Page 3 - Private Wealth Specialist Growth Assertive PDF Factsheet

Holding Asset class Allocation (%)
Treasury Wine Estates Limited Ordinary Fully Paid Australian Equities 1.2

Quarterly manager commentary

Market Update
“Nothing to see here” was the first thing that came to mind in the September quarter given how exceptionally strong returns were. But that couldn’t be
further from the truth given how action-packed the period was with bursts of heightened market volatility, a perplexing mix of economic data, and
rising political and geopolitical risks.

Interestingly, the strongest returns came from yield sensitive growth markets like listed property and infrastructure, and Australian equities which were
also assisted by a rising Australian dollar. These asset classes benefited from a combination of central bank rate cuts (abroad) and declining bond
yields all whilst inflationary trends remained somewhat stubborn in certain jurisdictions (namely, Australia and the US).

Relatively strong returns from bonds in the quarter, benefiting firstly from concerns regarding the economic outlook, and then from central bank rate
cuts, both of which put downward pressure on bond yields and hence an uplift in capital values (growth). Corporate credit also performed well with
strong buying from investors and healthy yield levels. Within equity markets, we saw a surprising change in leadership with Chinese equities rocketing
higher on much needed and eagerly awaited Chinese government and central bank stimulus.

Other market moves largely added confusion to the mix. The Australian dollar rose strongly against the USD, largely driven by the latter falling on
concerns regarding the US economic outlook and the outsized initial rate cut from the Fed. Oil prices fell sharply in the period, seemingly appear to
better price recession risks than both equity and bond markets haven been. Even a widening of the conflict in the Middle East wasn’t enough to arrest
the decline in oil price. Increasingly noticed and watched gold prices rose in the quarter, likely pricing in concerns regarding potentially stickier inflation
and a weaker economic and hence lower bond yield environment.

All this played out in a backdrop where the economic picture and outlook became increasingly obfuscated, with different asset classes pricing in or
exhibiting different economic expectations. A couple of sharp and sudden changes in expectations in the quarter saw some rather large single day
falls in equity markets, with US tech front and centre, which provided proof points of the lofty expectations already baked into asset prices and little
sneak-peeks at what happens when markets price risks correctly.

A mixed bag across the globe on the inflation front. Cheers of success in Europe, the UK, Canada, and New Zealand; inflation remaining somewhat
stubborn in Australia and the US linked to services (tight jobs market) and property-related factors (supply, rents, construction costs); deflationary risks
persisting in China; and rising inflation in Japan. The June quarter Australian inflation print showed some inroads being made, with subsequent data
resulting in the RBA taking further rate hikes off the table, but with underlying inflation still too high for rate cuts. US inflation, particularly headline
inflation, saw growth slow significantly in the period satisfying the Fed enough to cut rates by a large 0.50%! Interesting move with core inflation above
target, particularly with inflation re-accelerating slightly at the back end of the quarter.

Inflation at or very close to target saw central banks in England, Canada, New Zealand, and a few others cut rates in the period, whilst the Bank of
Japan raised rates for only the second time since 2007 putting significant upward pressure on the Yen. This move resulted in significant market
ructions as many traders were forced to swiftly unwind huge cross currency positions. In contrast, both the US and Chinese central banks cut interest
rates for very different and perplexing reasons, with Chinese officials succumbing to pressure to provide much needed stimulus to the property and
household sectors.

In one of the oddest central bank decisions in recent history, the US Fed cut rates by what has historically been seen as an emergency level cut –
0.50%. All whilst communicating that the economy remains strong, labour markets tight, and core inflation still well above target. The move caused
confusion amongst non-equity investors (bonds and commodities) whilst equity investors took the champagne and didn’t look back.

On the economic front, a “soft-landing” remained consensus, but we did see markets attempt to price in both hard-landing and no-landing scenarios
in the period, with investors realising that a soft-landing scenario isn’t a forgone conclusion. Headline economic data remained robust in most
jurisdictions (outside of China) but underlying and less well followed data did start to show signs of weakness in the period – something we’ve been
watching closely as headline data generally operates with quite a considerable lag and is subject to large revisions. This was true on the Australian
economic front – unemployment still very low but jobs growth patchy and quite large declines in job ads; healthy house price growth and anaemic bad
debts, but signs of some weakness in NSW and particularly VIC, with increasing supply of existing homes for sale, whilst rental markets remained very
tight; cumulative household savings high, but household savings ratios moved below pre-covid levels and retail sales growth continued to slow. The
same was roughly true of the US economic backdrop.

China economic woes became significantly more apparent in the quarter forcing Chinese officials to act. The household remains pained by the
significant falls in house prices, with most Chinese household wealth tied up in property, maintaining downward pressure on both confidence and
sentiment. Manufacturing data also remained weak given lacklustre demand from local and global customers (e.g. Germany) and the imposition of
tariffs by both the US and Europe as the trade war continued. Finally, foreign investor outflows haven’t helped but we did see that change somewhat in
the period (off a very low base) following the announcement of stimulus measures.

Plenty of action on the political and geopolitical front, with the US election nearing, a stalemate in French elections (which markets applauded),