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Philip Kewin, AFA Chief Executive Officer

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©2019 Morningstar. All Rights Reserved.

Clint Abraham, Director, Portfolio Specialist

The importance of having a sound investment framework during volatile times

4

Important Information

This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only.

In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included.

Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg.

Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 1800 951 999.

This commentary contains certain forward-looking statements. We use words such as “expects”, “anticipates”, “believes”, “estimates”, “forecasts”, and similar expressions to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

5

Global Overview

Assets under management andadvisement worldwide

Americas

101 Investment Team Professionals

EMEA Asia Pac

Source: Morningstar Investment Management. As at 31 March 2019.

AM

6

Understanding what matters

For illustrative purposes only.

What you really want to do with investments is figure out what’s important and knowable.

If it’s unimportant or unknowable you forget about it.

- Warren Buffett

Knowable Unknowable

Important

Unimportant

7

A reminder of what we stand for - Our Investment Principles in Action

8

Thinking contrarian in 2020

Source: Morningstar Investment Management calculation at April 15th, 2020. Forecasts are not a reliable indicator of future performance.

Asset Class Conviction ListOverall

Conviction15/04/20

Overall Conviction31/12/19

EQUITIES

United StatesAustraliaEurope ex-U.K.U.K.Japan Emerging MarketsGermanySouth KoreaGlobal Energy

FIXED INCOME

U.S. Government Bonds European Government BondsU.K. Government BondsAustralian Government BondsU.S. Investment-Grade Corporate BondsInflation-Linked BondsHigh Yield CreditEmerging-Markets Debt (Hard)Emerging-Markets Debt (Local)

LISTED PROPERTY Global REITsAustralian REITs

▪ We’ve upgraded

our valuation-

driven

assessments.

▪ We have been

buying while

others have been

selling.

9

Evolution of asset class positioning in 2020

• US Energy Stocks• US Financials• Global Auto-

Manufacturers• Travel & Airlines • AREIT’s• Investment Grade Debt• High-Yield Debt

• Australian equities• European Energy• UK Equities• Euro Financials• South Korea• Germany

• Cash• Japan Equities• European Telecom• Broad EM equities• EMD (LC)

• Australian bonds• Global government

bonds• US Consumer Staples• U.S Health Care

Position size

Holding Period

A changing investment landscape

11

What is driving markets?

12

Improvements

Meaningfully Higher Expected

Returns* for:

Equities

Investment-Grade Debt

High Yield Debt

Listed Property

What are the key changes to the investment landscape?

Deterioration

Near-Term Profitability Declines.

Dividend Cuts.

Very Few Share Buybacks.

Lower Yields on Cash & Government Bonds.

Liquidity Risks.

Downgrades & Possible Defaults.

Source: Morningstar Investment Management at April 15th, 2020. Forecasts are not a reliable indicator of future performance.“Expected returns” are based on Morningstar Investment Management’s valuation-implied return framework.

13

Source: Morningstar Indexes data, from Morningstar Direct at March 31st, 2020. Past performance does not guarantee future results. All returns are in local currency terms and rounded to whole numbers. Note: References to specific asset classes should not be viewed as a recommendation to buy or sell. For illustrative purposes only.

Major market declines: worst to best in 2020

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Year-to-date (31

Mar 2020)

U.K. Equity 6% -27% 30% 14% -3% 13% 20% 1% 0% 17% 13% -9% 19% -25% Lowest 2020 Return

Emerging Market Equity 39% -54% 83% 22% -19% 19% -2% -1% -13% 11% 36% -14% 18% -25%

Australian Equity 17% -37% 39% 2% -12% 20% 20% 5% 3% 12% 12% -3% 23% -23%

Global Equity 9% -40% 32% 13% -6% 16% 27% 5% -1% 8% 22% -9% 27% -22%

U.S. Equity 6% -37% 27% 15% 2% 16% 33% 13% 1% 12% 22% -5% 32% -20%

Emerging Market Bonds 6% -12% 30% 12% 7% 16% -4% 5% 1% 10% 8% -3% 14% -10%

Global Corporate Bonds 4% 9% 1% 3% 6% 6% 0% 8% 1% 3% 2% 0% 7% 2%

Global Government Bonds 11% 11% 3% 5% 7% 4% 0% 8% 1% 3% 1% 1% 6% 4% Highest 2020

Return

14

A Lost Decade? The impact of COVID-19 is hitting the real U.S economy. Temporary or permanent?

Source: FRED St Louis, Morningstar Investment Management calculation as at April 18th, 2020

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Cumulative Total of Newly Employed People New Initial Jobless Claims (Per Month)

Mill

ions

of P

eopl

e In

/Out

of E

mpl

oym

ent i

n th

e U.

S.

A sudden spike in

unemployment

15

A significant shift in investor focus

What is Priced In?

For illustrative purposes only. All investments involve risk, including the loss of principal. There can be no assurance that any financial strategy will be successful.

Interest Rate outlook

U.S. equity strength

Trade wars /BREXIT

COVID-19Global

Recession/Stimulus

Oil prices, Defaults, Liquidity

End of 2019

Start of 2020

16

0

1

2

3

4

5

6

0 1 2 3 4 5 6 7 8 9 10

Jul 62 -May 70 Jun 70 - Sept 74 Jul 82 - Nov 87 Oct 94 - Aug 02 Sept 02 - Feb 09 Mar 09 - Current

The longest ever U.S bull market ends abruptly

Source: Shiller Data, tracking the S&P500 Index, Morningstar Investment Management calculation to March 31st, 2020.

Crash: -45%

Crash: -33%

Crash: -51%Crash: -44%

Crash: -33%

Duration of Each Bull Market (Years)

*Current Crash: -32%

$1 In

vest

ed a

t the

Sta

rt o

f Eac

h Bu

ll M

arke

t

17

Low interest rates just got even lower. Tough conditions for risk-averse investors, especially income seekers in decumulation

Source: FRED St Louis, tracking the 10-year government bond yields, Morningstar Investment Management calculation as at March 31st, 2020

Inte

rest

Rat

es O

ver T

ime

%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.019

62

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

UK Australia Euro Area US

18

Oil prices and significantly reduced and therefore our outlook for global energy has improved

Source: Morningstar Direct data, Morningstar Investment Management calculation as at March 31st, 2020.

Bren

t Cru

de O

il Pr

ice

in U

SDExpected Return for the Global Energy Sector

% Per Year, U

SD Terms

10.68%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

Jan/2020 Feb/2020 Mar/2020

Brent Oil Price

Morningstar’s Global Energy Expected Return

19

Value versus growth: the great dislocation continues

Source: Morningstar Direct data, tracking the Morningstar US Value Index TR USD, Morningstar US Market Index TR USD & Morningstar US Growth Index TR USD. Morningstar Investment Management calculation as at March 31st, 2020.

Cum

ulat

ive

Ove

r/U

nder

Per

form

ance

vs.

Mar

ket

Value vs. Growth 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Mar-2020*

US Value17% 8% 24% -2% -36% 18% 17% 1% 14% 32% 10% -2% 21% 14% -8% 25% -28%

US Market11% 6% 15% 6% -37% 27% 15% 2% 16% 33% 13% 1% 12% 22% -5% 32% -20%

US Growth 4% 6% 7% 14% -43% 43% 17% 1% 17% 33% 13% 6% 3% 30% 1% 35% -12%

-100%

-50%

0%

50%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Growth vs. Market

Value vs. Market

20

Value versus growth: Growth stocks are less diversified and have more exposure to expensive sectors

Source: Morningstar Direct data, tracking the Morningstar US Value Index TR USD & Morningstar US Growth Index TR USD. Morningstar Investment Management calculation as at March 31st, 2020.

7

18.9

14.9

8.6

50.6

15.3

15.9

29

39.8

Energy

Financials

Consumer Defensives

Utilities

Other

Consumer Cyclical

Communication Services

Technology

Other

U.S. Value Stocks U.S. Growth Stocks

21

Energy & Financials Are Contrarian OpportunitiesOur “valuation-implied return” analysis highlights the expected returns.

Source: Morningstar Investment Management calculation, as at 31 March 2020

Expe

cted

Rea

l Ret

urns

for G

loba

l Sec

tor S

tock

s.

% P

er Y

ear f

or th

e N

ext 1

0 Ye

ars,

Loc

al-C

urre

ncy

Term

s

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Dec-

15

Feb-

16

Apr-

16

Jun-

16

Aug-

16

Oct

-16

Dec-

16

Feb-

17

Apr-

17

Jun-

17

Aug-

17

Oct

-17

Dec-

17

Feb-

18

Apr-

18

Jun-

18

Aug-

18

Oct

-18

Dec-

18

Feb-

19

Apr-

19

Jun-

19

Aug-

19

Oct

-19

Dec-

19

Feb-

20

Energy Materials Industrials Cons Dis Cons Sta Healthcare Financials Inf Tech

22

Making Progress Towards Your Client’s Goals

Source: Morningstar Investment Management, as at 31 March 2020

Within Shares U.S.

Europe Japan Emerging Markets Australia

U.K. Germany South Korea

Within Bonds Government Bonds Corporate Bonds Inflation-Linked

High Yield Debt Emerging Market Debt

Lower conviction Higher conviction

23

Volatile markets are a normal part of the journey to achieving financial goals.

Three Key Takeaways:

1. COVID-19 has major implications, but a lot is priced in.

2. Some market dislocations are abnormal, so extra care is needed.

3. Always focus on the long term, including risk management.

Thank you!

©2019 Morningstar. All Rights Reserved.

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