Page 3 - SAM TEST

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.

On the asset allocation side, both Australian and global equities performed strongly. Australian equities outperformed unhedged global equities with
currency helping local equities 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, whilst emerging markets continued to
underperform developed markets hurting relative returns. Property & infrastructure allocations boosted portfolio returns with both 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, Bennelong Twenty20 was the highlight in Australian equities with their growth factor bias performing strongly as
expectations of rate cuts in 2024 rose. Flinders was the laggard with healthcare and energy stock selection hurting returns along with their significant
underweight to real estate stocks. GQG and Bell were the highlights within global equities with both benefiting from their quality factor bias in different
parts of the market (ie. large vs small/mid). T. Rowe and Martin Currie were the laggards with T. Rowe’s underweight US / overweight Asia hurting
relative returns whilst Martin Currie’s growth/quality style bias detracted as value stocks were the place to be in emerging markets. 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 and Brandywine, as bond yields fell sharply.

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

Top 3:
1. Bennelong Twenty20 Australian Equities
2. MFG Core Infrastructure
3. Resolution Capital Global Property Securities Unhedged

Bottom 3:
1. Martin Currie Emerging Markets
2. Franklin Australian Absolute Return Bond
3. T. Rowe Price Global Equity
Portfolio Changes
There were no changes to the portfolio in the December quarter as we remained comfortable with portfolio positioning and investment selection.