Page 3 - Private Wealth Professional Assertive PDF Factsheet

Holding Asset class Allocation (%)
CSL Limited Ordinary Fully Paid Australian Equities 1.1
Treasury Wine Estates Limited Ordinary Fully Paid Australian Equities 1.0
South32 Limited Ordinary Fully Paid Australian Equities 1.0

Quarterly manager commentary

Market Update
A bumper quarter for markets following an exceptional November and December. Incredibly, this followed on from a very poor October and a weak
August and September, as investors tried to get their head around the ever-changing inflation and central bank outlook whilst almost cheering on the
“soft landing” path.

Inflation data was mixed for the quarter both within and across countries and regions. Inflation continued to fall quickly in the Eurozone, whilst US
inflationary pressures seem to get stuck before again making more in-roads downwards toward target. A combination of a smaller fall in Australian
inflation and continued economic resiliency (wages, retail sales) forced the new RBA governor’s hands in pushing through a rate increase that caught
many by surprise.

That change in sentiment and expectations, along with concerns regarding US government debt levels (and hence bond issuance volumes) pushed
government bond yields significantly higher to levels not seen for more than 15 years! That sort of sudden move saw bond prices take another leg
down along with yield sensitive / proxy assets like property and infrastructure also hit hard. Equities weren’t immune from the downturn with many
investors concerned that central banks may have to maintain higher rates for longer and/or until something breaks. That saw the Australian dollar fall
pretty sharply thus buffeting unhedged global equity returns, outperforming the local market.

That all changed, almost on a dime, with bargain hunting investors coming back into the market to pick up higher yields on bonds and value in
equities, property, and infrastructure which looked oversold following a poor showing in the September quarter. Fuel was added to the fire in early
November when the US spuriously printed October inflation at 0%, which investors interpreted as the taming of the inflation beast. This along with
weaker economic data saw US and European central banks (potentially prematurely) call the end of their rate hiking cycles in early December giving
investors added optimism to keep calm and carry on with same exuberance.

This resulted in an incredibly strong finish to the December quarter with bonds and equities alike clocking returns usually befitting of an annual return
over the last two months of the year. Australian equities were very ably assisted by a falling Australian dollar as investors began to anticipate an early
start to the US rate cutting cycle and expectations of more rate cuts in 2024 also rose. Property returns soared as investors flocked back to one of the
most unloved asset classes of the prior 12-24 months, with the sharp cut in rate expectations providing much needed relief for the asset class.

The Chinese economy remained in a weakened state, but it became clear in the December quarter that a potential floor had been found (ie. data
stopped getting worse), providing some optimism that the significant volume of small stimulus packages out of Beijing were starting to provide some
cushion to the economy without patching over the ills of past stimulus campaigns. Still a long way to go for an economy that received no stimulus
during Covid (unlike the West), that carries way too much debt, and is trying to shift its economic growth potential away from old China to new dynamic
growth industries. Also, a good reminder that trade relations are critically important, and the health of your key trading partners is integral to your own
economic growth prospects.

The quarter ended with improved risk rhetoric out of economists, with continuing economic resiliency and falling inflation, increasing their odds of a
potential soft-landing scenario whereby the economy slows to bring inflation under control but doesn’t slow enough to cause a severe and/or
protracted recession, helped by central banks threading the finest of needles to bring about an environment not achieved too many times throughout
history.

The quarter wouldn’t be complete without conflict, geopolitical developments, and surprise political results. Early October, we saw Middle East
tensions rise following an attack on Israel by Hamas militants, which threatened to bring other actors into the conflict, namely the US and Iran. The
folly that has become the US government averted two government shut-downs whilst the House went speaker-less for three weeks, effectively
paralysing one branch of US government (maybe not such a bad thing these days). There was a shock in Chinese President Xi’s visit to the US where he
was welcomed with open arms by the Biden administration, State governors, and US corporates with key Chinese manufacturing operations. The trip
provided some clarity of the critical nature of US-Sino interdependence and that both countries may need each other more than ever before. Lastly,
there was new political leadership in Argentina (a libertarian in Javier Milei) whilst the Netherlands also look likely to get new leadership given their
election results.

Portfolio update
Portfolio returns for the December quarter were incredibly strong as investor sentiment turned sharply positive in November and continued through
December, rounding out a strong calendar year for investment returns against a sea of concern and worry.

The portfolio underperformed in the period largely owing to investment selection, with underweight duration positioning in bonds and unhedged
currency exposure in global equities also detracting. It continues to be a tough environment for fund managers who focus on company fundamentals
rather than picking the next macro / thematic trend. Company fundamentals dictate longer term returns whilst macro / thematic trends dictate
shorter term market movements.