Page 3 - Professional Assertive_March 2023

Holding Asset class Allocation (%)
Treasury Wine Estates Limited Ordinary Fully Paid Australian Equities 1.2
Western Asset Global Bond Fund – Class M International Fixed Interest 3.0
Yarra Emerging Leaders Fund - Class A Australian Equities 5.0

Quarterly manager commentary

Market Update
The March quarter was largely a positive one for investment markets, but it felt like we went through ten rounds in the ring to get there.

It was a tale of three completely different months with wild swings in investor sentiment and expectations the driving force of investment markets.

January started off with a bang, in stark contrast to December returns, with investors feeding on any positive news they could get their hands on. This
included but wasn’t limited to: European energy crisis averted (a milder winter and the US provider support via their strategic petroleum reserves); US
company quarterly reporting season came through better than expected (though weaker than the same time last year); China reopening, which began
in November, continued supporting outlook for global supply chains and Chinese demand; and the changing interest rate dynamic (flipped to dovish)
as the US central bank shifted to smaller rate hike increments (ie. 0.75% to 0.50% in December 2022 and 0.5% to 0.25% in February). That resulted in
equities and property powering ahead (ie. monthly gains more akin to annual returns) and bonds producing one of their best months in over a year. It
all seemed too much too soon, but no one was complaining after a year like 2022.

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 whilst also exhibiting outperformance 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 outperformance for the portfolio included investment selection across growth assets (Australian & global equities, property, and
infrastructure) and our preference for global assets (over local assets) with currency also assisting here. In contrast, our lower duration positioning
within bonds detracted 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 higher weighting to global equities versus Australian equities significantly boosted returns as what worked well for the
local equity market last year (ie. dominance of financials and resources) held the asset class back this calendar year given expectations of a weaker
global economic outlook, banking concerns, and a patchy reopening for China. Our allocation to emerging market equities hurt relative returns as
more tech-heavy developed markets powered ahead. Our higher weighting to bonds versus cash also assisted returns as prices rose and yields were
sufficiently high enough over cash yields.