Page 3 - Specialist Growth Assertive_March 2023

That positive sentiment spilled into the early part of February but was short-lived as concerns arose regarding the pace and evenness of China
reopening in the absence of reasonable to significant government / central bank stimulus and western central bank rhetoric turned more hawkish as
they moved to put a lid on animal spirits by reminding investors that they still have a long way to go bring inflation under control. That hawkish tone
sent investor sentiment packing as expectations of a “soft landing” or a central bank pause very quickly disappeared and not helped by opportunistic
profit taking following an unusually strong January.

That negative sentiment carried into March until we saw US banks come under pressure as a crisis of confidence hit Silicon Valley Bank and a few
others, either linked to the technology / crypto sector or smaller regional banks. Interestingly, this wasn’t GFC mark II given bad debts remain incredibly
low and banks generally well capitalised. It was a function of a sector under pressure (ie. technology sector) as the irrational exuberance of the Covid
period washed out, a concentrated relatively affluent, customer based, and terrible treasury management by the banks themselves. US regulators
moved swiftly to protect deposit holders and provide a liquidity backstop to the banking system. However, the negative investor and concerned
deposit holder sentiment shifted to Europe with Credit Suisse identified as the weakest link, which culminated in a swift and quite unusual bailout by
Swiss authorities, sending reverberations through some parts of the bond market.

Interestingly, investor sentiment and expectations shifted drastically in a positive direction on the view that either central banks won’t raise rates any
further to protect the banking / financial system (a misguided view in our opinion) or won’t have to raise rates any further as the banking system
tightens financial conditions themselves thus doing the remaining heavy lifting for central banks (definitely possible). Markets were always going to rally
on a whiff of an impending pause in central bank rate hikes, but investors took it one step further by bringing forward their expectations of rate cuts.
That change in expectations, and oddly positive sentiment, saw markets rally exceptionally strongly the back end of the month with global equities and
bonds attracting all the attention, Australian equities didn’t get the memo, and property fell sharply on concerns regarding the economic outlook and
tighter financial conditions in the period ahead.

The Australian dollar fell from US71c to US66c in the quarter assisting unhedged global equity, property, and infrastructure allocations, as currency
investors moved to a risk-off stance.

Portfolio Update
Portfolio returns for the March quarter were strongly positive in the absolute sense, but exhibited some underperformance versus the benchmark, in
a fairly odd quarter which saw markets rally strongly on perceived improvement in the economic outlook, then give back some of those gains on
economic data being too strong (ie. more central bank tightening required), before rallying again following foreign bank collapses (ie. central banks will
save the day). What has been apparent over the last three to five months, and pleasingly so, is markets have begun to focus back on company
fundamentals.

Drivers of underperformance for the portfolios included investment selection in Australian small companies and bonds, in addition to our lower
duration positioning (versus the benchmark) within bonds as yields fell sharply (bond prices higher) in March following foreign banking issues with
markets bringing forward their expectations of rate cuts.

On the asset allocation side, our more equal weighting between Australian and global equities held performance back as global equities powered
ahead in the quarter benefiting from compositionally less exposure to those sectors that dominate the Australian market (ie. financials and resources).
Our higher weighting to bonds versus cash also assisted returns as prices rose and yields were sufficiently high enough over cash yields.

On the investment selection side, pleasing to see contributors from multiple sources across the portfolio particularly within Australian stock selection,
given tough Australian reporting season backdrop which was weaker than US reporting season, infrastructure, and from within bonds. Though some
investment selection within bonds (ie. hybrid exposure) did hold back returns.

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

Top 3:
1. Corporate Travel Management
2. Aristocrat Leisure
3. James Hardie Industries

Bottom 3:
1. Domino’s Pizza
2. Lendlease Group
3. GQG Partners Inc
There were no changes to the portfolio in the quarter as the Committee felt portfolios were appropriately positioned, and more specifically, that the
underlying managers had done an excellent job of portfolio adjustments and re-positioning through the course of 2022 leaving little for the
Committee to action over and above.

In saying that, the Committee remains watchful of prevailing conditions, particularly the trajectories for both inflation and interest rates, as the
economic backdrop is likely to weaken from here.