Page 2 - Private Wealth Specialist Growth SMA (Balanced) PDF Factsheet

Sell ActiveX Ardea Real Outcome Bond ETF

Following a period of ongoing review, we haven’t been able to retain the requisite conviction in Ardea
Real Outcome to retain it in the portfolios. Whilst returns have been below expectations, the lower
conviction is a result of both people and process. The manager has seen quite a few senior departures
over the last few years. We raised some process concerns a little while ago which the manager
acknowledged and was working towards rectifying. But the regular updates we’ve received since
haven’t shown much in the way of progress and the manager hasn’t done a good enough job
explaining the process they’ve gone through.

Buy Franklin Australian Absolute Return Bond ETF (FRAR)
The ETF provides exposure to Australian fixed interest, complemented by a suite of global exposures
across currency, duration, investment grade and high yield corporate debt. The Fund employs a
flexible mandate which is defensive by nature and an investment process that draws on the ‘best
ideas’ from across Franklin Templeton’s global fixed income network. The Fund employs an
opportunistic and trading-orientated investment approach that seeks to deliver absolute returns
across a market cycle. This is achieved by constructing a portfolio of uncorrelated trades, which are
designed to deliver returns across different time horizons in an effort to produce a consistent return
profile. Potential sources of value-add includes interest rates (duration), currencies, sovereign credit,
corporate/spread sectors and bottom-up security selection. The team sticks to government and
strong non-government entity issues with attractive real yields and liquidity rarely venturing below
investment grade. Macro positioning of the Fund is the responsibility of the Australian-based
investment team.

Sell GQG Partners Inc

The stock has performed well, baring a recent blip which saw the share price fall.

We believe the valuation is too rich relative to the cyclical nature of the business – i.e. we like to buy
and own cyclical stocks at or below their historical valuations and at reasonable discounts to the
market. Given the growth and size in their funds under management, there’s an added risk of funds
under management growth disappointment ahead along with risks regarding potential large investor
outflows if fund returns disappoint.

The fortunes of the stock are highly correlated to broader equity market movements, which means
the stock price rises and falls significantly more than broader markets do. With some equity markets
trading at all-time highs, we think these risks are too amplified at present. Market optimism for this
stock is high, regarding both funds under management growth and fund performance – i.e. there’s a
lot baked into the current share price which means a lot has to go right for the company ahead, some
of which is out of their control (e.g. broader market movements). As their funds under management
grows, there’s a risk of a reasonable drop off in the size and consistency of outperformance in their
funds

With listed fund managers, there’s always the conflict between raising as much funds under
management possible (beneficial for shareholders) and limiting the funds under management to assist
with high and more consistent levels of underperformance in their underlying funds (beneficial for
fund unitholders).