Page 3 - Private Wealth Specialist Growth Moderate PDF Factsheet

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 slightly underperformed in the period largely owing to positioning, with an underweight in duration positioning in bonds, unhedged
currency exposure in global equities, and underweights to US equities and property also detracting.

On the asset allocation side, both Australian and global equities performed strongly. Australian equities outperformed unhedged global equities with
currency doing most of heavy lifting from a relative perspective. Our higher weighting to global equities detracted from relative returns. Within
equities, small companies finally outperformed large companies, with our positioning here contributing to returns. infrastructure allocations boosted
portfolio returns recovering strongly to outperform broader equities. Bonds outperformed cash, contributing to portfolio returns as yields fell sharply
(prices higher). In light of this, our lower interest rate duration positioning detracted from relative returns.

On the investment selection side, Australian stock selection boosted both absolute and relative returns in the period, outperforming the broader
Australian equity market. Vanguard Australian Small Companies lagged on a relative basis due to its index methodology. iShares Core S&P 500 was the
highlight as US equities powered ahead helped by their large technology sector exposure. Vanguard All-World Ex US lagged as European and
emerging market equities underperformed US equities. MFG Core Infrastructure outperformed strongly in the quarter owing to strong stock selection
with US communication companies. Lastly, bond funds carrying larger interest rate exposures (ie. duration) performed exceptionally strongly, namely
Western, in contrast to investments with no interest rate exposure (HBRD, BHYB, XARO) which detracted from relative performance.

On an absolute basis, the best and worst performing investments were as follows:

Top 3:
1. James Hardie Industries
2. GQG Partners Inc
3. Breville Group

Bottom 3: