCE ACTIVITIES OF ANALYSTS IIR restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research. Pitches: Research analysts are not permitted to participate in sales pitches for corporate mandates on behalf of a Broker and are not permitted to prepare or review materials for those pitches. Pitch materials by investor clients may not contain the promise of research coverage by IIR. No promotion of issuers transactions: Research analysts may not be involved in promotional or marketing activities of an issuer of a relevant investment that would reasonably be construed as representing the issuer. For this reason, analysts are not permitted to attend road show presentations by issuers that are corporate clients of the Firm relating to offerings of securities or any other investment banking transaction from that our clients may undertake from time to time. Analysts may, however, observe road shows remotely, without asking questions, by video link or telephone in order to help ensure that they have access to the same information as their investor clients. Widely-attended conferences: Analysts are permitted to attend and speak at widely-attended conferences at which our firm has been invited to present our views. These widely-attended conferences may include investor presentations by corporate clients of the Firm. Other permitted activities: Analysts may be consulted by Firm sales personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations. Analysts may also carry out preliminary due diligence and vetting of issuers that may be prospective research clients of ours. INDUCEMENTS AND INAPPROPRIATE INFLUENCES IIR prohibits research analysts from soliciting or receiving any inducement in respect of their publication of research and restricts certain communications between research analysts and personnel from other business areas within the Firm including management, which might be perceived to result in inappropriate influence on analysts views. Remuneration and other benefits: IIR procedures prohibit analysts from accepting any remuneration or other benefit from an issuer or any other party in respect of the publication of research and from offering or accepting any inducement (including the selective disclosure by an issuer of material information not generally available) for the publication of favourable research. These restrictions do not preclude the acceptance of reasonable hospitality in accordance with the Firm s general policies on entertainment, gifts and corporate hospitality. DISCLAIMER This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research ( IIR ) (ABN ), an corporate authorised representative of Australian Financial Services Licensee (AFSL no IIR has been commissioned to prepare this independent research report (the Report ) and will receive fees for its preparation. Each company specified in the Report (the Participants ) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the Participants, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication. IIR, its officers, employees and its related bodies corporate have not and will not receive, whether directly or indirectly, any commission, fee, benefit or advantage, whether pecuniary or otherwise in connection with making any statements and/or recommendation (if any), contained in this Report. IIR discloses that from time to time it or its officers, employees and related bodies corporate may have an interest in the securities, directly or indirectly, which are the subject of these statements and/or recommendations (if any) and may buy or sell securities in the companies mentioned in this publication; may affect transactions which may not be consistent with the statements and/or recommendations (if any) in this publication; may have directorships in the companies mentioned in this publication; and/or may perform paid services for the companies that are the subject of such statements and/or recommendations (if any). However, under no circumstances has IIR been influenced, either directly or indirectly, in making any statements and/or recommendations (if any) contained in this Report. The information contained in this publication must be read in conjunction with the Legal Notice that can be located at