Invesco Wholesale Global Targeted Returns Fund Quarterly Investment Option Update

Invesco Wholesale Global Targeted Returns Fund Quarterly Investment Option Update 31-December-2016 Availability Product name Flexible Lifetime Allocated Pension Flexible Lifetime Super Flexible Super Retirement Flexible Super Super Investment Option Performance APIR AMP2050AU AMP2049AU AMP2051AU AMP2052AU Investment performances are subject to product fees and where relevant tax as outlined in the product PDS. Therefore investment performance may differ between products. In addition, activity on your account such as contributions and deductions will also impact the investment performance specific to you. To view the latest investment performances for each product, please visit www.amp.com.au. You can also view the last investment performance specific to you by visiting your My Portfolio account. Contact Us Web: www.amp.com.au Email: askamp@amp.com.au Phone: 131 267 (Mon. to Fri 8:30am to 6:00pm AEST) Overview Aim & Strategy: The Fund is an all weather solution that can help meet investors needs in terms of: capital growth; capital stability; complementary investments; value for money; access to money; transparency, and management by a trusted investment manager in Invesco. The Fund aims to achieve a positive total return in all market conditions, targeting a gross return of cash + 5% p.a. with less than half the volatility of global equities over rolling threeyear periods. The Fund typically comprises 20-30 investment ideas including both relative value and directional trades across a wide range of assets, broadly categorised as equities, rates, currencies, credit and volatility. This includes investing in warrants, collective investment schemes, commodities and derivatives across established, developing or emerging markets. Every single idea has to work alongside its fellow ideas and have the potential to offer a positive return in Invesco Perpetual s Asset team's underlying core economic thesis, which sets out a broad macro backdrop for their investment ideas. Risk is measured both on an individual idea level and on a group level: across the ideas, asset type, geographical regions, and market factor (risk on/risk off). By measuring the contribution or marginal risk of each idea, the diversification benefits of combining the ideas are enough to reduce the risk of the portfolio to less than half that of global equities. Investment category: Alternatives Suggested Investment Timeframe: 3-5 years Relative Risk Rating: Medium Investment Style: A fundamental, unconstrained, high conviction approach focused on leveraging a diversified, value-adding set of investment ideas into a single riskmanaged portfolio. Portfolio statistics (as at 31 December 2016) Risk by Strategy % Equity 29% Interest rates 24% Currency 27% Credit 8% Commodity 4% Volatility 4% Inflation 4% Regional Exposure % Asia 1% Australia 4% Canada 5% Cayman Islands 2% Chile 5%

China 4% Europe 10% France 3% Germany 6% Hong Kong 5% India 6% Ireland 1% Japan 2% Norway 1% Other 17% Russia 4% Singapore 1% Market Commentary Q4 2016 The quarter opened with the biggest sell-off in bonds since the taper tantrum of 2013 as data showed hints of accelerating inflation and economic growth, which simultaneously helped lift equities. The US presidential election then took centre stage and kept a lid on market optimism as the result remained in question. However, while Donald Trump s victory provided the second big political shock of the year, it added impetus to already buoyant equity markets. The government bond sell-off continued and equities soared to new highs in the US and the UK. Divergent monetary policy helped moved the US dollar higher and commodities continued to strengthen. In the US, strong third quarter GDP and consumer spending lent credence to the strength of the economic recovery and increased market expectations of a December interest rate hike, which was delivered on cue. During November, the world was forced to come to terms with the initially improbable idea of president-elect Donald J Trump as opinion pollsters were once again wrong-footed by a political mood. The most dramatic impact on global markets was the sharp move upwards in interest rates in anticipation of the future president s economic programme, with which he hopes to Make America Great Again. Plans to cut taxes and boost infrastructure spending in the US could boost economic activity while his proposals to impose tariffs on cheap imports are seen driving inflation higher. This shift in interest rate expectations caused a jarring sell-off in global bond markets, which spilled over into emerging markets and extended to bond-proxy areas of the equity markets. The UK s inflation outlook had to deal with the pound s continued devaluation as markets assumed that Prime Minister Theresa May was leading the country towards a hard Brexit. Bank of England governor Mark Carney suggested tolerance for an overshoot of the bank s inflation target would be limited, which pushed yields higher. The UK equity market ended the year as one of the best performing among developed markets, boosted by the weaker pound and the commodities rally. Some less generous commentators drew comparisons with the Venezuelan market, which rallied 114% over the year while its local currency was in free fall, however, the UK economy has confounded expectations and held up well since Brexit. High yield and investment grade credit also benefited from the year-end risk-on rally. Yields on government debt were all moved higher by the Trump victory. However, they began to reflect divergent monetary policy against towards the end of the year, with the spread between US Treasury yields and euro-denominated debt growing as the ECB declared its hand on its bond-buying program. Elsewhere, the Russian rouble and the Brazilian real both capped a strong year with solid gains, both ending the year around 17% higher versus the dollar following stronger local economic performance. Performance commentary Q4 2016 Fund performance was positive over what proved to be an unpredictable quarter. A broad spectrum of ideas supported performance with some of our directional ideas Equity European Divergence, Equity Global, Equity Japan and Equity UK benefiting from the strong performance of equities in the final quarter. Our European idea did particularly well, boosted by the weak euro and the ECB s promise of further bond buying. A strong pick up in the market pricing of volatility in Asian equity indices relative to US equities in December also meant the Volatility Asian Equities vs US Equities idea contributed significantly to performance over the quarter. Our Currency - Indian rupee vs Chinese Renminbi idea performed well as the renminbi continued on the downward trend it has followed throughout the year, possibly due to large outflows or a managed depreciation to help exporters, however, this quarter it was exacerbated by Trump s somewhat antagonistic stance towards the Chinese. Figure 1. Indian rupee has gained vs the Chinese renminbi US equity markets appeared to revel in the idea of a Trump presidency, reaching all-time highs as the US presidentelect s twitter mutterings and cabinet picks continued to spur hopes for global growth. However, global equity markets were a little more circumspect as uncertainty surrounded future trading relationships with the US and other geopolitical developments in Europe and Asia weighed on sentiment. In Europe, speculation about the longevity of the European Central Bank s (ECB) stimulus programme in the face of an improved inflation outlook sent yields sharply higher and initially hampered equity markets. However, this reversed sharply into the year-end, with the euro slumping against the dollar as the European Central Bank broadened its bondbuying program, which benefited equities. Source: Bloomberg as at 31 December 2016 Another currency idea to perform well was our Chilean peso vs Australian and New Zealand dollars idea, the Chilean peso received a boost early in the quarter from political developments the current government saw its majority challenged during mid-term elections, which could point to a

change of leadership in this year s presidential elections, which was perceived as positive for the peso. The shift in interest rate expectations following the Trump victory saw a jarring sell-off in global bond markets, which spilled over into emerging markets and extended to bond proxy areas of equity markets. Despite duration in the Global Targeted Returns portfolio being low, ideas with some duration embedded in them or equity ideas that have acted as risk off ideas in the portfolio had a negative impact on the fund. The most significant negative was our Australia versus US interest rates idea. We had some long duration in the Australia versus US interest rates idea, which hurt as rates rose globally. However, given the altered outlook we moved quickly to take duration out of the idea, which now focuses on our expectation that the difference between Australian and US rates will fall. Yields on emerging market debt also spiked hurting our selective EM debt idea. economic thesis. Part of our economic thesis highlights the impact on market volatility of political uncertainty. The Trump victory and the difficulty in assessing his future policies and their impact are a great example of this. We will continue to re-assess ideas return expectations given any changes to our own economic outlook, and also to ensure they are offering the same level of diversification. We added two new ideas to the fund. One was an inflation idea, which took the short UK inflation view from our Interest Rates UK idea and paired it with a long view on US inflation. Here, we believe the current inflation spike caused by sterling s fall in the UK is overdone. At the same time, we believe inflation expectations in the US are too modest, considering a continued pick-up in wages there. To implement this, we are short UK 10-year inflation swaps and long the US equivalent. Figure 2. Difference between UK & US 10-yr inflation swaps In addition, while our Swedish and yield compression interest rates ideas are both duration neutral, the sharp sell-off in rates saw the more volatile elements of these ideas move against us. So, in our Swedish idea in which we expect to see the curve flatten, ten-year rates sold off more than 5-year rates causing the curve to steepen. Similarly, in our yield compression idea in which we expect to see spreads between US and UK rates narrow, US rates sold off more than their UK counterparts, which are traditionally more anchored meaning the spread widened over the reporting period. By the same token, our Japanese and European curve steepener ideas contributed positively as the near end of the curve remained more anchored while yields on longer term debt rose in both regions. As noted, equities that are seen as a bond proxy performed poorly as bond yields rose, especially in the US. Our US consumer staples versus discretionary idea was already under review as it was approaching its central return target and we decided to close the idea. This idea has been very useful when equity markets have fallen over the past three years but we no longer believed it would offer the same diversification going forward. Another equity idea to underperform was our Asian equities idea, this suffered as the region s markets were the laggards over the quarter. Also noteworthy was the underperformance of one of our currency ideas. The Japanese yen is highly sensitive to interest rates and as they rise in the US, the yen tends to weaken, which made the currency another victim of the Trump rally. This was apparent in the performance of our idea pairing a long view of the Japanese yen with a short position in the Korean won. The won also depreciated against the US dollar but not by as much as the yen. The fund s annualised volatility at the end of December was 3.88% (over the previous three years) versus 12.21% for global equities, as measured by the MSCI World index. Fund strategy Q4 2016 Given our two- to three-year investment horizon, it is important that we do not over-react to market events. However, every major market move will cause us to assess not just the individual investment ideas but also our central Source: Bloomberg as at 31 December 2016 We also added an interest rates idea in the US, although this was also removed later in the quarter. Ten-year Treasuries had performed well over the last two years as investors had downgraded their assessment of the terminal or natural fed funds interest rate in the US. This caused the curve to flatten, which we thought provided an opportunity. We sold ten-year Treasuries and bought five- and 30-year Treasuries, so the idea could benefit if the ten-year underperforms five- and 30- year Treasuries. This was most likely to happen in a Treasury sell-off, as the ten-year note tends to have a relatively high sensitivity to the overall market. Indeed, following the Trump victory, the idea performed well after a sharp sell-off in the belly of the curve (10-year Treasuries), which meant the idea s future return expectations were now too limited for inclusion in the fund. As noted, equities that are seen as a bond proxy performed poorly as risk assets rallied, especially in the US. Our US consumer staples versus discretionary idea was already under review as it was approaching its central return target and we decided to close the idea. This idea has been very useful when equity markets have fallen over the past three years but we no longer believed it would offer the same diversification going forward. We also closed our idea preferring the Norwegian krone to the British pound. This idea had performed very well for the fund during the year as oil prices recovered, boosting the Norwegian currency, and, at the same time, the pound has faltered pre and post Brexit.

In the interest rates space, we closed our Interest Rates UK idea, following Brexit, the UK s economy has been relatively strong and expectations of further interest rate cuts diminished as inflation indicators have risen. However, we have maintained our view that inflation expectations in the UK have run too far in the US vs UK inflation idea detailed above. We also closed our selective FX volatility idea after a brief pick-up in euro volatility as we were no longer convinced the idea offered sufficient returns over our two- to three-year time horizon. Elsewhere, we altered the implementation of a number of ideas. This included moving the beta hedges on some of our regional equity ideas to local currency indices to help with FX exposure. In addition, we included the Russell 150 mid cap index in our beta hedging to reflect more accurately the makeup of the strategies mirrored in our UK equity idea. In addition, we added a view on European government debt to our UK positions in our yield compression idea, as we believe interest rates in the UK and Europe will rise relative to their US equivalents. regions, particularly through the US dollar. This will make future policy decisions ever more difficult. The strong dollar has effectively tightened monetary conditions in funding markets in emerging markets. We believe this low growth backdrop and continued low policy rates are likely to cap the upside for bond yields. Our low inflation view is definitely being challenged and there are risks that wage, commodity or protectionism inflationary pressures could persist. Chinese liquidity measures are also a new source of upward pressure on inflation. However, some disinflationary forces remain in place such as debt overhang and currency devaluation, particularly in Asia. We see select opportunities in risk assets but feel that further equity and credit market are dominated by income. However, we continue to seek alternative return sources to reduce reliance on broad markets. And, in this market environment, diversified alpha through our colleagues equity and credit strategies is a useful source of potential additional value. Volatility has now become a considerable factor in financial markets and we believe the conflict between cyclical and structural drivers, and increasingly non-market forces, such as political uncertainty, will underpin these higher levels of volatility. What you need to know This publication has been prepared by AMP Life Limited ABN 84 079 300 379, AFSL No. 233671 (AMP Life). The information contained in this publication has been derived from sources believe to accurate and reliable as at the date of this document. Information provided in this investment option update are views of the underlying Investment Manager only and not necessarily the views of the AMP Group. No representation is given in relation to the accuracy or completeness of any statement contained in it. Whilst care has been taken in the preparation of this publication, to the extent permitted by law, no liability is accepted for any loss or damage as a result of reliance on this information. AMP Life is part of the AMP Group. In providing the general advice, AMP Life and AMP Group receives fees and charges and their employees and directors receive salaries, bonuses and other benefits. Source: Invesco as at 31 December 2016. There is no guarantee this target will be achieved. For illustrative purposes only. Portfolio risk the expected volatility of the fund as measured by the standard deviation of the current portfolio of ideas over the last three and a half years. Independent risk the expected volatility of an individual idea as measured by its standard deviation over the last three and a half years. Global equity risk is the expected volatility of the MSCI World index as measured by its standard deviation over the last three and a half years, 12.57% on 31 December 2016. Outlook Following Since launch, we have described our central economic thesis, as cautious optimism. This has now changed a bit and we would probably describe it as muddling through as further potential challenges to global economic growth have arisen. While we still see a subdued level of growth globally, we are seeing further evidence it will fragment along regional lines. So, the US may see a fiscal boost to economic growth, even as other headwinds remain. Whereas future growth momentum in Europe could be hindered by political uncertainty. The information in this document is of a general nature only and does not take into account your financial situation, objectives and needs. Before you make any investment decision based on the information contained in this document you should consider how it applies to your personal objectives, financial situation and needs, or speak to a financial planner. The investment option referred to in this publication is available through products issued by AMP Superannuation Limited ABN 31 008 414 104, AFSL No. 233060 (ASL) and/or AMP Life. Before deciding to invest or make a decision about the investment options, you should read the current Product Disclosure Statement for the relevant product, available from ASL, AMP Life or your financial planner. Any references to the Fund, strategies, asset allocations or exposures are references to the underlying managed fund that the investment option either directly or indirectly invests in (underlying fund). The investment option s aim and strategy mirrors the objective and investment approach of the underlying fund. An investment in the investment option is not a direct investment in the underlying fund. Neither AMP Life, ASL, any other company in the AMP Group nor underlying fund manager guarantees the repayment of capital or the performance of any product or particular rate of return referred to in this document. Past performance is not a reliable indicator of future performance. We believe that the effectiveness of any future monetary or fiscal policy could be impacted by financial linkages between