Page 3 - Private Wealth Specialist Growth Moderate

Quarterly manager commentary

Market Update
A contrasting and polarising June quarter raised more questions than answers, but there were some fleeting glimpses of markets behaving more
rationally. Here’s hoping for more of these glimpses.

Following exceptionally strong December and March quarters, particularly for equity markets, the June quarter was one dominated by stalling progress
on the inflation fighting front, the first real obvious signs of weakening economic data, and rising political and geopolitical risks, with a sprinkling of
significant election results, a Japanese Yen in free-fall, and the first interest rate cuts in major economies.

It was a poor start to the quarter for markets, with real concerns that the downward trajectory in inflation had stalled, resulting in market expectations
for rate cuts being pushed out even further (i.e. late 2024 or more likely 2025). This was an interesting, and somewhat crazy contrast, to what kicked
off the rally in markets in the fourth quarter of 2023 – i.e. predictions of six to seven rate cuts in 2024! Labour markets remained too tight, particularly
in Australia and the USA, with services inflation doing most of the damage. Australian house prices continued to rise under the pressure of supply
constraints and mass immigration, whilst US retail sales came in ahead of expectations as animal (consumer) spirits rose.

How quickly fortunes (sentiment) can change, particularly in the post-covid period, with the middle of the quarter painting a completely different
picture. Real signs of economic weakness suddenly appeared with Australian retail sales going from bad to worse, a pretty significant drop-off in US
new jobs data (which has been spurious at best during and in the post-covid period), weaker consumer sentiment & confidence, and Chinese
economic data which disappointed and in some cases appeared to be re-weakening again. This is when we saw those fleeting glimpses that bad
economic news was bad for markets. We know that sounds somewhat simple and logical, but markets have largely been operating on the basis that
bad news was good for markets under the guise that their saviour (central bankers with their money printers) would swoop in and save the day. That
dynamic prevailed effectively since the GFC where inflation remained tame and actually under-shot versus central bank targets but doesn’t work so
well coming off inflation peaks of 8/9% and where falling inflation had begun to stall. How old we feel reminiscing rational and logical markets!

To top it off, Australian inflation significantly disappointed, with the monthly indicator actually ticking up, confirming concerns that the March quarter
print wasn’t an anomaly. There were even calls for both the US and Australian central banks, particularly the latter, to consider further rate hikes, with
pressure on keeping a lid on the inflation genie.

A fairly swift pivot in sentiment and rhetoric in the weeks that followed with US inflation meeting expectations (i.e. no upside surprises), US jobs data
showing further signs of weakening, and the first interest rate cuts in developed economies (Canada, Europe), with the US Federal Reserve also
flagging their expectations for just one rate cut this year but with some dovish undertones (the all-important central bank wordsmithing). As markets
do these days, investors took this as a sign to one-up the US Fed with market expectations implying two US rate cuts for the year, with the first likely in
September. Also, an interesting read-through on the Canadian and European central bank rate cuts, with the former trying to stave off recession in the
Canadian economy whilst the latter seemed to be front-running concerns of a European economic drop-off in the period ahead with inflation within
target.

Adding to the merry-go-round period described above, investors took proper notice of rising political and geopolitical risks. On the political front, we
had UK elections which went as expected (i.e. landslide win for Labour), a shock snap election called by French President Macron following very poor
showing for the left-wing parties in the European parliamentary elections, and Indian Prime Minister Modi winning another term but with a smaller
majority meaning passage of his pro-business policy remit might be harder ahead. The French elections require some explaining in that the “far-right”
party won the first round, but then lost the important second round to the “far left” party following deal-making between this party and President
Macron’s “centre-left” party to ensure he remained in power. Markets clearly didn’t like the first-round results but seem to revel on the news of a likely
hung parliament. We also had new flashpoints on the two-wars front, both US and Europe levying further tariffs on Chinese goods, former President
Trump convicted on charges and awaiting sentencing, plenty of foreign diplomacy with US visiting China / China visiting Europe / China visiting
Australia, and a farcical US presidential debate (as they go of late) with President Biden’s health now a key outcome rolling into the November
elections.

Other considerations in the quarter included some instability in currency markets with the Japanese Yen in freefall, though the Australian dollar did
push higher against the US dollar (impacting unhedged global asset exposures) but not against other currencies. We also had the Australian Federal
Budget, with little to no surprises, but the front-ending of their spending program along with well flagged revised tax cuts didn’t help the RBA’s cause.

Portfolio Update
Portfolio returns for the June quarter were a little weak, as investors took a breather following the very strong December and March quarters.
However, returns over the twelve-month period remain very strong.

Markets struggled to digest the lack of movement on interest rate relief with inflation remaining stubborn, whilst economic weakness became a little
more apparent and easier to see, creating some concern that central banks might not be able to provide the relief to curb any continued weakness. In
addition, markets seemed to struggle to cope with the large number of political events and geopolitical news been thrown at them in a short period of
time.

Highlights in the period continued to be rather narrowly focused, and in some cases fleeting. US technology stocks performed strongly yet again, with