DECEMBER QUARTER 2017

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1 DECEMBER QUARTER 2017 The Newgate Absolute Return Fund takes long and short positions in equity securities. We are a research and evidence based fund manager seeking to generate our investors absolute returns through the identification of incorrectly priced agents of change in companies and industries. QUARTERLY PERFORMANCE - FINANCIAL YEAR 2018 SEPTEMBER QTR DECEMBER QTR MARCH QTR JUNE QTR Total FY Return 2018FY 7.22% 13.09% % As marvellous as the human mind is, the complexity of the real world dwarfs our cognitive abilities - Administrative Behavoir, Herbert Simon, 1955 Certain common threads run through the best investments I ve witnessed. They re usually contrarian, challenging and uncomfortable - Howard Marks, Oaktree Capital There is nothing wrong with changing a plan when the situation has changed - Lucius Seneca (Roman Stoic Philosopher, 4BC AD65) FUND PERFORMANCE AS AT 31 DECEMBER 2017 TIME PERIOD RETURN 3 month return % 6 month return % 12 month return Since Inception (total) % Since Inception (annualised) % Observed Volatility 11.4% AVERAGE FUND STATISTICS STATUS MOVEMENT Number of Positions: 39 positions + Cash Net Position: 135% (longs less shorts) Total Long Positions: 210% Total Short Positions: 75% Gross Exposure: 285% (longs plus shorts) NOTABLE STOCK CONTRIBUTIONS POSITIVE CONTRIBUTORS Orocobre (ORE) Independence Group (IGO) Praemium (PPS) NEGATIVE CONTRIBUTORS APA Group (APA) Platinum Asset Management (PTM) Windlab (WND) Bluescope Steel (BSL)

2 FUND OVERVIEW The December 2017 Quarter Over the December quarter, the Newgate Absolute Return Fund generated a 13.1% return, taking the rolling 12 month return to 25.5%. The Australian equities market was buoyant over the December quarter 2017, with the ASX200 benchmark index rising by +7.6%. This saw the benchmark end the year with a respectable 12-month return of +11.8%. This 12-month return compares to the average annual Australian equity market return of the past century of 11.9% per annum 1. The key theme for the calendar year was the strong performance of the resources sector, which was up +26% over the calendar year All Ordinaries Index 6,150 6,050 After being flat for most of the year, the Australian Equities market made solid gains over the last quarter of the calendar 5,950 5,850 5,750 5,650 Dec-2016 Mar-2017 Jun-2017 Sep-2017 Dec ,200 4,000 3,800 ASX 200 Resources Index The Australian resources sector was the standout performer up 26% over the 12 months to December 31st, made big gains over the six months to December 3,600 3,400 3,200 3,000 Dec-2016 Mar-2017 Jun-2017 Sep-2017 Dec Triumph of the Optimists, 101 years of global investment returns, Dimson et al

3 FUND OVERVIEW Contributors Over the December quarter, we generated excellent returns from positions in companies that will be providing the raw materials for the electric vehicle industry. These exposures are lithium producer Orocobre (ORE), nickel sulphate producer Independence Group (IGO) and rare earth producer Lynas Corporation (LYC). Later in this newsletter, we will undertake a brief review of the electric vehicle thematic, illustrating how it will increase demand for industrial metals. Detractors Wind energy developer and owner, Windlab (WND) has performed poorly since participation in the August 2017 float, declining 22%. We put the disappointing performance down to the general complexity of the renewable energy sector and the risk of changes in legislation impacting renewable energy generation returns. We think time will counter these investment objections and remain positive on our exposure to WND fundamentals. We note the following: WND generates revenue from developing and managing wind energy assets. WND have developed $1 billion of wind generation assets to date WND now has a proven competitive advantage and 15-year track record in selecting sites with excellent wind energy economics Political support remains positive towards renewable energy generation, there is the potential for a further $6 billion of wind generation development in Australia WND is trading on a market capitalisation of approximately $100 million and a 2018 earnings multiple of nine times. This earnings multiple is too low considering the ability of WND in the near term to deploy an estimated $3 billion of capital into high returning wind development opportunities.

4 RESEARCH NOTE Cyclicals and the Resources Sector We have argued the case for an exposure to the resources sector for over 12 months. Despite the excellent performance of the sector since this time, we continue to remain confident as our multi-pronged investment case remains intact. The demand side for cyclicals is supportive The initial foundation of our positive view on resources, and cyclical companies generally, is that global industrial production is growing strongly. Every major global economy is experiencing robust economic conditions. This is a very positive backdrop for consumption of metals and other commodities. Annual Global GDP Growth Rate 9% 6% Japan Germany USA UK The US economy is leading the pack. Even the Japanese economy is growing. 3% 0% -3% -6% We expect this positive economic momentum to continue because financial conditions are likely to remain accommodative (interest rates remain low). Our interest rate view is predicated on a current lack of wage inflation as well as our observation that central banks seem unwilling to allow interest rates to increase materially in case it derails the global economic recovery.

5 RESERACH NOTE The supply side for cyclicals is supportive The other factor supporting our positive view on commodities is supply side discipline. Firstly, the Chinese government is dictating forced production cuts of major commodity groups including aluminium, paper, concrete, steel and coal. This order is driven by the government s objective of increasing the price of commodities to improve the profitability of these industries, as well as repair the environment. Adding to the supply side argument is the behaviour of major resource companies themselves. They are not responding to higher commodity prices with supply expansion plans. Just two years ago, the resources industry went through an existential crisis, with major companies like Glencore almost entering bankruptcy 1. This experience has left most Boards and Executive teams keen to reduce debt and reluctant to expand production. This behaviour is very supportive for commodity prices, and commodity companies. $3.50 $3.25 $3.00 Copper Price (USD/lb) According to major global copper producers, the price of copper required to incentivise new supply is over $US 4 per pound. This is 25% above the current price of copper $2.75 $2.50 $2.25 $2.00 Mar-2016 Jun-2016 Sep-2016 Dec-2016 Mar-2017 Jun-2017 Sep-2017 Dec-2017 Conclusion Strong demand from the economic cycle, and disciplined supply growth has been supportive for commodity prices over We expect more of the same over Major resource companies will likely continue delivering earnings upgrades, reducing debt and undertaking share buybacks and increasing dividends. All these outcomes are very supportive for equity values. 1 Glencore fell 80% from the 9 months to September 2015 as the market become very concerned about its dent levels. It hit a low of GBP 70 during September 2015 and has since recovered to trade at Gbp 415 today

6 RESEARCH NOTE Resources and electric vehicles History shows that growth industries can be a very difficult space to invest in. Growth does not always create economic value for companies. The best examples have been the automobile and aircraft industries, that have been perennial destroyers of value since their invention. Warren Buffett, American investor The resources sector is not just a beneficiary of strong global demand and disciplined supply. The future growth of the electric vehicle industry is creating new demand for some commodities. Our analysis suggests the growth of electric vehicles will see a greater requirement for lithium, nickel, cobalt, copper and rare earths. The global car industry The total stock of vehicles on the world s roads is estimated at 1.0 billion and forecast to rise to 1.2 billion by The average estimate for annual global passenger car sales is approximately 100 million 2. Based on global population growth and greater car ownership levels in developing countries such as China we forecast this number rising to 130 million per annum by Navigant Research, John Voelcher, Green Car Reports, Various industry bodies, estimates vary widely

7 RESEARCH NOTE What is the likely penetration rate of electric vehicles? Government and automobile manufacturer targets point to at least a 15% penetration rate of electric vehicles by To move to this penetration rate, electric vehicle sales need to be 50 million per annum by By 2030, the Volkswagen group will electrify its entire model line-up VW s CEO Matthias Mueller The ramp up of electric vehicle production is unlikely to be linear. The diffusion and adoption of new ideas and new products often follows S-shaped growth patterns 1, or an adoption curve. The pattern observed is driven by contagion akin to epidemic patterns. This model has predicted the growth of many things - cable television, IPhones, LED technology, computers, investment fads, and fashion. We expect electric car demand will follow a typical adoption curve, with growth driven initially by innovators and early adopters before being adapted by the majority. 16.0% Electric Vehicle Penetratiion 14.0% 12.0% Our forecasts for penetration rates are 15% by 2025, materially less than global car manufacturer forecasts of up 25% penetration rate 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Business Dynamics, Systems Thinking and Modelling for a Complex World, John Sterman, 2000

8 RESEARCH NOTE How much incremental metal is required for each electric vehicle? For the purposes of our analysis we assume a 30-kwh battery for each electric vehicle. We highlight below the metal intensity required for each kwh of battery power: Nickel Nickel content is 0.60 kg per kwh 1 or 18kg per electric car Based on our electric vehicle growth forecasts we expect incremental high-grade nickel sulphate demand to grow by 900,000 tonnes per annum by This compares to current production of high grade nickel of approximately 1.1 million tonnes 2. The nickel price required to incentivise this new production is above $US 12 per pound, almost double the current nickel price of $US6.30 per pound. If we assume nickel rises to this price over the next few years, Australian nickel producer Independence Group (IGO) is worth up to $8.50, 70% above the current share price. Lithium Lithium content is currently 1 kg for each kwh, going to 0.5 kg/kwh by , or 30kg per electric car Based on our electric vehicle growth forecasts we expect lithium demand to grow to 1 million tonnes per annum. This compares to current production of about 200k tonnes per annum. The current price of $US14,000 per tonne is elevated, and is likely to remain so for several years until supply responds to the high price. If we assume lithium remains elevated and then declines to the marginal cost of production, our valuation of Orocobre is worth $10.56 per share, 49% above the current share price. 1 UBS, AME, World Steel Association, International Nickel Study Group, Bloomberg. 2 Ibid 3 Roskill, Benchmark Mineral Intelligence, company filings, UBS Research.

9 RESEARCH NOTE Copper Copper content is currently 45kg per electric vehicle, or 25kg more than a conventional vehicle Based on our electric vehicle growth forecasts we expect copper demand to grow by an incremental 1.1 million tonnes per annum. This compares to current production of about 22 million tonnes per annum. The copper price required to incentivise this new production is above $US 4.00 per pound, 25% above the current copper price of $US 3.25 per pound. If we assume copper rises to this price over the next few years, Australian copper miner Oz Minerals (OZL) is worth $13.52 per share, 48% above the current share price. FUND PROFILE Investment Objective Generate returns of between 12-15% per annum over rolling three year periods with target volatility of less than 15% Fund Inception 7 August 2016 Trustee: Newgate Capital Partners, AFSL Fund Manager: Custodian: Administrator: Auditors and Tax Legal: Regulator: Tim Hannon Macquarie Bank Fund BPO PricewaterhouseCoopers DLA Piper, CNM Legal ASIC

10 IMPORTANT DISCLAIMER This may affect your legal rights: Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives, you should consult your investment adviser before any investment decision is made. While this document is based on the information from sources which are considered reliable, Newgate Funds Pty Ltd, its associated entities, directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Newgate Funds Pty Ltd accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Newgate Funds Pty Ltd. This is general securities advice only and does not constitute advice to any person. Disclosure of Interest: Newgate Investment Management Pty Ltd, Newgate Capital Partners Pty Ltd and its associates may hold shares in the companies recommended. The individual fund performance figures are based on an investment in the Fund s August 2016 units, the date of the Funds inception. The performance numbers are based on the net asset value of the Fund and are calculated net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, if any, and include the reinvestment of all dividends, interest, new issue income or loss, and capital gains. The Firm and the Fund have a limited operating history. This report is not an offer to buy or sell any security. Offering by private Information Memorandum only. Investing in hedge funds such as the Newgate Absolute Return Fund is risky and investors are exposed to capital loss. Investors should review the Information Memorandum for the Fund, which contains a complete description of the investment program and its risks, in its entirety before investing. The Fund invests in listed securities, which can be volatile and subject to market factors beyond the control of the manager. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified. The Firm assumes no liability for errors and omissions in the information contained herein. This report is for informational purposes only and may not be reproduced or distributed without the prior consent of the Firm. Volatility is calculated by using the annualised standard deviation of monthly returns since inception of Newgate Real Estate and Infrastructure Fund. Standard deviation measures the distribution of returns around the mean return. Low standard deviations reflect low variation in monthly results; higher variability is usually interpreted as higher risk. Standard deviations are based on monthly results, and then annualised. The Sharpe Ratio is the ratio of excess return to volatility. Excess return is defined as the annualised rate of return less the risk-free rate, using monthly returns since inception. The volatility measure is the annualised standard deviation of monthly excess returns since inception. Any investment in the Funds is speculative and involves substantial risk, including the risk of losing all or substantially all such investment. No representation is made that the Funds will or are likely to achieve their objective, that any investor will or is likely to achieve results comparable to the estimated performance shown, will make any profit at all or will be able to avoid incurring substantial losses. Past performance is not necessarily indicative of future results. Comparisons of the performance of actively managed accounts such as the Funds with passive securities indices involved material inherent limitations. Performance estimates are presented only as of the date referenced above and may have changed materially since such date. Newgate Capital Partners Pty Ltd, ABN , AFS Licence Number