Robeco Emerging Conservative Equity Fund · Robeco Emerging Conservative Equity Fund 3 Fund Summary Description The Robeco Emerging Conservative Equity Fund (the Fund) is a highly

Robeco Emerging Conservative Equity Fund

This report has been prepared for financial advisers only

Superior

INTRODUCTION

Key PrinciplesThe underlying principles of the assessment process are to:

- identify the long term commercial potential of the Responsible

Entity/Investment Manager;

- evaluate management’s capabilities, previous performance in the

specific industry and the stability of the organisation;

- evaluate identified markets (domestic and international existence,

stability and growth potential);

- benchmark key performance assumptions and variables against

industry peers;

- weigh up the relevant risks of the Responsible Entity/Investment

Manager;

- assess structure and ownership;

- determine if the Responsible Entity/Investment Manager is

structured in such a way as to protect investor’s interests; and

- allow an opinion to be formed regarding the investment quality of

the Responsible Entity/Investment Manager.

AssessmentSQM Research conducts a detailed site inspection of the projects/properties within the Responsible Entity’s/Investment Manager’s managed funds.

- The site assessment considers the following areas:

- sustainability of the site for the purpose intended;

- management skills, qualifications, capabilities and experience; and

- associated property risks and their management.

4½ stars and above

Outstanding Highly suitable for inclusion on APLsThe fund most often outperforms its peers and benchmark. In all cases the fund is operating to its mandate and product disclosure statement (PDS). There are no corporate governance issues. Management is extremely experienced and skilled and has access to significant resources.

High Investment grade rating

4 stars to 4¼ stars

Superior Suitable for inclusion on most APLsThe fund outperforms (or is likely to) its peers and benchmark the majority of the time. The fund most of the time has been operating within its mandate and PDS. There are very little to no corporate governance concerns. Management is of a very high calibre.

High Investment grade rating

3¾ stars Favourable Consider for APL inclusionThe fund may outperform its peers and benchmark the majority of the time or SQM believes this is a fund that has potential to be an outperforming fund over the medium term. Management is of a quality calibre but may not yet be fully tested. There are no corporate governance concerns or they are of a minor nature.

Approved

3½ stars Acceptable Consider for APL inclusion, subject to advice restrictionsThere is some degree of additional risk attached to the fund by way of performance. The fund may periodically underperform its peers and benchmark or it has not been fully tested. There may be some additional concentration risk. Management is generally experienced and capable. There might be corporate governance issues of a mid-level or concerns over the Responsible Entities/Parent Entities financial position/performance.

Low investment grade rating

3¼ stars Caution required Not suitable for most APLsPerformance has been significantly under-benchmark and peers. There is a greater than average risk of underperformance over the medium term. There is a risk of the fund not operating to mandate or to its PDS. There could be corporate governance concerns. Management has been operating in an average manner.

Unapproved

3 stars Strong Caution Required

Not suitable for most APLsThe fund is unlikely to perform to its mandate over the near term. There might be some greater than average corporate governance concerns. SQM has a number of concerns of management.

Unapproved

Below 3 stars Avoid or redeem Not suitable for most APL inclusion Unapproved

Star Rating*Investment products are awarded a star rating out of a possible five stars and placed on the following websites: www.sqmresearch.com.au

Licensed Investment AdviserSQM Research is licensed as an Australian Financial Services Licensee, Licence No. 421913, pursuant to section 913B of the Corporations Act 2001. The licence authorises SQM Research to carry on a financial services business to provide general financial product advice only.

Privacy PolicySQM Research collects only a limited amount of personal information from its clients. Our privacy policy can be viewed at www.sqmresearch.com.au. This will enable you to understand your rights, our obligations and what SQM Research does with any information it collects about you.

Fees charged for ReportSQM Research has received a fee from the fund manager for this report and rating.

General Financial Product AdviceThis advice will not take into account your, or your clients, objectives, financial situation or needs and will not be provided in respect of any other financial products. Accordingly, it is up to you and your clients to consider whether specific financial products are suitable for your objectives, financial situations or needs.

Report Date: 20 March 2019

Hold – The rating is currently suspended until SQM Research receives further information. A rating is typically put on hold for a period of two days to four weeks.

Withdrawn – The rating is no longer applicable. Significant issues have arisen since the last report was issued, and investors should avoid or redeem units in the fund.

Not rated – The fund has not been rated by SQM.

Star Rating Description Definition Investment Grading

INTRODUCTION


3CONTENTS

Summary 2

Fund Summary 3

SQM Research’s Review and Key Observations 3

Strengths of the Fund 7 Weaknesses of the Fund 7 Other Considerations 7 Key Changes Since the Last Review 7

Investment Process & Portfolio Construction 8 Investment Process Diagram 8 Process Description 8

Corporate Governance/Business Strategy 12 Key Counterparties 12 Parent Company 12 Investment Manager / Fund Manager 12 Responsible Entity 12 Management Risk 13 Funds Under Management (FUM) 13

Management & People 15 Investment Team 15 Staffing Changes 17 Key Investment Staff 17 Remuneration and Incentives 18

Product Features - Fees & Redemption Policy 19 Buy/Sell Spread 19 Ongoing Fees 19 Performance Fees 19 Overall Fees 19

Quantitative Analysis 20 Quantitative Insight 20 Returns and Risk 24Asset Allocation & Risk Parameters 26 Recent Positioning 27


2

SQM Rating Superior. Suitable for inclusion on most APLs.

Fund Description Fund Name Robeco Emerging Conservative Equity Fund

APIR Code ETL0381AU

Manager Robeco Institutional Asset Management

Responsible Entity Equity Trustees Limited

Custodian JP Morgan

Investment Details

Fund Inception 12-Nov-13

Fund Size A$181.04 mill as at Dec-2018

Fund Type Equities

Return Objective (PDS) Achieve capital growth equal to, or greater than the Benchmark with lower volatility over the long-term

Internal Return Objective Market-like returns with a reduction in volatility of 20-30% over the market cycle

Risk Level (PDS) High

Internal Risk Objective Not Applicable

Benchmark MSCI Emerging Markets Index

No. of stocks/positions 246 as at Dec-2018

Gearing (Fund) Not Applicable

Fund Specifications

Minimum Application $10,000

Redemption Policy Daily

Distribution Frequency Semi-annually

ICR 0.96% (as per RG97)

MER 0.90%

Performance Fee None

Buy/Sell Spread 0.30% / 0.35%

Currency Hedging Unhedged

Fund Time Horizon 5 to 7 years

Other

Turnover 9%

Top 10 Holdings Weight 16.98%

SUMMARY


3

Fund Summary

Description

The Robeco Emerging Conservative Equity Fund (the Fund) is a highly diversified, quantitatively driven, low-volatility emerging markets equity strategy structured as an open-ended unlisted registered managed investment scheme.

The Fund is a highly diversified portfolio of around 200 emerging market stocks. These stocks are quantitatively selected from a broad universe of approximately 2,000 across the emerging market universe.

The Fund applies several selection criteria. The most important is low-volatility. Proprietary quantitative models select stocks that display low risk as measured by two key factors:

• Volatility: short and long term price variation.

• Beta: short and long term correlation with the overall emerging market universe.

The strategy then incorporates the following factors:

• Distress risk: a quality control filter to eliminate stocks that have too high a probability of distress or bankruptcy.

• Valuation: focus on value factors such as dividend yield, relative PE and others to avoid over-valued stocks.

• Momentum: academic literature has identified analyst revisions and positive price momentum as factors that statistically identify stocks with a greater probability of outperformance. Negative momentum is undesirable, and this filter eliminates such stocks.

These last three factors are designed to add value to the basic process of low-volatility investing – the theoretical principle is that adding these active alpha factors (value and momentum), together with quality control through the distress factor, adds return with minimal impact on risk.

ESG factors are also incorporated into the assessment algorithm. The Fund carries minimal cash (generally less than 5%), and so market timing is not a consideration in the investment process.

About the Manager

Robeco Institutional Asset Management B.V. (Robeco) is a global asset manager, headquartered in Rotterdam, the Netherlands. Robeco offers a mix of investment solutions within a broad range of strategies to institutional and private investors worldwide. As at June 2018, Robeco had A$264.1 billion in assets under management. Founded in the Netherlands in

1929, Robeco is a subsidiary of RGNV (Robeco Groep N.V.) with A$296 billion in assets under management, 51% of which are institutional. RGNV is fully owned by ORIX Corporation.

In 2016, RGNV separated its activities into a financial holding company and six independent asset managers: Robeco, Boston Partners, Harbor Capital Advisors, Transtrend, RobecoSAM and CanaraRobeco. This structure created a clear distinction between the activities of the holding company and its subsidiaries. In the same year, ORIX became 100% owner of RGNV by acquiring the 9.99% holding in RGNV from Rabobank.

Fund Rating

The Fund has achieved the following rating:

Star Rating

Description DefinitionInvestment

Grading

4.25stars

SuperiorSuitable for inclusion

on most APLsHigh Investment

Grade Rating

SQM Research’s Review and Key Observations

1. People and Resources

Size and Resources of the Fund Management Company

Robeco has A$264.1 billion in Assets under Management (June 2018) and has invested in emerging markets since 1930. The firm has developed high yield investment strategies since 1998 and USD 161 billion is managed in ESG-integrated assets (June 2018).

A total of A$92 billion is managed based on Quant models (June 2018). Robeco employs 890 people at 15 offices worldwide.

Investment Team

While the process is quantitative and mechanical in nature, there is sensible human oversight provided by both the portfolio management team and the quantitative research team. This means that algorithms are scrutinised for reliability, consistency, practicality and logic. There is significant collaboration between these teams in both theoretical research and practical implementation of algorithms.

The Quantitative Research Department is responsible for the stock selection models and portfolio construction algorithm. The quantitative researchers support the Portfolio Managers by designing, implementing and maintaining forecasting models, risk management tools, currency and derivatives strategies. Research staff run an ongoing program to develop further enhancements to these tools. A committee consisting of senior portfolio managers and researchers formally approves

SUMMARY


4SUMMARY

enhancements to the models and the research agenda. The Research Department provides regular updates on the stock selection model’s quantitative rankings to the Quant Equity Portfolio Management team.

The portfolio managers are responsible for portfolio implementation and trading. The firm promotes active cooperation between researchers and portfolio managers and they are held individually accountable for the success of the investment strategies.

Pim van Vliet, Arlette van Ditshuizen, Jan Sytze Mosselaar, Arnoud Klep, Maarten Polfliet and Yaowei Xu are the portfolio managers of Robeco’s Conservative Equities strategies. Pim Van Vliet acts as the head of the Conservative Equities team.

2. Investment Process and Philosophy

Investable Universe

Broad market indices are used to define a starting universe of around 2,000 stocks. Dual listings and stocks with data issues are excluded. Market capitalisation and liquidity are used as screens.

A quantitatively driven ranking process is implemented using this universe. Stocks are ranked on low volatility, valuation and momentum factors, and this produces about 2000 stocks. From here, about 200 make it into the client portfolio.

Process / Philosophy / Style

The investment philosophy underlying the Robeco Emerging Conservative Equity Fund is that equity markets are not efficient, as defined by long-held academic theory. Certain identifiable “factors” can be statistically evaluated and exploited to generate consistent, enhanced long-term risk-adjusted performance.

The Robeco Emerging Conservative Equity Fund is managed with low-volatility being the key theme, value and momentum as secondary themes and a credit distress factor to control for poor balance sheets and bankruptcy risk.

Risk Management

The risk management function relies on three independent sources of oversight:

1. Portfolio Managers and line management own and manage risks. They are responsible for maintaining effective internal controls and for executing risk and control procedures on a day-to-day basis.

2. Risk Management and Compliance Departments. Both functions support line management by building and

monitoring controls. They focus on significant risks, i.e. risks that impede achieving business objectives, including those agreed with clients. Both Risk Management and Compliance have reporting lines to the Executive Committee that are independent of the Investments function.

3. Internal Audit provides assurance on the effectiveness of governance, risk management and internal control.

3. Portfolio Characteristics

Portfolio Turnover

Robeco’s quantitative rules-based investment approach results in more stable portfolio weights and lower turnover. On average stocks are in the portfolio for four years, resulting in an annual turnover of around 25%. Transaction costs and market slippage are monitored closely and managed carefully. Due to efficient management of cash flows the Fund is currently experiencing, turnover is lower than average at 9%.

Liquidity

There are two important liquidity screens performed on the broad investment universe:

• minimum average daily trading volume of A$1.5 million

• minimum market cap of A$375 million

The portfolio construction algorithm directly incorporates both transaction costs and liquidity as measured by 25-day median trading volume. When liquidity is low, the algorithm uses flexible active weights.

Robeco monitors and manages the two main types of liquidity risk; market liquidity risk and funding liquidity risk. Market liquidity risk is the risk that assets cannot be liquidated at a reasonable price. Funding liquidity risk is the risk that client redemptions cannot be fulfilled.

• Market Liquidity - Risk Management creates a daily report on market liquidity risk by comparing the positioning of the portfolios to trading volumes and market capitalisation.

• Funding Liquidity - is monitored by analysing client profiles and periodic reports on the client base.

Leverage

This Fund employs neither actual leverage (through borrowing by the Fund) or economic leverage (through the use of derivatives).


5SUMMARY

4. Performance & Risk

Return Objective & Performance

The return objective stated in the PDS is that the Fund aims to “achieve capital growth equal to, or greater than the Benchmark with lower volatility over the long term.” The Manager expects to deliver market-like returns with a reduction in volatility of 20-30% over the market cycle.

The Fund’s formal benchmark is the MSCI Emerging Markets Index.

Over the twelve months to Dec-2018, the Fund returned 1.78% (after fees) compared to -5.10% for the benchmark. This is an outperformance of 6.87%.

Length of Track Record

The Fund has a history of 5.1 years such that any observations and analysis of returns will have moderate statistical meaning. SQM Research notes that returns, volatility and other risk measures can be “noisy” and less reliable when quantified using a small sample size of observations.

Risk Objective

The Fund’s PDS states that the risk level of the Fund is considered to be “high.” The Fund’s volatility (standard deviation of monthly returns) over the year to Dec-2018 was 9.42% compared to a peer average of 9.76% and 9.94% for the benchmark.

A more representative figure for the type of volatility reduction the Fund typically delivers is the three years to Dec-2018. Here the Fund’s volatility was 7.83% compared to a peer average of 9.28% and 9.09% for the benchmark.

Fund Excess Returns %: Half-yearly (net of fees)

2.46

0.48 0.32

2.45

-5.31

-2.60

-4.96

3.07 3.85

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18

Exce

ss R

etu

rns

latest data = 6 months ending Dec-18

Drawdown Experience

The Fund’s downside capture ratio over the three years to Dec-2018 was 69.15% compared to 94.09% for the peer average.

Drawdown Experience

Drawdown Size (peak-to-trough)

Fund Bench Peers

Average -4.51% -6.51% -5.55%

Number 7 6 7

Drawdowns have on average been moderately better than both the benchmark and the peer average.

Correlation to Australian Equities

The Fund’s rolling two-year correlation with the ASX300 has displayed a sharp uptrend during the last six months. Over the three years prior, the correlation displayed a consistent downtrend.

Over the life of the Fund, the two-year rolling correlation has averaged 37.69% with a high of 56.29% and a low of 9.40%. These patterns and levels are quite similar to the peer group average.

Over the same time frame, the peer group’s rolling 2-year correlation has ranged from a low of 7.35% to a high of 59.12% and averaged 42.68%.

5. Other Features

Fees

Fees and Costs Fund Peer Avg Difference

Management Fee (% p.a) 0.96% 1.19% -0.29%

Expense Recovery (% p.a) Nil - -

Performance Fee (%) Nil 0.00% -

Buy Spread (%) 0.32% 0.27% +0.05%

Sell Spread (%) 0.32% 0.27% +0.05%

Management Fee

• Expressed as a percentage rate per annum of the Fund’s Net Asset Value (“NAV”)

• Calculated daily and paid monthly

• Including GST and net of RITC (Reduced Input Tax Credit)

Performance Fee:

The Fund does not charge a performance fee.


6SUMMARY

Governance

The Board of Directors of the Responsible Entity, Equity Trustees (EQT) consists of six independent directors (including the Chairman) from a total of seven members. SQM Research prefers the inclusion of independent members on the Board of Directors – it is a meaningful way to enhance governance oversight. EQT’s Compliance Committee Charter requires that the Committee shall comprise at least three members all of whom (including the Chairman) are independent non-executive directors of EQT, with a quorum of two members required to attend a meeting. SQM Research views independence in a RE oversight body such as the Compliance Committee as a strong and favourable factor in Fund governance.

Growth of $10,000

$9,000

$10,000

$11,000

$12,000

$13,000

$14,000

$15,000

$16,000

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Benchmark Fund Peer Average

Annual Returns

-3.5

+8.7

+18.7

+1.8

-4.3

+11.7

+27.1

-5.1 -4.1

+12.1

+22.6

-6.7 -10.0

-5.0

+0.0

+5.0

+10.0

+15.0

+20.0

+25.0

+30.0

Dec 15 Dec 16 Dec 17 Dec 18

Fund Benchmark Peer Avg

Fund Performance to 31 December 2018 (% p.a.)

Total Return 1-Month 3-Month 6-Month 1-Year 3-Year 5-Year Inception

Fund 0.06 -5.03 -0.11 1.78 9.51 7.21 7.51

Benchmark 0.97 -4.91 -3.96 -5.10 10.45 6.64 6.67

Peer Average 0.96 -4.65 -4.06 -6.75 8.81 5.68 5.75

Alpha -0.91 -0.12 3.85 6.87 -0.94 0.57 0.84

1. Assumes dividend reinvestment. Returns one year and longer are annualised. Return history starts Dec-20132. Benchmark: MSCI EM NR AUD

FUM (Funds under Management) / Capacity

The Fund currently has FUM of $181.04 million (Dec-2018).


7

Strengths of the Fund

• An extensive accumulation of experience and knowledge regarding quantitative factor investing as applied to the real world, backed by advanced academic research.

• A deep and highly qualified team of portfolio managers and quantitative researchers focused solely on quantitative factor investing (with six PMs specifically dedicated to low-volatility strategies).

• Seeks low volatility opportunities in traditionally more volatile contexts such as the emerging markets.

• The thesis of low volatility investing has support in the academic literature. Robeco’s performance history in this segment has been consistent with the tenets of the thesis.

• A wealth of global resources is applied to the process, given the firm’s reach in terms of staff and IT infrastructure.

• Liquidity is strong.

• The fund has displayed strong performance, outperforming peers and benchmark since inception on a total return and risk-adjusted return basis.

• The style has low turnover, and close attention is paid to managing inflows/outflows, aiming to minimise transaction costs and slippage.

• Strong risk management processes and explicit inclusion of ESG factors in stock selection.

• Competitive fee structure.

SUMMARY

Weaknesses of the Fund

• Given the low turnover of the portfolio, the buy/sell spread is relatively high.

Other Considerations

• The Fund’s correlation and performance patterns relative to domestic equity market returns show defensive characteristics.

• Risk reporting and performance measurement tools are sophisticated and detailed.

• Dividend yield is one of the value variables incorporated into the stock selection model. This may assist with the Fund’s ability to provide regular distributions.

• Ongoing commitment to extensive research and development to monitor, maintain and enhance the quantitative algorithms underlying the process.

Key Changes Since the Last Review

• No changes to the investment process since the previous review.


8

Universe

Investable Universe The investment universe is based on the MSCI Emerging Markets, S&P IFC and FTSE Emerging Markets indices excluding:

• dual listings• stocks with data issues• stocks with a minimum average daily trading volume of less than €1m• stocks with a minimum market cap of less than €250m

This results in a total investable universe of 2,000 stocks.

Investment Process

Top-down or bottom-up

The investment approach is a pure bottom-up quantitative low-volatility style.

Research and Portfolio Construction Process

All research is conducted internally by Robeco’s Quantitative Research Department and by the members of the Quantitative Equities Team, who contribute their practical knowledge and experience. The main sources of information and ideas in the research process are academic research/literature, broker research, and input from Robeco’s portfolio managers.

Idea Generation

Investment ideas are generated by Robeco’s Emerging Conservative Equity stock selection model. The model has been developed in a joint effort by the Robeco Quantitative Research Department and Quantitative Equities team.

Stock Selection

The factors used in the Emerging Conservative Equity Stock-selection model include:

• Low-risk factors to capture the low-risk anomaly

o Statistical risk factors to exploit risk-seeking behaviour by market participants. The Fund uses volatility and beta to select low-risk stocks. Using a combination of short and longer term statistical risk variables adds to the robustness of this risk measure.

INVESTMENT PROCESS & PORTFOLIO CONSTRUCTION

Investment Process Diagram

Process Description


9INVESTMENT PROCESS & PORTFOLIO CONSTRUCTION


...continued

o Distress risk factors to avoid tail risk. An important risk dimension would be omitted if we were only to rely on historical statistical risk factors. For example, the negative impact of leverage is picked up by distress risk factors but not totally by volatility or beta. The main impact of taking distress factor risk into account is smaller drawdowns than those of statistical low-volatility strategy.

• Return factors to enhance the risk-return profile. Adding return factors such as valuation and momentum to a low volatility strategy results in a robust improvement of Sharpe ratios across regions, countries, sectors and sample periods. Additional benefits include better upside-capture and smaller relative drawdowns than generic low-volatility strategies.

The stock selection model produces a ranking for all stocks in the investable universe by combining their scores on the different factors. The impact of outliers is limited by capping the factor scores. Then all the stocks are ranked from most attractive to least attractive. The ranking is carried out for regions, countries and sectors. The top 20.00% contain the most attractive stocks, the bottom 20.00% the least attractive stocks. In general, the Fund buys stocks that rank in the top 20% of the list and sell stocks that drop into the bottom 40% of the list, or if another stock with a much higher ranking can be bought instead.

The sell discipline has been modestly amended because of research undertaken over the last two years. Each position is held until the stock’s rank drops to the bottom 40%, or if another stock with a much higher ranking can be bought instead. The threshold for this is a 50% rank difference between stocks. For example, if a stock is ranked 55% and a more attractive stock is available that has a rank of 5% or higher, then the stock would be sold.

In the case of cash inflows, the Fund buys top-ranked stocks rather than investing proportionally over ex-isting stocks in the portfolio. Wherever there are cash outflows, the Fund sells bottom-ranked stocks. This process means that cash flows are used efficiently to obtain better exposure to the quantitative ranking, which leads to lower turnover and can improve performance.

ESG factors are integrated into the portfolio construction by ensuring that the weighted sustainability score of the portfolio is at least as high as the index. If the portfolio generated by the stock selection model scores below average on sustainability, the portfolio construction tool will include stocks that improve the sustainability profile. Companies with a higher sustainability score have a higher chance of ending up in the portfolio. This provides a positive ESG screen for stocks.




...continued

Portfolio Construction

A proprietary portfolio construction algorithm uses rankings from the stock selection model to create an “optimal” portfolio. The algorithm’s objective is to skew the portfolio to the highest ranked stocks with low expected risk and attractive upside potential. Stocks in the Emerging Markets Conservative Equities portfolio have an active target weight (relative to benchmark) of a maximum 1.00%, adjusting for the liquidity and the market cap of the stock. There is an absolute maximum weight of 2.00% to limit stock-specific risk. Portfolio turnover is controlled by only selling stocks that fall to the bottom 40% of the ranking. In the long run, this leads to lower transaction costs and tends to skew towards higher returns. To control for adequate diversification, region, country, (sub) sector, size and single stock weights are all subject to strict concentration limits. The tool checks that portfolio weights are within these ex-ante concentration limits.

Portfolio managers check all proposed transactions and the new portfolio. Two team members must verify transactions. Final responsibility for buy-sell decisions lies with the portfolio managers.

Sell Discipline In general, the Fund buys stocks that rank in the top 20.00% of the list and sells stocks that drop into the bottom 50.00% (but not 40.00%) of the list, if another stock with a much higher ranking can be bought instead.

Risk Management Risk management is integrated into each stage of the investment process. Risk is defined as the standard deviation of investment returns and (downside) beta.

The overall risk management framework is supported by three teams:

• The investment process, including the model and investment constraints, are monitored by the Quantitative Equities portfolio management team daily. Each team member is assigned specific coverage of:

o position monitoring (daily),

o corporate actions (daily),

o FX exposure (daily),

o the plausibility of large position changes (monthly),

o checks on data quality (monthly), and

o Feasibility of proposed trades (before trading).

• The Group Risk Management (GRM) department performs an independent monitoring function. It oversees market and liquidity risks and applies stress tests.

• The Compliance department is responsible for monitoring client restrictions/guidelines and for overseeing market exposure and concentration limits.

Internal Guidelines

For the Robeco Emerging Conservative Equities Fund a limit-and-control structure consists of the following elements:

o Concentration and position limits are in place to enforce a measure of diversification while preventing excessive constraints.

o For regions, countries and sectors a 10.00% deviation from the MSCI Emerging Markets index weight is allowed.

o For size groups, a 20.00% deviation from the MSCI Emerging Markets index weight is allowed.

o Maximum 30.00% can be invested outside the MSCI Emerging Markets index.

o For single stocks, an absolute maximum of 2.00% is allowed.

Concentration limits are monitored both by the portfolio management team and Compliance.



Risk Management

...continued

Value-at-Risk

Robeco’s Risk Management Department calculates and monitors the Ratio Value-at-Risk of the portfolio. The Ratio VaR measures the worst expected loss relative to an index over a certain time horizon and with a certain confidence level. The Ratio VaR limit for the Emerging Conservative Equities strategy is set at 100% of the MSCI Emerging Markets index.

Liquidity Risk

The focus is on two types of liquidity risk: market liquidity risk and funding liquidity risk. Market liquidity risk is the risk that assets cannot be liquidated at a reasonable price. Funding liquidity risk is the risk that client redemptions cannot be fulfilled.

For equity portfolios, GRM creates a monthly report on market liquidity risk by comparing the positioning of the portfolios to trading volumes and market capitalisation.

Funding liquidity risk is monitored through analysing client profiles and periodic reports on the client base.

Monitoring Reports

Monitoring reports are generated automatically from the team’s portfolio database and show the most important exposures of the portfolio. Examples include sector, country and regional positioning, positions with the lowest rank, positions with the highest and lowest volatility and beta. The reports are discussed in the team’s formal weekly meeting.

Human Overview

All trades and positions are monitored and checked by a member of the investment team and verified by another member of the team. The objective of this human overview is to reduce risk.

Stress Tests

A regular market risk measure such as VaR fails to capture the tail risk of return distributions adequately. Stress tests are performed to analyse portfolio behaviour under extreme market events. The Risk Management team applies sensitivity scenarios using standardised shocks to risk factors (yield curve shifts, credit spread shifts, equity bust/boom, strong/weak Euro). The primary risk model used is Risk-Metrics.

Trading/Implementation

Trade Execution and Allocation

After a pre-trade compliance check on client guidelines and restrictions in the trading system, Robeco’s dedicated Trading desk executes trades based on low execution-only commissions. Robeco has set up an Equity Trading Desk with local presence in the Asian, European and American time zones. The Equity Trading Desk consists of seven professionals, who together average 17 years of industry experience.

The Trading Desk is tasked to obtain the best possible results under the prevailing circumstances when executing orders for clients. Best execution relates to a vector of execution components such as:

• trade price or spread,• the commission charged and other costs,• speed and likelihood of execution and settlement,• order size,• trade allocation and aggregation,• trading strategy, and• Portfolio management instruction.

Trade executions are made with these factors in mind, considering the special circumstance prevailing at the time of the transaction.

Hedging & Derivatives

Currency exposures are generally left unhedged.


12CORPORATE GOVERNANCE / BUSINESS STRATEGY

Key Counterparties

Parent Company

Robeco is a subsidiary of RGNV (Robeco Groep N.V.), which is the centre of asset management expertise for ORIX Corporation, Robeco Group’s owner based in Tokyo, Japan. ORIX Corporation is a diversified financial services provider and Japan’s largest leasing company. It is headquartered in Tokyo and provides diversified financial services on a global scale, including asset management, leasing, lending, rentals, real estate, life insurance, banking, environmental and energy businesses. ORIX Corporation is listed on the Tokyo Stock Exchange with a market capitalisation of approximately USD 21.57 billion and over 30,000 employees.

Robeco is a financially healthy and profitable company. Robeco is a subsidiary of RGNV (Robeco Groep N.V.) with A$296 billion in assets under management, 51% of which are institutional. RGNV is fully owned by ORIX Corporation.

Investment Manager / Fund Manager

Robeco Institutional Asset Management B.V. is responsible for the day to day management of the DM Conservative Equities Fund and is a related corporate body of Robeco Hong Kong Limited. As Robeco’s European asset management arm, RIAM

offers a broad range of equity and fixed income investments to a wide range of clients. It also includes Robeco’s competence centres for pension-related investments, structured products, asset allocation, economic research and quantitative research. As at June 2018, Robeco had A$264.1 billion in assets under management. The firm has clients in 54 countries, a heritage of over 85 years, and over 890 people employed at 15 offices worldwide.

Responsible Entity

Equity Trustees (EQT) is a financial services company headquartered in Melbourne. Established in 1888 and listed on the Australian Securities Exchange (ASX) in 1985, EQT provides a range of products and services to a diverse client base including fund managers, managed funds, superannuation funds, and financial planning. Equity Trustees acts as Responsible Entity or Trustee for over 80 major Australian and international investment managers.

The Board of Directors of the Responsible Entity (RE) consists of seven directors, six of whom are independent, including the Chairman.


13CORPORATE GOVERNANCE/BUSINESS STRATEGY

The Board’s key responsibility regarding EQT’s Responsible Entity activities is to ensure the company has adequate systems of internal controls and appropriate monitoring of compliance activities.

The Equity Trustees Board Charter (May-2018) mandates that the Board adhere to the following principles:

• The Board will comprise an appropriate number of directors of whom a majority are independent non- executive directors and ordinarily reside in Australia.

• The Board will be led by an independent chair who is not the same person as the Managing Director.

• Directors, collectively, are to have the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively.

• The Board assesses at least annually whether its Directors are independent.

• Board meetings are to take place at least quarterly.

• Two members of the Board form a quorum.

Management Risk

Funds management businesses rely on the operational capabilities of key counterparties. A critical element is the corporate ability of the Responsible Entity to monitor operational performance and to meet the regulatory and statutory responsibilities required. For any investment fund, there is a risk that a weak financial position or management performance deterioration of key counterparties could temporarily or permanently compromise their performance and competency. This can adversely affect financial or regulatory outcomes for the Fund or associated entities.

Based on the materials reviewed, SQM Research believes that Robeco and associated key counterparties are highly qualified to carry out their assigned responsibilities. Management risk is rated as being low.

Funds under Management (FUM)

The Fund is approximately $181.04 million in size at Dec-2018.

FUM Net Flows $m*

Dec-16 $48.9 $7.68

Mar-17 $55.8 $4.28

Jun-17 $66.0 $8.08

Sep-17 $75.4 $7.52

Dec-17 $77.9 -$1.84

Mar-18 $87.8 $5.65

Jun-18 $118.7 $33.95

Sep-18 $160.0 $34.78

*estimated

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Dec

12

Jun

13

Dec

13

Jun

14

Dec

14

Jun

15

Dec

15

Jun

16

Dec

16

Jun

17

Dec

17

Jun

18

FUM for Fund under Review ($mill)

-$5

$0

$5

$10

$15

$20

$25

$30

$35

$40

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18Quarterly Net Flows ($million)


14CORPORATE GOVERNANCE/BUSINESS STRATEGY

Distributions

The Fund has discretion in choosing the frequency of distributions. Distributions occur on a semi-annual basis, subject to the availability of distributable income. In a scenario where the Fund’s realised losses and expenses exceed income in a distribution period, the Fund may elect not to make a distribution during that time.

DistributionDate

DistributionCPU

Unit Price$

Distribution%

30-Jun-15 2.1900 $1.30568 1.68

30-Jun-16 1.8800 $1.21768 1.54

30-Jun-17 2.6100 $1.35813 1.92

30-Jun-18 4.2000 $1.50440 2.79

A General Note on Distributions for Managed Funds

The Responsible Entity of a Managed Fund will provide for a regular schedule of distributions, such as monthly/quarterly/ semi-annual or annual. This is subject to the Fund having sufficient distributable income. The official total distributable income available to pay to investors is determined for the period of that Fund’s financial year. By distributing the net taxable income of the Fund to investors each year, a Fund itself should not be liable for tax on its net earnings.

If a Fund makes distributions more frequently than once over the financial year, those distributions will be based on estimates of the distributable income for that distribution period. The final total amount of distributable income available for passing on to investors can only be calculated after the close of the financial year, based on the Fund’s taxable income for that year.

If the total distributions a Fund pays out exceeds total tax income for that particular financial year, the excess amount may be treated as a return of capital rather than income. This will possibly have tax implications for the investor.

Due to the considerations outlined above, there may be periods in which no distributions are made, or a Fund may make additional distributions

A Fund’s ability to distribute income is determined by the performance of the Fund and general market conditions. Accordingly, there is no guarantee a Fund will make a distribution in any distribution period.


15MANAGEMENT & PEOPLE

Key Investment Staff

Name Responsibility / Position Location Years with Company Years with Industry

Pim van Vliet Head of Conservative Equities & Portfolio Manager Rotterdam 13.0 18.0

Arlette van Ditshuizen Portfolio Manager Conservative Equities Rotterdam 21.0 21.0

Maarten Polfliet Portfolio Manager Conservative Equities Rotterdam 13.0 19.0

Jan Sytze Mosselaar Portfolio Manager Conservative Equities Rotterdam 14.0 14.0

Arnoud Klep Portfolio Manager Conservative Equities Rotterdam 17.0 17.0

Yaowei Xu Portfolio Manager Conservative Equities Rotterdam 4.0 14.0

Wilma de Groot Head of Core Quant Equities & Portfolio Manager Rotterdam 17.0 17.0

Michael Strating Portfolio Manager Core Quant Rotterdam 28.0 28.0

Tim Dröge Portfolio Manager Core Quant Rotterdam 18.0 19.0

Machiel Zwanenburg Portfolio Manager Core Quant Rotterdam 19.0 19.0

Jan de Koning Portfolio Manager Core Quant Rotterdam 3.0 13.0

Joop HuijHead of Factor Investing Equities &

Portfolio Manager, Head of Factor Index Research

Rotterdam 11.0 16.0

Simon Lansdorp Portfolio Manager Factor Investing Equities Rotterdam 9.0 10.0

Rob van Bommel Portfolio Manager Factor Investing Equities Rotterdam 28.0 28.0

Daniel Haesen Portfolio Manager Factor Investing Equities Rotterdam 15.0 15.0

Viorel Roscovan Factor Index Equity Research Rotterdam 3.0 14.0

Georgi Kyosev Factor Index Equity Research Rotterdam 5.0 7.0

David Blitz Head of Quant Research Rotterdam 23.0 23.0

Weili Zhou Selection Research Rotterdam 12.0 16.0

Bart van der Grient Selection Research Rotterdam 11.0 11.0

Matthias Hanauer Selection Research Rotterdam 4.0 9.0

Laurens Swinkels Selection Research Rotterdam 2.0 19.0

Milan Vidojevic Selection Research Rotterdam 4.0 4.0

Iman Honarvar Selection Research Rotterdam 1.0 6.0

Jornt Beetstra Selection Research Rotterdam 20.0 20.0

Frank Wirds Asia-Pacific Hong Kong 12.0 12.0

Bernhard Breloer Germany/ Switzerland Germany 4.0 9.0

Tom Naaijkens Asia-Pacific Hong Kong 17.0 21.0

Rob Radelaar North America Rotterdam 2.0 26.0

Gregory Taieb France France 1.0 15.0

Robbert Wijgerse Co-Head of Portfolio Engineering & Trading Equity team Rotterdam 17.0 17.0

Jacob Buitelaar Co-Head of Portfolio Engineering & Trading Equity team Rotterdam 1.0 12.0

Edwin Scheffers Equity Trader Rotterdam 9.0 21.0

Dennis Grashoff Equity Trader Rotterdam 28.0 28.0

Michel de Pater Equity Trader Rotterdam 37.0 37.0

Bastiaan Berendsen Equity Trader Rotterdam 12.0 12.0

Wouter Tilgenkamp Trading analyst Rotterdam 2.0 4.0

Kendall Tse Equity Trader Hong Kong 9.0 13.0

Natalie Lo Equity Trader Hong Kong 5.0 8.0

Tamara Botteldooren Equity Trader Boston 14.0 21.0



Investment Team

Robeco’s Conservative Equities strategies are managed by an experienced team of investment professionals within an organisation that is fully committed to quantitative investing. It brings together the portfolio managers dedicated solely to quantitative equity strategies and quantitative researchers focusing on research and model development. Both benefit from the proximity and local market knowledge of Robeco’s experienced Global Emerging Market Equities team.

The portfolio managers utilise a team approach, whereby all the investment professionals work together to implement the model outcome in the portfolio, monitor positions and risk exposure. Pim van Vliet, Arlette van Ditshuizen, Jan Sytze Mosselaar, Arnoud Klep, Maarten Polfliet and Yaowei Xu are the portfolio managers of Robeco’s Conservative Equities strategies. Pim Van Vliet acts as the head of the Conservative Equities team.

In the management of quantitative equity portfolios, the portfolio managers benefit from the expertise of Robeco’s Quantitative Research Department. This department is responsible for the development and enhancement of quantitative models and tools, which are at the heart of the quantitative equity product line. The Quantitative Research department consists of 22 researchers, of which 12 have a focus on equity selection and factor investing.

The Quantitative Equities team includes four dedicated client portfolio managers who conduct product presentations and reviews to clients and prospects. The team has access to Robeco-wide expertise and resources from dedicated Risk Management, Trading, Compliance, Performance Management and Client Servicing departments. For Client Servicing, they are supported by colleagues in regional offices in Australia and Hong Kong.

Meeting Schedule

The table below shows regular meetings that form an important part of the overall process.

Meeting Agenda / Issues Frequency Participants

Monday morning team meeting

Managerial overview of resource allocation and priority setting

Weekly Portfolio management team

Quant equities team meeting

Managerial, organisational updates, research and operations

Weekly Quant equities PMs

Quant equities PM meeting

Investments, knowledge sharing on systems and investment and implementation process

Weekly Representatives of quant equities

Portfolio analysis meetingInvestments, topical, in-depth portfolio analysis, review existing holdings against current market

Weekly Portfolio management team

Human overview meetingInvestments, discuss and document stock-specific human override decisions, such as related to M&A

WeeklyRepresentatives of quant equities

PMs and Equity Portfolio Implementation team

Research updateResearchers discuss their current projects, hypotheses and progress

Weekly Quant researchers

Research seminar Presentation of interim or final results of research projects Weekly Quant researchers

Quant equities PM and research update meeting

Provide an update on the progress of research projects Bi-weeklyRepresentatives of Quant equities

PMs and researchers

Quant Equity Models & Strategies Committee

Approval and recommendation of all research projects Every six weeks

Head of Quant Research, head or senior members of quantitative equities teams and the head of

Investments

Monthly investment meeting

Investments, knowledge sharing and discussion on the outlook for the market and economic trends

MonthlyEquity and fixed income investment

professionals

Risk Management Committee

Risk management, monitoring of statistical market risks and scenario stress tests, liquidity, counterparty risk

Quarterly Representatives of equity teams

SQM Research believes the practice of constant communication and the broad-based inclusion of team members in decision-making is a vital ingredient to the success of the process. Interactive peer review and collaboration across a tightly knit group of experienced investors will likely make the best use of their combined intellectual property and shared history.



Key Investment Staff

Pim van Vliet: Head of Conservative Equities

Mr Vliet is the Head of the Conservative Equities team, responsible for Robeco’s Low-volatility strategy ‘Conservative Equities’. He is also Co-Head of Quant Allocation. He has published in the Journal of Banking and Finance, Management Science, the Journal of Portfolio Management and other academic journals. Mr Vliet is a guest lecturer at several universities and advocates low-volatility investing at international seminars. He is the author of numerous academic research papers and a book on low-volatility investing and joined Robeco in 2005 as a Researcher with responsibility for asset allocation research. He became Portfolio Manager in 2010. Mr Vliet holds a PhD and a Master’s cum laude in Financial and Business Economics from Erasmus University Rotterdam.

Arlette van Ditshuizen: Portfolio Manager

Ms Ditshuizen is Portfolio Manager within the Conservative Equities team. Since 2007, her primary focus is Robeco’s Low-volatility strategy Conservative Equities. Previously she was Risk Manager with Robeco for two years and held a position as Portfolio Manager and Head of Derivatives Structures with Robeco for six years. Ms Ditshuizen started her career in 1997 at Robeco. She holds a Master’s in Econometrics from Erasmus University Rotterdam.

Maarten Polfliet: Portfolio Manager

Mr Polfliet is Portfolio Manager within the Conservative Equities team. Until March 2017, his responsibilities were Robeco’s Quant Value strategy and Low-Volatility strategy, ‘Conservative Equities’. Since then, he is fully dedicated to the Conservative

Staffing Changes

Departures

Date Name Responsibility Reason for Departure

Jul-2018 Joris Blonk Quantitative ResearcherInternal transfer. Was generalist selection researcher; now

fully focused on credits

Jul-2018 Mark Voermans Portfolio manager (Factor Investing) Left to pursue other job opportunities.

May-2017 Dennis Karstanje Quantitative Researcher External opportunity outside finance

Mar-2017 Willem Jellema Portfolio Manager (Factor Investing) Internal transfer to Portfolio Engineering & Trading team

Dec-2015 Jeroen van Zundert Quantitative Researcher (selection)Internal transfer. Was generalist selection researcher; now

fully focused on credits

Additions / Hires

Date Name Position / Responsibility Previous Position / Employer

Apr-2018 Jan de Koning Portfolio Manager (Core Quant equities)Robeco; Internal transfer from quantitative client

portfolio management

Apr-2018 Gregory Taieb Client Portfolio Manager (France) State Street Global Advisors

Apr-2018 Yaowei XuPortfolio Manager (Conservative Equities

and Core Quant Equities)Robeco; Internal Transfer from fundamental EM

team

Mar-2018 Daniel Haesen Portfolio Manager (factor investing)Robeco; Internal transfer from quant allocation

research

Jan-2018 Rob Radelaar Client Portfolio ManagerRobeco; Internal transfer from fundamental client

portfolio manager

Nov-2017 Iman Honarvar Quantitative Researcher (selection) None

Sep-2016 Mark Voermans Portfolio Manager (Factor Investing) APG Asset Management

Sep-2016 Laurens Swinkels Quantitative Researcher (selection) Norges Bank

Jan-2016 Arnoud Klep Portfolio Manager (Conservative Equities)Robeco; Internal transfer from Structured

Investments team

Sep-2015 Tom Naaijkens Client Portfolio ManagerRobeco; Internal transfer from Pension Solutions

team

SQM Research observes that the levels of investment experience and company tenure are strong across the entire investment team. The levels and nature of staff turnover are not an issue of concern, in SQM’s view.



Base Salary

Employees receive a fixed compensation of which the level depends on education level, experience and remuneration for comparable jobs in the market.

Variable Compensation

Variable compensation serves as a performance-driven remuneration component. It is based on the following factors:

• The employee’s score on key performance indicators (KPIs). For investment professionals, these typically include one, three and five-year performance.

• The employee’s business conduct and professional behaviour, including appropriate risk-taking and acting in the best interest of the client.

• The financial results of the company as measured by EBITDA.

Long-term incentives

A limited group of key professionals are eligible for a long-term incentive. The objective of long-term incentives is to commit key employees to the company for a longer period. The incentive is granted in Cash Appreciation Rights (CARs) that are linked to the earnings development of Robeco Groep NV. Payouts of this plan take place after four years and only if still employed at Robeco, thus serving as a retention incentive.

Investment managers are permitted to invest in the strategy they manage.

SQM Research believes access to firm equity, and client-focused performance bonuses act as strong incentives for optimising staff engagement, retention and productivity. The intention (and SQM believes, the effect) is to align staff performance with client and shareholder objectives. It focuses on the customers’ needs and medium to long-term results.

Equities strategy. Previously, he was a Client Portfolio Manager within quantitative equities at Robeco. From 2002, he worked at Bank Insinger de Beaufort as a Portfolio Manager for its Dutch Equity Fund, until he joined Robeco in 2005. He started his career as a Portfolio Manager for private and institutional clients at SNS Bank Nederland in 1999. Mr Polfliet has a Master’s in Financial Economics from Tilburg University and a Master’s in Financial Analysis from the University of Amsterdam.

Jan Sytze Mosselaar: Portfolio Manager

Mr Mosselaar is Portfolio Manager within the Conservative Equities team. His responsibility is Robeco’s Low-volatility strategy ‘Conservative Equities’. He started his career in 2004 at Robeco and worked for ten years as a Portfolio Manager in the Robeco Asset Allocation department, managing multi-asset allocation funds, quant allocation funds and fiduciary pension mandates. He was part of Robeco’s Asset Allocation Committee. Mr Mosselaar holds a Master’s in Business Economics with a specialisation in Finance & Investments from the University of Groningen. He is a CFA charterholder.

Arnoud Klep: Portfolio Manager

Mr Klep is Portfolio Manager within the Conservative Equities team. His responsibility is Robeco’s Low-volatility strategy ‘Conservative Equities’. One of his areas of expertise is sustainability integration within quantitative equities. Previously, he was Head of Structured Investments with Robeco, managing various quantitative investment strategies. He started his career in the Robeco Quantitative Research department in 2001. Mr Klep holds a Master’s in Econometrics from Tilburg University.

Yaowei Xu: Portfolio Manager

Ms Xu is Portfolio Manager Quantitative Equities with a focus on emerging markets and Chinese market strategies. Previously, she was part of the Robeco fundamental Emerging Markets team. Before joining Robeco in 2014, she was Portfolio Manager long/short Asia Pacific at Pelargos Capital. She started her investment career in 2004 at ABN AMRO Asset Management as a Portfolio Risk Manager. She holds a Master’s in Financial Management from Nyenrode Business University.

Remuneration and Incentives

Robeco investment professionals receive a market-based compensation package comprised of:

• Base salary,

• Variable compensation, and

• Long-term incentives (limited to a selective group of key professionals).


19PRODUCT FEATURES - FEES, REDEMPTION POLICY

Fees

Fees and Costs Fund Peer Avg Difference

Management Fee (% p.a.) 0.90% 1.19% -0.29%

Expense Recovery (% p.a.) Nil - -

Performance Fee (%) Nil 0.00% -

Indirect Cost Ratio ICR (% p.a.) 0.96% 1.19% -0.23%

ICR Date: 30-Jun-18

Buy Spread (%) 0.32% 0.27% +0.05%

Sell Spread (%) 0.32% 0.27% +0.05%

Other Features Fund Peer Avg

Redemptions Daily -

Distributions Semi-Annually -

Minimum Investment $10,000 $109,545

1 Year Investment: round Trip Cost 1.54% 1.73%

Buy/Sell Spread

This spread represents the difference between the application price and the withdrawal price of the Fund, a reflection of transaction costs relating

to the underlying assets.

Ongoing Fees

Management fee includes GST and is net of any applicable Reduced Input Tax Credits (RITC).

The management fee is calculated daily and paid monthly.

Performance Fees

The Fund does not charge a performance fee.

Overall Fees

1 year Investment: Round Trip Cost

If held and redeemed within 12 months, total costs would amount to 1.54% of investment in the Fund. This figure includes the management fee, expense recovery (when disclosed) and the buy/sell spread. It does not consider rebates or negotiations or any potential performance fee.

SQM Research observes that:

• The Fund management fee is 0.90% p.a., which is 29 basis points lower than the peer group average of 1.19% p.a.


20QUANTITATIVE ANALYSIS

1. Note: Sharpe and Information Ratios are not reliable comparison tools in periods where both the Fund and its peers/benchmark record a negative result

Risk / Return Data to 31 December 2018

Total Return 1-Month 3-Month 6-Month 1-Year 3-Year 5-Year Inception

Fund 1 0.06 -5.03 -0.11 1.78 9.51 7.21 7.51

Benchmark 2 0.97 -4.91 -3.96 -5.10 10.45 6.64 6.67

Peer Average 0.96 -4.65 -4.06 -6.75 8.81 5.68 5.75

Alpha -0.91 -0.12 3.85 6.87 -0.94 0.57 0.84

Metrics 1-Year 3-Year 5-Year Inception

Tracking Error (% p.a.) - Fund 3.02 4.02 4.38 4.39

Tracking Error (% p.a.) - Peer Average 4.75 4.37 4.45 4.42

Information Ratio - Fund 2.28 -0.23 0.13 0.19

Information Ratio - Peer Average -0.32 -0.35 -0.21 -0.20

Sharpe Ratio - Fund 0.19 1.21 0.87 0.91

Sharpe Ratio - Peer Average -0.70 0.94 0.57 0.58

Volatility - Fund (% p.a.) 9.42 7.83 8.31 8.27

Volatility - Peer Average (% p.a.) 9.76 9.28 9.92 9.84

Volatility - Benchmark (% p.a.) 9.94 9.09 9.84 9.76

Beta based on stated Benchmark 0.90 0.77 0.76 0.76 1. Assumes dividend reinvestment. Returns one year and longer are annualised. Return history starts Dec-20132. Benchmark: MSCI EM NR AUD

The Fund has displayed strong performance in the one year and on a since-inception basis against both benchmark and peers. These returns meet the PDS objective and are impressive relative to the Manager’s internal targets and SQM’s expectations for the Fund relative to its fee level and volatility.

Quantitative Insight1

Note: Unless otherwise stated, all return and risk data reported in this section are after-fees and for periods ending Dec-2018 .

Returns

1.78

9.51 7.51

-5.10

10.45

6.67

-6.75

8.81 5.75

1-Year 3-Year Inception

Total Return % pa

Fund Benchmark Peer Average

6.87

-0.94

0.84

8.52

0.70 1.76


Excess Returns compared to Benchmark & Peers

Excess over Benchmark Excess over Peer Average

Excess Returns (Alpha)


21

Return Analysis Last 4Years

to Dec-17

Last 9Half-Yearsto Jun-18

Last 61Months

to Dec-18

v.Bench v. Bench v. Bench

Average outperformance 2.80 1.82 0.86

Average underperformance -5.70 -4.29 -1.19

No. of Periods of positive alpha 2 6 37

No. of Periods of negative alpha 2 3 24

Hit Rate 50.0% 66.7% 60.7%

Benchmark: MSCI EM NR AUD

Total Gains 5.6 10.9 31.9

Total Losses -11.4 -12.9 -28.6

Asymmetry 0.5 0.9 1.1

The Fund has outperformed its benchmark on 50.0% of rolling one year periods since its inception.

As the table above shows, the quantum of outperformance has been greater than that of underperformance since its inception. The Fund’s hit rate is sound at 61% for monthly observations.

Risk

9.42 7.83 8.27

9.94 9.09 9.76 9.76 9.28 9.84


Volatility % pa

Volatility - Fund (% p.a.) Volatility - Benchmark (% p.a.) Volatility - Peer Average (% p.a.)

The Fund’s volatility (standard deviation of monthly returns) has tended to be lower than the benchmark and peers.

3.02

4.02 4.39

4.75 4.37 4.42


Tracking Error % pa

Tracking Error (% p.a.) - Fund Tracking Error (% p.a.) - Peer Average

The Fund’s tracking error (standard deviation of monthly excess returns) has tended to be lower than peers over the one-year and three-year periods and similar since inception.

QUANTITATIVE ANALYSIS

As another perspective, the Fund’s rolling 2-year volatility (of monthly returns) has varied from a low of 6.89% p.a. to a high of 9.20% and averaged 8.37% over the rolling observations of the Fund’s lifespan. Over this same timeframe, the peer group rolling volatility ranged from a low of 7.34% per annum to a high of 11.48% and averaged 9.99%.

The risk outcomes as described above regarding volatility and tracking error are consistent with the PDS statements about risk and are impressive relative to SQM’s expectations for this Fund.

Drawdowns

Drawdown Summary

Drawdown Size (peak-to-trough)

Fund Bench Peers

Average -4.51% -6.51% -5.55%

Number 7 6 7

Best -0.01% -6.99% -5.48%

Worst -15.48% -20.33% -16.91%

Length of Drawdown (in months)

Fund Bench Peers

Average 6.7 7.6 6.5

Length of Drawdown = time from peak to trough and back to previous peak level

The Fund’s downside capture ratio over the three years to Oct-18 was 69.2% compared to 94.1% for the peer average. Drawdowns have on average been much better than the benchmark and moderately better than the peer average.

Snail Trail

The snail trail chart and tables below depict the combination of the Fund’s rolling 2-year excess returns and rolling 2-year excess volatility. There are 38 observations in total.

The tables below display the distribution of these observations across the risk/return quadrants, the overall frequency of Outperformance v. Underperformance, and High-Vol v. Low-Vol.

As shown in the last table entry, the Fund is in the optimal upper left-hand quadrant (higher return, lower volatility) 36.8% of the time.



Snail Trail Distribution by Quadrant

38 datapoints Lower Vol Higher Vol

Higher Return 14 0

Lower Return 22 2

Q2 (Optimal)

Hi-Return, Low-Volatility 37%

Single Factor Frequency

Higher Return 37%

Lower Return 63%

Higher Volatility 5%

Lower Volatility 95%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

-10.0% -7.5% -5.0% -2.5% 0.0% 2.5% 5.0% 7.5% 10.0%

Fun

d: R

olli

ng

2yr

Exc

ess

Ret

urn

s

Fund: Rolling 2yr Excess Volatility

Risk-Adjusted Returns

0.19

1.21

0.87 0.91

-0.51

1.15

0.67 0.68

-0.70

0.94

0.57 0.58

1-Year 3-Year 5-Year Inception

Sharpe Ratio

Sharpe Ratio - Fund Sharpe Ratio - Benchmark Sharpe Ratio - Peer Average

2.28

-0.23

0.13 0.19

-0.32 -0.35 -0.21 -0.20

1-Year 3-Year 5-Year Inception

Information Ratio

Information Ratio - Fund Information Ratio - Peer Average

The Fund has displayed strong risk-adjusted returns across the board for both Sharpe and Information ratios when compared to benchmark and peers.

Correlation

Correlation Min Max Avg

2 yr. rolling S&P/ASX 300 9.40% 56.29% 37.69%

2 yr. rolling MSCI World 28.45% 64.09% 46.01%

38 datapoints

There is a moderate correlation of the Fund’s returns with the S&P ASX300 index and a low to moderate correlation to global equities.

Tail Risk

The tail risk chart below shows a moderate positive correlation with the ASX300 in times of equity market extremes.

(The analysis in the paragraph below looks at the performance relationship of the Fund to the ASX300, a practice that SQM has set as common across asset classes in Fund reviews. This approach recognises that for the large bulk of financial planner clients, their key traditional asset class risk regarding size and volatility is to Australian equities. Exploring that relationship is useful regardless of the asset class of the Fund itself, as it is helpful to understand how a Fund has acted in times of Australian equity market stress in terms softening or exaggerating the negative performance experienced at such times.)

The table below details the ten largest negative monthly returns for the ASX 300 since the inception of the Fund. This is compared to the Fund’s performance over the same ten months. The correlation of the Fund’s returns to the ASX300 returns over this period is +56.8%. The Fund posted four positive returns compared to the ten negative returns of the Australian stock market.

The sum of returns over those ten months was -13.76% for the ASX 300 and -45.56% for the Fund, a difference of +31.80% in favour of the Fund.

These figures point to modest defensive characteristics of the Fund in the face of extreme equity tail risk.



Worst Market Returns vs Fund Return Same Month

Index: S&P/ASX 300 TR Timeframe: from Dec-13 to Oct-18

Rank Date Market Fund Difference

1 Aug-15 -7.70% -3.94% 3.76%

2 Oct-18 -6.16% -6.27% -0.12%

3 Jan-16 -5.45% -0.86% 4.59%

4 Sep-14 -5.37% 0.36% 5.73%

5 Jun-15 -5.32% -1.88% 3.44%

6 Mar-18 -3.73% 0.99% 4.72%

7 Nov-14 -3.24% 1.00% 4.24%

8 Jan-14 -3.00% -3.20% -0.20%

9 Sep-15 -2.86% -1.51% 1.35%

10 May-17 -2.74% 1.55% 4.29%

TOTALS -45.56% -13.76% +31.80%

Correlation +56.8% Positive 4 out of 10Outperform 8 out of 10

The chart (left) shows how the Fund’s tail risk correlation ranks relative to the broader universe of funds in its asset class.

Similarly, the chart (left) ranks the Fund’s down-side capture of these extreme 10 months of equity tail risk, against its asset class universe.

94%88% 85%

79%

65%59%

46% 42%34%

26%17%

1%

-23%

56.8

%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Max 95% 90% 80% 70% 60% 50% 40% 30% 20% 10% 5% Min

Cor

rela

tion

to W

orst

Ret

urns

for

ASX

300

Percentile Rank

Correlation to Australian Equity Tail Risk

International Equities Universe Fund

122%114%

102%

83%

73%

61%56%

52% 49%44%

36%

24%

1%

30.2

%

0%

20%

40%

60%

80%

100%

120%

140%

Max 95% 90% 80% 70% 60% 50% 40% 30% 20% 10% 5% Min

Dow

nsid

e C

aptu

re r

elat

ive

to A

SX30

0

Percentile Rank

Downside Capture Ratio in Tail Risk

International Equities Universe Fund



Return and Risk

Rolling Excess Returns

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Fund 2yr Excess Return 2 yr Excess Return Peer Avg

Cumulative Excess Returns

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

1 month Excess Fund: Cumulative Excess

Rolling Tracking Error

0%

1%

2%

3%

4%

5%

6%

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Fund 2yr TE 2 yr TE Peer Avg

Rolling Returns

-5%

0%

5%

10%

15%

20%

25%

30%

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Benchmark 2-yr Return Fund 2-yr Return 2 yr Return Peer Avg

Rolling Correlation to ASX 300

0%

10%

20%

30%

40%

50%

60%

70%

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Fund: 2 yr Correlation with S&P/ASX 300 TRPeer Avg: 2 yr correlation to S&P/ASX 300 TR

Rolling Information Ratio

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Fund 2yr Info Ratio 2 yr Info Ratio Peer Avg



Return and Risk

Drawdowns

80

82

84

86

88

90

92

94

96

98

100

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Benchmark Drawdown Fund Drawdown Peer Avg Drawdown

Tail Risk - Returns in Worst Australian Equity Down Markets over the Fund’s Lifespan

Aug-15

Oct-18

Jan-16

Sep-14

Jan-15

Nov-14

May-17

Jan-14

Sep-15

Mar-18

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

-8% -6% -4% -2%Fu

nd R

etur

n Sa

me

Mon

thASX300 since Dec-13

Rolling Volatility

0%

2%

4%

6%

8%

10%

12%

14%

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

Benchmk Std Dev 2yr Fund Std Dev 2yr 2 yr Volatility Peer Avg

Rolling Sharpe Ratio

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Nov

13

May

14

Nov

14

May

15

Nov

15

May

16

Nov

16

May

17

Nov

17

May

18

Nov

18

2yr Sharpe Ratio Fund 2yr Sharpe Ratio Peers


26ASSET ALLOCATION & RISK PARAMETERS

The table below outline limits on the Fund’s asset allocation and other risk parameters:

Fund Constraints Permitted Range or Limit

Regions, Country and Sector deviation from MSCI EM index 10.00%

Size groups deviation from MSCI EM index 30.00%

Maximum off-benchmark positions 30.00%

Absolute maximum weight in a single stock 2.00%

Volatility ratio limit vs. MSCI EM Index 100.00%

The Fund’s history of asset allocation, sector, country weights and other portfolio metrics are detailed below:

Fund Allocations

Sep-2013 to Sep-2018

Equity SectorAverageWeight

MaxWeight

MinWeight

as atSep-18

Financials 22.2% 26.5% 14.0% 23.1%

Information Technology 16.4% 19.1% 11.9% 16.9%

Health Care 1.6% 4.1% 0.1% 0.1%

Consumer Discretionary 5.4% 8.9% 1.9% 2.5%

Consumer Staples 7.4% 12.4% 3.6% 3.6%

Energy 8.1% 14.1% 3.5% 14.1%

Materials 7.3% 11.8% 3.9% 11.8%

Industrials 6.5% 9.4% 4.1% 5.3%

Telecommunications 12.2% 13.7% 10.8% 11.4%

Utilities 9.6% 12.3% 6.0% 7.5%

Cash 0.8% 2.2% -0.3% 0.8%

Other 2.2% 6.1% 0.0% 2.9%

Financials 22.2% 26.5% 14.0% 23.1%

GeographicAverageWeight

MaxWeight

MinWeight

as atSep-18

USA 0.7% 1.6% 0.0% 0.6%

Russia 4.1% 8.0% 1.8% 8.0%

Other Europe 6.2% 10.4% 3.9% 5.8%

China 15.9% 23.7% 8.7% 21.7%

Korea 8.4% 10.9% 6.4% 7.2%

Taiwan 19.5% 21.2% 17.3% 20.3%

India 5.6% 9.1% 2.6% 8.1%

Malaysia 9.2% 12.1% 6.3% 8.2%

Other Asia 9.3% 12.6% 6.1% 9.4%

Brazil 7.8% 12.4% 4.3% 4.5%

Mexico 3.1% 7.7% 1.1% 2.3%

Other 10.0% 19.4% 3.4% 3.9%



Recent Positioning

Comments from the Fund’s fact sheet dated Sep 2018 are reproduced below as a perspective on the Manager’s strategy and style

Portfolio Highlights

The conservative equities that the fund typically selects within its investment strategy performed better than the market last month. The low-risk factors (volatility, beta and distress) contributed slightly positively to performance, while the value factor had a large positive impact. The momentum factor made a neutral contribution last month. The main negative stock contribution came from Yageo Corporation, the tech company that is back on earth after delivering stratospheric returns in the past years. Moreover, not profiting from the good performance of the Brazilian commodity producers Vale and Petrobras, contributed negatively. The main positive contributions came from avoiding expensive growth stocks such as Tencent and Alibaba, while holding cheaply valued energy stocks such as Tupras (Turkey), Formosa Petrochemical (Taiwan) and Lukoil (Russia).

Sector Allocation

The Robeco Emerging Conservative Equity Fund (AUD) fund is not benchmark driven. It uses a quantitative stock selection model for bottom-up selection of stocks with low absolute risk and high expected return characteristics. The current weights in energy, telecom services and utilities are high compared to regular indices. This is due to the fact that these sectors contain a relatively large number of stable and attractively priced stocks.

Country Allocation

The Emerging Conservative Equity Fund (AUD) is not benchmark driven. It uses a quantitative stock selection model for bottom-up selection of stocks with low absolute risk and high expected return characteristics. The current weights in Taiwan, Thailand and Malaysia are high compared to regular market capitalization weighted indices. This is due to the fact that these countries contain a relatively large number of stable stocks which are attractively priced.

CurrencyAverageWeight

MaxWeight

MinWeight

as atSep-18

USD 11.7% 16.3% 7.6% 12.4%

EUR 0.0% 0.1% 0.0% 0.1%

RUB 0.6% 3.2% 0.0% 3.2%

Other Europe 7.0% 10.7% 4.2% 6.6%

CNY 0.3% 1.5% 0.0% 1.4%

Other Asia 64.8% 72.2% 58.5% 70.2%

Other 15.6% 23.8% 5.0% 6.2%



Fund Composition as at Dec-2018

Top 10 Holdings (% of Fund)

Security Sector Weight

China Mobile Ltd Telecommunication Services 1.95

Lukoil Pjsc Adr Energy 1.88

China Construction Bank Corp Financials 1.79

Industrial & Commercial Bank of China Lt Financials 1.78

Infosys Ltd Adr Information Technology 1.77

Bank of China Ltd Financials 1.71

Sk Hynix Inc Information Technology 1.65

China Petroleum & Chemical Corp Energy 1.58

Public Bank Bhd Financials 1.46

Formosa Petrochemical Corp Energy 1.41

16.98%

Equity Sectors Fund %

Financials 23.07

Information Technology 16.91

Energy 14.10

Materials 11.78

Telecommunications 11.40

Utilities 7.48

Industrials 5.31

Consumer Staples 3.63

Consumer Discretionary 2.50

Health Care 0.10

Cash 0.80

Other 2.91

Country Fund %

China 21.71

Taiwan 20.33

Other Asia 9.42

Malaysia 8.17

India 8.13

Russia 7.98

Korea 7.16

Other Europe 5.81

Brazil 4.48

Mexico 2.26

USA 0.60

Australia 0.00

Other 3.95

Asset Allocation Fund %

Equity 99.10

Cash 0.90

© SQM Research 2019

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This document contains statements which reflect current views and opinions of management and information which is current at the time of its release but which may relate to intended or anticipated future performance or activities. Such statements and financial information provided have been estimated only and are based on certain assumptions and management’s analysis of the information available at the time this document was prepared and are subject to risk and uncertainties given their anticipatory nature. Actual results may differ materially from current indications due to the variety of factors.

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- to the extent that this document includes forecasts, qualitative statements and associated commentary, including estimates in relation to future or anticipated

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