Mr J. & Mrs J. Sample 1 Sample Street Sampletown NSW July Dear John & Jane,

Transcription

1 Macquarie Private Portfolio Management Limited ABN A Member of Macquarie Group Limited 1 Shelley Street, Sydney NSW 2000 Internet: Telephone: Mr J. & Mrs J. Sample 1 Sample Street Sampletown NSW July 2013 Dear John & Jane, In this quarterly review we examine market returns and key themes for the June 2013 quarter. During the quarter, we saw a pull back of the Australian sharemarket. As noted last quarter, the divergence of economic performance between regions continued. US economic data provided a solid backdrop with US housing data continuing on its recovery path. This improving outlook led investors to question when the US Federal Reserve may look to wind back its Quantitative Easing (QE) program. Concerns around the potential lessening of liquidity across markets contributed to softer equity markets from mid-quarter. Bond markets were also lower and will have the most important influence on the immediate outlook for global growth. Closer to home, Japanese equities posted a strong (albeit volatile) quarter and an impressive 51 per cent for the rolling 12 months. While the divergence in economic conditions is likely to translate to sub-trend growth in the global economy in the next 12 months, it is clear that opportunities exist. In this dynamic macroeconomic environment, our portfolios remain focused on quality companies, with solid fundamentals. While we concentrate on a long-term investment strategy, we look to rebalance our portfolio positioning based on market and macroeconomic themes that arise in the shorter-term. We recommend you remain in regular contact with your adviser. If you wish to discuss any element of your portfolio, please contact your adviser, or Liz Wheatley, on Yours sincerely, Trevor Fisher Head of Private Portfolio Management Macquarie Private Portfolio Management

2 JOHN & JANE SAMPLE MACQUARIE INDIVIDUALLY MANAGED ACCOUNT June 2013 Quarterly Report

3 Table of Contents Commentary 1 Pre Tax and Asset Allocation 10 Portfolio Valuation 11 Investment Transactions 13 Income Summary 14 Cash Transactions 16 After Tax Performance 18 Tax Invoice Macquarie 19 For all enquiries regarding this report please call your adviser Information in this report is provided by Macquarie Private Portfolio Management Limited (ABN ). While the information in this report is given in good faith and is believed to be reliable and accurate, neither Macquarie Private Portfolio Management Limited (ABN ) or any member of the Macquarie Group gives any warranty as to the reliability or accuracy of the information, nor accepts any responsibility for any errors or omissions. Report generated 21/07/2012 8:36 PM

4 Macquarie j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= Private Portfolio Management June quarter 2013 Quarterly review Table 1: Index returns to 30 June 2013 Market Index 3 months 12 months S&P/ASX200 Accumulation -2.48% 22.75% S&P500 (US) 2.36% 17.92% NASDAQ (US) 4.15% 15.95% FTSE100 (UK) -3.06% 11.57% Nikkei (Japan) 10.32% 51.86% Hang Seng (HK) -6.71% 7.00% MSCI World ex- Australia in $A S&P/ASX200 Listed Property (A-REITs) UBS Composite (Bonds) 15.41% 33.34% 3.34% 24.22% 0.40% 2.78% UBS Bank Bill (Cash) 0.75% 3.28% Source: IRESS Review of asset class returns The Australian sharemarket was weaker during the June quarter, with the S&P/ASX200 Accumulation Index declining by 2.5%. After posting a strong return in April, the market followed its typical seasonal pattern, with equities posting negative monthly returns during May and June. Despite the pullback, the Australian equity market remains 22.8% higher over the past 12 months. US economic data provided a solid backdrop during the quarter, with US housing data continuing on its recovery path. However, this improving outlook led investors to question when the US Federal Reserve (the Fed) may look to wind back some of its asset purchases (known as quantitative easing, or QE3), which have been used to stimulate economic activity. In late June, the Fed Chairman, Ben Bernanke, indicated that QE3 may be wound back later in 2013, subject to an improving economic outlook. These comments drove equity and bond prices simultaneously lower. It also put further downward pressure on commodities and upward pressure on the US dollar. Major global equity markets were mixed, but mostly outperformed the Australian market. The Japanese Nikkei led the way, returning 10.3%. The performance of commodities was generally weak, with most major commodities declining. WTI oil slipped 0.8% during the period while gold fell 22.6%. Bulk commodities such as iron ore and thermal coal were weaker, due to increasing supply levels. Spot iron ore prices ended the quarter down 15.3% at $116/t. Returns from Australian fixed rate bonds were modestly positive during the quarter, with the domestic UBS Composite All Maturities Bond Index returning 0.4%. The Reserve Bank of Australia (RBA) cut the official cash rate to 2.75% in early May, in response to the weakening outlook for mining investment. Returns from Australian Real Estate Investment Trusts (A-REITs) were solid during the quarter at +3.3%, well ahead of the broader equity market. In our view, A- REITs continue to offer relative earnings certainty. The sector is currently trading on a 5.7% expected FY14 yield. The RBA s decision to cut rates put downward pressure on the Australian dollar during the quarter. Additionally, the comments from the Fed saw the Australian dollar depreciate further. The largest move was against the Euro, with the Australian dollar depreciating by 13.6%. As we will discuss in the Where to from here for the Australian Equity Market? section of this Review, we remain positive on the medium-term outlook for equity markets. This most recent quarter has highlighted that periods of volatility will continue to occur. In this environment, it is important to remain focused on a long-term investment strategy, while using active portfolio management to take advantage of market opportunities in quality assets. Investment committee Paul Trainor Brad Partridge, CFA Scott Maddock Michael Frearson, CFA Kristy Campbell Trevor Fisher Colin Booth Ryan Andrews Jacob Fung Inside Review of asset class returns Economic Landscape Where to from here for the Australian Equity Market? Strategy Reviews j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 1 of 23

5 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= Economic landscape Chart 2: Australian dollar The global business cycle continues to display a highly desynchronised and diverse economic landscape. Developed economies such as the US and Japan are experiencing an economic upswing, while Europe remains in recession. Unusually, Australia s business cycle has de-coupled from the US, due to the slowdown in mining investment expenditure in Australia. Overall, the wide divergences in economic conditions are likely to be reflected in a sub-trend expansion in the global economy over the next 12 months. Chart 1: Global business cycle Source: RBA, June 2013 Official growth data released during June indicates that the Australian economy grew by 0.6% during the March quarter and by 2.5% during the past year. This level of growth is disappointing, given that it is sub-trend and has been assisted by net exports. During the six months to March, the economy grew by 1.2%, with stronger exports accounting for 1.1ppts or almost all of that growth. In other words, without the recovery in coal and iron ore exports, the economy would have stalled. Source: Macquarie Economics, June 2013 The key development during the June quarter was the intensification of market expectations for a tapering in QE3 in the US. The QE3 program relates to the $US85 billion a month of bonds currently being purchased by the Fed. The timing and extent of tapering this program is likely to be the most important influence on the immediate outlook for global economic growth and associated capital flows. Given that the bulk of these commodities are exported to China, the outlook for Chinese growth remains critical for the Australian economy. While we remain confident that the Chinese economy will continue to grow at a solid rate of over 7% per annum, recent manufacturing data suggests that the rate of growth is slowing. Chart 3: Chinese Manufacturing Index Macquarie Economics continues to expect tapering of QE3 in late However, we also believe that the Fed is likely to manage a very gradual reduction in the pace of asset purchases, in order to prevent a steep acceleration in bond yields that could prematurely choke off economic growth. Higher borrowing rates and tighter fiscal policy are likely to keep US economic growth contained in the % range in coming quarters. Turning to Australia, the Australian dollar was one of the bigger beneficiaries of the Fed s QE3, and as a result has fallen more sharply against the US dollar relative to other currencies since May. With Australia s economic growth outlook weakening relative to the US, Macquarie Economics now forecasts the Australian dollar to fall to $US0.90 by end of Source: Macquarie Economics, June 2013 In our view, this data should be a signpost for policymakers. Now that mining investment is declining, we believe that the RBA may need to further reduce j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 2 of 23

6 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= interest rates, in order to stimulate household expenditure and residential construction. Where to from here for the Australian equity market? ratio (PER). This PER is below the historical PER for the market of 14.2x, over the past 10 years. Chart 4: Australian Equity Market PER The outlook for Australian and global equity markets remains volatile, though still positive given the resilient US economic recovery. Key risks to equity markets remain the Fed s tapering of QE3 and the sustainability of Chinese economic growth. As we discussed in the Economic Landscape section of this Quarterly Review, the potential tapering of QE3, contributed to a rapid depreciation in the Australian dollar, although it still remains at historically elevated levels. From an equity market perspective, any depreciation in the Australian dollar is a positive development, as a lower currency leads to earnings upgrades for exporters and offshore earners. Additionally, it provides support for many domestic industries which have been competing with cheaper imports, such as manufacturing and retail. As Table 2 below illustrates, Macquarie Research forecast material earnings per share growth (EPSg) in FY14 across the market (+15.1%). A key driver of this forecast growth is the expected lower Australian dollar. Importantly, the key banks and industrials sectors are expected to deliver solid EPSg in FY14. The banks are forecast to achieve +6.2% EPSg, driven by a modest pick-up in credit growth, in response to lower interest rates. The lower Australian dollar and domestic interest rates are also expected to drive strong EPSg for industrials (+13.9%). Additionally, higher iron ore production and the weaker Australian dollar are expected to see the resources sector EPSg return to positive in FY14. We would highlight however, that a tapering of QE3 may lead to further downside for commodity prices. Table 2: Market and sector EPS growth forecasts(%) Pro-rated to June FY13e FY14e FY15e Current 1 yr fwd All Companies -1.7% 15.1% 10.9% 14.9% Banks 5.9% 6.2% 6.8% 6.2% A-REITs -0.4% 7.4% 4.2% 7.3% Resources -21.5% 35.3% 19.6% 34.4% Industrials (ex, Banks, REITs) 5.3% 13.9% 10.1% 13.8% Source: Macquarie Research, July 2013 Source: Company data, Macquarie Research, June 2013 Another important factor when considering the equity market outlook is dividends. As Table 3 below illustrates, the forecast forward 12 month dividend yield on the Australian equity market remains attractive at 5.1%, before franking credits. While we believe that the strongest re-rating period for yield stocks has likely passed, we continue to believe that the solid market dividend yield will support share prices. In particular, Banks and A-REITs continue to trade on FY14 yields of 6.3% and 5.7% respectively, which is well above current term deposits rates. Table 3: Market and sector dividends forecast yields (%) Pro-rated to June FY13e FY14e Current 1 yr fwd All Companies 4.7% 5.1% 5.1% Banks 6.1% 6.3% 6.3% A-REITs 5.5% 5.7% 5.7% Resources 3.4% 4.1% 4.1% Industrials (ex, Banks, REITs) 4.2% 4.7% 4.7% Source: Macquarie Research, July 2013 As we have noted, the Australian equity market currently offers a solid earnings growth outlook, coupled with an attractive valuation. This provides us with comfort about the medium-term outlook for returns from equities. In the short-term however, investor sentiment and global policymaker actions are likely to be the key drivers of risk appetite and share prices. Turning to valuation, the pullback in share prices during May and June, combined with the recent currency related earnings upgrades, places the Australian equity market on a 13.0x forward 12 month price-to-earnings j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 3 of 23

7 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= Tactical Asset Allocation Current TAA positioning: Asset Class TAA Position As noted in the opening section of this Quarterly Review, the key macroeconomic driver for the quarter was the evolving rhetoric around the Fed s outlook for QE. This element had wide-reaching ramifications for all asset classes. The changing view on interest rates impacts returns from fixed income or any investment in the equity space that is income-focused (such as banks, utilities and infrastructure vehicles). Australian Real Estate Investment Trusts (A-REITs) also falls into this grouping. Another factor that the changing QE outlook has rapidly moved is the global dynamic around currencies. The Australian dollar fell 12.3% against the US dollar, dropping through parity to $US0.91 by quarter end. While the US dollar appreciably strengthened, the lowered growth expectations for the Australian economy also came into play. The latter was also driven by lower commodity prices and expectations for future developments in the mining sector. The current TAA positioning of being overweight international relative to domestic equities, led to a sizeable outperformance (approximately 0.6% for a standard Strategic Asset Allocation client). This was driven by the combination of a weaker currency (which supports unhedged international investments) and a softer domestic economic outlook. Note that our weightings in income assets (modestly overweight Fixed Income and underweight A-REITs) were a modest drag on returns, as interest rates moved higher during the period. In terms of changes to TAA positioning during the three months to 30 June 2013, we took advantage of the large swing in growth asset outcomes to moderate our overweight to international equities and trim the underweight to Australian equities. Given the abruptness of the move, we believed there could be some retracement in the shorter term as investors reassess the Fed s timing of its QE unwind. We believe this event may take longer to transpire than the market s initial reaction and may see a modest recovery in the Australian dollar relative to the $US. That said, we still maintain the same directional tilt with regard to growth assets. Moving to the more income-related assets, we neutralised our view on A-REITs, removing the underweight given absolute yields have improved markedly during May/June. This yield support suggests REITs should perform in line with fixed income in the shorter term. Please note, residual cash was lowered with these TAA changes. Australian Equities International Equities Property Listed Fixed Income Cash Source: MPPM, July 2013 Underweight Overweight Neutral Overweight Residual Looking ahead, we continue to view a modest overweight to international equities as prudent given the relative attractiveness of global economies, in particular the United States and Japan, against the outlook for the Australian economy. Furthermore, domestic economic growth is currently moving through a slowing phase as resources capital expenditure rolls off and the housing / consumption cycle is yet to reaccelerate. With the RBA seemingly more cautious around near-term interest rate cuts (on hold in June / July), plus fiscal retrenchment looming (as both sides of politics indicate a tougher line around the Budget deficit), only the modest stimulus from a weaker currency (which helps exporters) will boost demand in the medium-term. As noted above, currency is also an important consideration in our international equities overweight position. Notwithstanding our recent move, we believe that over the medium term the Australian dollar may well be weaker, particularly as Australian/US interest rate relativities narrow, this makes Australian bonds less sought after as interest rates converge. A weaker $A supports our positioning in TAA growth assets. After a strong rally in the month of April (+8.2%), A-REITs weakened during subsequent months. As per our comment above, the sector is now exhibiting greater yield support, on a three-month view. We believe that current valuations are balanced, as the modest growth expectations for A-REITs are aligned with the sustainable earnings and distributions on offer. We maintain a marginal overweight position to fixed income as we focus on some of the shorter-term macroeconomic risks and potential changes to the Fed s monetary policy. Although we are cautiously optimistic around the medium- to longer-term outlook, we believe some risks are re-emerging in Europe and China, as well as the continued signs of a slowing domestic economy. Importantly, we continue to monitor relative valuations of both listed interest rate securities and bonds, versus more growth-orientated asset classes. Further, with the changing macroeconomic backdrop and inflationary expectations, we continue to watch credit spreads (for listed interest rate securities) and bond market movements (for unlisted segment), and j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 4 of 23

8 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= how that translates into opportunities for our TAA overlay. Overall, we continue to review our TAA positioning, especially the balance between growth and income assets (which currently stands at a neutral setting). Additionally, we are monitoring the mix between Australian and international equities and how evolving global macroeconomic events will impact both underlying economic outcomes and near-term views on currency. Sector weight relative to benchmark 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Core After posting a strong return in April, the Australian sharemarket followed its typical seasonal pattern, with the market posting negative monthly returns during May and June. The S&P/ASX200 Accumulation Index returned 2.5% for the quarter. Despite the pullback, the market remains +22.8% higher during the past 12 months. US economic data provided a solid backdrop during the quarter, with US housing data continuing on its recovery path. However, this improving outlook led investors to question when the Fed may look to wind back some of its stimulus. These concerns drove equities lower and the US dollar higher. The Australian dollar weakened as a result, with the move amplified by profit warnings from several mining service companies. Within the Australian sharemarket, Media (+10.7%), Telecommunications (+6.2%) and Diversified Financials (+6.1%) were the key outperformers. Materials (-11.6%) and Retailing (-5.6%) underperformed. MPPM s Core strategy rose +0.08% during the quarter, outperforming the benchmark by +2.56%. This was despite the continuing drag, relative to benchmark, of the outperforming REIT sector (the strategy is precluded from owning REITs). The strategy utilises a top-down and bottom-up process which analyses the macro themes dominating markets and aims to pick the best exposures to those themes on a stock by stock basis. We use MPPM s Quality at a Reasonable Price (QARP) investment philosophy as the basis for stock selection. Our current macro sector positions are shown below, relative to the ASX200 benchmark weights. The strategy has been positioned with an underweight exposure to mining and domestic cyclicals. It holds an overweight exposure to global stocks and domestic defensives, while maintaining a small positive position in income, energy and banks. Source: IRESS, MPPM, June 2013 Perhaps even more pleasing than the strategy outperformance for the quarter is the positive contribution from each of the macro sector positions (ex REITs). Sector contribution to performance 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% Source: IRESS, MPPM, June 2013 Clearly the resources sector continues to be impacted by declining commodity prices and lower activity levels. This leaves many of the mining stocks looking relatively cheap, but with high levels of uncertainty regarding future earnings. We remain underweight. Similarly domestic cyclical stocks would in previous cycles be cheap at this point. However, the low levels of credit growth and continued high savings by households, suggest that a cyclical response to RBA easing will be muted in this cycle. When combined with structural change in demand for types of housing, this leaves cyclical stocks still subject to extensive restructuring and in our view, a muted growth outlook in FY14. Again we remain underweight. Conversely, the US appears to be recovering and other parts of the developed world are seeing signs of stabilisation. This leaves many Australian companies with global operations looking more attractive. Combined with a weakening Australian dollar, offshore j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 5 of 23

9 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= earnings look more attractive and more certain. We hold an overweight position to this thematic. Banks remain a sector offering stable earnings with a good yield and so far little evidence of an increase in bad debts. While banks do not offer significant earnings growth, the sector remains a reliable source of total return, as does Telstra Corporation Limited (TLS) - our exposure to the income macro-factor theme. The exposure to energy is centred on companies with growing supply prospects and good customer relationships. In our view, Oil Search Limited (OSH) has the best return profile of the new liquefied natural gas (LNG) plants and Beach Energy Limited (BPT) has access to large reserves of gas in fields well located to supply Eastern Australia. Stock positions which generated the largest positive relative performance for the quarter included: Newcrest Mining Limited (NCM Mining divested early), Amcor Limited (AMC Global Defensive), Ramsay Health Care Limited (RHC Domestic Defensive), Macquarie Group Limited (MQG Global Cyclical) and Brambles Limited (BXB Global Cyclical). Top and bottom stocks - contribution to performance 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% -0.4% Source: IRESS, MPPM, June 2013 We sold our position in NCM at the very beginning of the period. The stock price then fell 51%, adding to relative performance. Packaging company, AMC, continues to provide dependable performance from synergies associated with global acquisitions. Hospital operator, RHC, has strong exposures to the growing private hospital sector in Australia. Transport company, BXB, was added to the strategy during the quarter and benefited in the short-term from the weaker $A, as well as an improving competitive position in the US. Positions that detracted from relative performance during the quarter included: Orica Limited (ORI Domestic Cyclical), QBE Insurance Group Limited (QBE - Global Cyclical, not held), Westfield Group (WDC REIT, not held), Coca-Cola Amatil Limited (CCL Domestic Defensive) and BPT. Commercial explosives company, ORI, drifted lower during the period, as the growth outlook for the mining industry continued to deteriorate. While ORI maintained earnings guidance, many of its mining services peers downgraded their outlook. Not owning insurance company, QBE, detracted from strategy performance as the stock rallied during the quarter due to favourable macroeconomic conditions and the prospect of higher interest rates. BPT share price fell as a result of uncertain oil prices despite a strong long term position in both oil and gas supply. WDC (not owned) performed well during the quarter, as did the REIT sector overall. As the strategy does not own REITs, this detracted from performance. Finally, CCL reported a forecast earnings downgrade during the quarter - a result of weaker sales through the Australian supermarket channel. We continue to review our positions both at a macro theme level and the stocks chosen to provide exposure to those themes. International Equities Global equity markets entered the June quarter with a tailwind, following the strong March quarter (+7.7%). The market made solid gains during May, peaking on 21 May and then declined for five weeks, before bouncing towards the end of the quarter. Overall, global equities finished broadly flat for the period. The MSCI World Ex-Australia Index (unhedged) returned +15.4% in $A for the June quarter. Comments from the US Federal Reserve Chairman signalled the end of easy monetary policy and investors reduced equities exposures accordingly. Global equity market returns - June 2013 quarter Index 3 months 12 months Japan 10.31% 33.90% India 3.21% -0.23% USA 2.58% 13.34% World 1.74% 11.70% j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 6 of 23

10 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= Germany 1.46% 4.36% Europe -0.79% 6.11% Norway -1.36% 3.85% Spain -1.84% -4.84% Portugal -1.89% 0.40% Australia -1.97% 6.47% United Kingdom -2.04% 7.46% Sweden -2.52% 6.61% New Zealand -2.76% 5.74% Asia ex Japan -3.19% -3.25% Emerging Markets -4.42% -4.89% Ireland -4.80% 10.07% China -6.84% % Latin America -8.90% -9.96% Greece % 4.12% Source: MSCI Despite the broader pullback in equities, there was still a wide dispersion in returns across the globe. Japan has been very strong, following the change of government. Policy aimed at rejuvenating Japan s moribund domestic economy has served to inflate liquid asset prices in the short term. Whether the policy is effective in stimulating long term growth remains to be seen. Germany and the US also posted a positive return for the period, after a bounce in the last week of June. The balance of global equity markets can be split into three groups: exposed to resources, European and in recession, and exposed to a rising US dollar. European equity markets reported low returns, but have not collapsed further, given weaker performance during recent quarters. Resource markets (Australia, Latin America, Norway, and Sweden) were generally weaker, reflecting the continuing crunch in commodity prices and the uncertain outlook for materials demand as supply increases. Emerging Asia and China were also weaker, as authorities reigned in monetary policy and the US dollar strength pressured export earnings. Overall, the second half of the quarter saw an abrupt reversal of a generally strong market trend. While the world economy goes through an un-synchronised recovery, we expect that there will be occasional sharp downward movements in a generally upward trend for equities. The MPPM international equity strategy returned 14% for the June quarter, underperforming the MSCI World ex Australia Index (+15.4%) by -1.4%. Total return for the benchmark and the strategy was assisted by the 12.3% decline in the $A/$US rate. The contribution of each fund in your portfolio is detailed below. Fund (Net of Fees) 3 mth Analytic Global Low Volatility Equity 8.0 Arrowstreet Global Equity 16.5 MFS Global Equity Trust 14.2 Platinum International 17.9 MSCI World Ex Australia (unhedged) 15.4 MPPM Strategy 14.0 Australian Real Estate Investment Trusts The A-REIT sector performed very strongly during the first half of the June quarter. However, the sector then succumbed to investor flight from yield based investments during late May. The S&P/ASX 200 A-REIT Accumulation Index finished up +3.3% for the quarter. Despite the mid-quarter pullback, REITs finished well ahead of the broader Australian equity markets return. Features of the period were: continued strong interest from international investors in physical property, increased acquisition activity by the REITs, as they take advantage of their now much stronger balance sheets, further repatriation of funds back to Australian based investments by REITs, and on average an improvement in underlying valuations in the REIT property portfolios. MPPM s REIT strategy delivered +3.22% for the June quarter, marginally below the benchmark. Early in the quarter, REITS reached a small premium to fair value. However, it has since returned to a moderately valued position. REITs are trading at a yield premium to bonds and a discount to valuations. Given the current valuations, we expect a moderately positive return from the sector for the balance of the calendar year. While many investors anticipate interest rates rises in the US and elsewhere, we feel this is premature. In Australia s case we are likely to see further cuts in the cash rate by the RBA. The slowing economy is likely to ensure that stable cash flows from j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 7 of 23

11 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= higher yielding securities, such as REITs, remain attractive. Since the balance sheet stress experienced during 2008, REITs have traversed a lengthy period of recovery, which has seen them perform strongly during the past 18 months. REIT returns remain ahead of the broader Australian equity market for the past 12 months. We do not expect a similar level of out-performance during the coming year, however, in our view, the sector has the capacity to outperform other yield focussed investments During the June quarter, the smaller REITs again tended to outperform the larger entities. The key exception was Westfield Group (WDC), which benefitted from a significant asset position in the US and the weakening Australian dollar. REITs Returns for the June 2013 Quarter Name Jun Q 12 Mths Ardent Leisure Group 24.6% 43.9% ALE Property Group 8.7% 32.2% Dexus Property Group 5.9% 21.5% Abacus Property Group 5.6% 19.4% Westfield Group 5.4% 25.6% GPT Group 4.9% 22.7% Goodman Group 4.1% 38.3% Australand Property 3.9% 49.6% Charter Hall Group 3.8% 79.4% Federation Cent res 3.6% 26.8% S&P/ASX 200 A-REIT Accum Index 3.3% 24.2% CFS Retail Trust Group 2.9% 10.1% Westfield Retail Trust 2.6% 15.4% Cromwell Prop 2.6% 53.3% Growthpoint Property 2.6% 23.0% Commonwealth Prop 2.1% 14.8% Mirvac Group 1.9% 32.7% Charter Hall Retail 0.9% 23.2% Carindale Property -0.4% 26.7% SCA Property Group -0.5% 0.0% Stockland -1.4% 20.8% Investa Office Fund -2.0% 13.9% BWP Trust -2.5% 28.2% S&P/ASX 200 Accum Index -2.5% 22.8% Source: IRESS, MPPM The MPPM REIT strategy benefitted from an overweight position in Dexus Property Group (DXS) and underweight positions in BWP Trust (BWP), SCA Property Group (SCP) and Stockland (SGP). Detractors to relative performance included overweight positions in Investa Office Fund (IOF), Mirvac Group (MGR) and Commonwealth Property Office Fund (CPA). During the quarter we reduced exposure to CPA, due to concerns surrounding leasing challenges in three properties. A small position in Federation Centres (FDC) was added, reflecting the significant restructuring now complete. We added to GPT Group (GPT), taking advantage of a high quality portfolio trading at a discount, and similarly to IOF. Positions in SGP and WDC were reduced. SGP is enduring a period of transition in both its businesses and its end-markets. While WDC is fully valued in our view, considering it s relatively low growth outlook. MPPM Diversified Fixed Interest strategy (with imputation) MPPM s Diversified Fixed Interest strategy continued to deliver positive returns in what was a stable quarter for the portfolio. The portfolio returned approximately 0.77% during the June quarter, including 0.15% from imputation credits. For the year ending 30 June 2013, the portfolio returned approximately 6.40%, including 0.71% from imputation credits. The primary objective of the strategy is to produce tax effective yield, at a premium to cash rates, with moderate levels of capital volatility. The portfolio is well positioned to continue to achieve this objective. The secondary objective of the strategy is to outperform the UBS Composite Bond Accumulation Index over the medium term (three to five years), after fees. During the year ending June, bond market returns were below average, returning approximately 2.78%. This followed a number of years where above average returns were delivered. Note, in the shorter-term there can be material divergences in returns, as bond markets outperform listed interest rate securities and vice versa. We take a through the cycle view and construct a diversified portfolio, in order to smooth out portfolio returns. Domestic bond market: The Australian fixed-rate bond market returned 0.40% during the June quarter, continuing the recent trend of relatively flat quarterly returns. As highlighted in recent quarterly reports, the domestic fixed rate bond market (mainly Government debt) has become expensive. As such, more subdued returns are expected during the medium-term. We believe the bond market provides the potential for strong returns in the event that risk aversion increases and / or the economic outlook deteriorates. j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 8 of 23

12 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= In general, Government bond yields continued to move higher during the quarter, with the 10 year Government bond yield closing the quarter at 3.76%, up from 3.41% at the end of the March quarter. A key driver of the bond market sell-off was news from the Fed that it expects to reduce its QE3 bond buying program during the next months, due to expected improvement in US economic activity. This news resulted in investors selling US government bonds and this drove a global sell-off in fixed interest securities (and most other asset classes). Yields subsequently moved higher on a global basis. This sell-off occurred despite the RBA s move to reduce the domestic cash rate from 3.00% to 2.75% during May. We continue to believe bond yields will be volatile over the next 12 months, given the divergent forces of domestic and US central banks actions. We continue to believe the domestic low cash rate environment is likely to suppress longer-term bond rates during the next 12 months. Bond market exposure: The Macquarie Enhanced Fixed Interest Fund (APIR code: MAQ0107AU) continued to perform in line with expectations. During the quarter, the Fund returned 0.425%, and outperformed the bond index which returned 0.404%. security likely to be redeemed is the Westpac Convertible Preference Security (WBCPA), in September Key positive contributors to portfolio performance during the quarter were listed interest rate securities APT Pipelines Notes (AQHHA), National Bank Converting Preference Securities (NABPA), Colonial Subordinated Notes (CNGHA) and SBKPB. Overall, we remain comfortable with the current portfolio positioning. As at the end of the quarter, the portfolio held approximately 29% in bond market exposure and 71% in listed interest rate securities. In our view, the current valuation of listed interest rate securities remains fair, despite the strong returns during the past six months. We consider the Australian bond market to be fair value in the shorter-term, but our medium-term outlook for bonds is subdued. Given lower yields, we continue to favour high quality credit exposures for their defensive attributes and ability to perform well during times of uncertainty. The Enhanced Fixed Interest Fund is a wholesale fixed interest fund that holds a physical portfolio of investment grade domestic fixed interest securities. We expect the fund to provide slightly higher returns over the mediumterm than the bond index, without taking on additional material risk. Its performance track record after fees, is strong relative to peers. Listed interest rate securities: This segment of the portfolio continues to provide positive returns, despite volatile investment market conditions and an increase in risk premiums. Credit margins rose slightly during the quarter, leading to some capital price weakness. However, this was offset by the strong income streams generated by securities in the portfolio. During the quarter Suncorp Group (SUN) announced the issuance of a new security, Suncorp Subordinated Notes (SUNPD). These new securities replaced the existing Suncorp Convertible Preference Securities (SBKPB), which reached their mandatory conversion date during June We decided to roll the existing investment in SBKPB into the new SUNPD security, with no transaction costs. The SUNPD security is expected to provide the portfolio with a quarterly all cash income stream, at a 2.85% premium to the three-month Bank Bill Swap Rate. This implies a current yield of approximately 5.65% per annum. The notes are expected to be redeemed in November 2018, and have a final legal maturity date in November The next j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 9 of 23

13 j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí= Sydney Adelaide Melbourne Brisbane Perth Level 4 Level 2 Level 26 Level 2 Level 4 1 Shelley Street 151 Pirie Street 101 Collins Street 1 Eagle Street 235 St Georges Tce Sydney NSW 2000 Adelaide SA 5000 Melbourne VIC 3000 Brisbane QLD 4000 Perth WA 6000 Tel: Tel: Tel: Tel: Tel: Disclaimer: Macquarie Group notes: this document has been prepared for the use of the clients of Macquarie Group Limited and its whollyowned subsidiaries (the Macquarie Group ) and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this review in any way. This document has been issued and distributed in Australia, by Macquarie Private Portfolio Management Limited ABN ( MPPM ) Australian Financial Services Licence No This Quarterly Review contains commentary that could be construed as general advice. Where such commentary exists, it does not take into account your objectives, financial situation or needs and before acting on this advice you should consider whether it is appropriate to your situation. We recommend that you obtain financial, legal and taxation advice before making any financial investment decision. Any Macquarie subsidiary noted in this Quarterly Review is not an authorised deposit-taking institution for the purposes of the Banking Act (Cwth) That subsidiary's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Disclosure: MPPM or any of their associates, officers or employees may have interests in securities referred to herein, including directorships or performance of investment banking services. Further, they may buy or sell securities of the companies mentioned in this report as principal or agent, and as such may effect transactions which are not consistent with the recommendations in this report. Clients should be aware that this report contains analysis and descriptions of securities which may not be in your portfolio. If you are in any doubt as to the relevance to you of any aspect of this report, please contact MPPM Client Services on When MPPM invests it deals with professional organisations in the execution of transactions that may include the Macquarie Group. We can trade investments with members of the Macquarie Group unless we believe the transactions are not in the best interest of the investors. These professional organisations may receive payments at prevailing market rates for the execution of transactions. All transactions are conducted at arm s length terms. j~åèì~êáé=mêáî~íé=mçêíñçäáç=j~å~öéãéåí=iáãáíéç= ^_k=os=muv=vut=puu= Page 10 of 23

14 MPPM A/C 30/06/2013 Portfolio Value $7,292, Current Mandate Asset Class Min % Max % Target % Australian Equities 44.1% 64.1% 54.1% International Equities 0.0% 15.0% 5.0% Property 0.0% 16.0% 6.0% Fixed Interest 19.9% 39.9% 29.9% Cash 0.0% 100.0% 5.0% Current Asset Allocation Int ernat io nal Equit ies 14 % Propert y 6 % A ust ralian Equit ies 4 5% F ixed Int erest 2 9 % C ash 6 % Performance Asset Class Period to 30/06/2013 Quarter Year Since Inception Australian Equities ASX/S&P 200 Accumulation Index International Equities MSCI World ex Australia Total Return Index $AUD Property ASX/S&P 200 Property Trust Accumulation Index Fixed Interest UBS Composite Bond Accumulation Index Cash UBS Bank Bill Accumulation Index 22/01/ % 22.75% 12.49% p.a % 33.34% 7.17% p.a. 3.34% 24.22% 11.35% p.a. 0.40% 2.78% 6.01% p.a. 0.75% 3.28% 4.13% p.a. Your Target Benchmark -0.21% 16.42% 9.19% p.a. Your Portfolio 1.37% 16.64% 9.37% p.a. After Tax Performance 1.58% 17.69% 10.85% p.a. Page 11 of 23

15 Portfolio Valuation - Book Cost as at 30/06/2013 MPPM A/C Asset Asset Name Quantity Average Unit Cost ($) Book Cost ($) (1) Current Market Accruals ($) Unsettled Amount ($) Current Market Value ($) Portfolio Asset (%) Class (%) Unrealised Gain/Loss ($) Australian Equities AMC AMCOR LIMITED 12, , , , ANZ ANZ BANKING GROUP LIMITED 11, , , , , BHP BHP BILLITON LIMITED 9, , , , BPT BEACH ENERGY LIMITED 28, , , (9,410.97) BXB BRAMBLES LIMITED 13, , , , CBA COMMONWEALTH BANK OF AUSTRALIA 4, , , , CCL COCA COLA AMATIL LIMITED 4, , , , CPU COMPUTERSHARE LIMITED 11, , , , CRZ CARSALES.COM LIMITED 7, , , , CSL CSL LIMITED 2, , , , DLX DULUXGROUP LIMITED 16, , , , MQG MACQUARIE GROUP LIMITED 2, , , , , ORG ORIGIN ENERGY LIMITED 3, , , (1,707.24) ORI ORICA LIMITED 4, , , , , OSH OIL SEARCH LIMITED 16, , , , RHC RAMSAY HEALTH CARE LIMITED 2, , , , RIO RIO TINTO LIMITED 1, , , , SAI SAI GLOBAL LIMITED 13, , , (16,714.70) SUL SUPER RETAIL GROUP LIMITED 4, , , , TCL TRANSURBAN GROUP 18, , , , , TLS TELSTRA CORPORATION LIMITED 42, , , , WBC WESTPAC BANKING CORPORATION 12, , , , , WES WESFARMERS LIMITED 4, , , , Total Australian Equities 2,195, , ,257, ,061, Fixed Interest AGKHA AGL ENERGY LIMITED UNSEC NOTES , , , ANZHA AUSTRALIAN AND NZ BANKING GROUP LTD , , ANZPB ANZ CONVERTIBLE PREFERENCE SHARES 1, , , , AQHHA APT PIPELINES SUBORDINATED NOTES , , , AQNHA1 AMP GROUP UNSECURED NOTES , , For all enquiries regarding this report please call Information in this report is provided by Macquarie Private Portfolio Management Limited (ABN ). While the information in this report is given in good faith and is believed to be reliable and accurate, neither Macquarie Private Portfolio Management Limited (ABN ) or any member of the Macquarie Group gives any warranty as to the reliability or accuracy of the information, nor accepts any responsibility for any errors or omissions. Report generated 29/07/2013 9:54 PM Page 12 of 23

16 Asset Asset Name Quantity Average Unit Cost ($) Book Cost ($) (1) Current Market Accruals ($) Unsettled Amount ($) Current Market Value ($) Portfolio Asset (%) Class (%) Unrealised Gain/Loss ($) CBAPA CBA PERLS V , , , CNGHA COLONIAL HOLDINGS LTD UNSEC NOTES , , , IANG1 IAG FINANCE NEW ZEALAND RESET NOTES , , , MAQ0107A MACQUARIE AUSTRALIAN ENHANCED FIXED 641, , , , (20,420.32) NABHB NAB UNSECURED SUBORDINATED NOTES , , , NABPA NAB CONVERTIBLE PREFERENCE SHARES , , SUNPC SUNCORP CONVERTIBLE PREFERENCE , , , SUNPD SUNCORP GROUP SUB NOTES 1, , , , WBCPA WESTPAC BANKING STAPLED PREFERRED 2, , , , , WOWHC WOOLWORTHS NOTES II 1, , , , Total Fixed Interest 2,094, , ,150, , International Equities MAQ0464A ARROWSTREET GLOBAL EQUITY FUND 250, , , , , MAQ0796A ANALYTIC GLOBAL MANAGED VOLATILITY 238, , , , , MIA0001A MFS GLOBAL EQUITY TRUST 159, , , , , , PLA0002A PLATINUM INTERNATIONAL FUND 147, , , , , , Total International Equities 918, , , ,031, , Property BGPXE BGP HOLDINGS PLC 16, CFX CFS RETAIL PROPERTY TRUST GROUP 11, , , , CPA COMMONWEALTH PROPERTY OFFICE FUND 17, , , , CQR CHARTER HALL RETAIL REIT 1, , , DXS DEXUS PROPERTY GROUP 33, , , , , FDC FEDERATION CENTRES 2, , , (707.52) GMG GOODMAN GROUP 11, , , , , GPT GPT GROUP 10, , (8,816.51) 40, , IOF INVESTA OFFICE FUND 4, , , , MGR MIRVAC GROUP 31, , , , , SGP STOCKLAND 7, , , , WDC WESTFIELD GROUP 10, , (23,711.58) 122, , WRT WESTFIELD RETAIL TRUST 16, , , , Total Property 325, , (32,528.09) 451, , Cash AUD INCOME DUE 78, , , For all enquiries regarding this report please call Information in this report is provided by Macquarie Private Portfolio Management Limited (ABN ). While the information in this report is given in good faith and is believed to be reliable and accurate, neither Macquarie Private Portfolio Management Limited (ABN ) or any member of the Macquarie Group gives any warranty as to the reliability or accuracy of the information, nor accepts any responsibility for any errors or omissions. Report generated 29/07/2013 9:54 PM Page 13 of 23

17 Asset Asset Name Quantity Average Unit Cost ($) Book Cost ($) (1) Current Market Accruals ($) Unsettled Amount ($) Current Market Value ($) Portfolio Asset (%) Class (%) Unrealised Gain/Loss ($) AUD UNSETTLED 15, , , AUD AUD1IMAA , , , Total Cash 402, , Total Portfolio 5,936, , , ,292, ,355, Notes: 1. Book Cost: For individual securities, book cost is the initial outlay less any capital returns. The total figure is the aggregate cost price of all currently held securities, including accruals for cash. Note that this does not represent your initial investment. 2. Managed fund prices are the most recent provided by the fund manager, and may not be up to date. 3. Unrealised Gain/Loss: uses nominal gain/loss, does not include any discounting for tax purposes. For all enquiries regarding this report please call Information in this report is provided by Macquarie Private Portfolio Management Limited (ABN ). While the information in this report is given in good faith and is believed to be reliable and accurate, neither Macquarie Private Portfolio Management Limited (ABN ) or any member of the Macquarie Group gives any warranty as to the reliability or accuracy of the information, nor accepts any responsibility for any errors or omissions. Report generated 29/07/2013 9:54 PM Page 14 of 23