Product Assessment. AMP Capital Global Property Securities Fund (Unhedged) (Managed Fund) Report data as at 31 Aug 2016 Rating issued on 17 Oct 2016

Transcription

1 Report data as at 31 Aug 2016 Rating issued on 17 Oct 2016 Product Assessment Highly Recommended Recommended Approved Not Rated Redeem AMP Capital Global Property Securities Fund (Unhedged) (Managed Fund) APIR Code ASX:RENT Asset / Sub-Asset Class Property Exchange Traded Fund - ETF Investment Style Active Investment Objective The investment objective of the Fund is to outperform the FTSE EPRA/NAREIT Developed Index AUD Net TRI (unhedged), over rolling three year periods. Zenith Assigned Benchmark FTSE EPRA/NAREIT Developed (Hdg) $A - Composite Net Returns (% p.a.) Since Inception Fund Benchmark 2.60 Median 2.41 Fees (% p.a., Incl. GST) Management Cost: 0.99% Performance Fee: Nil VIEWPOINT & RATING The AMP Capital Global Property Securities Fund (Unhedged) (Managed Fund) is a global listed property strategy accessible via units which are quoted on the ASX AQUA market (ASX:RENT). Similar to Exchange Traded Funds (ETFs), a market making function is in place to maximise efficiency in pricing around the underlying net asset value during trading hours. The strategy is managed by AMP Capital's dedicated global listed real estate investment team and employs a bottom-up and top-down investment approach with a strong focus on valuation and quality. Zenith maintains a positive view of the globally integrated team and process. Zenith rates RENT RECOMMENDED. Following the severance of AMP Capital's relationship with Brookfield Investment Management, Matthew Hoult was appointed and accordingly, made a series of wholesale changes to the investment team and process, including integrating the investment team. The investment team operate under a globally collegiate approach, with investment personnel located in Sydney, Hong Kong, London and Chicago. In a development since our last review, James Maydew has been promoted to Co-Head of Global Listed Real Estate in recognition of his increasing contribution and importance within the team. Zenith has met with Hoult and Maydew on numerous occasions and believe they are well suited to lead the investment team and have successfully instilled a strong collegiate approach to the management of the strategy. Hoult and Maydew lead an investment team of 15, covering the Americas, Europe and Aisa Pacific regions. While Hoult and Maydew retain ultimate responsibility, the team continue to operate under a flat structure, with all members involved in decisions pertaining to portfolio construction. Disappointingly, the team experienced three significant departures in recent times including Co- Deputy Head of Global Listed Property, Tom Walker, Senior Portfolio Manager, Hugo Machin, and Chicago based Co-Head of North American Listed Real Estate, Bob Thomas. While Zenith views these departures as a loss for the team, AMP Capital have relocated investment personnel where deemed pertinent, which we believe is an illustration of the globally integrated investment team. Overall, Zenith believes under the leadership of Hoult and Maydew the team continue to progress, however, Zenith are keen to observe a period of stability to further bolster our level of conviction. The strategy adopts a bottom-up and top-down investment approach with a strong focus on valuation and quality. The strategy is expected to predominantly add value through stock selection (65% contribution to performance), with country/regional allocation and sector allocation providing further support (20% and 15%, respectively). The portfolio construction process is largely an outworking of the bottom-up stock selection, in combination with the insights drawn from the collective knowledge of the broader investment team. The strategy is expected to have an annualised Tracking Error of between 2% and 5% and is expected to hold between 50 and 60 securities. However, Zenith notes that the number of holdings has been progressively declining through time. Zenith believes this is reflective of the high conviction approach and as such, the portfolio may generate returns that differ from that of the benchmark. Overall, Zenith believes the process is well engineered and transparent. FUND FACTS AMPCI's global listed property strategy available via the ASX AQUA platform Actively managed GREIT exposure Systematic approach to risk management Unhedged exposure RENT market cap is $10.4 million as at 31 July 2016 ABSOLUTE RISK (SECTOR) VERY HIGH HIGH MODERATE LOW VERY LOW INCOME DISTRIBUTIONS PER MONTH QUARTER 6 MONTH ANNUM RELATIVE RISK (FUND WITHIN SECTOR) Geared Active - Long Short Active - High Conviction Active - Benchmark Aware Index - Enhanced/Fundamental Index INVESTMENT TIMEFRAME 1-2 YRS 3-4 YRS 5-6 YRS 7+ YRS Zenith charges a fee to the Product Issuer to produce this report. For further information please refer to the Disclaimer & Disclosure at the end of this report.

2 APPLICATIONS OF INVESTMENT SECTOR CHARACTERISTICS The Zenith Exchange Traded Funds sector incorporates a range of ETF styles including: Market Beta ETFs; Alternative Beta ETFs; and Active ETFs. These products may encompass a range of strategies across the market capitalisation spectrum or adopt sector specific themes. Zenith benchmarks all ETFs against their specific benchmarks as well as against a relevant broadmarket Index as an additional yardstick where relevant. The listed global property market, as an asset class, can offer investors advantages including: low correlation to other asset classes and inflation hedging qualities. While Zenith acknowledges that various funds are benchmarked against different indices, to ensure consistency, we benchmark all funds in this space against the FTSE EPRA/NAREIT Developed Index. The index is marketcapitalisation weighted, resulting in companies with the largest market capitalisations receiving the heaviest weightings. Over the longer-term, we believe there will not be a material difference between the return profiles of the underlying indices. However, periods of variance will occur over shorter periods. The listed global property market, as represented by the FTSE EPRA/NAREIT Developed Index, consists of approximately 320 stocks. The global listed property market offers a broader set of investment opportunities than the Australian listed property market. The largest constituent, Simon Property Group, accounts for almost 5% of the Index. In terms of geographical diversification, the US listed or domiciled stocks dominate the index. Given the income pass through characteristic of much of the listed global property sector, it is expected to display greater distribution consistency of returns than the broader equities market. However, hedging practices of some underlying fund managers may hinder or even halt income distributions. PORTFOLIO APPLICATIONS Global real estate has historically offered investors a stable stream of income, long-term capital growth potential and diversification benefits. An allocation to global property within a well-diversified portfolio may improve the portfolios risk/return profile. Zenith believes RENT could be used to reduce the volatility of an investor's existing growth-orientated portfolio, whilst also providing attractive returns. According to Zenith's analysis, global listed property traditionally has a low correlation with all major asset classes, including international shares, Australian shares and Australian bonds. In addition, given the influence of local economic and market conditions on the performance of listed property in each region, there is a relatively low correlation between regions - when compared to the regional correlation of equities - due to distinct nuances in regional leasing structures and macroeconomic characteristics. As a result, by investing in a global listed property fund, investors gain diversification benefits by investing across several regional listed property markets. Investors need to be cognisant that the hedging process can impact the make-up of returns. Given realised gains and losses from hedging activities are treated as income, this may result in excessive volatility in the Fund's income distribution. This was seen in 2009 with many G-REIT managers unable to pay distributions. From an asset allocation perspective, given that the strategy has the option to invest in Australia, it could be utilised either as a core property exposure as part of an investor's welldiversified portfolio or blended with a highly rated Australian LPT fund - for investors seeking a higher overall portfolio yield (the yields of Australian LPTs are generally higher than their global counterparts). Liquidity Units quoted on the ASX AQUA platform may be purchased and sold via a standard broking service in a similar fashion to equities. Like traditional ASX transactions, settlement is via CHESS. Units traded on the AQUA platform are subject to liquidity. AMPCI has invested $10 million of its own capital in RENT to kickstart liquidity as well as aid in alignment of interests. RENT also facilitates an intraday market making function in conjunction with an independent market participant to execute RENT's market making activities. At the end of each day, units are created or cancelled to clear RENT's net market making position. The aim is to provide an efficient pricing environment in which investors can purchase RENT units. Creations/redemptions are in cash only, not in-specie. It should be noted that RENT bears the risk of its market making activities and such activities result in either a net benefit or loss to RENT. AMP have not indicated any specific repatriation schedule for their seed funding to RENT. Management have informally indicated their preparedness to maintain this funding to ensure RENT market making activities are efficient. AMPCI provides an intraday indicative Net Asset Value (inav) which is published on a continuous basis on the RENT website. inav reflects adjustments for exchange rates, portfolio changes and equity price movements. Given the fact that parts of the portfolio trades on international exchanges outside ASX trading hours, the inav is exposed to elements of 'stale' pricing at certain times (i.e. whenever portfolio stocks do not have live trading prices during the ASX trading day. RENT's inav only updates for live market prices. Given the current composition of the strategy, the majority of movements in the inav only reflect movements in foreign exchange. Given that AMPCI is in the best position to price its own portfolio (as opposed to a third party market maker), Zenith believes that this process is fairly efficient. However there is no guarantee that the spread between unit prices and RENT's NAV will be efficient at all times. Given the minimal trading data to date, Zenith is unable to quantify the level of pricing efficiency this structure creates. We note however that RENT is aiming to deliver a total spread of <1% around the NAV and that to date results have been generally within this range. RISKS OF THE INVESTMENT Page 2 of 11

3 SECTOR RISKS There exist a number of risks that are generally common amongst all global property securities funds. These include: MARKET RISK: As is the case with all Global listed property funds, the biggest risk to performance is a sustained downturn in global share markets. This risk can be significantly reduced by investors adhering to the strategy's prescribed investment timeframe. SPECIFIC SECURITY RISK: This is the risk associated with an individual security. The price of shares in a company may be affected by unexpected changes in that company s operations such as changes in management or the loss of a significant tenant. LIQUIDITY RISK: This is the risk that a security or asset cannot be traded quickly enough in the market to prevent loss (or make the necessary profit). When trading volumes are low, sellers can significantly impact the price of a security when attempting to quickly exit a material position. SECTOR RISK: There are a number of factors which may affect the real estate sector, which include the cyclical nature of real estate values, overbuilding and increased competition, increases in property taxes and operating expenses, demographic trends and variations in rental income, changes in the appeal of properties to tenants, increases in interest rates, the level of gearing in the property market, and other real estate capital market influence. COUNTRY RISK: Refers to potential adverse political, economic or social developments affecting the return on an investment in that country. Examples are political instability, recession and war. Any investment in emerging market countries is likely to carry a higher country risk than those in developed countries. CURRENCY RISK: The risk that fluctuations in exchange rates between the Australian dollar and foreign currencies may cause the value of the investments to decline significantly. In the event the fund is hedged to the AUD, the exposure to currency risk may be significantly reduced. GEARING RISK: Some companies may borrow funds to increase potential returns, a technique that can magnify both returns and losses. INCOME RISK: Income levels may vary over time and investors should note that past distributions are not a guarantee of future distributions. Investors should also be aware that some funds have the capacity to distribute capital periodically. Currency hedging practices may also affect income distributions for some funds. FUND RISKS Zenith has identified the following key risks associated with the Fund; this is not intended to highlight all possible risks: KEY PERSON RISK: While Zenith considers the depth of the broader AMP Capital team to be strong, we consider Hoult and Maydew to be an integral part of this strategy given their extensive industry experience and management skills. Zenith believes the recent elevation in team turnover has increased the level of key person risk associated with the most senior members of the investment team. Zenith believes a period of team stability is critical to the ongoing performance of the strategy. TEAM DYNAMIC RISK: Given the heightened level of turnover recently experienced by the team, there is the possibility that new team members inadvertently change the inclusive team dynamic that Hoult has spent considerable time developing. However, the ability to transfer investment team members across regions partially reduces this risk. CONCENTRATION RISK: The portfolio will typically hold between 50 and 60 stocks, which may lead to a higher degree of stock specific risk. Higher levels of concentration usually results in a higher Standard Deviation and Tracking Error, relative to a more diversified global property offering ASX AQUA RISK: Although RENT is quoted on the ASX AQUA platform, liquidity may be limited if RENT does not efficiently provide liquidity via market making. The ASX may suspend trading under certain circumstances. inav RISK: Intraday unit pricing published by RENT(iNAV), is indicative only and may not accurately reflect issues such as currency movements or stocks in the portfolio which are trading outside the hours of operations of the ASX. MARKET MAKING RISK: RENT relies on market making activities to minimise any dislocation between the unit price and underlying value of the portfolio. There is the risk that such activities may not be effective, result in unexpected costs and/or errors in execution. QUALITATIVE DUE DILIGENCE ORGANISATION AMP Capital (AMPC) is a majority owned subsidiary of Australian Stock Exchange (ASX) listed parent AMP Ltd. A diversified financial services company, AMPC has investment operations that span multiple geographies including Australia, Bahrain, China, Hong Kong, India, Japan, Luxembourg, New Zealand, Singapore, the United Kingdom, and the United States. On 31 March 2011, AMP Ltd. acquired AXA Asia Pacific Holdings' Australia and New Zealand operations. Under the umbrella AMP Group, the merged entity is now among the five largest asset managers in Australia, employing over 250 investment personnel worldwide, and FUM of approximately $156.5 billion as at 31 March The Firm has investment capabilities across each of the major asset classes. In March 2012, Mitsubishi UFJ Trust and Banking Corporation (Mitsubishi) announced the acquisition of a 15% strategic stake in AMPC. As part of this arrangement, Mitsubishi agreed to be the sole distributor of AMPC products to the Japanese retail market. AMPCI have experienced growth in Funds Under Management (FUM) since Hoults' appointment, with approximately $8.2 billion in the strategy and approximately $10 million within RENT (as at 31 July 2016). INVESTMENT PERSONNEL Page 3 of 11

4 Name Title Tenure Matthew Hoult James Maydew Mark Ferguson Matthew Hodgkins Joseph Pavnica Charles Wong Co-Head of Global Listed Real Estate Co-Head of Global Listed Real Estate Portfolio Manager - Head of Australian Securities Senior Portfolio Manager- Head of EMEA Senior Portfolio Manager - Americas Senior Portfolio Manager - Asia 4 Yr(s) 10 Yr(s) 10 Yr(s) 4 Yr(s) 4 Yr(s) 10 Yr(s) AMP Capital's Property team continues to operate under a globally collegiate approach, with investment analysts located in Sydney, Hong Kong, London and Chicago. As a result of AMP Capital's decision to take full control of all aspects of their listed property funds, Matthew Hoult was appointed to the position of Head of Global Listed Real Estate and tasked with the responsibility of building out the global investment team. Hoult has 17 years of industry experience, specialising in global property securities since Prior to joining AMP Capital, Hoult spent seven years at BNP Paribas Investment Partners, where he held several senior roles, most notably he was Chief Investment Officer of Global Property. Zenith continues to believe Hoult is instrumental in the success of the broader team, with a proven ability to successfully instil a strong working culture amongst all members of the investment team. In a development since our last review, James Maydew has been promoted to Co-Head of Global Listed Real Estate. Zenith believes this is in recognition of his increasing contribution and importance within the team. Maydew has been with AMP Capital since April 2006 and has 11 years industry experience. Previously Maydew worked with a global real estate consultancy firm in London. As a result of his promotion, Maydew will relinquish his stock responsibilities. Zenith believes that despite this being a loss from a stock research perspective, it is a logical development and allows Maydew to focus on his portfolio management and broader managerial responsibilities. Zenith has met with Maydew on several occasions and continue to hold him in high regard owing to his portfolio management skills and broader business acumen. The regional teams consist of three to four analysts with experienced members in Joseph Pavnica (Americas), Matthew Hodgkins (EMEA), Mark Ferguson (Asia Pacific) leading their respective regions. Since our last review, in light of the continued evolution of the global integration, AMP Capital have formally combined the Asia and Australian coverage to create a combined Asia Pacific coverage universe. Zenith believes this is a logical development and is in keeping with the truly global approach. While the teams in Chicago, Hong Kong and Sydney have responsibilities allocated along sectoral lines, the team in London do not allocate responsibilities to targeted individual sectors or countries and share coverage of Europe, Middle East and Africa (EMEA). With the aim of providing a truly global product, analysts from one region will maintain secondary coverage of stocks from another region. Zenith believes this initiative provides team members with a vehicle for career development, thereby assisting AMP Capital with staff retention. Furthermore, Zenith believes this is important given the elevated level of team relocations in recent periods and provides an avenue to leverage the knowledge of the broader global team who have rotated their primary stock coverage. While the team have observed a period of stability in the short term, the team experienced an increased level of turnover with the loss of two senior members of the investment team from the London office in Co-Deputy Global Portfolio Manager, Tom Walker and Senior Portfolio Manager, Hugo Machin in In addition to these departures, Bob Thomas, Co-Head of North American Listed Real Estate departed AMP Capital in In response to the departures from the London office, AMP Capital relocated Hodgkins from Chicago to assume the role of Head of European Listed Real Estate and Ryan Watson, Portfolio Manager/Analyst from Sydney. Both Hodgkins and Watson provided secondary coverage of stocks in the region previously which provides some continuity of coverage. In addition to the relocation of Hodgkins and Waston, AMP Capital hired Jamie O'Donnell, Portfolio Manager/Analyst to round out the London based team. Furthermore, the team relocated James Holliday-Smith to the Chicago office and appointed Jeremy Brown to the Sydney office. Given the heightened level of turnover and subsequent relocation of investment personnel, Zenith would prefer to see a period of stability maintained going forward. While Hoult and Maydew are ultimately responsible for the strategy, the team operate under a relatively flat structure. A key component of this is the fluidity of communication and information flow amongst the broader team. A weekly global call is attended by all members of the investment team. The meeting serves as an open forum for investment ideas to be discussed and debated, changes to the strategy are also considered. Furthermore, each region will hold separate weekly meetings, which are also attended by secondary analysts. Zenith believes the flat structure lends itself to a high degree of responsibility and inclusion of each investment team member. However, we believe it simultaneously exposes the team to potential limitations in career progression for senior members. That said, Zenith believes Hoult and Maydew are aware of this issue and seek to overcome this risk by facilitating continued career progression for the investment team. Overall, despite the potential difficulties in retaining senior investment personnel, Zenith believes under the leadership of Hoult and Maydew the team continue to progress, with the evolution of the globally integrated approach being of benefit to the strategy. INVESTMENT PROCESS The investment objective of the strategy is to outperform the FTSE EPRA/NAREIT Developed Rental Index Hedged in AUD, over rolling three year periods. The strategy adopts a bottom-up and top-down investment approach with a strong focus on valuation and quality. The strategy is expected to predominantly add value through stock Page 4 of 11

5 selection (65% contribution to performance), with country/regional allocation and sector allocation providing further support (20% and 15%, respectively). Upon the appointment of Hoult, the investment process experienced material changes. The following are some of the key changes and enhancements that Hoult implemented. A more systematic approach to risk management at each stage of the investment process Increased transparency and flexibility in the top-down asset allocation process Added flexibility to the valuation models and techniques The score-based portfolio construction framework Zenith believes the changes are conducive to a more interactive and complex investment process, while still retaining a focus on valuation. SECURITY SELECTION The stock selection process begins with thorough fundamental, valuation-based, bottom-up research analysis, which is then complemented by a top-down overlay. The research effort is globally integrated with on-the-ground support in key markets around the globe. Collectively, the team conducts over 500 property visits and meetings with management, gaining a further understanding of the property fundamentals and key value drivers. Although the strategy's investable universe includes any listed stock that is primarily engaged in real estate related activities, stocks in the portfolio are generally derived from the FTSE EPRA/NAREIT Developed Rental Index (the strategy benchmark). Stocks in the benchmark must derive at least 70% of the next three year's forecasted total revenue from the rental income of real estate properties. Non-benchmark stocks must offer a strong possibility of exceptional returns to be included in the strategy. The majority of stocks are excluded due to liquidity reasons. Fundamental Research The fundamental research component of the stock selection process comprises assessments of three key factors: quality; volatility (upside and downside potential); and valuation; with each factor scored out of 10. Quality Each stock is given a quality score (Q-score) based on analysts' assessment of its fundamentals. Research inputs into the Q-score include: Capital structure Assets Sustainability/ESG Management Thematics/sentiments/catalysts Volatility Recognising that the upside of a stock is not the same as the downside, Hoult and the team assign each stock a positive V- score (+V-score) and negative V-score (-V-score). The V- scores are assigned independently of each other to reflect the asymmetric nature of a company's risks. Research inputs into the V-scores include: Asset quality Management Balance sheet Exogenous factors, like natural disasters and regulatory risks Marginal pricer Valuation To assess a company's warranted total return expectation (W- Score), analysts are given the flexibility to choose the valuation methods that are deemed most suitable. Each stock in the universe will be ranked based on its warranted total return expectation. The W-score pertains to the decile in which the stock's warranted total return is ranked in, that is, a stock in the top decile will be given a score of 10 and a bottom decile stock a 1. The valuation methods used to derive the warranted total return expectations are: Balance sheet metrics: net tangible assets; net asset value; price/book value; sum of the parts; return on equity; and return on assets Cash flow metrics: adjusted funds from operations; funds from operations; and discounted cash flows Profit and loss metrics: dividend discount model; dividend yield/spread; and core/recurring earnings Alternative metrics: internal rate of return; price/earnings ratios; enterprise value/earnings before interest; merger and acquisition synergies; and economic value-add Real estate-specific metrics: implied capitalisation rate; implied value per square metre; and replacement cost The flexibility for analysts to choose the appropriate valuation method has been a key change that Hoult has instigated, which was made in consultation with the entire team. Zenith views the flexibility to be an enhancement for the strategy, with the analysts afforded the ability to tailor the valuation model based on the specifics of the company. Macroeconomic Research Top-down macroeconomic research is a critical component of the stock selection process, it is used by the team to identify trends and catalysts within and between regions. This may also be used as an idea generation tool. The team's macroeconomic views are aggregated to produce an M-score (a score out of 10). Factors assessed to produce the M-score are: Demographics Economic variables (short and long-term) Financials Valuation Sentiment Volatility Once a stock has been fully researched, the analyst responsible will enter the appropriate scores into the global database. Zenith believes the global database promotes transparency and a level of robustness. Furthermore, Zenith believes this is an illustration of the globally integrated nature of the process. To further enhance transparency of the scores analysts assign to each stock, peer review is conducted. It is the responsibility Page 5 of 11

6 of the analyst to convince all team members of the merits of their assigned scores. If the analyst is unable to convince all team members, they will undertake further research and adjust the scores accordingly. Zenith believes the peer review process has become more robust with the global integration approach as analysts are now more aware and knowledgeable on stocks from other regions. Zenith believes this process is of heightened importance given the elevated level of relocation of investment personnel who have rotated their primary coverage. Overall, Zenith believes the stock selection process is detailed and underpinned by a well-established investment process. Furthermore, the quantifiable nature of each component (the scores), ensures a transparent display of the team's views and provides a foundation for the global investment team to deliberate relative valuations. PORTFOLIO CONSTRUCTION Despite employing a collegiate approach to portfolio construction, Hoult and Maydew retain ultimate accountability. Once an analyst has identified an attractive stock based on the Q, V, W and M-scores, the idea is presented to the group via the global weekly call. Zenith believes the delineation of ultimate responsibility to Hoult and Maydew to be logical, ensuring an appropriate level of accountability is retained by the Co-Heads. However, Zenith views the additional scrutiny of the global team as an enhancement to the process. Portfolio construction is closely tied to the output of the stock selection process. The Q, V, W-scores assigned to each stock are used not only to identify and rank stocks, importantly they are used as a tool to determine the stock's active weighting in the strategy. The scores are aggregated geometrically rather than arithmetically to accentuate the impact of higher scores. As such, high scores are heavily scrutinised by the entire team, with the analyst responsible for the stock having to convince all team members of its merits before it is to be included in the strategy. The Q-score dictates the potential active weighting ranges of a stock. A high Q-score (above 5) would cause a shift in the active weighting ranges towards and overweighting of the stock, while a low Q-score (less than 5) would drive the bands to favour an underweighting of the stock. By way of example, a stock with a neutral Q-score will start with the ranges of -5% to 5%, a high Q-score (above 5) may shift the ranges to -3% to 7%. The V-scores are used to asymmetrically constrict the active weight bands set by the Q-scores. The +V-score is used to determine the potential underweight floor of the position. Using the same example above, a stock with a high +V-score (above 5) will change the initial floor to -3% from the initial -5%, while maintaining the ceiling at 5%. In contrast to the +V-score, the - V-score works to reduce the potential overweight ceiling of the position. The W-score is then used to narrow the investment range further, with the score indicating the level of the over or under weight position. A high W-score (above 5) will result in a scaling towards an overweighting of the stock. Using the same example, assuming neutral Q and V-scores, A high W-score (above 5) may target an overweighting of 3% within the initial ranges of -5% to 5%. The M-score provides a top-down overlay, which helps determine the active weighting ranges for each region/country. The currency exposure is fully hedged through an overlay utilising rolling monthly currency forwards. The hedging process is not considered or integrated in the investment process. The strategy is expected to have a Tracking Error of between 2% and 5% and is expected to hold between 50 and 60 securities, however Zenith notes that the number of holdings has been progressively declining through time. Zenith believes this is reflective of the high conviction process and as such, the portfolio may generate returns that differ from those of the benchmark. Cash holdings are limited to a maximum of 10%, however, the strategy aims to be fully invested. Overall, Zenith believes the portfolio construction process is a logical outworking of both the bottom-up security selection process and the insights drawn from collective knowledge of the investment team. Furthermore, given the global applicability, Zenith believes the process has an elevated level of complexity relative to several of the strategy's peers. RISK MANAGEMENT Portfolio Constraints Description Security Numbers 60 to 80 Weight - Individual Holding Rel. Benchmark (%) max. 10% Weight - Regional Rel. Benchmark (%) -20% to 20% Non-Index exposure (%) max. 30% Cash (%) max. 10% In addition to the risk constraints listed in the table above, AMP Capital believes risk is managed throughout the entire investment process. Zenith notes that conducive to the strategy's high conviction, benchmark unaware approach, the strategy has limited formal constraints. AMP Capital seek to mitigate risk primarily through the more systematic approach encapsulated in the security selection process. This is most apparent through the recognition of asymmetric company risks denoted by the V-scores. In addition, through the inclusive culture that Hoult has fostered, the portfolio undergoes a heightened level of scrutiny from the global investment team. Zenith believes this to be an advantage for the strategy. Overall, Zenith believes the investment process lends itself to a dynamic approach to risk management and risk is appropriately assessed within the portfolio. Page 6 of 11

7 INVESTMENT FEES ETF's contain a variety of explicit and implicit costs to the investor. Investors should be aware that poor ETF selection and/or trade execution can rapidly erode any advantage gained by the lower management fees espoused by ETPs in comparison to managed funds more broadly. Management Costs The management cost for this fund is %, with no performance fee. The Active ETF sector is still in an emerging phase with few available products to date which distorts the sector. RENT's total cost structure is more appropriately compared to actively managed fund peers. As such, RENT's cost is slightly higher than sector peers (sector average of managed fund peers, 0.91% pa). Bid/ask spread As listed products, investors are exposed to bid/ask spreads as an intangible cost of investment and divestment. The bid/ask spread is primarily a function of market liquidity in ETF units as well as the impact of market making functions. It is important to note however that bid/ask spreads tend to be at their highest and most volatile at the start and end of the trading day and decrease during the course of the day s trade as efficiency improves. Zenith believes that quality of trade execution should generally be good under normal market conditions. Currently there is minimal data on achieved spreads for RENT. Page 7 of 11

8 PERFORMANCE ANALYSIS Monthly Performance History (%, net of fees) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC FUND YTD BENCHMARK YTD Growth of $10,000 Benchmark: FTSE EPRA/NAREIT Developed (Hdg) $A - Composite ABSOLUTE PERFORMANCE ANALYSIS Return Fund (% p.a.) Benchmark (% p.a.) 2.60 Median (% p.a.) 2.41 Ranking within Sector Fund Ranking 5 / 5 Quartile Standard Deviation 4th Monthly Histogram Fund (% p.a.) 5.03 Benchmark (% p.a.) Median (% p.a.) Downside Deviation Fund (% p.a.) 2.61 Benchmark (% p.a.) 3.78 Median (% p.a.) 5.01 Risk/Return Sharpe Ratio - Fund Sortino Ratio - Fund Minimum and Maximum Returns (% p.a.) NOTE ON PERFORMANCE - Performance data contained in this report is based on an ETFs end of day Net Asset Value (NAV) as opposed to the last market price. Zenith has elected to use NAV over last price as this eliminates extraneous trading noise which typically occurs at the end of the trading day. While we see this as a cleaner approach to assessing ETF performance, readers should be aware that actual performance of an ETF may differ depending on the timing of investment and divestment of holdings. Investors should note that for consistency purposes Zenith benchmarks all Global Listed Property funds against the FTSE EPRA/NAREIT Developed Index TR AUD (Hedged) - Composite. All performance, consistency and Risk/Return data is referenced to the Zenith assigned benchmark. Zenith has used a composite benchmark as the FTSE EPRA/NAREIT Developed Index TR AUD (Hedged) only dates back to May For periods prior to this date the UBS Global Investors AUD Hedged Index is used. Over the long-term, Zenith expects any difference in performance between our assigned benchmark and the Fund's benchmark to be immaterial. All commentary below as at 31 August Page 8 of 11

9 The investment objective of the strategy is to outperform the benchmark before fees, over rolling three year periods. While RENT has a minimal track record, the hedged strategy in a managed fund format utilised by AMPCI has been in operation since December While over the long-term the strategy has marginally outperformed Zenith's assigned benchmark and the median manager, it has failed to achieve its investment objective. The strategy has also displayed weaker performance over the short and medium term, relative to its assigned benchmark and the median manager. Zenith notes that given the significant team changes to both the investment process and investment team since early 2012, the since inception performance history is less relevant. Volatility (as demonstrated by Standard Deviation) has been marginally higher than the benchmark and median manager over a range of time periods. RELATIVE PERFORMANCE ANALYSIS Alpha Statistics from the inception date of the Fund in question, and Drawdown analysis for the Fund and benchmark(s) are calculated independently. That is, the largest drawdown for the Fund and benchmark(s) will not always refer to the same time period. Drawdown Analysis Fund Benchmark Max Drawdown (%) Months in Max Drawdown 1 1 Months to Recover - - Worst Drawdowns Fund Benchmark Excess Return (% p.a.) % Monthly Excess (All Mkts) % Monthly Excess (Up Mkts) 0.00 % Monthly Excess (Down Mkts) Beta Statistics Beta 0.41 R-Squared 1.00 Tracking Error (% p.a.) 7.21 Correlation 1.00 Risk/Return Information Ratio All commentaries below are as at 31 August RENT has minimal track record to date. Zenith seeks to identify funds that can outperform in over 50% of months, in all market conditions, as we believe this represents a consistency of manager skill. While AMP Capital have been able to achieve this objective over the short-term, they have failed to achieve this level of outperformance over the longer term. The strategy has traditionally demonstrated stronger returns in up trending markets. The strategy's Tracking Error is expected to be between 2% and 5%. Tracking Error has been within this range over various time periods. DRAWDOWN ANALYSIS Drawdown analysis assesses the relative riskiness of a Fund versus the benchmark, in reference to capital preservation. The maximum Drawdown is recorded as the percentage decline in the value of a portfolio from peak to trough (before a new peak is achieved). All Drawdown analysis is calculated commencing All commentaries below are as at 31 August Given the changes to the strategy in early 2012, the current strategy has not experienced what Zenith considers to be an extreme market environment such as the GFC. Therefore, it is difficult to assess the indicative risks associated with the strategy from the drawdown history. INCOME/GROWTH ANALYSIS The Fund is expected to generate a large portion of its return objective in the form of capital growth. REPORT CERTIFICATION Date of issue: 17 Oct 2016 Role Analyst Title Author Sector Lead Authoriser Dugald Higgins Dugald Higgins Andrew Yap Senior Investment Analyst Senior Investment Analyst Head of Multi-Asset & Income Research Page 9 of 11

10 ASSOCIATIONS & RELATIONSHIPS ASIC Regulatory Guide RG requires Research Houses to disclose certain associations or relationships that they may have with a product issuer. As at the date this report was issued, an associated entity of the Investment Manager relevant to this report is; or has been, a subscriber to Zenith's investment research services within the past 12 months. Conflict management arrangements are in place where Zenith provides research services to financial advisory businesses who provide financial planning services to investors and are also associated entities of product issuers. This is in accordance with Zenith's Conflict of Interests Policy. As at the date this report was issued, a related party of which provides financial planning services is, or has been, a subscriber to Zenith's research services within the last 12 months. RATING HISTORY As At Rating 17 Oct 2016 Recommended 8 Jun 2016 Recommended Last 5 years only displayed. Longer histories available on request. Page 10 of 11

11 DISCLAIMER AND DISCLOSURE Zenith Investment Partners (ABN ) is the holder of Australian Financial Services Licence and is authorised to provide general financial product advice. This Product Assessment Report (report) has been prepared by Zenith exclusively for Zenith clients and should not be relied on by any other person. Any advice or rating contained in this report is limited to General Advice for Wholesale clients only, based solely on the assessment of the investment merits of the financial product. This report is current as at the date of issue until it is updated, replaced or withdrawn and is subject to change at any time without notice in line with Zenith s regulatory guidelines. Zenith clients are advised to check the currency of reports and ratings via Zenith s website for updates. Any advice contained in this report has been prepared without taking into account the objectives, financial situation or needs of any specific person who may read it. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek their own independent financial advice, obtain a copy of, and consider any relevant PDS or offer document and consider the appropriateness of this advice in light of their own objectives prior to making any investment decision. Zenith charges an upfront flat fee to the Product Issuer, Fund Manager or other related party to produce research on funds that conform to Zeniths Research Methodology. Zenith s fee and Analyst remuneration are not linked to the rating outcome in any way. Views expressed in Zenith reports accurately reflect the personal, professional, reasonable opinion of the Analyst who has prepared the report. Zenith may also receive a fee for other non-research related services such as subscription fees for Zenith s research services and/or for the provision of investment consultancy services. Conflicts management arrangements are in place where Zenith provides research services to financial advisory businesses who provide financial planning services to investors and are also associated entities of the product issuers, with any such conflicts of interest disclosed within reports as appropriate. Full details regarding such arrangements are outlined in Zenith s Conflicts of Interest Policy /ConflictsOfInterestPolicy Zenith s research process seeks to identify investment managers considered to be the best of breed through a comprehensive, multi-dimensional selection process. Zenith utilises both quantitative and qualitative factors in its ratings models. Models maximise commonality across different asset classes while retaining flexibility for specialist asset classes and strategies. The selection process is rigorous in both its qualitative and quantitative analysis and each component is equally weighted. Zenith does not manage any proprietary assets and as such Zenith is able to choose investment managers with absolute independence and objectivity. More detailed information regarding Zenith s research process, coverage and ratings is available on Zenith s website /ResearchMethodology This report is subject to copyright and may not be reproduced without the consent of the copyright owner. The information contained in this report has been prepared in good faith and is believed to be reliable at the time it was prepared, however, no representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this report. Except for any liability which cannot be excluded, Zenith does not accept any liability, whether direct or indirect arising from the use of information contained in this report. Past performance is not an indication of future performance. Full details regarding the methodology, ratings definitions and regulatory compliance are available at /RegulatoryGuidelines 2016 Zenith Investment Partners. All rights reserved. Zenith has charged AMP Capital a fee to produce this report. Page 11 of 11