Product Review Robeco Emerging Conservative Equity Fund

Transcription

1 Product Review Robeco Emerging Conservative Equity Fund P 1-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE About this Review ASSET CLASS REVIEWED SECTOR REVIEWED GLOBAL EQUITIES GLOBAL EMERGING MARKETS TOTAL FUNDS RATED 16 About this Fund ASIC RG240 CLASSIFIED FUND REVIEWED APIR CODE PDS OBJECTIVE INTERNAL OBJECTIVE STATED RISK OBJECTIVE DISTRIBUTION FREQUENCY NO ROBECO EMERGING CONSERVATIVE EQUITY FUND ETL0381AU TO ACHIEVE CAPITAL GROWTH EQUAL TO OR GREATER THAN THE BENCHMARK WITH LOWER VOLATILITY OVER THE LONG-TERM MAXIMISE THE FUND S SHARPE-RATIO LOWER THAN MARKET RISK BY 20-30% OVER THE CYCLE SEMI-ANNUAL FUND SIZE $121M (APRIL 2018) FUND INCEPTION MANAGEMENT COSTS RESPONSIBLE ENTITY About the Fund Manager FUND MANAGER OWNERSHIP 0.96% P.A. (INCL. INDIRECT COSTS) EQUITY TRUSTEES LIMITED ROBECO HONG KONG LIMITED 100% ORIX CORPORATION ASSETS MANAGED IN THIS SECTOR $7.6 BILLION (APRIL 2018) YEARS MANAGING THIS ASSET CLASS 7 Investment Team PORTFOLIO MANAGER PIM VAN VLIET, ARLETTE VAN DITSHUIZEN, JAN SYTZE MOSSELAAR, MAARTEN POLFLIET, ARNOUD KLEP, YAOWEI XU INVESTMENT TEAM SIZE 24 INVESTMENT TEAM TURNOVER LOW STRUCTURE / LOCATION PORTFOLIO MANAGERS & RESEARCHERS / ROTTERDAM Investment process STYLE MARKET CAPITALISATION BIAS QUANTITATIVE ALL-CAP WITH SMALL-TO-MID CAP BIAS BENCHMARK MSCI EMERGING MARKETS INDEX A$ TYPICAL STOCK NUMBERS STOCK LIMITS SECTOR / INDUSTRY LIMITS COUNTRY / REGION LIMITS CURRENCY EXPOSURE Fund rating history JULY 2018 JUNE 2017 MAY 2016 MAX. 2% (SOFT) +/- 10% ACTIVE (SOFT) +/- 10% ACTIVE (SOFT) UNHEDGED RECOMMENDED RECOMMENDED RECOMMENDED What this Rating means The Recommended rating indicates that Lonsec has strong conviction the financial product can generate risk adjusted returns in line with relevant objectives. The financial product is considered an appropriate entry point to this asset class or strategy. Strengths The experience and stability of the investment professionals. The investment process is logical, well developed and consistently applied. The investment process integrates an encouraging level of ESG awareness. The Manager s emphasis on the low volatility anomaly is differentiated in this sector and may offer downside protection for emerging market investors. Weaknesses The Fund may lag in strong bull markets or where volatility is low and defensiveness is out of favour. While the Fund draws on its distress risk factors for forward looking insights, mainly historical data is used for stock volatility and beta. Fund Risk Characteristics BUSINESS SUSTAINABILITY RISK CAPITAL VOLATILITY FOREIGN CURRENCY RISK SECURITY LIQUIDITY RISK SECURITY CONCENTRATION RISK LOW MODERATE HIGH Risk categories are based on Lonsec s qualitative opinion of the risks inherent in the financial product s asset class and the risks relative to other financial products in the relevant Lonsec sector universe. BIOmetrics Aggregated risks STD RISK MEASURE A Standard Risk Measure score of 6 equates to a Risk Label of High and an estimated number of negative annual returns over any 20 year period of 4 to less than 6. This is a measure of expected frequency (not magnitude) of capital losses, calculated in accordance with ASFA/FSC guidelines. RISK TO INCOME Features and benefits COMPLEXITY ESG AWARENESS LOW MODERATE HIGH LOW MODERATE HIGH We strongly recommend that potential investors read the product disclosure statement or investment statement. Lonsec Research Pty Ltd ABN AFSL. No This information must be read in conjunction with the warning, disclaimer and disclosure at the end of this document. This report supersedes all prior reports.

2 P 2-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE Fee profile FEES VS. UNIVERSE FEES VS. ASSET CLASS FEES VS. SUB-SECTOR LOW MODERATE HIGH Fee BIOmetrics are a function of expected total fee as a percentage of expected total return. What is this Fund? The Robeco Emerging Conservative Equity Fund ( the Fund ) is an active, long only, quantitative emerging-markets equities strategy. The Fund focuses primarily on low-volatility stocks. The end portfolio is expected to hold between securities with an expected turnover of 25% p.a., and an active share >75%. While the mandate is all-cap, the Fund will exhibit a small-to-mid cap bias relative to the benchmark and has the ability to invest up to a maximum of 30% in off-benchmark stocks. Tracking error is not targeted but is generally expected to fall within a range of 3-8% p.a. Analysis conducted by Robeco ( the Manager ) has shown that low risk stocks (in terms of volatility and beta) are able to generate returns equal to, or greater than, the market with lower associated risks. Therefore within the stock selection process, the Manager first focuses on reducing risk and secondly on enhancing return through proprietary valuation and momentum factors. Lonsec believes that the Fund may exhibit moderate expected Tracking Error versus its benchmark and may suit investors seeking a benchmark-unaware exposure to emerging markets. Robeco has a long history in quantitative investing. Notably, Robeco s stock selection model was initially designed for developed markets in 2006 before being applied to emerging markets in 2011 and soon after resulting in the Fund s launch. Therefore, the Fund leverages the same process as the Manager s developed markets strategy, the Robeco Global DM Conservative Equities Fund, which Lonsec also rates. Currency exposures are unhedged and the Fund is optimised from a local currency perspective. The Manager conducted research into managing foreign exchange risk in low volatility strategies and concluded that from the perspective of an Australian investor, leaving foreign currency exposures open can help to lower volatility. The Manager also states that the costs and the practicalities of efficiently hedging emerging market positions can be prohibitive. Lonsec considers this appropriate given the research presented. As per the PDS dated 29 September 2017, the fee disclosure for the Fund is as follows: management cost of 0.96% p.a. (incl. indirect costs of 0.06% p.a.). The management cost, in absolute terms, is one of the most attractive in Lonsec s Global Emerging Markets Peer Group. Nevertheless, Lonsec s opinion of the fee is somewhat moderated in the context of the Fund s modest objective and mechanistic, factor-based approach. The net transaction costs for the Fund are estimated at 0.05% of the NAV of the Fund. Net transaction costs are costs incurred in managing the fund (including explicit and implicit costs of buying and selling assets, the cost of hedging/protection strategies and/or when there are applications or redemptions of fund units by investors) that are not covered by the buy/sell spread. As at the date of this PDS, the estimated Buy/Sell Spread was 0.30% upon entry and 0.35% upon exit. Please refer to the Fund s PDS for further details. Using this Fund This is General Advice only and should be read in conjunction with the Disclaimer, Disclosure and Warning on the final page. The Fund is a long only, emerging market equity fund and as such will generally sit within the growth component of a diversified and balanced portfolio. As a regional specific fund, Lonsec considers the Fund suitable for high risk profile investors with a minimum five-year investment time horizon. Lonsec believes that investors seeking exposure to global equities should primarily invest in well diversified global equities funds able to take advantage of mispricing opportunities across stocks and regions. Investors should also be mindful of monitoring and maintaining a balance on the overall exposure to developing economies within their global equities allocation. On a look-through basis, it is possible that existing broader global equity fund holdings are already providing meaningful emerging-markets exposure (e.g %). Over the long term, emerging-markets indices have delivered higher returns than developed global equities, albeit with higher volatility. Lonsec believes there is a compelling case for including emerging markets within a blended global equities allocation; however, recommends allocations to stand alone emerging markets equities funds only be made to augment a broader global equities exposure dependent on client risk tolerances. Lonsec believes a (10-20%) allocation to emerging markets from the overall global equities allocation may be appropriate for certain clients. Lonsec believes that specialist emerging markets managers with dedicated resourcing and tailored investment approaches may deliver superior performance outcomes in developing markets versus those global equities managers primarily centred on investing in traditional developed markets. The Fund s strategy of seeking to actively manage the downside risk of emerging market equities investment through Beta management is noteworthy. The product may be especially suitable for investors who wish to participate in the potential longer-term growth of emerging market equity investments but at a reduced volatility level. The Fund is expected to deliver superior results during falling markets and lag during strongly rising markets. Accordingly, investors should be particularly mindful of the risks associated in attempting to time the strategy. Academic research generally supports the underlying premise of these low Beta seeking strategies. Nevertheless, Lonsec believes that all investments should be primarily based in terms of price. Volatility protection (through stock implementation) is cheapest, on a relative basis, when volatility along

3 P 3-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE with future expectations of volatility is low and defensiveness is out of favour. That is, investors need to be (a) mindful of their future expectations regarding market volatility and (b) their tolerance for benchmark underperformance prior to investing in the product. Suggested Lonsec risk profile suitability SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH For guidance on appropriate asset allocations and risk profiles, refer to the latest Lonsec Strategic Asset Allocation Review and Risk Profile Definitions on our website. Changes Since Previous Lonsec Review Portfolio Manager, Yaowei Xu transferred internally to the Conservative Equities team from the Manager s fundamental Emerging Markets team in March Xu will have a focus on A-Shares. Portfolio Manager, Willem Jellema (of the Factor Investing unit) transferred internally to the portfolio engineering and trading team in March Quantitative Researcher, Dennis Karstanje departed the Manager to pursue an external opportunity in May Over 200 A-Shares were included in the Manager s investment universe coinciding with MSCI s announced index inclusion in June and August There were no major changes to the investment process since Lonsec s last review. Lonsec Opinion of this Fund People and resources Robeco s Global Investment team is divided into two groups; Fundamental Investing and Quantitative Investing. The Fund is managed by the Conservative Equities team (the CET ) who reside within the Quantitative Investing team. There are 13 portfolio managers across the Quantitative Investing team, with five belonging to the CET, which is headed by Pim van Vliet. Van Vliet, Arlette van Ditshuizen, Jan Sytze Mosselaar, Arnoud Klep, Maarten Polfliet and Yaowei Xu are the portfolio managers ultimately responsible for the Fund and function as each other s back up. The five have primary responsibility for Robeco s Conservative Equities or low volatility strategies. Lonsec believes the structure of the team assists in reducing key-person risk. Van Vliet joined Robeco in 2005 as a Senior Quantitative Researcher with responsibility for asset allocation research. Lonsec considers him appropriately experienced in low-volatility research and investing and notes that he has a number of published academic papers on the subject. Lonsec has met with van Vliet and believes he is a motivated and capable investor. Van Ditshuizen, Mosselaar, Klep, Polfliet and Xu are an experienced cohort with an average of 16 years experience within the industry, with most of this attained with Robeco. The portfolio management team has been highly stable through time with the most recent addition being Xu who was internally appointed to the team as a portfolio manager in March Lonsec believes the retention of key investment personnel and decision makers reflects positively on Robeco s culture. Overall, Lonsec considers each portfolio manager to be experienced with complimentary skill sets and strong academic underpinnings. In terms of individual responsibilities, van Vliet takes greater responsibility for ongoing academic research, influencing the research agenda and client interaction while Disthuizen, Mosselaar, Klep, Polfliet and Xu concentrate on managing the operational aspects of the strategy including rebalancing portfolios and maintaining optimisation software and portfolio construction tools. Lonsec notes positively the team s emphasis on individual responsibilities. The remaining eight portfolio managers in the team manage a range of other quantitative strategies such as emerging markets, developed markets, low volatility, factor investing, momentum, quality or value. That said, Lonsec considers the broader portfolio management group to be a collegiate team with all members working towards the same business goals and therefore several members can assist in day-today functions of the Fund as required. The CET is supported by a Quantitative Equity Research team made up of ten Rotterdam-based analysts, led by David Blitz. While the size of Robeco s research team is sufficient, Lonsec notes it is smaller than the majority of its global quantitative peers. The research team s primary focus is to conduct and disseminate equity-related quantitative research within the firm. Pleasingly, Robeco is considered to maintain strong relationships with universities which Lonsec views as important in keeping informed and up to date with the latest applicable research developments. The research team is also considered appropriately experienced and stable. Lonsec notes continuity is an important factor for this group given the close links their research has in portfolio construction. Lonsec believes the collegiate culture helps to foster a strong and successful working relationship between portfolio managers and researchers. Lonsec believes that quantitative processes inherently engender a lower level of individual accountability. This is because portfolio construction is largely systematic and the research effort tends to be a fusion of the insights of a number of individuals. Despite the Fund having five designated portfolio managers, the entire investment team shares responsibility for monitoring and reviewing accounts to ensure investment guidelines are consistently followed and objectives are met. Lonsec considers the current alignment of investor interests with those of the investment team to be moderate to high. Lonsec notes that variable remuneration is highly correlated with performance of the Fund which is positive. Deferring of a set component of variable remuneration, above a certain threshold, is compulsory. Only senior members of the investment team are eligible for long-term incentives and, while the team may co-invest alongside any strategy, they will generally only allocate to the strategies in which they are ultimately accountable for. Pleasingly, the research team is remunerated

4 P 4-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE based on performance across the suite of strategies given their holistic contribution. Research and portfolio construction Robeco s Conservative Equity stock selection model was first implemented within developed markets in In 2011, the Manager produced empirical evidence and published papers detailing how the anomaly of low volatility also works in emerging markets, resulting in the launch of the Fund. Lonsec believes that Robeco applies a disciplined and repeatable investment process, consistent with many well-executed quantitatively driven investment approaches. The investment philosophy is somewhat different to pure managed volatility strategies as the Manager combines the beta and volatility effects into a low risk theme and adds information on distress risk, valuation and momentum. Lonsec considers the process as highly systematic and model driven. An initial universe is created based on several emerging market indices and some simple liquidity screens (e.g. minimum Average Daily Trading Volume of 1m and minimum market cap of 250m). Robeco s Conservative Equity stock selection model seeks to create a superior portfolio through the identification of stocks that exhibit low risk, attractive valuation and positive momentum. The stock selection model focuses firstly on reducing risk as key and evaluates a combination of statistical low risk factors including short-term and long-term historical volatility and beta. While mainly historical data is used for stock volatility and beta, the Manager also uses forward looking proprietary distress risk factors which consider the probability of default and credit spreads for additional robustness. Lonsec believes Robeco s distress risk factors are designed to limit exposure to companies which may experience extreme financial distress (i.e. event risk). That said, Lonsec considers this aspect to link more explicitly with the portfolio s overall quality rather than its volatility. Lonsec would welcome a more direct forward looking volatility measure in this regard. Finally, the Manager seeks to enhance the risk-return profile by including supplementary insights such as valuation and momentum. Lonsec notes the stock selection model has not been customised for any specific region to avoid the risk of over-fitting the model. Lonsec considers the Manager s portfolio construction process as pragmatic. Stock selection is determined solely by the ranking generated by the model. Portfolio construction seeks to preserve the model s risk and return characteristics while limiting portfolio turnover, ensuring diversification and constraining risk. Lonsec notes the construction process is continuously monitored. For example, the team conducts plausibility checks where stocks exhibit large, sudden or unexpected ranking changes. The universe is also checked for stocks that may be strongly driven by any factors external to model themes, for example takeover bids or regulatory risk. Lonsec considers regulatory risk particularly prevalent in emerging markets and something that is more difficult to monitor through a quantitative process. The risk is partly captured in the distressed risk factors but will also be monitored by the portfolio managers. In addition, Robeco has a broad fundamental equities team, that provide insights across both Emerging and Developed Markets. Lonsec believes there is sufficient accountability within the team given that final responsibility for trading decisions rests with the five portfolio managers. The model can be run at any time; however, the portfolio follows a monthly cycle of ranking the stocks. The Manager s buy and sell discipline is also transparent and logical; the portfolio will own stocks ranked high in the model (top quintile) and will exit a stock when its ranking drops to the bottom 40%. A stock weight is limited to a maximum of 2% to constrain stock-specific risk. Regions, countries, and sectors are limited to 10% relative deviation from the MSCI Index weight. At the time of review, the portfolio had an overweight to small-to-mid cap stocks relative to the MSCI benchmark and this is expected to be a persistent bias. The Manager seeks to limit turnover to less than 25% p.a. and the Fund is expected to be fully invested with only residual cash held. Lonsec believes the Manager has a disciplined execution process. The Portfolio Managers ensure compliance with investment guidelines and pleasingly there is a separate risk and compliance team who provide oversight. In addition, Lonsec also had interaction with several members of the dedicated trading team based in Rotterdam and believes Robeco s trading and dealing function to be one of the more advanced in the peer group. Lonsec notes positively that there is a dedicated team responsible for the ongoing exploration into new factors and methodologies designed to improve the process and models. The research agenda is formally set by the Quantitative Equities Model and Strategy Committee (QEMSC). The agenda is set at the beginning of each year and the QEMSC meets monthly to review research. Ideas are prioritised based on early evidence of alpha potential which is a positive for the efficient use of resources. A separate committee comprising of senior portfolio managers and researchers formally approves enhancements to the models. Lonsec considers the process for making these changes to be appropriately standardised, however believes the pace of change to the models is more gradual than similar global quantitative peers. Nevertheless, Robeco is committed to enhancing the process where deemed appropriate. For example, over the year, credit momentum was introduced into the stock selection model s momentum factor given the belief that credit signals contain information not yet captured in stocks. On balance, Lonsec considers Robeco s research effort to be relatively structured and appropriate for the strategy s complexity but believes it lacks the breadth of global competitors which incorporate greater forward looking research insights into their models. The Manager is also differentiated by the degree of integration of ESG assessment in the investment process. With ESG input sourced from RobecoSAM (a partnered business), the team integrates ESG factors in the portfolio construction process by ensuring that the weighted sustainability score of the portfolio is at least as high as that of the index. If the portfolio

5 P 5-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE scores below average on sustainability, the portfolio construction tool will select stocks that improve its sustainability profile. Additionally, the Manager places a strong emphasis on governance and will often look to engage with companies to improve management practices in the interests of shareholder value. Lonsec views this aspect of the Manager s approach favourably. The portfolio managers have the ability to modify weightings in the portfolio as part of their human overview, which may be as a result of regulatory changes, corporate actions or incidental macroeconomic or geopolitical developments. For example, given the geopolitical situation can be major a factor in emerging countries, the team may decide to exclude or limit investments in certain countries, contrary to the model s indications. Notably, investments in Egypt, Thailand and Russia have all been constrained at some point in the past. Nevertheless, the incidence of overrides is relatively infrequent with the Manager s primary instinct to follow the investment directives dictated by the model. Lonsec highlights that a number of other researched quantitative managers also have similar limited discretion to implement some form of manual override as part of the process. Overall, Lonsec is comfortable with this where there is a formal process and it is appropriately applied. Lonsec believes this to be the case at Robeco. Lonsec has in the past viewed Robeco s systems, many of which are proprietary, including the stock selection model, portfolio construction and trading tools and observes comparable standards and functionality to many larger quantitative peers. Risk management The Manager considers risk from an absolute perspective, as the standard deviation of investment returns and (downside) beta rather than relative to a benchmark. Similar to other quantitative processes, risk management is fully integrated in all stages of the investment process. Lonsec notes that there are formal sector and country constraints relative to the benchmark which are hard limits at the time of rebalancing albeit limited drift intra-rebalancing can occur. The Fund s Active Share has been comparable to active peers, generally averaging >75% over the life of the strategy. In addition, Robeco has a separate risk management department that performs detailed monitoring of the Fund and also oversees market and liquidity risks. Further, there is a compliance department responsible for ensuring portfolio constraints are adhered to. Lonsec believes Robeco s risk management tools and procedures are appropriate for the purposes of managing various risks of the Fund. Funds Under Management The Manager had circa A$7.6 billion in funds under management (FUM) specifically within the emerging conservative equities strategy as at 30 April The Manager estimates capacity for the strategy to be around A$15 billion which was last reviewed in July 2017 and included an adjustment for: 1) growth of the total investable market, 2) the recent inclusion of China A-Shares into the Manager s investable universe; and 3) improvements in the Manager s trading research which meant transaction costs are better controlled for. Nevertheless, Lonsec considers the Manager s estimated capacity limit as relatively high given the portfolio s small-to-mid cap bias. The Manager has stated that the investment process has been designed to comfortably accommodate this level of FUM based on number of considerations including the portfolio s diversification and due to the penalisation of less liquid stocks in the overall ranking system. In Conservative equities more broadly comprising global, emerging markets, US, and other various mandates, the Manager had circa A$30 billion in FUM to April Across all quantitative equity strategies (Conservative Equities, Core Quantitative and Factor Investing) the Manager had around A$75 billion in FUM as at 30 April Lonsec notes that after launching its first low volatility fund in 2006, Robeco is now one of the largest fund managers investing in the space. In aggregate, Robeco s footprint is large and warrants ongoing consideration to ensure the appeal of the strategy is able to be preserved. Performance The Fund has been available to Australian investors since November 2013 and therefore currently has a four-year track record. While the Fund s performance has generally matched expectations to date, Lonsec prefers to assess its success over longer-periods and therefore notes the broader strategy has a more extensive track record which may be used as a proxy to guide performance expectations. The track record is in EUR but has been translated into AUD by Robeco. Investors should also note the reference benchmark used is the MSCI Emerging Markets NR Index. Since its inception in March 2011, the strategy returned 10.5% p.a. (all figures net of fees to June 2018) against the benchmark s 6.6%. Pleasingly, over the corresponding period, returns were achieved with 2.3% lower standard deviation than the benchmark (representing a 22% relative risk reduction). Against the MSCI Emerging Markets Minimum Volatility Index, the Fund managed to outperform by 1.5% p.a. with 0.2% higher volatility. Over the year to June 2018, the strategy expectedly lagged in a bullish market environment, returning 10.8% (net of fees) versus the benchmark s return of 12.3%. Generally, low volatility as a factor struggled while the Fund s value and momentum insights contributed more positively. That said, performance in Q2 2018, has been strong as emerging markets retracted and the Fund s low volatility factor returned to favour and contributed positively to performance. Lonsec notes the Fund is generally expected to underperform in strong upward trending markets and outperform in down markets and should on average keep pace in moderate markets. Lonsec believes the strategy has generally performed in line with expectations.

6 P 6-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE Overall Lonsec has maintained the Fund s Recommended rating. The outcome reflects Lonsec s regard for the experience and stability of the investment team and the consistently applied quantitative investment process centered around the low volatility anomaly with a blend of valuation and momentum insights. Notably, Robeco s emphasis on low volatility stocks is differentiated and may offer downside protection for conservative emerging market investors. Pleasingly, Lonsec highlights the Fund is the only low volatility offering in the peer group increasing its relative appeal. Investors should be aware that the Fund may lag in strong upward trending markets or where volatility is low and defensiveness is out of favour. People and Resources Corporate overview In 2013, Orix Corporation, an integrated financial services group headquartered in Tokyo, acquired a 90.01% equity stake in Robeco from Rabobank with the remaining shares obtained in Robeco is one of six other groups under Orix Corporation; CanaraRobeco, Harbor Capital Advisors, Transtrend, RobecoSAM and Boston Partners. Robeco has over 1,500 professionals located in 14 countries, with specialised investment centres, sales and service teams in Europe, the U.S., the Middle East and Asia. As at April 2018, Robeco managed A$30 billion in conservative equities strategies, including A$7.6 billion in this strategy. Size and experience NAME POSITION EXPERIENCE INDUSTRY / FIRM PIM VAN VLIET PORTFOLIO MANAGER 17 / 12 ARLETTE VAN DITSHUIZEN PORTFOLIO MANAGER 20 / 20 JAN SYTZE MOSSELAAR PORTFOLIO MANAGER 13 / 13 ARNOUD KLEP PORTFOLIO MANAGER 16 / 16 MAARTEN POLFLIET PORTFOLIO MANAGER 18 / 12 YAOWEI XU PORTFOLIO MANAGER 14 / 4 DAVID BLITZ HEAD OF QUANTITATIVE EQUITY RESEARCH 22 / 22 PORTFOLIO MANAGERS (TOTAL) N=14 19 / 15 RESEARCHERS (TOTAL) N=10 12 / 8 Portfolio managers and researchers listed above are included in the total. Robeco s Global Investment team is separated into two groups; Fundamental Investing and Quantitative Investing. The Fund is managed by the Conservative Equities team (CET) which is one of many teams that reside within the Quantitative Investing team. The Quantiative Investing team is organised along functional lines and comprises 24 investment professionals across portfolio management (14) and quantitative equities research (10). The CET make up six of the 14 portfolio managers. The average experience and tenure of the combined portfolio management team is 19 & 15 years respectively and 12 & 8 years for the research team. Pim Van Vliet, Arlette van Ditshuizen, Jan Sytze Mosselaar, Arnoud Klep, Maarten Polfliet and Yaowei Xu are the portfolio managers ultimately responsible for the Fund and function as each other s back up. The five have primary responsibility for Robeco s Conservative Equities or low volatility strategies with each being responsible for approximately ten separate accounts that bare reasonably high commonality with the Fund. Van Vliet is the Head of the CET and joined Robeco in 2005 as a Senior Quantitative Researcher with responsibility for asset allocation research. He has published research in various academic journals, is a guest lecturer at several universities and the author of a book on low-volatility investing. Van Ditshuizen commenced her career at Robeco in During her tenure she was a Risk Manager with Robeco for two years and held a position as Senior Portfolio Manager and Head of Derivatives Structures with Robeco for six years. Mosselaar started his career at Robeco in 2004 and worked for ten years as a Portfolio Manager in the Robeco Asset Allocation department, managing multiasset allocation funds, quantitative allocation funds and fiduciary pension mandates. He was also a part of Robeco s Asset Allocation Committee. Klep started his career in the Robeco Quantitative Equity Research department in Shortly after, Klep was Head of Structured Investments with Robeco, managing various quantitative investment strategies. Polfliet first joined Robeco in 2005 and until March 2017, Polfliet s primary responsibilities were Robeco s Quantitative Value strategy in addition to this strategy. Since then, he is fully dedicated to the Fund. Earlier in his career at Robeco, Polfliet was also a Client Portfolio Manager. Yaowei Xu was internally appointed to the CET as a Portfolio Manager in March Xu focuses primarily on emerging markets and Chinese market strategies. Previously, she was part of the Robeco fundamental Emerging Markets team. Prior to joining Robeco in 2014, Xu was Portfolio Manager long/short Asia Pacific at Pelargos Capital. Remuneration Robeco investment professionals receive a compensation package comprised of a mix of salary and annual bonuses which is described as market competitive. The Bonus is predominantly (90%) based on fund performance while the remaining 10% is linked to the profitability of the Manager and other subjective factors. Long-term incentives in the form of Cash Appreciation Rights are available for a select group of longstanding senior members of the team on a deferred basis.

7 P 7-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE Research Approach Overview RESEARCH PHILOSOPHY TARGET COMPANY QUANTITATIVE, LOW VOLATILITY STOCKS THAT HAVE LOW RISK, ATTRACTIVE VALUATION AND POSITIVE SENTIMENT MINIMUM MARKET CAP 250M NO. STOCKS IN UNIVERSE 1700 NO. STOCKS FULLY MODELED / RESEARCHED RESEARCH INPUTS BROKER RESEARCH VALUATION OVERVIEW N/A VARIOUS FOR CONSENSUS DATA ONLY VARIOUS, PRIMARILY DIVIDEND YIELD Universe filtering The Manager uses the MSCI, FTSE and S&P emerging market indices to establish its initial universe and minimum liquidity rules narrow this list to around 1700 stocks. The Manager requires a daily trading volume of at least $1 million per day. Research process As it is a quantitative process, the Manager does not conduct fundamental research on companies. The dedicated Quantitative Equity Research team does however maintain a regular research programme for investigating both new signals and potential enhancements to the existing model. The research agenda is formally set by the Quantitative Equities Model and Strategy Committee (QEMSC). The agenda is set at the beginning of each year and the committee meets monthly to review research. Ideas are prioritised based on early evidence of alpha potential. The Manager considers a strict and disciplined process as the best defense in turbulent markets so the degree of change to the models is expected to be relatively minimal through time. The team is, however, committed to enhancing the process where appropriate. Some relatively recent enhancements have included more sophisticated measures of distress risk, adjustments to the delivery of momentum insights and a positive ESG screen. A separate committee consisting of senior portfolio managers and researchers formally approves enhancements to the models and the research agenda for upcoming quarters. Valuation Various valuation metrics are used in the quantitative process; however, the Manager prefers defensive methods like dividend yield. Portfolio Construction Overview FUND BENCHMARK MSCI EMERGING MARKETS INDEX IN A$ RETURN OBJECTIVE (INTERNAL) RISK OBJECTIVE (INTERNAL) PORTFOLIO APPROACH INVESTMENT STYLE PORTFOLIO DECISION MAKING STOCK SELECTION TOP-DOWN INFLUENCE MAXIMISE THE SHARPE RATIO / DELIVER RETURNS EQUAL TO OR GREATER THAN THE MARKET DELIVER LOWER THAN MARKET RISK BY 20-30% OVER THE CYCLE BENCHMARK UNAWARE CORE QUANTITATIVE BOTTOM-UP MINOR CONSIDERATION TYPICAL NUMBER OF HOLDINGS MARKET CAPITALISATION BIAS EXPECTED PORTFOLIO TURNOVER ALL-CAP WITH SMALL-TO-MID CAP BIAS <25% P.A. OBSERVED ACTIVE SHARE >75% % OF PORTFOLIO IN TOP 10 HOLDINGS 17.1% (APRIL 2018) Decision making Decisions are outcomes of the proprietary quantitative model. The models also determine the position size for each stock. Robeco s Conservative Equity stock selection model focuses firstly on reducing risk and secondly on enhancing returns. The model looks at a combination of statistical low risk factors including volatility and beta and to enhance the return, the model includes valuation and momentum factors. Each stock receives a capped score on each factor basket of variables and the overall model score is the total of the individual baskets. An overall rank is the outcome of the model. There is continuous monitoring and control by portfolio managers through this process and also checks by the Quantitative Equity Research team to validate the rank. An optimal portfolio is determined from the validated rank which controls portfolio turnover and ensures diversification. A stock s weight is determined through this portfolio construction algorithm and a maximum weight of 2% is allowed. The Manager can run the model daily but monthly rebalancing is typical. In addition, when substantial cash in or out flows are received, the manager will buy top ranked stocks or sell bottom ranked stocks to efficiently rebalance and provide better exposure to the model. Buy / sell drivers The buy and sell decisions are similarly driven by the quantitative ranking and portfolio construction process. The stock selection model and the portfolio construction algorithm are important when it comes to position sizing and the buy/sell decisions. The quantitative ranking of a stock also drives the respective decision. Each stock is allocated to five quintiles based on its relative rank with the top 20% of the rank comprising the most attractive stocks. At rebalancing, a position will be sold when: The holding limit of 2% is reached; or A stock drops in rank to the bottom 40%.

8 P 8-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE Risk Management Risk limits SEPARATE RISK MONITORING YES STOCK +/-2% SECTOR COUNTRY + 10% ACTIVE + 10% ACTIVE CASH UP TO 10% BUT TYPICALLY LESS THAN 5% Stock, Sector and Country limits are hard at the time of rebalancing. While uncommon, the Fund may deviate from these limits in the lead up to the rebalancing date. In order to limit stock-specific risk, individual stocks have a maximum portfolio weight of 2% at rebalancing. Sector and region limits will typically not exceed +/-10% relative to the benchmark. The Fund will typically be fully invested with only residual cash accrued from time to time. Risk monitoring RiskMetrics, is used by both the portfolio managers and the Risk Management department to monitor the absolute risk (97.5% confidence level) in the portfolio, which must not exceed the absolute risk of the index. RiskMetrics assists the portfolio managers in the assessment and interactive structuring of tactical allocations across the various stocks, countries and currencies in equity portfolios. MSCI Barra, is an external risk management system used by the team to confirm the estimates from RiskMetrics. The system is also used to screen for other unintended portfolio biases, such as small- versus largecap exposure. Portfolio Managers have full look through on portfolio exposures in real time. Regular oversight is supplemented by separate risk and compliance teams. Risks An investment in the Fund carries a number of standard investment risks associated with domestic and international investment markets. These include economic, political, legal, tax and regulatory risks. These and other risks are outlined in the PDS and should be read in full and understood by investors. Lonsec considers major risks to be: Currency risk Funds in the Global Equities Regional Equities sector, such as this one, predominantly invest in assets that are denominated in non-a$ currencies. A rise in the relative value of the A$ vis-à-vis the currencies in which the assets are denominated will negatively impact the market value of the assets (and vice versa) from an Australian investor s perspective. Robeco does not hedge the currency risk. Market risk Companies within emerging markets generally have greater market risk (i.e. Beta). Accordingly, investors should be mindful of the potential for sharper movements in market price of these investments. Liquidity risk Exposures to emerging market countries can potentially give rise to heightened liquidity risk. Stocks domiciled in emerging markets are generally considered to be less liquid than those domiciled in developed markets, particularly during times of extreme market dislocation. Lonsec notes that the Fund also has a bias to smallcap stocks relative to the benchmark which may also increase liquidity risk.

9 P 9-10 ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE Quantitative Performance Analysis - annualised after-fee % returns (at ) Performance metrics 1 YR 2 YR 3 YR 5 YR FUND PEER MEDIAN FUND PEER MEDIAN FUND PEER MEDIAN FUND PEER MEDIAN PERFORMANCE (% PA) STANDARD DEVIATION (% PA) EXCESS RETURN (% PA) OUTPERFORMANCE RATIO (% PA) WORST DRAWDOWN (%) TIME TO RECOVERY (MTHS) NR NR SHARPE RATIO INFORMATION RATIO TRACKING ERROR (% PA) FUND: ROBECO EMERGING CONSERVATIVE EQUITY FUND LONSEC PEER GROUP: GLOBAL EQUITIES - GLOBAL EMERGING MARKETS BENCHMARK USED: MSCI EMERGING MARKETS NR INDEX AUD CASH BENCHMARK: BLOOMBERG AUSBOND BANK BILL INDEX AUD TIME TO RECOVERY: NR - NOT RECOVERED, DASH - NO DRAWDOWN DURING PERIOD Growth of $10,000 over three years Snail trail Risk-return chart over three years Outperformance consistency

10 P ANALYST: MARK STEPHAN APPROVED BY: STEVEN SWEENEY ISSUE DATE Glossary Total return Top line actual return, after fees Excess return Return in excess of the benchmark return Standard deviation Volatility of monthly Absolute Returns Tracking error Volatility of monthly Excess Returns against the benchmark (the Standard Deviation of monthly Excess Returns) Sharpe ratio Absolute reward for absolute risk taken (outperformance of the risk free return (Bank Bills) / Standard Deviation) Information ratio Relative reward for relative risk taken (Excess Returns / Tracking Error) Worst drawdown The worst cumulative loss ( peak to trough ) experienced over the period assessed Time to recovery The number of months taken to recover the Worst Drawdown Snail Trail A trailing 12-month relative performance and relative risk measurement over the benchmark. The trail is generated using a 12-month rolling window over the specified period About Lonsec Lonsec Research Pty Ltd (Lonsec) is an investment research house with specialist areas of expertise, that was originally established in 1994 and the current entity was registered on 23 June From 1 July 2011, Lonsec became a fully owned subsidiary of Lonsec Fiscal Holdings Pty Ltd, a privately owned entity with a multibrand strategy of providing leading financial services research and investment execution. Lonsec believes that professional financial advisers need informed opinions on the best investment strategies and financial products to provide real value for their clients. To meet this need, Lonsec has in place an experienced research team, which draws on a robust research process to undertake in-depth assessment of managed fund products. Analyst Disclosure and Certification Analyst remuneration is not linked to the research or rating outcome. Where financial products are mentioned, the Analyst(s) may hold the financial product(s) referred to in this document, but Lonsec considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst holdings may change during the life of this document. The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about the matters and financial product(s) to which this document refers. LONSEC STRONGLY RECOMMENDS THIS DOCUMENT BE READ IN CONJUNCTION WITH THE RELEVANT PRODUCT DISCLOSURE STATEMENT IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN , AFSL No (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document. Disclosure at the date of publication: Lonsec receives a fee from the fund manager or financial product issuer(s) for researching the financial product(s) set out in this document, using objective criteria. Lonsec may also receive a fee from the fund manager or financial product issuer(s) for subscribing to research content and other Lonsec services. Lonsec s fee is not linked to the rating(s) outcome. Lonsec does not hold the financial product(s) referred to in this document. Lonsec s representatives and/or their associates may hold the financial product(s) referred to in this document, but details of these holdings are not known to the Analyst(s). Disclosure of Investment Consulting services: Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or financial product issuer for providing investment consulting services. 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