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ASSET CLASS PERFORMANCE: FED FEARS RE-EMERGE

DAVID BASSANESE, CHIEF ECONOMIST

Return Performance* Performance Rank

Month 3-mth 6-mth 12-mth Month 3-mth 6-mth 12-mth

Cash 0.2% 0.5% 1.1% 2.2% 3 4 6 4

Aust. Bonds 0.4% 2.5% 3.8% 6.2% 2 2 4 3

Aust. Property -2.8% 6.1% 14.6% 25.9% 6 1 1 1

Aust. Equities -1.6% 2.1% 13.9% 9.3% 5 3 2 2

Int. Equities* 1.4% 0.1% 8.2% 1.6% 1 5 3 5

Commodities** -1.5% -6.8% 2.5% -13.1% 4 6 5 6

Int. Equities** 0.7% 3.7% 12.4% 6.8%

World currencies vs $A 0.7% -3.5% -3.7% -4.9%

*Unhedged **Hedged Total returns for the month Source: Bloomberg

90

95

100

105

110

115

120

Dec-13 Dec-14 Dec-15

Cash

Bonds

Aust. Equities

Asset Class PerformanceAsset Class PerformanceAsset Class PerformanceAsset Class Performance****: : : : Index=100 at 31Index=100 at 31Index=100 at 31Index=100 at 31----DecDecDecDec----13131313

*$A, total gross returns **$US

Outright performance

40

60

80

100

120

140

160

Dec-13 Dec-14 Dec-15

Commodities**

Property

Int. Equities

Int. Equties (hedged)

Source: Betashares, S&P,MSCI, Bloomberg

Performance relative to S&P/ASX 200

• Solid US economic data and hawkish rhetoric from several Federal Reserve members saw markets last

month start to fear re-commencement of US official interest rate hikes. While global equities eked out a small gain in local currency terms, US stocks were flat, with strength instead concentrated in Europe,

Japan and emerging markets. Global stocks performed better in $A terms due to weakness in the Australian dollar.

• Despite a rate cut from the Reserve Bank, Australian equities weakened last month and underperformed

global equities. US interest rate fears also caused listed property to underperform. Commodity prices also eased back reflecting weakness in gold (again associated with US rate hike fears), while oil prices

rose due to renewed talk of producer cut backs.

• Listed property remains the best performing asset class over the past 12 months, followed by Australian

equities and then Australian bonds. Commodities remain the worst performing asset class over the 12-

month period.

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Global SEPTEMBER 2016

MARKET VIEW: REMAIN DEFENSIVE

• August provided the first “reality check” for risk markets in some time. With it now evident that the UK’s

“Brexit” decision is having little lasting impact on the global economy, and with US economic data remaining fairly healthy, Federal Reserve officials began to dust-off their earlier plans to raise US interest

rates from what are still exceptionally low levels.

• At this stage, however, it’s not yet clear that the Fed will follow through. Either an upsurge in equity market

volatility or a strongly rising $US would naturally test the Fed’s resolve. It’s also possible that US economic

data could soften somewhat.

• Either way, a key emerging investment theme is a maturing in America’s expansion due to diminished a key emerging investment theme is a maturing in America’s expansion due to diminished a key emerging investment theme is a maturing in America’s expansion due to diminished a key emerging investment theme is a maturing in America’s expansion due to diminished

spare labour market capaspare labour market capaspare labour market capaspare labour market capacitycitycitycity. Either US growth will slow or the Fed will raise interest rates in coming

months – either of which should be problematic for equity markets. In turn, this continues to favour our long-held defensive stance with regard to growth assets.

• What’s more, this theme also continues to support our view that the $A will eventually weaken, which also

favours our overweight view on (unhedged) international equities against Australian equities. It also favours our underweight stance with regard to commodities.

• That said, whether US growth slows or the Fed first hikes rates will affect the course of global bond yields.

At this stage, we retain our neutral view on bonds versus cash.

• One change to our asset allocation views, however, is to move back to a neutral position with regard is to move back to a neutral position with regard is to move back to a neutral position with regard is to move back to a neutral position with regard

to listed propertyto listed propertyto listed propertyto listed property. Thanks to low interest rates, property valuations have become especially stretched

and the past month has demonstrated how sensitive this sector’s performance will be to any serious change in bond yields. Should the $A weaken a lot further it could also bring into question the likelihood

of the RBA cutting interest rates again this cycle.

ASSET BENCHMARKS

Cash: UBS Bank Bill Index; Australian Equities: S&P/ASX 200 Index; Australia Bonds: Bloomberg Composite Bond Index; Australian Property: S&P/ASX 200 A-REITs; International Equities: MSCI World (developed market) Index, unhedged $A terms; Commodities: S&P GSCI Light Energy Index, $US terms

Asset Class Tactical Views: September 2016

Underweight Neutral Overweight

Growth vs. Defensive

Aust. Equities vs. Bonds �

Defensive

Cash vs. Bonds �

Growth

Aust. Property vs. Aust. Equities �

Int. Equities* vs. Aust. Equities �

Commodities** vs. Aust. Equities �

*Unhedged **Hedged

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Global SEPTEMBER 2016

ABOUT BETASHARES

BetaShares Capital Ltd ("BetaShares") is a leading BetaShares Capital Ltd ("BetaShares") is a leading BetaShares Capital Ltd ("BetaShares") is a leading BetaShares Capital Ltd ("BetaShares") is a leading managermanagermanagermanager of exchange traded products ("ETPs") which are traded on of exchange traded products ("ETPs") which are traded on of exchange traded products ("ETPs") which are traded on of exchange traded products ("ETPs") which are traded on

the Australian Securities Exchange. BetaShares offers a range of ETPs which the Australian Securities Exchange. BetaShares offers a range of ETPs which the Australian Securities Exchange. BetaShares offers a range of ETPs which the Australian Securities Exchange. BetaShares offers a range of ETPs which cover Australian and international cover Australian and international cover Australian and international cover Australian and international

equities, cash, currencies, commodities and alternative strategies. BetaShares currently has approximately $equities, cash, currencies, commodities and alternative strategies. BetaShares currently has approximately $equities, cash, currencies, commodities and alternative strategies. BetaShares currently has approximately $equities, cash, currencies, commodities and alternative strategies. BetaShares currently has approximately $3333....0000 billion billion billion billion

in assets under management.in assets under management.in assets under management.in assets under management.

BetaShares is a member of the Mirae Asset Global Investments Group, one BetaShares is a member of the Mirae Asset Global Investments Group, one BetaShares is a member of the Mirae Asset Global Investments Group, one BetaShares is a member of the Mirae Asset Global Investments Group, one of Asia's largest asset of Asia's largest asset of Asia's largest asset of Asia's largest asset

management firms. Mirae currently manages in excess of US$management firms. Mirae currently manages in excess of US$management firms. Mirae currently manages in excess of US$management firms. Mirae currently manages in excess of US$90B.90B.90B.90B.

This information has been prepared by BetaShares Capital Ltd (ACN 139 566 868 AFS Licence 341181) (“BetaShares”). This is general information only and does not take into account the individual circumstances, financial objectives or needs of any investor. Before making an investment decision, investors should consider their circumstances, the PDS for the relevant financial product, and obtain professional financial advice. The PDSs for BetaShares Funds are available at www.betashares.com.au or by calling 1300 487 577. Only investors who are “authorised participants” may invest through the PDSs. Other investors may buy units in BetaShares Funds on the ASX. This information is not a recommendation or offer to invest in BetaShares Funds or any other financial product or to adopt any particular investment strategy. An investment in any BetaShares Fund is subject to investment risk and the value of units may go down as well as up. Any past performance shown is not an indication of future performance.

Future results are impossible to predict. This document may include opinions, views, estimates and other forward-looking statements which are, by their very nature, subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements. Opinions and other forward-looking statements are subject to change without notice. Any opinions expressed are not necessarily those of BetaShares. To the extent permitted by law BetaShares accepts no liability for any errors or omissions or loss from reliance on the information herein.

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