Q3/ Schroder Global Quality Fund Overview Portfolio objective To generate long-term returns before fees in excess of traditional capitalisation weighted global equity indices but with lower downside risks relative to the indices. The Fund invests in a diversified portfolio of equity and equity related securities of companies worldwide using a Quality-based investment strategy. Key features Modern Growth style alternative - we focus on seeking high Quality companies which offer stable growth, are profitable and financially strong. Embracing breadth - exploiting opportunities from more than 5,000 stocks globally. Stock weights are determined by fundamentals, and not by a stock's size in an index. Bottom-up, index unconstrained investing - maximises the potential return by minimising dead money allocated to expensive stocks simply to satisfy index constraints. Performance to 30 Relative to MSCI All Country World ex Australia calendar year Total returns (AUD) YTD 2016 2015 2014 2013 2012 Fund (Gross) +3.29 +8.88 +12.63 +16.58 +45.18 +15.36 MSCI AC World ex Australia +8.31 +8.29 +10.04 +14.10 +43.24 +14.48 Excess (Gross) -5.02 +0.58 +2.59 +2.48 +1.94 +0.87 Fund (Net) +2.54 +7.82 +11.54 +15.45 +43.77 +14.24 Excess (Net) -5.77-0.47 +1.50 +1.35 +0.53-0.25 rolling periods Total returns (AUD) 1 month 3 mths FYTD 1 Year Relative to MSCI World ex Australia calendar year 3 Years 5 Years SI * SI Cum* Fund (Gross) +2.98-0.29-0.29 +10.94 +11.26 +16.98 +12.77 +172.26 MSCI AC World ex Australia +3.11 +2.87 +2.87 +15.85 +11.53 +16.77 +11.01 +138.88 Excess (Gross) -3-3.16-3.16-4.91-0.27 +0.21 +1.76 +33.38 Fund (Net) +2.90-0.53-0.53 +9.86 +18 +15.84 +11.67 +150.94 Excess (Net) -0.21-3.40-3.40-5.98-1.35-0.93 +0.66 +12.05 Total returns (AUD) YTD 2016 2015 2014 2013 2012 Fund (Gross) +3.29 +8.88 +12.63 +16.58 +45.18 +15.36 MSCI World ex Australia +7.15 +7.92 +11.80 +15.01 +48.03 +14.14 Excess (Gross) -3.86 +0.96 +0.83 +1.58-2.85 +1.21 Fund (Net) +2.54 +7.82 +11.54 +15.45 +43.77 +14.24 Excess (Net) -4.61-0 -0.26 +0.45-4.26 +0.09 rolling periods Total returns (AUD) 1 month 3 mths FYTD 1 Year 3 Years 5 Years SI * SI Cum* Fund (Gross) +2.98-0.29-0.29 +10.94 +11.26 +16.98 +12.77 +172.26 MSCI World ex Australia +3.44 +2.53 +2.53 +15.38 +11.82 +17.67 +11.58 +149.16 Excess (Gross) -0.46-2.82-2.82-4.44-0.56-0.69 +1.19 +23.10 Fund (Net) +2.90-0.53-0.53 +9.86 +18 +15.84 +11.67 +150.94 Excess (Net) -0.54-3.06-3.06-5.52-1.64-1.82 +0.09 +1.77 Page 1 Past performance is not a reliable indicator of future performance. The difference between the fund and benchmark returns may not equal stated excess returns due to rounding. *Since Inception are from 02 June 2009. Calendar year return in the year of inception is from 02 June 2009. The MSCI World ex Australia Index includes stocks of all the developed markets as defined by MSCI whilst the MSCI AC World ex Australia Index incorporates both developed and emerging markets.
Quarterly commentary Market update The third quarter of saw global equities advance again, with a number of key markets passing successive new highs. A reasonably strong earnings season and supportive macroeconomic data allowed investors to look beyond the geopolitical risk dominating the news during the quarter, most significantly the unrest on the Korean Peninsula. Emerging markets continued their impressive year-to-date run of performance; even political turmoil across the region and a strengthening US dollar during September were unable to dampen the momentum. Elsewhere, US equities reached new highs, despite the Federal Reserve (Fed) taking further steps to normalise monetary policy. The UK market also rose as more cyclical areas of the market performed well, led by the resources sectors as both industrial metal and crude oil prices recovered. European equities gained in Q3, as economic data remained largely robust over the three months, while Asia ex Japan posted positive returns on the back of dovish signs from the Fed and upbeat sentiment on the Chinese economy. The quarter was characterised by similar themes to earlier in the year, with the performance of growth and momentum stocks once again dominating the majority of equity markets. It was only towards the end of the period with the rotation away from defensive sectors and into commodity-focused industries that this eased. Technology was once again one of the top performing sectors over the quarter. The MSCI AC World Technology Index passed levels not seen since the height of the dotcom boom in March 2000. New technology companies led the way with investors paying little regard to valuations. This represented a difficult environment for a value-oriented approach such as our own. Similarly, the narrowness of the market during most of the quarter proved an additional headwind to our diversified portfolio. Much like the second quarter, the final few weeks of the quarter saw a rotation of market leadership, this time towards cyclical sectors of the market with materials and energy sectors benefiting from the pick-up in commodity prices. Once again, emerging markets bucked the trend, as market breadth remained narrow throughout with technology heavyweights Baidu, Alibaba (retail), Tencent and Samsung all continuing their ascendancy. Fund commentary Against this backdrop, the fund underperformed. The principal detractors from relative performance were the technology, consumer staples and healthcare sectors. Within technology, the fund suffered from a combination of factors. Not holding expensive growth names such Tencent and Facebook hurt relative performance, while the attractive valuations of our favoured holdings (for example IBM and Qualcomm) were not rewarded. Further, our overweight position in Catcher Technology, one of Apple s metal casing suppliers, also detracted as it sold off on news of the iphone s new glass back. However, we did see some gains in our Japanese software holdings. Healthcare, currently one of our favoured sectors on a combination of valuation and business quality, was the largest detractor. Our exposure to US and European names dragged on relative performance, most notably our position in Teva Pharmaceutical whose share price declined after reporting disappointing second quarter results. Whilst our holdings in certain European food & drink companies were positive, positions in their US counterparts lagged. Our UK consumer staples holdings also suffered. Our holdings in chemicals companies, notably LyondellBasell, added value, as did our overweight position in US apparel companies and European telecoms, with Norwegian company Telenor of particular note having reported strong second quarter results. Page 2
Our most significant exposures remain healthcare and technology. Within healthcare, we continue to find a number of attractively valued, such as high quality names in European and US pharmaceuticals, as well as US healthcare providers. Our technology exposure continues to focus on higher quality, boring technology companies with strong balance sheets and increasing dividends; we also favour higher quality emerging market hardware stocks. We continue to find the newer, more glamorous stocks in areas such as social media less attractive. Within telecoms, our exposure has become increasingly global and with a particular focus on integrated providers. We have also taken advantage of weaker prices to selectively add to positions in consumer staples, primarily in the UK and US. We remain underweight financials, with exposure focused on high quality companies that offer good value and high-and-sustainable dividend yields. We remain cautious on European banks. Our longstanding underweight position in utilities particularly US utilities persists. Attribution against MSCI All Country World ex Australia Sector 3 months to Materials Real Estate Utilities Energy Industrials Financials Telecommunication Services Consumer Discretionary Consumer Staples Health Care Information Technology -1.00-0.80-0.60-0.40-0.20 0.00 0.20 Stock Selection (%) Asset Allocation (%) Region 3 months to Japan Emerging Markets Emea Emerging Markets Latam United Kingdom Pacific Ex Japan Emerging Markets Asia Continental Europe North America -1.20-1.00-0.80-0.60-0.40-0.20 0.00 0.20 Stock Selection (%) Asset Allocation (%) The attribution analysis shown above is intended to provide an indicative summary of the contributions to relative performance. The information is generated using Factset, a multi-currency performance analytical system. The estimated attribution Sector and Region performance is reconciled with and adjusted to the reported official performance figures. Page 3
Portfolio characteristics Fund MSCI AC World ex Australia Active share 75.8% N/A Number of stocks 397 2,491 Source: Schroders Fund details Portfolio size A$38m APIR code SCH0041AU Redemption price $1.2880 Inception date 02 June 2009 Buy/Sell spread Nil / Nil Management costs 0.98% Distribution frequency Normally twice yearly June and Dec Portfolio weights versus MSCI All Country World ex Australia Sector 17.4 11.3 22.4 17.5 12.4 8.8 6.7 3.3 11.7 10.8 6.3 6.4 3.9 5.0 0.8 3.0 0.6 3.1 9.6 12.7 6.6 11.6 1.4 6.4 0.0 Health Care Information Technology Consumer Staples Telecommunication Services Industrials Insurance & Asset Mgt Materials Real Estate Utilities Consumer Discretionary Banks Energy Cash - -1.1-2.1-2.5-3.1-4.9-5.0 0.8 6.1 4.9 3.6 3.4 Region 10.0 6.0 5.2 1.7 9.1 7.8 16.2 16.1 8.4 11.4 50.9 57.0 0.0 United Kingdom Pacific ex Japan Japan Continental Europe Emerging Markets North America Cash -6.1-2.9 1.3 4.0 3.6 Market capitalisation 53.2 75.7 31.4 21.7 15.0 2.5 0.4 0.0 Mega Large Mid Small -22.5 0.4 9.6 12.4 The difference between the fund and benchmark weights may not equal stated active weights due to rounding. Page 4
www.schroders.com.au email: simal@schroders.com Schroder Investment Management Australia Limited Level 20 Angel Place, 123 Pitt Street, Sydney NSW 2000 Phone: 1300 136 471 Fax: (02) 9231 1119 Investment in the Schroder Global Quality Fund may be made on an application form accompanying the current Product Disclosure Statement, available from Schroder Investment Management Australia Limited (ABN 22 000 443 274 AFSL 226473) ( Schroders ).This Report is intended solely for the information of the person to whom it is provided by Schroders. It should not be relied on by any person for the purposes of making investment decisions. Total returns are calculated using exit price to exit price, after fees and expenses, and assuming reinvestment of income. Gross returns are calculated using exit price to exit price and are gross of fees and expenses. The repayment of capital and performance of the Funds is not guaranteed by Schroders or any company in the Schroders Group. Past performance is not a reliable indicator of future performance. Unless otherwise stated the source for all graphs and tables contained in this report is Schroders. Opinions constitute our judgment at the time of issue and are subject to change. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation. For security reasons telephone calls may be recorded. Third party data is owned by the applicable third party identified above and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments or products or any indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. The terms of the third party s specific disclaimers are set forth in the Important Information section at www.schroders.com.au. Page 5