Page 3 - Private Wealth Professional Moderate

Holding Asset class Allocation (%)
CSL Limited Ordinary Fully Paid Australian Equities 0.5
Corporate Travel Management Limited Ordinary Fully Paid Australian Equities 0.5
Treasury Wine Estates Limited Ordinary Fully Paid Australian Equities 0.5
South32 Limited Ordinary Fully Paid Australian Equities 0.5

Quarterly manager commentary

Market Update
The September quarter seemed to solidify calendar year 2023 as one akin to a washing machine – wash, rinse, and repeat. Again, interest rates and
inflation were front and centre of market movements with short-term macroeconomic signalling / consensus (noise) changing every 30-45 days
attempting to second guess where inflation, rates, and the economy might land in 2024 following the fastest period of rate hikes ever seen.

Whilst most market participants correctly called peak inflation and likely peak interest rates (maybe 1-2 more) early in the quarter, given most central
banks either slowed the pace of rate hikes or began to pause, conjecture began to rise as the pace and size of falls in inflation began to slow. This
meant that the market narrative began to shift its focus from inflation falling at a rapid pace / leading indicators point to impending recession /
meaningful rate cuts coming next year to concerns of inflation getting “stuck” above central bank targets (and potentially reaccelerating higher) /
economy being on potentially stronger footing than previously expected / rates higher for longer.

These two narratives have quite distinct market backdrops and hence portfolio playbooks, resulting in volatility creeping up through the quarter as
investors readjusted portfolio settings to account for the changing consensus.

The implications of higher rates for longer in light of inflation remaining stickier than expected is an interesting dynamic and hence dilemma for
investors – is this time different in that economic resiliency can be maintained; or do higher rates for longer eventually lead to a more meaningful
economic downturn? We finally started to see the impact of higher rates and higher inflation in the quarter with cost-of-living pressures showing up in
the data including weaker retail sales growth, falling household savings, excess discretionary spending capacity almost all gone, and borrowing costs
catching corporates by surprise in terms of impacts to their bottom line.

In other economic developments, employment conditions remained strong in most jurisdictions, maintaining upward pressure on inflation, particularly
in services. Residential housing market sentiment and hence prices began to reaccelerate higher on continuing tight supply, increasing immigration
(Australia), and full employment with reasonable wages growth still coming through. This was in contrast to leading indicators still pointing to likely
recession in the period ahead, or significantly weaker conditions at the very least (ie. recession-like).

Economists and investors became ever more impatient with China’s economic woes as the country’s economic data continued to worsen with
slumping household and business confidence / sentiment, very high youth unemployment, a still deflating housing market bubble, concerns that
Chinese government overregulation would remain, and both foreign demand and capital flows slowing. The government continues to provide very
measured and specific stimulus, prioritising stimulus volume over size, which provides incremental stability to the economy over a longer period of
time rather than fixing any malaise with a big bazooka approach to stimulus – a play book that China has used regularly and aggressively over the last
20-30 years. However, the more current measured approach from Chinese officials has seen investors favour developed markets and other emerging
markets (e.g., India, Korea, Mexico).

We almost saw another US government shutdown as the current administration’s insatiable (and ridiculous) spending continues, racking up even
larger deficits and adding to the US$33 trillion debt pile! Basic economics teaches you to do the complete opposite when there is strong economic
growth, and you are trying to curb runaway inflation. In the absence of economic rationalism, the current administration’s approach applies significant
additional pressure on monetary policy (ie. central bank activities) and/or forces investors to react accordingly (ie. sell bonds, rising yields). Both
occurred in the quarter, with rhetoric from the Federal Reserve increasingly more hawkish, putting another rate rise on the table for this year and
dousing expectations of significant rate cuts in 2024.

From a market perspective, we saw both ups and downs for most asset classes given the changing dynamics discussed above. The A.I. / technology
sector received considerable positive attention, with surging prices for anything tagged as being “A.I.” broadening into support for technology names.
Corporate reporting season was mixed at best, with results coming in a little better than fairly weak expectations, whilst the limited guidance provided
was generally weak with rising costs and slowing demand expected in the period ahead. Those companies with very low debt levels or no debt are
clearly in enviable positions.

Oil prices surged higher in the quarter as supply was further tightened by OPEC and Russia, first temporarily and then more permanently, whilst
demand remained resilient. Conflicts in oil/gas rich regions also supported the price push higher as investors fretted over additional supply shortages,
whilst investment in new oil/gas fields remains constrained by the global push to renewable energy sources.

There was also weakness in the AUD/USD in the period as concerns regarding the Chinese economic outlook rose (negative AUD) whilst expectations
of narrower interest rate differentials between Australia and the US were dashed (positive USD) as the higher rates for longer mantra took hold.