Global Equities Sector Wrap-Up

Transcription

1 Global Equities Sector Wrap-Up June 2015 Director of Manager Research Tim Murphy, CFA Director of Manager Research Ratings Tom Whitelaw Manager Research Analysts Mark Laidlaw Andrew Miles Alex Prineas Julian Robertson Elliot Smith Tim Wong, CFA Wilson Wong Matthew Wu Kathryn Young

2 ii Contents Executive Summary 1 Changes to Morningstar Analyst Ratings 2 A Rough Spell for Active Managers 4 Currency Diversification: Alive and Well 6 Are Managers Becoming Defensive? 7 Role in Portfolio Blending Global-Equity Strategies 9 Morningstar Medallists 13 Appendix 1: Basic Data 15 Appendix 2: Portfolio Characteristics 18 Appendix 3: People 21 Appendix 4: Style Box Breakdowns 24 Copyright, Disclaimer & Other Information 27

3 1 Executive Summary Kathryn Young Senior Analyst Manager Research Morningstar has completed qualitative research assessments of global equities investment strategies, including all strategies under coverage in the global large-cap, global small-cap, Asian, and emerging-markets equity sectors. This sector wrap-up provides an overview of our key observations and a summary of our Morningstar Analyst Ratings. We start with a look at changes to our Morningstar Analyst Ratings subsequent to the review. We upgraded a total of five funds, including one to Gold from Silver. We downgraded two funds to Neutral from Bronze, and initiated coverage of eight vehicles. After successive years of strong gains out of global equities, advisers and their clients might understandably be wondering if the time has come for a more defensive posture. Besides talking with portfolio managers, there are several ways we can gauge whether a manager has an eye toward defence more than offense. We step through some of those in an effort to measure the mood of managers we cover. For our regular discussion on the sector s role in investor portfolios, we take our view that global equities should play a foundational role as given. We look at ways to blend to managers together and some particularly useful data points. Next, we take a look at the underwhelming performance of active managers within global large-cap equities over the course of. Only about one quarter of our coverage list of active managers outperformed the MSCI World ex Australia Index s 15% gain. We examine explanations for that disappointing trend. We conclude with a list of those strategies we designated Morningstar Medallists and tables of data summarising key features of our coverage list. Full copies of our research reports, as always, are available in the Morningstar Adviser Research Centre TM and Morningstar Direct SM. Morningstar has long been a proponent of unhedged global-equity exposure for its potential to diversify equity risk at the overall portfolio level. We update that argument in light of the significant declines in the Australian dollar versus major developed market currencies, particularly the U.S. dollar.

4 2 Changes to Morningstar Analyst Ratings Kathryn Young Senior Analyst Manager Research We take a medium- to long-term outlook when determining qualitative recommendations. Our views about the merits of investment strategies move over time on the basis of manager-specific factors such as investment team composition, changes to investment process, and our degree of relative conviction. The following is a description of all the changes to Morningstar Analyst Ratings that occurred during this review cycle. Global Large Cap Upgrades We upgraded Magellan Global to Gold from Silver. This popular strategy has proved itself for more than seven years now, and we have become more confident in the firm s ability to manage a growing team and significant growth in funds under management. Downgrades We downgraded Capital International Global Equity to Neutral from Bronze. Organisational changes introduced from 2011 aimed at combating staleness and inefficiency have done little to engender confidence that the strategy can produce sustainable, above-market returns. We initiated coverage of SPDR S&P Global Dividend ETF WDIV at Neutral. We appreciate that it is locally listed and offers a yield of about 4.5% at the time of writing, which is much higher than the 2.0% offered by broader global equities. However, relatively high turnover and a high price tag for an exchange-traded fund prohibit us from having a more positive view overall. We initiated coverage of Vanguard MSCI Index International ETF VGS and Vanguard MSCI Index International ETF Hedged VGAD at Bronze. These funds track the well-known MSCI World ex Australia Index, and they are the cheapest listed vehicles in the market that also offer such well-diversified exposure. We initiated coverage of Carnegie WorldWide Equity Trust 4542 at Neutral. We believe this strategy, which is offered by BNP Paribas Investment Partners, has potential to be a credible offering. It is managed by a long-tenured team that seeks quality companies that can deliver long-term growth. However, it will take some time to get more comfortable with the thematic elements of its approach, which can supersede the quality criteria. We moved Goldman Sachs International 4546 to Neutral from Under Review. It was rated Bronze before going under review. In August, Goldman Sachs replaced subadviser Wellington Management with a London-based internal team called Global Equity Partners, which has undergone a number of changes since its 2003 start, which concerns us. The current approach has been in place since We think it is investable but has yet to prove itself outstanding. New Coverage We initiated coverage of SPDR S&P World ex Australia ETF WXOZ and SPDR S&P World ex Australia Hedged ETF WXHG at Bronze. Unlike cross-listed rivals, these ETFs are dedicated local listings, which should alleviate paperwork burden for Australian investors. By tracking the S&P Developed Ex-Australia LargeMidCap Index, they offer well-diversified exposure, and they ve reached suitable scale. We initiated coverage of Platinum Global Fund at Silver. This fund was launched in September specifically to be offered on the ASX s mfund settlement service platform for unlisted funds. It s designed to be substantially similar to Platinum s flagship International strategy, which we rate Gold. However, some tweaks necessary for mfund qualification and lack of scale prohibit us from having as much conviction in this vehicle as we do the flagship. Other We returned Perpetual Wholesale International Share 4364 to a Neutral rating after it had been placed under review. Perpetual moved the management of this strategy in-house after terminating subadviser Wellington Management in January We appreciate that the investment process and team are aligned with Perpetual s successful Australian equities unit, but we are cautious about the team s short track record and depth of resources.

5 3 Ceased During the global-equities sector review, we ceased coverage on the following strategies: AMP Capital Global Equity Growth 6833, GMO Global Equity Trust 8874, Pinnacle Global Shares High Alpha Trust 15312, and River and Mercantile World Equity Global Small Cap Upgrades We upgraded Vanguard International Small Companies to Bronze from Neutral. A gradual increase in assets has allowed Vanguard to move from optimised sampling toward full replication of the MSCI World ex Australia Small Cap Index. We believe capable active managers should be able to add value in this sector but few have sustainably, so Vanguard stands out as a reasonable way to access global small caps. We upgraded Hunter Hall Global Value HHV and Hunter Hall Value Growth Trust 3876 to Neutral from Negative. The firm still has work to do as it stabilises the business after a raft of staff departures and strategy tweaks, but we think the remaining managers deserve credit for taking steps in the right direction, including the introduction of a retention scheme for key staff and fee reductions. This strategy remains punchy and atypical, but it is investable. Asian & Emerging Markets Upgrades We upgraded BT Asian Share WS 4246 to Bronze from Neutral. JO Hambro Capital Management (JOHCM) took over this strategy in March. We like the team s high conviction and benchmark-agnostic approach, and we have confidence in its research and analysis. New Coverage We initiated coverage of Vanguard FTSE Emerging Markets Shares ETF VGE at Bronze. This vehicle tracks the FTSE Emerging Markets Index and is the cheapest emergingmarkets ETF in the market. It is locally listed, which should mitigate tax and paperwork burdens for Aussie investors, but it gains efficiency by investing into a U.S.-listed ETF that Vanguard has offered since Ceased During the sector review, we ceased coverage of Schroder Global Emerging Markets Ceased We ceased coverage of the following strategies: Schroder Global Small Companies 5055, BlackRock WS Global Small Cap 6944, and Hunter Hall Global Equities Trust 7869.

6 4 A Rough Spell for Active Managers Matthew Wu Analyst Manager Research While the MSCI World ex Australia Index had a solid year in with a 15.01% return but only about a quarter of Morningstar s international active equities coverage outperformed the index after fees. This was the second successive year that most active managers failed to surpass the benchmark, testing the patience of investors. Our 2013 global equities sector wrap identified weak emerging markets performance and the rising U.S. dollar among several themes that detracted from the relative performance of many active managers during These remained relevant factors in. The MSCI Emerging Markets NR index returned 6.93% during the year behind broader global equities. The U.S. dollar s ongoing strength compounded the relative pain of maintaining a below index exposure to the outperforming U.S. stock market that most fund managers held. Indeed, an underweight to U.S. equities detracted significantly across many active large cap international equity strategies. Underweight exposure to oil helped many managers but underweight exposures to healthcare and technology detracted, as did an overweight to value. Managers Typically Underweight the U.S. An underweight to the United States was easily the biggest detractor in the country positioning of active fund managers. The U.S. dominates the MSCI World ex Australia Index, with an approximate 59% weighting at the end of. U.S. equities rose substantially in Australian dollar terms during to rank among the best in developed markets. Its 23% return was boosted by the Australian dollar s 9% stumble against the greenback. However, active managers generally viewed the U.S. as overvalued on the back of unprecedented central bank stimulus. Only five managers were overweight the U.S. through the course of the year, on average. Perhaps revealingly, outperforming managers were 4% underweight on average, compared to 15% underweight for the group of laggards. Underperformance of Value Another prominent theme was the underperformance of value relative to growth. In, the equity world large-growth Morningstar Category (which encompasses all funds in that category that are on Morningstar s databases) returned 13.51%, while the equity world large-value category returned only 11.53%. The overall P/E differentials across these two categories were significant, with value at 14.0 times compared with growth s 18.3 times. The lowest P/E quintile of the MSCI World ex Australia significantly underperformed the other quintiles; thus, value s underperformance to an extent is unsurprising. Energy, Health Care, and Technology The oil price plunge in the second half of the year was the biggest story of. The average manager was underweight energy relative to the MSCI World ex Australia Index, helping to limit the pain associated with oil s dive. That said, the typical outperforming manager had lower weightings. Other sectors of note include health care and technology. These sectors performed particularly strongly with 30.0% and 27.2% returns, respectively. And positioning in these sectors was a common factor in relative returns among funds; those that outperformed tended to have an above-average exposure compared with the laggards. The Case for Active Management While was undoubtedly disappointing for active management, a select group of these strategies still retain qualities that we expect to reward investors over the long term. Indeed, we raised this issue after observing the travails of active global equity managers in our April Talking Point Passive Strategies Pass Muster in Global Equities. A period of underperformance can colour views on the merits of various strategies, but investors should remain wary of extrapolating this into the future. Investors should also look beyond short term performance before drawing conclusions. Some reasonable fundamental arguments exist to defend active manager s performance over the course of, such as valuation-related concerns attributable to unprecedented central bank stimulus. And some of our Gold-rated managers, including Magellan Global and Platinum International 4505, still boast impressive track records over the course of a market cycle. This instils confidence in their investment merit and supports our view that they have distinct competitive advantages that can sustain success.

7 5 Table 1: Coverage-List Performance Versus the MSCI World ex Australia Index Name Total Return Acadian Wholesale Global Eqty Long Short Carnegie WorldWide Equity Trust Generation Wholesale Global Share Arrowstreet Global Equity MFS Concentrated Global Equity Trust W Acadian Wholesale Global Equity T. Rowe Price Global Equity BlackRock Scientific Intl Equity Fund AMP Capital FD Core International Shr IFP Global Franchise Grant Samuel Epoch Gbl Eq Shldr Yld Uhgd BT Core Gbl Share WS MSCI World Ex Australia NR AUD AMP Capital W Global Equity Value Magellan Global PM Capital Global Companies MFS Global Equity Trust AMP Capital Res Inv Leaders Intl Shr A Advance International Shr Multi-Blend W Acadian Global Managed Volatility Equity Zurich Investments Gbl Thematic Shr Russell Global Opportunities A CFS FC W Inv-FirstChoice W Global Share Perpetual Wholesale International Share Dimensional Global Large Company Trust Franklin Global Growth W MLC Wholesale Global Share Schroder Global Value Fidelity Global Equities Walter Scott Global Equity Wingate Global Equity Fund Goldman Sachs International WS Zurich Investments Unhedged Global Gr Dimensional Global Core Equity Trust UBS International Share Ironbark GTP Global Equity Thematic Realindex Wholesale Global Share Altrinsic Global Equities Trust Capital International Global Equity 9.99 GVI Aubrey Global Growth & Income Unhdgd 9.74 Aberdeen International Equity 9.68 CFS FC W Inv CFS W Worldwide Leaders 9.59 Dimensional Global Value Trust 9.16 Platinum Unhedged Fund 8.39 Platinum International Fund 7.79 Templeton Global Trust Fund 7.13 Threadneedle Global Equity Income Unhdgd 5.46 Platinum International Brands Fund 0.46

8 6 Currency Diversification: Alive and Well Kathryn Young Senior Analyst Manager Research At Morningstar, we have long maintained that potential diversification benefits make unhedged global-equities exposure an ideal way to manage risk at the overall portfolio level. For several years after the global financial crisis, as the Australian dollar appreciated to and remained at levels many considered overvalued, possible gains resulting from any currency depreciation provided more tactical support to that structural view. After marked declines in the currency, most notably against the U.S. dollar, we think it s worth reiterating this stance lest anyone believe that the argument in favour of currency diversification is impaired. The Case for Unhedged Global Equity Exposure The Australian dollar is widely regarded as a procyclical currency because it tends to rise in benign markets and fall in rougher times. Figure 1 above demonstrates that clearly. The local dollar became less valuable during notable bear Figure 1: AUD/USD Exchange Rate January 1999 to April /1999 Figure 2: 3-Year Rolling Correlation to S&P/ASX 200 Index Vanguard International Shares Index Vanguard International Shares Index Hgd AUD / /2001 Source: Morningstar Direct SM 01/ / / / / /2007 markets, including the tech wreck of March 2000 to October 2002 and the global financial crisis of June 2008 to March It then proceeded to gain value against the U.S. dollar as equity markets recovered. That tendency means that foreign-currency exposure can act as a natural offset to declines in an investor s equity allocation during times of market stress. It s worth noting that the offsetting relationship isn t perfect or guaranteed. There have been times in the past when global equities have declined yet the Australian dollar has appreciated. But Figure 1 clearly shows that during the worst times for equity markets, the Aussie dollar has declined. Figure 2 below illustrates how powerful that can be at the total portfolio level. It shows that a portfolio of unhedged global equities, using Vanguard International Shares Index 4489 as a proxy, is far less correlated to domestic shares than a portfolio of hedged global equities, with Vanguard International Shares Index Hedged 6430 as the proxy. It also demonstrates that, if anything, the potential for unhedged global equities to diversify equity risk at the overall portfolio level seems to have only increased throughout the past year. The correlation to domestic shares has declined to almost zero, even going negative for a brief period, as the Australian dollar depreciated relative to other major currencies, especially the U.S. dollar. Many market observers think the Aussie dollar has further to fall before reaching fair value. In December, Reserve Bank of Australia Governor Glenn Stevens suggested USD 0.75 might be an appropriate level. But it would have to fall quite a bit more from here to diminish the potential diversification benefits of unhedged global-currency exposure. In 2008, it fell to nearly USD 0.60 and in 2000 it fell to about USD Arguably, the outlook for Australia s terms of trade is worse now than it was then So, it s easy to believe that it could still provide plenty of offset to global equities if markets hit a rough patch in the near future / / / / / / / / / / / / / / / / / / / / / / / / / / 06/ 11/ 04/ / / / / / / / 01/2015 Source: Morningstar Direct SM

9 7 Are Managers Becoming Defensive? Elliot Smith Analyst Manager Research Table 2: Cash Allocations of the Average and Median Manager During the Past 3 Years (Average cash % of portfolio) Q1 Q2 Q3 Q Q1 Average Manager Median Manager Source: Morningstar Direct SM Table 3: Number of Portfolio Holdings and Percentage of Assets in Top-10 Holdings for the Average and Median Manager Q1 Q2 Q3 Q Q1 Average Manager (# holdings) Median Manager (# holdings) Average Manager (% in top 10) Median Manager (% in top 10) Source: Morningstar Direct SM Global equities have had a stellar run since 2012, the MSCI World ex Australia Index has grown more than 110% as it has been fuelled by accommodative monetary policy and improving economic sentiment. Underlying company fundamentals have struggled to keep pace, though, as valuations of most global equity markets are at or nearing historical highs. This begs the question, do fund managers think there is more fuel for the fire or are they positioning themselves for a downturn? There are several ways that we can gauge how fund managers are positioning their portfolios, and we will evaluate some of them here. (Please note that ETFs, indexlike funds, and multimanager strategies have been removed from this analysis as the flexibility of portfolio construction is limited in these products.) Table 4: Ratio of Investment in Defensive Sectors Relative to the Defensive Allocation in the Market Index MSCI World ex-aus Defensive Sector Weighting(%) Average Manager (ratio to market) Median Manager (ratio to market) Source: Morningstar Direct SM Q1 Q2 Q3 Q Q (Note: The data used has been adjusted to remove the effects of cash, only equity exposure included.) Cash allocations in an equity portfolio have a polarizing effect on performance. During a down market, cash allocations are a saviour for managers because they provide effective downside protection and are cheap and easy to implement. Most managers, however, are limited in their ability to hold cash and remain close to fully invested. This is reflected in the consistently low average cash levels of managers during the past three years (see Table 2). However, some managers who are focused on absolute returns have exercised their ability to hold meaningful cash allocations. CFS Worldwide Leaders 4672 increased cash to 15% from 2% at the end of 2013, and it now sits at 19%. Magellan Global increased its cash allocation to 10% in August and again to 15% in April On both occasions, veteran investor Hamish Douglass documented his caution about an increasing interest environment in the U.S. and the potential for the risk premia supporting asset valuations to unwind under these circumstances. Increasing the number of portfolio holdings or reducing the percentage of assets held in top-10 holdings can also be seen as a defensive play. This reduces stock-specific risk and can limit the risk of underperformance during a market correction. It appears that this hasn t been the case, though, as the number of holdings held has remained constant during the past three years (see Table 3). Within the universe, several managers bucked this trend. CFS Worldwide Leaders has roughly halved its number of stock holdings and increased the concentration in top-10 holdings since 2012, a result of fewer stocks meeting its stringent value criteria as the market has rallied. Given the restrictions on cash allocations and the number of holdings, stock selection is the primary tool that managers use to position their portfolios more defensively. One qualitative measure that we can look at is the investment in defensive sectors such as health care, consumer defensive, and utilities. Table 4 shows that it is difficult to spot a trend in how allocations to defensive sectors have varied during the past three years. It is worth noting the increase in weighting of defensive stocks within the MSCI World ex Australia Index. This is largely due to health care, which has had a very strong run during the past three years; its weighting in the index has increased to 13.90% from 10.39% over the period. There has been some significant movement at the fund level, Magellan Global has seen its defensive exposure drop to 24% from 48%, while CFS Worldwide Leaders has ramped it up to 57% from 23%.

10 8 Companies with strong underlying earnings are in high demand during a downturn, as companies reliant on fulfilling lofty growth expectations are susceptible to being punished by the market. Looking at the return on invested capital (ROIC) provides a gauge of how efficiently a company generates earnings with the debt and equity provided by investors. Unfortunately, in aggregate, there is no observable trend in ROIC from the past three years, see Table 5. Nonetheless, the metric provides investors with a tool to assess the quality of stocks a manager is investing in. For example, AMP Capital Responsible Investment Leaders 6842 has increased its ROIC to 16% from 13% during the past three years, while several managers have seen their quality slip. Table 5: Ratio of Return on Invested Capital of Managers Relative to the Market Q1 Q2 Q3 Q Q1 MSCI World ex-aus ROIC (%) Average Manager (ratio to market) Median Manager (ratio to market) The last measure we will look at is the quality of the balance sheets that portfolios are exposed to, in particular the financial leverage employed by companies to drive their businesses. The data (Table 6) shows that financial leverage has remained relatively constant, but it is worth noting the divergence within the universe. For instance, IFP Global Franchise and Platinum International Brands 6643 saw significant decreases in their underlying leverage, while T. Rowe Price Global and Lazard Global Small Cap increased their exposure to leveraged companies. In conclusion, the data does not support the argument that managers are becoming more defensive as a whole. However, there is significant divergence in how managers view global equity markets and how they are positioning their portfolios. For investors looking for a conservative global equity option, these measures should hopefully provide some clarity in what is an eclectic asset class. Source: Morningstar Direct SM Table 6: Debt/Capital of Portfolios Relative to the Market MSCI World ex-aus Debt/Capital Average Manager (ratio to market) Median Manager (ratio to market) Q1 Q2 Q3 Q Q Source: Morningstar Direct SM

11 9 Role in Portfolio Blending Global-Equity Strategies Mark Laidlaw Senior Analyst Manager Research Identifying the qualities and competencies of a fund manager in an asset class and allocating a Morningstar Analyst Rating TM is one task, but understanding the role an investment strategy can play in a portfolio is another. It s important to construct a portfolio from our preferred fund managers, as we believe that they have the credentials to perform well through a full market cycle. However, it doesn t follow that throwing our highest-rated fund managers together will deliver an appropriate exposure. Investors and advisers therefore need to understand the characteristics and exposures of the individual funds, and how these can be blended together to create a robust and diversified portfolio. One of the simplest ways of quickly understanding a fund s style and market-cap profile is to use the Morningstar Style Box TM. This is a holdings-based style map that can help assess where the weight of the exposure is, and the breadth of exposure the strategy provides. The style map shows the portfolio s exposure at a given point in time, while the style trail (available in our institutional software platform Morningstar Direct SM ) shows the historical portfolios, to give an understanding of how the fund has been positioned over time. This helps minimise any unintended style overlaps which may reduce diversification and increase risk. Figure 3 Figure 3: Holdings-Based Style Maps and Style Trails, MFS Global Equity Trust, Platinum International and Magellan Holdings-Based Style Trail Time Period: 30/06/2010 to 31/03/2015 Magellan Global 30/06/ /03/2015 Holdings-Based Style Trail Time Period: 30/06/2010 to 30/04/2015 MFS Global Equity Trust 30/06/ /04/2015 Holdings-Based Style Trail Time Period: 30/06/2010 to 31/03/2015 Platinum International Fund 30/06/ /03/2015 Micro Small Mid Large Giant Deep-Val Core-Val Core Core-Grth High-Grth Micro Small Mid Large Giant Deep-Val Core-Val Core Core-Grth High-Grth Micro Small Mid Large Giant Deep-Val Core-Val Core Core-Grth High-Grth Holdings-Based Style Map Giant Deep-Value Core-Value Core Core-Growth High-Growth Investment Name Date MFS Global Equity Trust 31/03/2015 Platinum International Fund 31/03/2015 Magellan Global 31/03/2015 Small Mid Micro Large Centroid Source: Morningstar Direct SM

12 10 shows the holdings-based style maps and style trails for MFS Global Equity Trust 4532, Magellan Global, and Platinum International. In terms of the role a particular strategy should play in a portfolio, we refer to a strategy as being either a core holding or a supporting player. There are no hard and fast rules that dictate into which of these buckets a particular fund might sit. It s more of an art than a science, taking into account a range of factors that have varying importance depending on the category. One factor that plays a role is a fund s market-cap exposure. Though there are certainly exceptions, strategies investing predominantly in large, well-established companies will generally be classified as core holdings. The majority of funds covered in this review can be considered core holdings, as most are predominantly in the large- and giant-cap box in terms of average market-cap size. (Figure 4). Just as important when it comes to assessing the correct blend of managers is their underlying regional and sector split. Does a manager play emerging markets directly or do they look to developed-markets proxies for their exposure? This potential dispersion is shown clearly when looking at the Figure 4: Holdings-Based Style Map, Morningstar Medallist Large-Cap Global Share Funds Holdings-Based Style Map Micro Small Mid Large Glant Magellan Global MFS Concentrated Global Equity Trust W IFP Global Franchise MFS Global Equity Trust Arrowstreet Global Equity BT Core Gbl Share WS Grant Samuel Epoch Gbl Eq Shldr Yld Uhgd Generation Wholesale Global Share Vanguard International Shares Index BlackRock Indexed Int Equity Fund Dimensional Global Large Company Trust Dimensional Global Core Equity Trust Dimensional Global Value Trust Franklin Global Growth W Walter Scott Global Equity CFS FC W Inv - CFS W Worldwide Leaders Schroder Global Value T. Rowe Price Global Equity Aberdeen International Equity Zurich Investments Gbl Thematic Shr Realindex Wholesale Global Share Platinum Unhedged Fund Ironbark GTP Global Equity Thematic Platinum International Fund Platinum International Brands Fund Altrinsic Global Equities Trust 31/03/ /03/ /12/ 31/03/ /12/ 31/01/ /04/ /02/ /04/ /03/ /04/ /04/ /04/ /03/ /12/ 28/02/ /12/ 31/03/ /04/ /04/ /04/ /03/ /04/ /03/ /03/ /11/ Deep-Val Core-Val Core Core-Grth High-Grth Source: Morningstar Direct SM

13 11 regional exposure over time of Gold medallists Platinum International and MFS Global Equity Trust, as shown in Figure 5 below. Regional exposures for MFS Global Equity Trust have been historically concentrated in the major developed areas of the world, and the weightings have remained fairly constant over time. Platinum International, on the other hand, is best known for unearthing ideas in all corners of the globe as shown by the changes in weightings over time to areas such as Japan and developing Asia. The same can be said when looking at exposures at the sector level. See Figure 6. MFS Global Equity Trust s remain relatively consistent over time, whereas Platinum International has shown a willingness to Figure 5: Regional Exposure MFS Global Equity Trust and Platinum International Stacked Bar Investment Name: MFS Global Equity Trust Equity Region Africa/Middle East % (Long Rescaled) Equity Region Europe emrg % (Long Rescaled) Equity Region Asia dev % (Long Rescaled) Equity Region Japan % (Long Rescaled) Equity Region Asia emrg % (Long Rescaled) Equity Region Latin America % (Long Rescaled) Equity Region Australasia % (Long Rescaled) Equity Region North America % (Long Rescaled) Equity Region Europe dev % (Long Rescaled) Equity Region United Kingdom % (Long Rescaled) Stacked Bar Investment Name: Platinum International Fund Equity Region Africa/Middle East % (Long Rescaled) Equity Region Europe emrg % (Long Rescaled) Equity Region Asia dev % (Long Rescaled) Equity Region Japan % (Long Rescaled) Equity Region Asia emrg % (Long Rescaled) Equity Region Latin America % (Long Rescaled) Equity Region Australasia % (Long Rescaled) Equity Region North America % (Long Rescaled) Equity Region Europe dev % (Long Rescaled) Equity Region United Kingdom % (Long Rescaled) Source: Morningstar Direct SM

14 12 substantially increase to sectors when it believes them to be undervalued and typically shunned by a number of globalequity peers. Many large-cap global share funds can be considered core holdings, but it s important to look through the headline exposures and understand the nature of the underlying portfolio and the strategy employed. This process can help identify how the strategy can best be used and which other funds it might complement. Diagnostic tools such as the Morningstar Portfolio X-Ray available in Morningstar Adviser Research CentreTM and Morningstar DirectSM can help identify specific fund characteristics and whether the fund is likely to add any diversification benefits. Figure 6: Sector Exposures MFS Global Equity Trust and Platinum International Stacked Bar Investment Name: MFS Global Equity Trust GICS Energy % (Long Rescaled) GICS Healthcare % (Long Rescaled) GICS Materials % (Long Rescaled) GICS Financials % (Long Rescaled) GICS Industrials % (Long Rescaled) GICS Information Technology % (Long Rescaled) GICS Consumer Discretionary % (Long Rescaled) GICS Telecom Services % (Long Rescaled) GICS Consumer Staples % (Long Rescaled) GICS Utilities % (Long Rescaled) Stacked Bar Investment Name: Platinum International Fund GICS Energy % (Long Rescaled) GICS Healthcare % (Long Rescaled) GICS Materials % (Long Rescaled) GICS Financials % (Long Rescaled) GICS Industrials % (Long Rescaled) GICS Information Technology % (Long Rescaled) GICS Consumer Discretionary % (Long Rescaled) GICS Telecom Services % (Long Rescaled) GICS Consumer Staples % (Long Rescaled) GICS Utilities % (Long Rescaled) Source: Morningstar Direct SM

15 13 Morningstar Medallists Investment strategies with Morningstar Analyst Ratings of Gold, Silver, or Bronze are considered to be Morningstar Medallists. These are the strategies that in our opinion truly stand out and share common traits, including a capable and stable team, robust processes, and an ability to deliver in a variety of market conditions. Of the 63 global large-cap strategies we covered in, we designated 38 as Morningstar Medallists (Table 7 below). Three strategies received the highest-possible Analyst Rating of Gold. Twelve strategies attained Silver, and 23 were rated Bronze. Table 7: Global Large-Cap Morningstar Medallists Ticker Fund Manager/Strategy Morningstar Analyst Rating Magellan Global Gold 4532 MFS Global Equity Trust Gold 4505 Platinum International Fund Gold 4768 Aberdeen International Equity Silver Arrowstreet Global Equity Silver 4672 CFS FC W Inv - CFS W Worldwide Leaders Silver 4713 CFS FC W Inv-CFS W Global Resources Silver Franklin Global Growth W Silver IFP Global Franchise Silver MFS Concentrated Global Equity Trust W Silver Platinum Global Fund Silver 6643 Platinum International Brands Fund Silver Platinum Unhedged Fund Silver Walter Scott Global Equity Silver 4951 Zurich Investments Gbl Thematic Shr Silver Altrinsic Global Equities Trust Bronze 9154 BlackRock Indexed Int Equity Fund Bronze 2951 BT Core Gbl Share WS Bronze CFS FC W Inv-CFS W Global Soft Commodity Bronze Dimensional Global Core Equity Trust Bronze 6466 Dimensional Global Large Company Trust Bronze 5841 Dimensional Global Value Trust Bronze Generation Wholesale Global Share Bronze Grant Samuel Epoch Gbl Eq Shldr Yld Uhgd Bronze Ironbark GTP Global Equity Thematic Bronze IVV ishares Core S&P 500 (AU) Bronze IOO ishares Global 100 (AU) Bronze IVE ishares MSCI EAFE (AU) Bronze Realindex Wholesale Global Share Bronze Schroder Global Value Bronze WXHG SPDR S&P World ex Australia Hedged Bronze WXOZ SPDR S&P World ex Australia ETF Bronze T. Rowe Price Global Equity Bronze VEU Vanguard All-World ex-us Shares ETF Bronze 4489 Vanguard International Shares Index Bronze VGS Vanguard MSCI Index Intl ETF Bronze VGAD Vanguard MSCI Index Intl ETF Hedged Bronze VTS Vanguard US Total Market Shares ETF Bronze Source: Morningstar Direct SM

16 14 Of the six global small-cap strategies we covered, we designated two as Bronze medallists (Table 8 below). Table 8: Global Small-Cap Morningstar Medallists Ticker Fund Manager/Strategy Morningstar Analyst Rating 6467 Dimensional Global Small Company Trust Bronze Vanguard International Small Companies Bronze Source: Morningstar Direct SM Of the 12 global emerging-markets strategies we covered, we rated one Gold, three Silver, and three Bronze (Table 9 below.). Table 9: Global Emerging-Markets Morningstar Medallists Ticker Fund Manager/Strategy Morningstar Analyst Rating CFS FC W Inv-Glb Emerging Mkts Leaders Gold Aberdeen Emerging Opportunities Silver Arrowstreet Emerging Markets Silver 4870 Lazard Emerging Markets Equity I Silver IEM ishares MSCI Emerging Markets (AU) Bronze VGE Vanguard FTSE Emerging Markets Shares ETF Bronze 4743 Vanguard Emerging Markets Shares Index Bronze Source: Morningstar Direct SM Finally, of the 11 Asian equity strategies we covered, we gave two a Silver rating and four a Bronze rating (Table 10 below). Table 10: Asian Equities Morningstar Medallists Ticker Fund Manager/Strategy Morningstar Analyst Rating Aberdeen Asian Opportunities Silver 9894 Platinum Asia Silver 4246 BT Asian Share WS Bronze IAA ishares Asia 50 (AU) Bronze Macquarie Asia New Stars No.1 Bronze T. Rowe Price Asia ex-japan Bronze Source: Morningstar Direct SM

17 15 Appendix 1: Basic Data Emerging Markets Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Indirect Cost Ratio (ICR) Aberdeen Emerging Opportunities 1/7/2004 Silver 8/7/ 1,435,368,733 30/4/ Arrowstreet Emerging Markets 9/7/2007 Silver 9/7/ 807,133,883 30/4/ CFS FC W Inv-FC W Emerging Markets 19/5/2008 Neutral 29/1/ 55,362,726 30/4/ CFS FC W Inv-Glb Emerging Mkts Leaders 22/3/2010 Gold 6/8/ 155,324,181 30/4/ Dimensional Emerging Markets Trust 31/8/2000 Neutral 19/11/ ,494,752 30/4/ Lazard Emerging Markets Equity I 22/10/1997 Silver 3/12/2013 1,044,485,311 4/6/ Realindex Wholesale Emerging Markets 11/4/2011 Neutral 19/5/ 383,894,390 31/3/ Vanguard Emerging Markets Shares Index 31/12/1997 Bronze 9/7/ 1,360,051,573 30/4/ Asian Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Indirect Cost Ratio (ICR) Aberdeen Asian Opportunities 20/10/2003 Silver 6/8/ 788,861,004 30/4/ AMP Capital Asian Equity Gr A 10/12/2008 Neutral 12/2/ 1,638,038 30/4/ BT Asian Share WS 22/8/1996 Bronze 12/6/ 209,489,789 30/4/ CFS FC W Inv-FirstChoice W Asian Share 30/4/2007 Neutral 4/12/ ,388,620 30/4/ Macquarie Asia New Stars No.1 27/5/2010 Bronze 7/8/ 293,425,290 30/4/ Nikko AM New Asia 4/11/2005 Neutral 31/1/ 28,884,659 30/4/ Platinum Asia 3/3/2003 Silver 25/3/2015 6,215,680,000 30/4/ Global Large-caps Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Indirect Cost Ratio (ICR) 4768 Aberdeen International Equity 1/7/1996 Silver 26/1/ ,583,201 30/4/ Acadian Wholesale Global Eqty Long Short 20/1/2006 Neutral 30/4/ ,391,908 30/4/ Acadian Wholesale Global Equity 16/5/2005 Neutral 30/4/ ,303,846 30/4/ Advance International Shr Multi-Blend W 23/3/1998 Neutral 22/3/ ,056,391 30/4/ Altrinsic Global Equities Trust 7/11/2011 Bronze 6/5/ ,010,000 30/4/ AMP Capital Res Inv Leaders Intl Shr A 20/4/2001 Neutral 12/5/ ,840,059 30/4/ AMP Capital Specialist Intl Shr WS 10/10/2005 Neutral 12/5/ ,373,013 30/4/ AMP Capital W Global Equity Value 22/11/2001 Neutral 22/4/ ,650,459 31/3/ Arrowstreet Global Equity 20/12/2006 Silver 7/4/ ,020,849 30/4/ BlackRock Indexed Int Equity Fund 12/12/2001 Bronze 4/2/ ,671,447 30/4/ BlackRock Scientific Intl Equity Fund 15/10/1994 Neutral 27/5/ ,980,704 30/4/ BT Core Gbl Share WS 6/10/1992 Bronze 3/2/ ,374,863 30/4/ Capital International Global Equity 14/4/2009 Neutral 15/3/ ,170,070 30/4/ Carnegie WorldWide Equity Trust 20/5/1997 Neutral 4/5/ ,032,782 30/4/ CFS FC W Inv - CFS W Worldwide Leaders 1/7/1997 Silver 30/1/ ,794,890 30/4/ CFS FC W Inv-CFS W Global Resources 1/5/1997 Silver 18/5/ ,719,958 30/4/ CFS FC W Inv-CFS W Global Soft Commodity 11/4/2011 Bronze 18/5/ ,159,041 30/4/ CFS FC W Inv-FirstChoice W Global Share 23/4/2002 Neutral 16/4/ ,704,218 30/4/ Dimensional Global Core Equity Trust 5/12/2006 Bronze 28/5/2015 1,282,461,592 30/4/ Dimensional Global Large Company Trust 18/8/2000 Bronze 27/5/ ,726,265 30/4/ Dimensional Global Value Trust 26/8/1999 Bronze 27/5/ ,833,337 30/4/ Fidelity Global Equities 1/4/1998 Neutral 8/3/ ,190,001 30/4/ Franklin Global Growth W 1/10/2008 Silver 10/3/ ,122,656 30/4/

18 16 Global Large-caps cont'd Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Indirect Cost Ratio (ICR) Generation Wholesale Global Share 3/9/2007 Bronze 30/1/ ,035,898 30/4/ Goldman Sachs International WS 30/4/1997 Neutral 12/9/ 67,967,223 30/4/ Grant Samuel Epoch Gbl Eq Shldr Yld Uhgd 15/5/2008 Bronze 30/3/2015 1,755,529,771 30/4/ GVI Aubrey Global Growth & Income Hedged 23/2/2005 Neutral 10/3/ ,400,000 30/4/ GVI Aubrey Global Growth & Income Unhdgd 4/9/2009 Neutral 10/3/2015 5,100,000 30/4/ IFP Global Franchise 17/11/2004 Silver 9/3/2015 1,769,594,453 30/4/ Ironbark GTP Global Equity Thematic 4/10/1996 Bronze 8/3/ ,600,001 30/4/ Magellan Global 29/6/2007 Gold 23/2/2015 7,490,651,000 30/4/ MFS Concentrated Global Equity Trust W 30/6/2008 Silver 12/2/ ,864,378 30/4/ MFS Global Equity Trust 1/7/1997 Gold 12/2/2015 6,888,932,472 30/4/ MLC Wholesale Global Share 1/1/1998 Neutral 28/5/ ,299,751 30/4/ Perpetual Wholesale International Share 21/4/1997 Neutral 26/4/ ,134,411 31/3/ Platinum Global Fund 8/9/ Silver 30/1/ ,240,000 30/4/ Platinum International Brands Fund 18/5/2000 Silver 30/1/2015 1,322,640,000 30/4/ Platinum International Fund 30/4/1995 Gold 30/1/ ,673,139,999 30/4/ Platinum Unhedged Fund 5/3/2007 Silver 30/1/ ,190,000 30/4/ PM Capital Global Companies 28/10/1998 Neutral 7/5/ ,490,000 31/5/ Realindex Wholesale Global Share 17/11/2008 Bronze 8/2/2015 1,390,129,708 30/4/ Russell Global Opportunities A 31/12/1997 Neutral 14/4/ ,514,957 30/4/ Schroder Global Value 26/7/2005 Bronze 11/2/2015 1,576,110,427 30/4/ T. Rowe Price Global Equity 15/9/2006 Bronze 21/4/2015 1,121,888,951 31/3/ Templeton Global Trust Fund 11/9/1996 Neutral 12/5/ ,318,023 30/4/ Threadneedle Global Equity Income Unhdgd 30/11/2012 Neutral 16/4/ ,743,391 30/4/ UBS International Share 26/11/1992 Neutral 27/1/ ,723,214 31/5/ Vanguard International Shares Index 6/6/1997 Bronze 27/4/2015 8,752,625,324 30/4/ Walter Scott Global Equity 18/3/2005 Silver 30/1/2015 2,027,995,703 30/4/ Wingate Global Equity Fund 1/8/2008 Neutral 2/6/ ,897,965 30/4/ Zurich Investments Gbl Thematic Shr 25/7/1997 Silver 12/5/2015 1,297,143,830 30/4/ Zurich Investments Unhedged Global Gr 31/8/2009 Neutral 17/5/ ,224,648 30/4/ Global Small-Caps Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Indirect Cost Ratio (ICR) 6467 Dimensional Global Small Company Trust 18/8/2000 Bronze 27/5/ ,750,828 30/4/ Goldman Sachs Global Small Companies WS 9/11/1999 Neutral 25/5/ ,940,555 30/4/ Hunter Hall Value Growth Trust 2/5/1994 Neutral 27/1/ ,299,569 31/3/ Lazard Global Small Cap W 22/10/1997 Neutral 25/2/ ,303,666 4/6/ Vanguard International Small Companies 31/10/2007 Bronze 27/4/ ,511,976 30/4/

19 17 ETFs Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Management Costs IAA ishares Asia 50 (AU) 13/11/2007 Bronze 8/12/ 304,145,165 30/4/ IZZ ishares China Large-Cap (AU) 5/10/2004 Neutral 8/12/ 190,499,755 30/4/ IVV ishares Core S&P 500 (AU) 15/5/2000 Bronze 8/12/ 1,856,453,622 30/4/ IOO ishares Global 100 (AU) 10/10/2007 Bronze 8/12/ 1,007,361,182 30/4/ IBK ishares MSCI BRIC (AU) 12/11/2007 Neutral 8/12/ 41,813,296 30/4/ IVE ishares MSCI EAFE (AU) 14/8/2001 Bronze 8/12/ 249,359,414 30/4/ IEM ishares MSCI Emerging Markets (AU) 7/4/2003 Bronze 8/12/ 416,490,087 30/4/ WDIV SPDR S&P Global Dividend ETF 1/11/2013 Neutral 22/4/ ,573,761 4/6/ WXOZ SPDR S&P World ex Australia ETF 18/3/2013 Bronze 22/4/ ,462,731 4/6/ VEU Vanguard All-World ex-us Shares ETF 12/5/2009 Bronze 8/12/ 474,098,260 30/4/ VGE Vanguard FTSE Emerging Markets Shrs ETF 18/11/2013 Bronze 22/4/ ,195,920 30/4/ VTS Vanguard US Total Market Shares ETF 12/5/2009 Bronze 8/12/ ,313,048 30/4/ LICs Ticker Name Inception Date Morningstar Analyst Rating Global Fund Report Analysis Date Fund Size AUD Fund Size Date Management Expense Ratio HHV Hunter Hall Global Value Ord 19/3/2004 Neutral 19/5/ ,347,323 5/6/ TGG Templeton Global Growth Fund Ord 28/5/1987 Neutral 19/5/ ,404,676 5/6/

20 18 Appendix 2: Portfolio Characteristics Emerging Markets Ticker Name Portfolio Date # of Holdings (Long) % Asset in Top 10 Holdings Information Ratio 3 Year Tracking Error 3 Yr (Mo-End) AUD Aberdeen Emerging Opportunities 30/4/ Arrowstreet Emerging Markets 31/12/ CFS FC W Inv-FC W Emerging Markets 28/2/ CFS FC W Inv-Glb Emerging Mkts Leaders 30/4/ Dimensional Emerging Markets Trust 30/4/2015 1, Lazard Emerging Markets Equity I 31/3/ Realindex Wholesale Emerging Markets 28/2/ Vanguard Emerging Markets Shares Index 30/4/ Asian Ticker Name Portfolio Date # of Holdings (Long) % Asset in Top 10 Holdings Information Ratio 3 Year Tracking Error 3 Yr (Mo-End) AUD Aberdeen Asian Opportunities 30/4/ AMP Capital Asian Equity Gr A 31/3/ BT Asian Share WS 28/2/ CFS FC W Inv-FirstChoice W Asian Share 28/2/ Macquarie Asia New Stars No.1 28/2/ Nikko AM New Asia 30/4/ Platinum Asia 31/3/ Global Large-caps Ticker Name Portfolio Date # of Holdings (Long) % Asset in Top 10 Holdings Information Ratio 3 Year Tracking Error 3 Yr (Mo-End) AUD 4768 Aberdeen International Equity 30/4/ Acadian Wholesale Global Eqty Long Short 28/2/ Acadian Wholesale Global Equity 28/2/ Advance International Shr Multi-Blend W 31/12/ 1, Altrinsic Global Equities Trust 30/11/ AMP Capital Res Inv Leaders Intl Shr A 31/3/ AMP Capital Specialist Intl Shr WS 31/3/ AMP Capital W Global Equity Value 31/3/ Arrowstreet Global Equity 31/12/ BlackRock Indexed Int Equity Fund 31/3/2015 3, BlackRock Scientific Intl Equity Fund 30/4/2015 3, BT Core Gbl Share WS 28/2/ Capital International Global Equity 30/4/ Carnegie WorldWide Equity Trust 31/12/ CFS FC W Inv - CFS W Worldwide Leaders 28/2/ CFS FC W Inv-CFS W Global Resources 28/2/ CFS FC W Inv-CFS W Global Soft Commodity 28/2/ CFS FC W Inv-FirstChoice W Global Share 28/2/2015 1, Dimensional Global Core Equity Trust 30/4/2015 5, Dimensional Global Large Company Trust 30/4/2015 1, Dimensional Global Value Trust 30/4/ Fidelity Global Equities 30/4/ Franklin Global Growth W 31/3/