1. February 2014 TAE

2. Market Review 2

3. Positive Factors 3 Low Interest Rates:  Strong money growth and a positive yield curve are supportive of equities.  A bear market would typically be associated with a negative spread between long and short rates signalling a potential slowdown in the economy.

4. Positive Factors 4 Valuations:  Market is not cheap at current levels, however not significantly overvalued.  Importantly valuations do not always provide a great signal for a turn in equity markets.  The direction of earnings provides the more important signal.

5. Positive Factors 5 Earnings Outlook:  We see the outlook for earnings as being much improved compared to recent years.  While there are has been some high profile downgrades, number and quantum is not as great as recent years.

6. Positive Factors 6 Earnings Outlook:  A falling currency supports offshore earnings for many companies.  Lower interest rates to reduce finance costs.  Cost cutting from a range of companies will improve margins.  Pockets of top line growth from increases in housing, consumer and market related activity.

7. Positive Factors 7 Sentiment Remains Negative:  We are inclined to be more cautious when the market is bullish.  Markets became more comfortable last year, however a significant level of caution prevails.  Furthermore the past decade has seen an enormous weighting towards cash and bonds away from equities.

8. Risk Factors 8 Emerging Markets:  Concerns have arisen regarding potential problems in emerging markets and a fall in their currencies have triggered concerns of the Asian crisis in 1997.  In 1997 there were fixed currencies, large foreign currency borrowings and large external imbalances.  This time around currencies have been adjusting.

9. Risk Factors 9 Emerging Markets:  EM as a whole has a much better current account balance than two decades ago and less borrowing.  We think the risks of contagion are actually quite low.

10. Risk Factors 10 Chinese Growth Rates:  Pro growth policies showing progress  One Child Policy  Improved land ownership for farmers  Financial reforms to improve IPO market  Privatise State Owned Enterprises  So we were disappointed with soft January data.  Collapse of Trust products remains the key market concern and this risk rises if growth slows.  Two years into downturn in China – we expect to see some improvement later in the year.

11. Risk Factors 11 QE Unravelling:  The unravelling is likely to lead to a steady decline of the excess valuations in bonds and currencies.  This in turn could cause some relative weakness in select equities.

12. Market Review 12 Conclusion: Despite rocky start to year we remain positive on markets overall:  Liquidity remains strong;  Earnings are improving;  Valuations are not stretched; and  Sentiment while improved, has further to run. Market move will be more of a jagged edge as earnings growth is weighed against economic growth outlook

13. Current Portfolio Positioning 13  Companies which can control their profit and value accreting outcomes (NAB, ORG, AZJ, TWE).  Pockets of top line growth in housing, market exposure (LLC, SGP, DLX, HGG, MQG).  Offshore plays (BXB, QBE).  Resource stocks (BHP, RIO)  Cautious on high PE growth stocks following a strong re-rating last year.  Underweight the high yielding segment which can suffer as QE unravels.

14. Macquarie Bank Stock is recovering but still not expensive on 14x subdued earnings. Significant growth opportunity from:  $3.6tr Infrastructure needed in the US  Private equity recycling capital $3.5tr  Recovery in Asian capital markets  Large pipeline of performance fees Recovery for Securities Business 14

15. Treasury Wine  Disappointing 1H14 result  Sales are subdued – Australia, China  But we have added to the stock in weakness because  Current market value is $2.3b despite Fosters spending around $8b on the wine assets including $2.5b on the US wine assets which currently do not earn any money.  Significant asset value with $1.2b of inventories carried at cost, $1.3b of hard assets including wineries and bottling plants.  Net tangible assets including no goodwill for Grange, Penfolds, Wolf Blass etc and the inventory is in at cost of $2b  Net assets including $1b for goodwill is $3b – 30% above the current share price  Private equity bid for the company at $2.7b in 2010 when there was no inventory on the balance sheet and the A$ was higher.  Good balance sheet – net debt is only $293m 15

16. Performance 16