Fund Review BlackRock Scientific Australian Equity Fund

Transcription

1 Fund Review BlackRock Scientific Australian Equity Fund P 1-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE About this Review ASSET CLASS REVIEWED SECTOR REVIEWED SUB SECTOR REVIEWED AUSTRALIAN EQUITIES AUSTRALIAN LARGE CAP CORE / STYLE NEUTRAL TOTAL FUNDS RATED 31 About this Fund ASIC RG240 CLASSIFIED FUND REVIEWED APIR CODE PDS OBJECTIVE INTERNAL OBJECTIVE STATED RISK OBJECTIVE DISTRIBUTION FREQUENCY NO BLACKROCK SCIENTIFIC AUSTRALIAN EQUITY FUND BAR0814AU TO EXCEED THE S&P/ASX 300 ACCUMULATION INDEX BY 2.20% P.A. (NET OF FEES) OVER ROLLING THREE- YEAR PERIODS, WHILE MAINTAINING A SIMILAR LEVEL OF INVESTMENT RISK TO THE INDEX AS PER PDS OBJECTIVE. TRACKING ERROR OF 2.0% P.A. QUARTERLY FUND SIZE $156.5M (MAY 2017) FUND INCEPTION MANAGEMENT FEE PERFORMANCE FEE RESPONSIBLE ENTITY 0.79% P.A. NIL BLACKROCK INVESTMENT MANAGEMENT (AUST.) LTD About the Fund Manager FUND MANAGER BLACKROCK INVESTMENT MANAGEMENT (AUST.) LTD OWNERSHIP BLACKROCK INC. LISTED ON NYSE ASSETS MANAGED IN THIS SECTOR $11.5B (MAY 2017) YEARS MANAGING THIS ASSET CLASS 29 Investment Team PORTFOLIO MANAGER MICHAEL MCCORRY INVESTMENT TEAM SIZE 5 INVESTMENT TEAM TURNOVER STRUCTURE / LOCATION Investment process STYLE BENCHMARK MEDIUM-HIGH CIO, PM / RESEARCH ANALYSTS / SYDNEY STYLE NEUTRAL S&P/ASX 300 ACCUMULATION INDEX TYPICAL STOCK NUMBERS TYPICAL CAPITALISATION BIAS STOCK ACTIVE POSITION LIMITS SECTOR ACTIVE POSITION LIMITS Fund rating history JULY 2017 OCTOBER 2016 NOVEMBER 2015 CLOSE TO INDEX INDEX +/-1.25% (SOFT) INDEX +/-1.0% (SOFT) INVESTMENT GRADE INVESTMENT GRADE INVESTMENT GRADE What this Rating means The Investment Grade rating indicates that Lonsec has conviction the financial product can generate risk adjusted returns in line with relevant objectives. However, if applicable, Lonsec believes the financial product has fewer competitive advantages than its peers. Strengths BlackRock possesses a long-standing history in managing quantitative strategies. The Fund is managed by an experienced team, that is well supported by the broader BlackRock network. The investment team is well qualified and possesses strong academic qualifications. The overall investment process is logical and highly systematic. Weaknesses The Fund has had a mediocre performance history and has not been able to consistently meet its alpha objectives over long time frames. The Fund s longer-term returns have been delivered with tracking error below the 2% p.a. target. There have been a number of departures from the investment team in recent years. The portfolio managers are able to exercise a degree of discretion over individual security selection within the portfolio, which has historically delivered mixed results. Fund Risk Characteristics BUSINESS SUSTAINABILITY RISK CAPITAL VOLATILITY SECURITY CONCENTRATION RISK SECURITY LIQUIDITY RISK LOW MODERATE HIGH Risk categories are based on Lonsec s qualitative opinion of the risks inherent in the financial product s asset class and the risks relative to other financial products in the relevant Lonsec sector universe. BIOmetrics Aggregated risks STD RISK MEASURE A Standard Risk Measure score of 6 equates to a Risk Label of High and an estimated number of negative annual returns over any 20 year period of 4 to less than 6. This is a measure of expected frequency (not magnitude) of capital losses, calculated in accordance with AFSA/FSC guidelines. We strongly recommend that potential investors read the product disclosure statement or investment statement. Lonsec Research Pty Ltd ABN AFSL. No This information must be read in conjunction with the warning, disclaimer and disclosure at the end of this document. This report supersedes all prior reports.

2 P 2-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE Features and benefits COMPLEXITY ESG AWARENESS Fee profile FEES VS. UNIVERSE FEES VS. ASSET CLASS FEES VS. SUB-SECTOR LOW MODERATE HIGH LOW MODERATE HIGH Fee BIOmetrics are a function of expected total fee as a percentage of expected total return. What is this Fund? The BlackRock Scientific Australian Equity Fund ( the Fund ) is an active Australian equity product that utilises a quantitative investment approach, described by BlackRock Investment Management ( BlackRock or the Manager ) as Scientific Investing. As a quantitative manager, BlackRock does not conduct company management meetings or other forms of qualitative analysis. Rather, the quantitative approach systematically calculates return forecasts across a large universe of stocks based on a number of value, quality, earnings and technical market related measures. The Fund is a long only strategy, utilising a style neutral investment approach, which means that there is not expected to be any meaningful style or sector biases in the portfolio. The final portfolio has also been deliberately constructed to be a low Tracking Error fund. This is achieved by holding a diversified number of positions, each with a small active overweight or underweight position relative to its benchmark, the S&P/ASX 300 Accumulation Index. The Fund aims to outperform the benchmark by 2.2% p.a. over rolling three-year periods (gross of fees) irrespective of market direction. The Fund is expected to deliver returns with a Tracking Error of 2.0% p.a. and portfolio turnover is expected to be around 120% p.a. The Fund will typically hold 150 stocks and will be fully invested through all market cycles. The Fund has a flat management fee of 0.79% p.a., which is slightly lower in comparison with the median fee in Lonsec s assessed Core / Style Neutral peer group. Using this Fund This is General Advice only and should be read in conjunction with the Disclaimer, Disclosure and Warning on the final page. The Fund is a long only Australian equity product which is subject to equity market risks and movements (both positive and negative) in the prices of the underlying securities in the portfolio. Potential investors should therefore be aware of, and comfortable with, the potential for the Fund to experience periods of negative absolute returns which may result in capital losses being incurred on their investment. Lonsec recommends advisors consult the Lonsec Risk Profile Review and / or the Lonsec Risk Profile Definitions document(s) for guidance on appropriate asset allocations to Australian Equities within a diversified investment portfolio. Lonsec recommends that equity investments are suitable for investors with an investment time horizon of at least five years. The Fund is a long only Australian equity product which will be predominantly fully invested in the Australian equity market. As such the Fund will generally sit within the growth component of a diversified investment portfolio. As a style neutral product, Lonsec considers it suitable for blending with other Australian Equity strategies including style biased funds, Small Cap, Long Short, or Absolute Return products. Suggested Lonsec risk profile suitability SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH For guidance on appropriate asset allocations and risk profiles, refer to the latest Lonsec Strategic Asset Allocation Review and Risk Profile Definitions on our website. Changes Since Previous Lonsec Review There have been a number of structural changes made to the BlackRock Scientific Active Equity (SAE) investment team since Lonsec s last report. Towards the end of 2016, Ritchard Longmire, Portfolio Manager, departed the investment team in December Subsequent to that, Dr Joanna Nash was promoted to Portfolio Manager in November Her role as Portfolio Manager is primarily focused on Australian Equities and ESG investing. In May 2017, BlackRock announced changes aimed at simplifying BlackRock s equity product offerings globally, realigning investment teams, and further investing in data science. For the Scientific Active Equity teams, including Australia, this meant for the centralisation of operational elements of Portfolio Management, and Research primarily in San Francisco. As a result, there were two further departures from the local investment team. TK Tangkuampien, Research Analyst, and Andre Roberts, Portfolio Manager, departed the investment team in July 2017 and June 2017 respectively. Lonsec Opinion of this Fund People and resources Lonsec notes that the local SAE investment team has experienced a number of departures in recent years. Over the past two years, three Portfolio Managers and one Researcher have departed. This represents an almost complete turnover of its previous portfolio management team. While noting the systematic nature of the investment process and the speed at which these positions were replaced, Lonsec finds the level of turnover to be significant. The BlackRock SAE investment team consists of four personnel responsible for portfolio management and research. Lonsec considers this team to be slightly smaller in size with other Australian based quantitative managers. That said, Lonsec notes that the local investment team is highly integrated with the Global SAE team and is able to leverage research insights across a global platform of over 30 researchers.

3 P 3-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE Dr Michael McCorry is both the Chief Investment Officer (CIO) and Head of SAE, Australia and is ultimately responsible for both the management of the investment team and performance of the investment process. Lonsec considers Dr McCorry to be an experienced quantitative investor having held his current role since 2009 and having held similar positions at BGI, both locally and globally, before joining the Manager. The Fund itself is managed by Co-Portfolio Managers, Dr Ron Guido and Dr Joanna Nash. Portfolio management responsibilities include examining and vetting the optimised stock portfolio and ensuring the Fund is managed in a risk controlled manner. Lonsec has met with both Dr Guido and Dr Nash and has found them to be highly capable and suitably experienced. In addition to their portfolio management responsibilities, they also responsible for both ongoing factor research, including the addition or removal of individual factors. Lonsec notes however that the portfolio managers priority is primarily on portfolio management, with research duties being secondary. Lonsec believes the local research capability has diminished slightly given the recent departure of TK Tangkuampien. Lonsec considers the broader global SAE investment team to be well qualified, with most of its members having a solid grounding in academia, with PhD qualifications in finance, economics and / or science. While academically strong, Lonsec believes that the factor research coming out of the team has proved less insightful in generating outperformance in recent years. Lonsec believes that key person risk is moderate to low which largely reflects the Manager s quantitative investment process. However, Lonsec notes the consistent factor chturnover and ability to manually override the quantitative model as lifting key person risk above that of a mostly static quantitative process with low factor turnover. Given this assessment, Lonsec considers there to be a degree of key person risk residing with the Co-Portfolio Managers and the CIO. Research and portfolio construction All aspects of the investment process are highly systematic and repeatable. Rather than attempting to pick individual stocks or forecast returns, BlackRock concentrates its research efforts into developing quantitative insights and research that support the validity of its factors. As a pure quantitative process, BlackRock does not conduct traditional fundamental techniques such as company visits and modelling of earnings estimates, but outsources this function to brokers who provide data for BlackRock s models. The data is cleaned and standardised by BlackRock to facilitate effective analysis. The cleaning process is largely automated with the only human involvement being via exception checking. BlackRock s quantitative model will typically include different signals and while the weighting allocated in the model to five high level factors tends reasonably stable (earnings direction, relative valuation, earnings quality, market signals and timing signals), Lonsec considers the Manager to be relatively active in changing the underlying signals within each factor compared to other quantitative fund managers. For instance, the portfolio managers may elect to change the valuation signal in the model from price earnings to price to cashflow if they consider such a change to enhance the model. In line with its 15% p.a. signal turnover target, BlackRock has consistently introduced new quantitative signals over the years. Many of these signals draw upon aspects of behavioural finance and focus on understanding securities mispricing that arise due to market inefficiencies. More recently, the Manager s research agenda has been looking at non-traditional quality signals such as diversity on measures such as education, age, and gender. Lonsec believes BlackRock s re-weighting of signals to be generally more reactive than proactive. (i.e. the Manager will usually make changes to signals if a signal is no longer working.) However, the Manager has also demonstrated some instances where it changed the model based on a forward-looking view of markets. For example, in the recent Lonsec review, the Manager discussed reducing the weight of a signal which effectively directs the model to go short or underweight stocks which are popular with short sellers. This change was made at a time when the signal was still adding value and was due to concerns that there may be a short squeeze in a number of these stocks. (This view ended up being well-founded when these stocks rallied shortly afterwards.) The Manager s portfolio construction process is highly systematic and guided by the creation of security rankings within the model. Accordingly, buy and sell decisions tend to strongly reflect the output of the model. Additionally, Lonsec notes that the Manager regularly reviews performance attribution to measure the efficacy of the model. In saying this, Lonsec notes that the Co-Portfolio Managers are also able to exercise a degree of discretion over individual security selection within the portfolio. Typically this is used to neutralise stock positions back to benchmark weight when the portfolio managers consider the risk of the model s position to be understated. (i.e. There may be a specific event impending relating to that company.) The ability to apply discretion also includes a small sleeve of the portfolio which is dedicated to special events. (The Manager has historically used this sleeve to invest in new IPOs and sub-underwriting deals.) Lonsec notes that this ability to override has delivered mixed results. All trades are implemented through a proprietary trading platform, where all trading costs are regularly monitored and analysed. This information is then integrated systematically into the portfolio construction process, which influences position sizing. Lonsec considers BlackRock s integration of portfolio construction, risk management and portfolio implementation to be a strength of the process.

4 P 4-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE Risk management Being at such scale internationally, Lonsec considers the risk systems and processes at the Manager s disposal to be well developed and of a relatively high quality. Specifically, Lonsec has a high opinion of the BlackRock Aladdin portfolio and order management platform, believing its functionality and depth of coverage offer appealing attributes. However, given the recent evidence of oversights in the Manager s risk model, Lonsec believes that the Manager s institutional grade risk systems and processes can be more consistently applied by the investment team across all of BlackRock s active and index strategies. Similar to competing strategies that utilise a systematic quantitatively driven investment process, BlackRock constructs this portfolio with an optimisation model that ensures portfolio risk and exante tracking error limits are adhered to. However, there is an ability for the team to sense check the buy-list via daily review of the stock list, allowing them to override the Model. Additionally, the Manager regularly reviews performance attribution to ensure that the efficacy of the Model has not been compromised. Lonsec considers the constraints pertaining to active risk within the underlying portfolio (Index +/-1.25% active stock weights and Index +/-1.0% active sector weight) to be rather conservative, thus implying the Fund will be unable to take on excessive active risk relative to the underlying constituents of the benchmark. Funds Under Management At the time of Lonsec s review the total funds under management (FUM) being managed by BlackRock Australian Scientific Active Equities is $11.5bn. This included $6,179m in index mandates, $4,797m in long only active and $562m in long / short active strategies. Lonsec will continue to monitor BlackRock s capacity management going forward, but does not have any immediate concerns. Performance The performance objective of this Fund is to outperform the S&P/ASX 300 Accumulation Index by 2.2% p.a. (after fees) over a rolling three-year periods. The Fund has been unable to achieve its stated objective over the assessed period (all figures net of fees to 31 May 2017). Over the recent three-year period the Fund delivered a return of 5.5% p.a. to underperform the benchmark by 0.5% p.a. and therefore fall short of its stated objective to exceed the benchmark. Over the fiveyear period, the Fund returned 12.1% p.a. to slightly outperform the benchmark. Over the past 12 months the Fund returned 9.5% p.a., underperforming the benchmark by 1.3%, but slightly outperforming the Lonsec Core / Style Neutral peer median by 0.2%. Over the year, value and quality signals contributed to performance. Earnings direction was the largest detractor for the year where the global market rally post US election surprised most analysts (earnings direction incorporates analyst views). Lonsec observes that the Fund s Tracking Error has persistently been below its 2% p.a. target across longer time periods and has been 1.6% p.a. over 10 years. Over the long term the Fund has shown no discernible performance pattern in terms of outperforming more consistently in up or down markets. Additionally, the Fund s volatility of returns (as measured by Standard Deviation) has largely been closely in line with the Lonsec Core / Style Neutral peer median. These characteristics are consistent with the Manager s style neutral approach. Overall Lonsec has maintained the Fund s rating as Investment Grade. Lonsec believes BlackRock s global quantitative investment process to be well established in the market and is supported by a solid research process. Additionally, Lonsec highlights the strong support provided to the Manager by the BlackRock business. However, Lonsec highlights the Fund s inability to meet its alpha objectives over the longer term and believes the Manager will need to deliver consistent outperformance in order for Lonsec to increase conviction in the Fund. Lonsec notes team turnover has been significant in recent years. People and Resources Corporate overview BlackRock Inc is a provider of global investment management, risk management and advisory services to institutional and retail clients around the world. As of 31 March 2017, BlackRock s assets under management totaled US$5.42 trillion across equity, fixed income, cash management, alternative investment and real estate strategies. BlackRock Inc. has grown organically and through acquisitions, notably: Merrill Lynch Investment Managers (2006) and Barclays Global Investors (2009). BlackRock is the world s largest asset manager, managing assets for clients in North and South America, Europe, Asia, Australia, the Middle East, and Africa. The firm employs nearly 13,000 professionals and maintains offices in 30 countries around the world. BlackRock Asset Management Australia Limited is a wholly owned subsidiary of BlackRock, Inc. Size and experience NAME DR MICHAEL MCCORRY DR RON GUIDO DR JOANNA NASH DR GERALD GARVEY POSITION CIO AND HEAD OF SCIENTIFIC ACTIVE EQUITY (AUSTRALIA) CO-PORTFOLIO MANAGER CO-PORTFOLIO MANAGER CO-GLOBAL HEAD OF RESEARCH EXPERIENCE INDUSTRY / FIRM 25 / / 2 9 / 9 13 / 13 DR EVAN CHONG INVESTMENT STRATEGIST 3 / 3

5 P 5-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE The team is also able to leverage off the global BlackRock network in the development of new insights, through the medium of weekly conference calls and annual offsite face to face meetings. The BlackRock SAE investment team comprises five investment professionals, who manage indexed and active strategies. Located in Sydney, the team is structured along the key functions of Portfolio Management / Research and Investment Strategy. The team reports to Dr Michael McCorry as the Head of SAE, Australia, who ultimately reports to the one of the co-cios and Global Heads of SAE. McCorry is also Head of BlackRock Australia s Multi Asset Strategies team. McCorry has held a number of senior roles since joining BGI in 1997 with qualifications in Science, an MBA and a PhD in Finance. Portfolio managers who typically perform the majority of the day-to-day responsibilities associated with the management of this Fund are Dr Ron Guido and Dr Joanna Nash. In addition to their portfolio management responsibilities, they have secondary research responsibilities. Please find a brief description of their investment careers below: Dr Ron Guido Responsible for managing quantitative Australian equity portfolios across index and active strategies. Prior to joining BlackRock in 2015, Dr Guido spent almost a decade in London working in quantitative equities across both portfolio management and research. He held roles with institutional managers including State Street Global Advisors, Fidelity and Marshall Wace. He was also CIO at a start-up asset management firm where he was responsible for launching a quantitative equity market neutral fund. Dr Guido earned a PhD in Finance and Statistics from the University of New South Wales in Dr Joanna Nash Responsible for managing quantitative Australian equity portfolios across index and active strategies. Her service with the firm dates back to 2008, where she was a researcher on the Australian equities research team. Prior to joining BlackRock, Dr Nash was a quantitative analyst at the Commonwealth Bank of Australia. Previously, she worked as a consultant analysing market manipulation in the US gasoline markets and mergers in the petroleum industry. Dr Nash earned a BA degree in economics and a Bachelors degree in law in from the University of New South Wales in 2001 and 2002, respectively and a Masters degree and PhD in econometrics from Yale University in 2003 and 2005, respectively. Research Approach Overview INVESTMENT STYLE STOCKS UNIVERSE QUANT STYLE NEUTRAL S&P/ASX 300 INDEX TOP-DOWN 0% BOTTOM-UP 100% RESEARCH INPUTS USE OF BROKER RESEARCH ENSURING THE EFFICACY OF EXISTING FACTORS, CONSIDERATION OF NEW PROPRIETARY FACTORS COMPANY MODELING AND FINANCIAL FORECASTING IS EFFECTIVELY OUTSOURCED TO 12 EXTERNAL BROKER FIRMS. THIS DATA IS USED TO UPDATE THE MANAGER S INTERNAL DATABASES BlackRock believes that continuous research is required to maintain the effectiveness of its systematic investment strategy. The Manager focuses most of its research time internally on developing insights and researching how company and market information impacts securities prices. The Manager then seeks to exploit market inefficiencies that have been validated by its research, ensure risk relative to the benchmark is adequately compensated and considers transaction costs in constructing the final portfolio. As a quantitative manager, BlackRock does not conduct company management meetings or other forms of qualitative analysis. Rather, the quantitative approach systematically calculates return forecasts across a large universe of stocks based on a number of traditional value, quality, earnings and technical market related measures. Quantitative analysis Quantitative process assesses stocks based on five broad factors: Earnings Direction Relative Valuation Earnings Quality Market Signals Timing Signals Return or alpha forecasts are determined based on a combination of these factors. Additionally, the Fund will also take advantage of shortterm opportunities such as dividend reinvestment plans and managing index changes. Portfolio Construction Overview INDUSTRY WEIGHTING VALUE VS. GROWTH CLOSE TO BENCHMARK CAN TILT BUT CLOSE TO BENCHMARK PORTFOLIO BETA CLOSE TO 1.0 EXPECTED TRACKING ERROR 2.0% P.A. STOCK HOLDINGS The portfolio construction process is based primarily on each stock s ranking and expected return forecast or alpha derived from the quantitative model. The portfolio construction process is considered to be highly systematic and transparent in regards to stocks that are purchased and sold from the portfolio. BlackRock also integrates risk and transaction costs into the portfolio construction process, described as portfolio optimisation. The objective of the optimisation process is to maximise expected active return, relative to expected active risk (Tracking Error) and transaction costs. From this analysis, a trade list of stocks to be bought or sold is generated daily. Active weights typically are within Index+/-1.25% of the benchmark weight, whilst portfolio turnover typically stands at 120% p.a.

6 P 6-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE Risk Management Risk limits SEPARATE INVESTMENT RISK MONITORING YES ACTIVE POSITION IN INDIVIDUAL SECURITIES INDEX +/-1.25% ACTIVE SECTOR POSITIONING INDEX +/-1.0% CONSTRAINTS ON DERIVATIVES DERIVATIVES WILL NOT BE USED TO GEAR THE FUND Risk monitoring BlackRock construct this Fund by adhering to various constraints set forth in the mandate design. Pre trade compliance is performed on all securities prior to their inclusion into the portfolio using the BlackRock Aladdin portfolio management platform. Risk monitoring and management is highly integrated within the investment process and is an integral component of BlackRock s investment strategy. In constructing the portfolio, BlackRock utilises a BARRA multi-factor risk model and a number of proprietary inhouse risk tools. The resultant portfolio is designed to have a beta of one, with no discernible bias to any one style (value or growth). Risks An investment in the Fund carries a number of standard investment risks associated with investment markets. These include performance, liquidity, counterparty, market and tax risks. These and other risks are outlined in the PDS and should be read in full and understood by potential investors. Lonsec considers the following to be the major risks: Equity market Investments in equity markets are subject to numerous factors which may have an impact on the performance of an investment (both positive and negative). Unexpected changes in economic, technological, structural, regulatory or political conditions can have an impact on the returns of all investments within a particular market. Derivatives The Manager has scope, via its PDS, to implement various derivative strategies with the objective of mitigating equity market risks. Lonsec does not expect this to be a widely adopted strategy and will generally be restricted to using futures as a method of investing residual cash balances. Derivatives cannot be used to leverage the Trust.

7 P 7-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE Quantitative Performance Analysis - annualised after-fee % returns (at ) Performance metrics 1 YR 3 YR 5 YR 10 YR FUND PEER MEDIAN FUND PEER MEDIAN FUND PEER MEDIAN FUND PEER MEDIAN PERFORMANCE (% PA) STANDARD DEVIATION (% PA) EXCESS RETURN (% PA) OUTPERFORMANCE RATIO (% PA) WORST DRAWDOWN (%) TIME TO RECOVERY (MTHS) SHARPE RATIO INFORMATION RATIO TRACKING ERROR (% PA) FUND: BLACKROCK SCIENTIFIC AUSTRALIAN EQUITY FUND LONSEC PEER GROUP: AUSTRALIAN EQUITIES - AUSTRALIAN LARGE CAP - CORE / STYLE NEUTRAL BENCHMARK USED: S&P/ASX 300 TR INDEX AUD CASH BENCHMARK: BLOOMBERG AUSBOND BANK BILL INDEX AUD TIME TO RECOVERY: NR - NOT RECOVERED, DASH - NO DRAWDOWN DURING PERIOD Growth of $10,000 over 10 years Snail trail Risk-return chart over three years Outperformance consistency

8 P 8-8 ANALYST: ADRIAN HOE APPROVED BY: SAM MORRIS ISSUE DATE Glossary Total return Top line actual return, after fees Excess return Return in excess of the benchmark return Standard deviation Volatility of monthly Absolute Returns Tracking error Volatility of monthly Excess Returns against the benchmark (the Standard Deviation of monthly Excess Returns) Sharpe ratio Absolute reward for absolute risk taken (outperformance of the risk free return (Bank Bills) / Standard Deviation) Information ratio Relative reward for relative risk taken (Excess Returns / Tracking Error) Worst drawdown The worst cumulative loss ( peak to trough ) experienced over the period assessed Time to recovery The number of months taken to recover the Worst Drawdown Snail Trail A trailing 12-month relative performance and relative risk measurement over the benchmark. The trail is generated using a 12-month rolling window over the specified period About Lonsec Lonsec Research Pty Ltd (Lonsec) is an investment research house with specialist areas of expertise, that was originally established in 1994 and the current entity was registered on 23 June From 1 July 2011, Lonsec became a fully owned subsidiary of Lonsec Fiscal Holdings Pty Ltd, a privately owned entity with a multibrand strategy of providing leading financial services research and investment execution. Lonsec believes that professional financial advisers need informed opinions on the best investment strategies and financial products to provide real value for their clients. To meet this need, Lonsec has in place an experienced research team, which draws on a robust research process to undertake in-depth assessment of managed fund products. Analyst Disclosure and Certification Analyst remuneration is not linked to the research or rating outcome. Where financial products are mentioned, the Analyst(s) may hold the financial product(s) referred to in this document, but Lonsec considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst holdings may change during the life of this document. The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about the matters and financial product(s) to which this document refers. LONSEC STRONGLY RECOMMENDS THIS DOCUMENT BE READ IN CONJUNCTION WITH THE RELEVANT PRODUCT DISCLOSURE STATEMENT OR INFORMATION STATEMENT IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN , AFSL No (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document. Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec s fee is not linked to the rating(s) outcome. Lonsec does not hold the product(s) referred to in this document. Lonsec s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s). Disclosure of Investment Consulting services Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product. For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to General Advice (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs ( financial circumstances ) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s). Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s). The rating in this publication relates to the fund outlined in the publication which may have related funds or be associated with other funds and platforms. The rating may only be applied to the fund outlined in this publication at first instance and whether it applies to related or associated funds and platforms should be investigated by your financial adviser before you make an investment decision in relation to the related or associated funds and platforms. You should be aware that the mandate, fees, underlying investments, the issuers of the related and associated funds and platforms may be different from the fund specified in this publication. You should satisfy yourself that the related and associated funds and platforms meet your financial circumstances, needs and objectives before making an investment decision. Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright 2017 Lonsec Research Pty Ltd (ABN , AFSL No ) (Lonsec). This report is subject to copyright of Lonsec. Except for the temporary copy held in a computer's cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this report may, in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec. This report may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to Lonsec copyrighted material, applies to such third party content.