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SMA Portfolio Change




               Specialist Income - Moderate



               As at 5 March 2024



               Following a review of your SMA portfolio, we have made the following changes:

                   •  We are reducing exposure to growth assets in your portfolio, your Moderate risk profile SMA
                       will now hold 40% growth assets (down from 50%) and 60% defensive assets (up from 50%).
                   •  We are making a change to underlying investments within your portfolio.


               Reduction in Exposure to Growth Assets

               Why we are making the change

               In 2023, we saw stronger than expected returns due to economic resiliency, fast-falling US inflation,
               and strong investor sentiment. These trends have continued into early 2024. However, leading
               economic indicators remain mixed, with early signs of weakness in employment data (which we
               expect to continue), household savings buffers (which are becoming increasingly scarce), and central
               banks holding the line on higher rates as they remain committed to taming inflation to maintain their
               credibility. Therefore, we believe 2024 may be a tough year to navigate.

               Presently, we are not concerned about the overall 2024 outlook as current data remains resilient.
               However, we are adopting a cautious approach given tighter financial conditions (ie. higher interest
               rates) and significant government debt loads. Historically this has meant weak to very weak economic
               outcomes. In contrast, current market sentiment seems to imply all risks are now behind us and
               central banks will come to our rescue. Unfortunately, hope is not an investment strategy.

               The significant rise in central bank cash rates and hence bond yields, has made the return dynamics
               on cash and bonds very attractive versus the last 10-15 years, with government bonds now yielding 4-
               5% and investment grade corporate debt yielding 5-7%. Even short-dated cash and cash-like securities
               (enhanced cash) are offering yields of 4-5.5%. Combining attractive yield opportunities with lower
               volatility than equities, makes the risk / return dynamics on defensive assets too hard (and silly) to
               ignore.

               We have therefore reduced exposure to Growth assets (Australian equities, global equities, and
               property/infrastructure) by 10% and subsequently increased Defensive assets (cash and bonds) by
               10%, splitting the allocation equally across enhanced cash and bonds. The enhanced cash allocation
               takes advantage of short-term higher yields and gives us the option to redeploy funds if we feel the
               attractive defensive asset opportunities have played out or the risks we were concerned about have
               passed.
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