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Australian Equities High Conviction PortfolioPerformance Report – June 2020Market overview and portfolio performance

Jamie NicolChief Investment Officer

Scott BenderPortfolio Manager

The DNR Capital Australian Equities High Conviction Portfolio outperformed its benchmark for the period. Key stock contributors were SEEK (SEK), Treasury Wine Estates (TWE) and REA Group (REA). Key stock detractors were Commonwealth Bank of Australia (CBA, no holding), Lendlease (LLC) and Ramsay Health Care (RHC).

The S&P/ASX 200 Accumulation Index was up 2.61% during June. The best performing sector was Information Technology (+6.0%), which was largely the result of strong outperformance from Afterpay (APT, +33.6%). Consumer Discretionary (+5.4%) also outperformed as a series of sales updates from retailers showed significant growth upon the removal of COVID-19 restrictions. Underperforming the market were the REITs (-2.7%). The sector suffered from outflows as concerns about valuations linger. The COVID-19 period has accelerated the uptake of digital retail and ‘work from home’, negatives for Retail and Office REITs respectively. Industrials (-1.7%) also lagged the broader market in a somewhat anti-cyclical mood, as key stocks including Transurban (TCL, -3.0%) and CIMIC Group (CIM, -4.3%) moved lower.

Portfolio overviewInvestment bias Style neutralDesigned for Investors with a medium-term

investment objective focused on achieving portfolio growth with less focus on generating excess income and is prepared to accept higher volatility in pursuit of higher growth

Benchmark S&P/ASX 200 Accumulation Index

Investment objective To outperform the S&P/ASX 200 Accumulation Index by 4% p.a. (before fees) over a rolling three year period

Investable universe ASX listed securities with a focus on the S&P/ASX 200

Number of stocks 15–30

Asset allocation Australian equities 80–100% Cash 0–20%

Stock limit 15% maximum weightingMinimum suggested investment timeframe

5 years

Gross active return1mth

%3mth

%6mth

%1yr

%3yr

%5yr

%7yr

%10yr

%Incep.*

%

High Conviction Portfolio 3.80 25.04 -12.15 -3.94 4.46 7.51 9.99 10.71 12.24S&P/ASX 200 Accumulation Index 2.61 16.48 -10.42 -7.68 5.19 5.95 7.48 7.80 8.53Excess Return 1.19 8.56 -1.73 3.74 -0.73 1.56 2.51 2.91 3.71

* Inception date—October 2002

Excess return (calendar year)

Source: DNR Capital

Performance data relates to the DNR Capital model portfolio. Performance of an investment in this model portfolio through a Portfolio Service may have different performance to the performance in this monthly update as a result of different policies and procedures at different Portfolio Service operators. Past performance is not an indication of future performance. No allowance has been made for taxation and fees are not taken into account.

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Portfolio attribution

The top stock contributors were: } SEEK (SEK)—Outperformed during the month with a

group update providing revenue and EBITDA guidance marginally ahead of consensus. SEEK also wrote down investments in highly affected Latin America, but we view these as immaterial to the group’s prospects. Market confidence returned as balance sheet concerns dissipated and the easing of social restrictions provided a clear pathway to businesses rehiring.

} Treasury Wine Estates (TWE)— Outperformed over the period thanks to positive retail data coming out of China and the US. Chinese retail sales in May were better than expected and improving trends supported the thesis of a slow but steady recovery in the company’s highest margin region. In the US, off-premise wine sales for the four weeks to mid-June rose 22% yoy and as restrictions ease, we would expect on-premise to stage a recovery as well.

} REA Group (REA)—Outperformed during the month as the stock continued to recover from a steep sell-off during the March volatility. Having previously outlined a range of measures designed to support its liquidity position and its customers, the group has been successful in reducing costs to match its temporarily depressed revenue base. The easing of social restrictions now provides a clear pathway to

the resumption of in-person property inspections, live auctions and a more engaged property market. While listings are down, we view this as a temporary decline, likely to reverse later in the year.

The top stock detractors were: } Commonwealth Bank of Australia (CBA, no holding)—

Outperformed over the month as signs that the depth of the recession may not be as bad as feared encouraged the rotation. The financial sector overall rebounded after some months of underperformance.

} Lendlease (LLC)— Underperformed over the month, falling in step with the broader property sector, which took a breather after a heavy participation in the April and May market recovery. On a stock level, post-raise sell downs from investors and premature concern over the potential impact of underperforming projects affecting the upcoming result likely contributed to the underperformance.

} Ramsay Health Care (RHC)—Underperformed over the period as news of rising COVID-19 cases around the globe overshadowed the comeback of elective surgeries. Domestically, news of cases in Victoria had investors concerned over the re-introduction of elective restrictions in Australia. Investors were also cautious over the realistic limitations of getting back to full capacity, with access to nurses and adequate protective equipment more uncertain in a COVID-19 environment.

Sector weightings %

Source: DNR Capital

12 month - top contributors and detractors

Top 3 contributors Alpha*

James Hardie Industries Overweight 2.28%

Domino's Pizza Enterprises Overweight 1.41%

ANZ Banking Group No Holding 1.24%

Top 3 detractorsCSL No Holding -2.38%

Virgin Money UK Overweight -1.40%

Worley Overweight -0.84% Monthly - top contributors and detractors

Top 3 contributors Alpha*

SEEK Overweight 0.24%

Treasury Wine Estates Overweight 0.20%

REA Group Overweight 0.18%

Top 3 detractorsCommonwealth Bank of Australia No Holding -0.44%

Lendlease Overweight -0.31%

Ramsay Health Care Overweight -0.23%

* Alpha is the portfolio return less benchmark return. These tables represent the stocks contribution of alpha to overall portfolio alpha and is determined by the stocks active weight relative to the benchmark and share price return relative to the benchmark.

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Portfolio positioningOur current positioning is as follows:

} Strong global franchise stocks—James Hardie Industries (JHX), SEEK (SEK), Cochlear (COH), Aristocrat Leisure (ALL).

} Strong domestic franchise stocks—REA Group (REA), Ramsay Health Care (RHC), Wesfarmers (WES) and Cochlear (COH).

} Quality mid-caps—Domino’s Pizza Enterprises (DMP), IRESS (IRE), Computershare (CPU) and Qube Holdings (QUB).

} Resources—Overweight Rio Tinto (RIO) and BHP Group (BHP).

} Underweight banks.

Key risksKey risks to the portfolio include:

} COVID-19 disruption. The longer and deeper the disruption from the COVID-19 pandemic, the greater the negative impact on equity markets.

} Interest rates. Low interest rates are the prime driver of markets at present. Any change to the inflation outlook would have a significant impact on valuations.

} Inflation. Given valuations have been supported by low interest rates, the emergence of inflation and higher bond yields could be a negative for markets.

} Political environment. It is an election year in the US, which adds to potential uncertainty. Further geopolitical uncertainty could create negative implications for stocks and porfolio’s.

} Growth. Rising interest rates in the US increase the risk of an economic slowdown. Potential disruption to global growth is largely expected by the market so the alternative, which is a pickup, could have a greater impact on valuations of defensive holdings.

} Emerging market risks. Implications of slowing growth in emerging markets and impacts from currency instability.

Portfolio movesWe have undertaken a range of moves in recent weeks aimed at building further resilience in the porfolio. We have cut some volatile names and increased the quality of the porfolio, adding to areas of the market that are generating strong returns with improving industry structures.

Sale of Worley (WOR), South32 (S32), Aurizon Holdings (AZJ) and Sydney Airport Holdings (SYD)We have trimmed a number of stocks that have performed well in the recovery, like James Hardie Industries (JHX) and SEEK (SEK). In addition, we have sold:

} Worley (WOR)—The company is highly leveraged to global capex, especially in oil and gas. Typically, the

earnings are late cycle. Following the collapse in the oil price we have a low level of confidence regarding the earnings trajectory of this component of its business. In addition, Worley has flagged the earnings are less cyclical thanks to an acquisition of the Jacobs ECR chemical business as well as other efforts. However, in past cycles, the chemicals’ business proved to be reasonably cyclical and our discussions with US chemical players indicate capex budgets have been cut.

} South32 (S32) and Aurizon Holdings (AZJ)—These small positions were cut to concentrate the porfolio in higher quality areas of the market which offered higher returns and greater clarity around long-term earnings.

} Sydney Airport Holdings (SYD)—Our concern regarding the recovery in flights has been reinforced after discussions with corporates. They indicate an increased willingness to reduce travel.

Purchase of Telstra Corporation (TLS)Telstra has underperformed the market by >20% since the market rally commenced on 24 March 2020. This has provided an opportunity to add Telstra to the porfolio. After nearly two decades of disruption in the telecommunication space (from the internet disrupting Yellow Pages, to the reduced use of fixed line, to NBN disrupting home broadband) the disruption is easing – we are close to the end of the road and Telstra will be a strong mobile business, an NBN reseller and an owner of telecommunication infrastructure assets and ready to grow earnings again from FY22 and beyond. Competition has also eased, with confirmation of TPG’s merger with Vodafone meaning there will only be three players in the mobile market.

Telstra meets DNR Capital’s five-point quality web:1. Industry structure—Has improved with TPG’s

merger with Vodafone and Optus walking away from competing on price after failing to win significant market share. Telstra retains a network advantage compared to peers, and the disruption headwinds of recent years is easing. We do, however, recognise competition will remain robust in the space and the rate of technological change is rapid, requiring ongoing investment and substantial capex. The NBN created a once-in-a-lifetime forced churn event. Consumers had no choice but to switch and this caused many to review their requirements. It also caused telcos to compete aggressively on price. However, market shares barely altered and the competition didn’t achieve anything other than destroying profits. The near completion of the NBN combined with the realisation that this was a bad strategy meant that NBN and mobile prices have broadly stabilised over the last six months.

Performance Report June 2020

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NBN and mobile pricing has stabilised over the last six months

Source: Morgans

2. Earnings strength—We believe Telstra’s underlying earnings will bottom over FY21 and expect mid-single digit growth beyond. Lower competition will assist mobile margins and a medium-term opportunity exists to replace NBN with wireless. Australia has the fourth-fastest mobile speed in the world (averaging 64mbps) and the 57th fastest fixed-line speed in the world (averaging 39mbps). Logic would therefore dictate that, cost aside, Australian consumers would be more inclined to substitute fixed for mobile. 5G should further improve speeds and lower costs.

3. Balance sheet—The balance sheet is solid with FY20e ND/EBITDA at ~1.5x.

4. Management—Having recently set the strategic direction, it is now in execution phase. While management consists of experienced telecommunication executives, there has been significant turnover in the executive ranks over the last three years.

5. Environmental, social and governance (ESG)—The company has a low ESG exposure.

Key risksThere are a number of key risks: 1) Execution risk around ~$2.5b productivity improvements to offset the ~$3.5b EBITDA hole from NBN; 2) It needs to defend its strong market position in mobiles and could be vulnerable to competition should it re-emerge and 3) Management turnover.

ValuationWe estimate that Telstra’s infrastructure assets account for ~50% of our valuation. This leaves the core business trading on 4–5x FY20 EBITDA. We estimate Telstra’s fair value is ~$4, implying a yield of ~5% (plus franking). This represents a total return of ~15% pa over the next three years (including the dividend and franking).

ConclusionWe see Telstra offering improving quality. The market has been concerned regarding the loss of roaming fees during the pandemic, but we see this as a temporary issue and the core as highly defensive. The 12-month forward grossed-up dividend yield of ~6% is attractive in the context of record low interest rates and will be a key differentiator in a market where many stocks are reducing dividends over the next 12–24 months. We also note the potential for the demerger or partial sale of Telstra’s

infrastructure assets to unlock additional value over the next 18–24 months.

Increased holding in Cochlear (COH)Cochlear is a manufacturer and distributor of cochlear implantable devices for the hearing impaired. Cochlear has operations in more than 20 countries distributing its products in America, Asia Pacific, Europe, Middle East and Africa. It offers three main products: cochlear implants, baha bone conduction implant system and cochlear wireless accessories.

Cochlear meets DNR Capital’s five-point quality web:1. Industry structure—Cochlear is the global leader in

the design and manufacture of cochlear implants with more than 60% market share. The scale advantage is further enhanced by a strong research and development program, which should help sustain the dominant market positon.

2. Earnings strength—It has a long history of low double-digit profit growth and we expect this to remain the case following the impact of the postponement of elective surgeries.

3. Balance sheet—Cochlear has net cash on hand of over $600m and total available liquidity in excess of $1.6b. This extremely strong position will provide flexibility to continue research and development spends and maintain all staff during the COVID-19 shutdown.

4. Management—Dig Howitt joined Cochlear in 2000 and performed a range of roles in the business, including as COO before being appointed as CEO in 2018. The executive leadership team is experienced and well-resourced, with seven members having been at Cochlear for more than 10 years.

5. Environment, social and governance (ESG)—Cochlear manufactures and sells cochlear implant technology and as such failure to meet product quality and safety regulatory requirements could lead to recalls and customer litigation. This risk is actively managed through all levels of the business, however the company has previously been subject to a processor recall. Additionally, product innovation plays a key role in Cochlear’s strategy, which triggers exposure to risks related to potential involvement in intellectual property disputes over its patent portfolio.

ValuationCochlear trades on 34x forward earnings and is forecast to grow earnings at >20% for the next four years.

ConclusionCochlear is arguably the best-quality business in the Australian market and as such rarely trades under 40x forward earnings. The postponement of elective surgeries will impact near-term earnings, however the long-term demand for cochlear implants is highly unlikely to be affected. We see the sell-down in Cochlear on near-term earnings concerns as an opportunity to buy a high-quality business at an attractive entry point. Our channel checks indicate Cochlear is winning share against its key competitor, who has recently had a product recall.

Performance Report June 2020

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Purchase of Coles Group (COL)We have added Coles Group to the porfolio. It operates Coles supermarkets, a portfolio of liquor, petrol and convenience retailing. Having spun out of Wesfarmers (WES) in late 2018, Coles has simplified its portfolio of operating businesses and continues to execute on a range of programs to modernise its supply chain and technology capabilities.

Coles Group meets DNR Capital’s five-point quality web:1. Industry structure—Coles operates in a well-structured

duopoly, sharing in excess of 80% market share with Woolworths Group (WOW). Aside from Aldi, there is a tail of mostly independently run stores supplied by Metcash (MTS). Market share has continued to consolidate among the large chained stores, yielding significant buying power. The competitive dynamics of the domestic supermarkets has materially improved, with the withdrawal from Australia of Kaufland in late 2019.

2. Earnings strength—More rational competition, including that of discounter Aldi, has led to modest food inflation, and provides industry tailwinds to profitability. Moderate, defensive sales growth is underpinned by population growth and cost-out programs provide upside to the margin profile.

3. Balance sheet—Initial concerns harboured at the time of listing around balance sheet strength have been allayed through a number of strategic divestments and high cash-flow generation. Coles has a ND/EBITDA ratio of 0.2x FY21.

4. Management—We view Coles’ management as competent given its performance to date. CEO Steven Cain has broad experience in Australian food retail and has been clear with his strategy. With the management team having a more limited tenure than peers, we continue to closely monitor its stewardship of capital and execution against the annunciate goals.

5. Environmental, social and governance (ESG)—Having divested its interest in gaming, we see Coles offering low ESG risk. We note a historic wages underpayment issue, but this is minor when compared to peers.

Key risks Key risks include a resumption of deflationary price competition witnessed in the latter half of last decade, entrance of an offshore competitor, and the execution of large-scale capital programs currently underway.

Valuation We view the defensive characteristics of Coles as warranting a premium to ASX 200 and our current discounted cash flow valuation of $17.35 sees upside to its current FY21 PE multiple of 22.7x, with a fully franked dividend of 3.6%.

Conclusion Coles Group is operating in an improving industry structure, is benefiting from greater entertainment at home, offers defensive earnings growth with upside from an investment program delivering cost savings and

margin improvement. Given its cleaner group structure and current discount to Woolworths, it is our preferred supermarket exposure.

Performance Report June 2020

Investment strategyThe Australian Equities High Conviction Portfolio has an investment style best described as ‘style neutral’. The security selection process has a strong bottom-up discipline and focuses on buying quality businesses at reasonable prices. We define quality businesses as being those with the following five attributes:

} earnings strength (particularly improving return)

} superior industry position

} a sound balance sheet

} strong management

} low environmental, social and governance (ESG) risk.

Where we are satisfied that a security possesses quality characteristics, then it is eligible for inclusion in the portfolio. However, it must also represent value and sit comfortably within our portfolio construction requirements.

A range of valuation methodologies are used depending on the nature of the business being assessed to identify mispriced opportunities.

The portfolio construction process is influenced by a top-down economic appraisal and also considers the risk characteristics of the portfolio, such as security and sector correlations.

Investment philosophyDNR Capital believes a focus on quality businesses will enhance returns when it is combined with a thorough valuation overlay. We seek to identify quality businesses that are mispriced by overlaying a quality filter, referred to as the ‘quality web’, with a strong valuation discipline. The portfolio is high conviction and invests for the medium term.

Platform access } AMP PPS

} BT Panorama (Direct, Compact and Full)

} Colonial First State FirstWrap

} Federation Alliance

} HUB24

} Linear

} Macquarie Wrap

} Mason Stevens

} Netwealth

} OneVue

} Powerwrap

} Praemium

} Wealthtrac

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The market has enjoyed a strong bounce back from its lows and the economy continues to open up. Concerns linger regarding the strength of the economic recovery amidst a pick-up in COVID-19 cases. We believe it is sensible for investors to look through the short-term weakness attached to COVID-19 and price stocks off the likely FY22 and beyond earnings. Clearly, however, there is uncertainty regarding that earnings trajectory. This month we examine the key bull and bear points impacting the outlook for the market. In our view the risks now appear more balanced than in recent months.

Key bull points: 1. Economy is recovering – through the worst of the COVID-19 crisis.The easing in monetary and fiscal policies has cushioned the economic blow from COVID-19. Household and business lending interest rates have fallen as the cash rate was lowered to 0.25%, the 3-year bond yield is being anchored at ~0.25% and the RBA is providing 3-year funding to banks at 0.25%.

The main game is, and will be, fiscal policy. Federal Government measures to support Australian households and businesses are expected to be at least $125b from April to September. This is equivalent to ~13% of GDP over that period. Add in early superannuation withdrawals by households, of which around $16b has already been paid, and the support is ~16% of GDP. That’s a huge number. On top of this has been other fiscal support from state and local governments.

Government benefits and super withdrawals

Source: APRA, DSS, Treasury, Macquarie Macro Strategy

While Australia’s technical recession will be confirmed in the June quarter, early economic indications are that activity may have bottomed in April. Google mobility trends point to sustained recovery in activity and a trend towards normalcy in Australia.

Market reviewGoogle mobility trends – Australia

Source: Google, Macquarie Macro Strategy

Encouraging signs are being observed that consumers are returning to venues as social restrictions are eased.

Number of seated diners

Source: OpenTable, Macquarie Macro Strategy

But foot traffic in bricks and mortar stores has recovered significantly

Source: ShopperTrak, Macquarie Macro Strategy

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A return to growth was potentially seen in June as composite PMI expanded.

Surveyed forward orders

Source: CBA/IHS Markit, NAB, Macquarie Macro Strategy

The latest ABS retail sales data also suggest stimulus is flowing into the economy, with data from May painting a picture of surprising resilience. Despite outsized volatility over the past few months, sales have returned to near trend in aggregate.

ABS retail sales ($b)

Source: DNR Capital, ABS

2. Potential vaccine or treatments to further enable a recovery. Efforts to re-open the global economy will ultimately require effective treatments. Dozens of vaccines are in the pipeline and while a widely available treatment is several months away, a handful are already in late stage trials1. Treatments for the virus are closer at hand with several showing encouraging results for a range of drugs already approved for human consumption. Of dexamethasone, a readily available and cheap steroid, The Economist noted recent clinical trials at Oxford “…reduced deaths by a third among the most severely ill covid-19 patients” and is set become standard care within the NHS2.

Despite upticks in Victoria, Australia’s reported cases have stayed supressed and the death rate remains low by global standards.

1 https://www.who.int/publications/m/item/draft-landscape-of-covid-19-candidate-vaccines2 https://www.economist.com/britain/2020/06/20/dexamethasone-cuts-covid-19-deaths

Daily reported cases

Source: Department of Health, States & Territories Report 5/7/2020

3. Supportive fiscal and monetary stimulus.Globally, central banks have proved willing to leverage their balance sheets, engaging in synchronised fiscal and monetary action. The IMF estimates that US$9t in direct budget support and quasi-fiscal operations3 has been deployed since the onset of the crisis.

Announced fiscal measures in G20 economies, % of GDP

Source: National authorities; and IMF staff estimate as of May 13, 2020

The scale of the stimulus is unprecedented in history, dwarfing that of the global financial crisis in quantum and speed.

Fiscal stimulus is greater today than it was during the great recession

Source: BCA Research

3 https://blogs.imf.org/2020/05/20/tracking-the-9-trillion-global-fiscal-support-to-fight-covid-19/

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Domestically, the raft of programs targeted at maintaining employment and supporting households is finding its way to consumers.

Government transfer payments are providing significant support to household disposable income

Source: ABS, Macquarie Macro Strategy

4. Equities better value than most asset classesAs discussed in recent months, equities are doing well owing to a lack of alternatives and strong liquidity. Investors tend to be positioned overweight cash and underweight equities.

Cash and fixed interest offer little return, while office and retail property carry significant risks at present. The following chart highlights the attractiveness of equities relative to bonds, currently representing close to the best value over its history. This implies investors are so uncertain regarding the value of equities, they would prefer next to no return from bonds. Clearly there are substantial risks in stocks as we emerge from the darkness of an unprecedented shutdown. The speed and shape of the recovery will have a substantial impact on the valuation of various equities.

Earnings yields versus bond yields

Source: DNR Capital

Forward earnings multiples have rebounded astonishingly quickly from the crisis, reflecting the market’s willingness to look through the next two years to a strong bounce back in FY22 earnings.

ASX 200 – Consensus PE Ratio (x)

Source: Morgan Stanley Research

Aggregate consensus annual EPSg (%)

Source: RIMES, IBES, Morgan Stanley Research

5. Positioning still cautious. The market remains overweight cash and underweight equities.Despite a renaissance in day trading and an explosion in retail stockbroker accounts, a significant amount of institutional capital remains on the sidelines. With negligible returns available from bonds and fixed interest investments, global pension, superannuation and other institutional funds need greater equity exposure to achieve their return targets.

Implied equity allocation by non-bank investors globally

Source: J.P. Morgan

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Cash as % of equity market capitalisation

Source: Alpine Macro

Porfolio manager cash balance remain elevated and have manifested a challenging performance headwind. This positioning provides a tailwind to equities and reinforces a “buy the dip” mentality during periods of volatility.

Key bear points: 1. COVID-19 second waveDespite successes in Europe and Asia, much of the world (developing nations in particular) never flattened their curves and the US is suffering a second wave of infections.

Weekly confirmed COVID-19 cases by area, ‘000

Source: WHO; Johns Hopkins University CSSE

Notwithstanding global markets showing remarkable willingness to look through a near-term earnings recession, markets remain susceptible to the inevitable outbreaks as social restrictions are scaled back. As previously noted, the performance of the market will be tied to the shape of the economic recovery. Large uncontrolled outbreaks threaten to turn a V-shaped recovery into a W-shaped recovery.

US Equity prices vs US Google searches for Coronavirus/COVID-19

Source: Google Trends, FactSet, Macquarie Research, June 2020

2. Is the economy simply enjoying a pent-up demand bounce? Can the economic recovery be sustained? The sharp rebound in economic activity has been pronounced and confounded many economic forecasts. Given shelter-in-place directives forced a reduction in discretionary spend, there is concern that the snap back in spending is just catch-up consumption drawing on increase savings and temporary government handouts. If this is case, then the release of pent-up demand is just masking the effects of the underlying recession and rather than entering a sustainable recovery, economic activity will fade as we fall off the fiscal cliff. This would produce a more drawn out recession and weigh heavily on equities.

3. US electionAs the expected outcome (according to betting markets) of the upcoming US election has swung from a likely Trump second term to a Biden victory, questions now arise about the market’s likely reaction to a Democrat presidency and potential Democratic-controlled Senate. With an enunciated goal of rolling back Republican corporate tax cuts and restoring a top marginal tax rate of 39.6%, Wall Street is wary of Democratic policies with the potential to lower corporate earnings and business confidence. Trump, however, also poses risks for markets given the deterioration in trust of global institutions and uncertainty in negotiations with the US. Much will depend on who Biden selects as vice president and whether he follows the tried and tested path of pushing to the centre now that he has won the primary.

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4. Geopolitical uncertaintyA range of geopolitical issues currently pose risks to global markets. Recent development in Hong Kong with China’s imposition of new security laws have served to escalate tensions between the US and China and compounding an existing trade war. A deterioration in relations between Australia and China has also been observed since the government threw support behind an investigation into the source of COVID-19, threatening trade with our largest partner. Social unrest is even higher than usual in North America as the Black Lives Matter movement has spread, with protests breaking out around the world.

ConclusionThe risks appear more balanced than they did a few months ago. While we expect ongoing economic recovery and see equities as better value (in the long run) than most asset classes, the uncertain climate, strong bounce and lack of absolute value support suggests volatility can emerge and should be expected. As a consequence, we have made a number of moves aimed at shoring up the resilience of the porfolio.

An uncertain environment is an opportunity for quality companies to win market share and we have seen a number of companies in our porfolio step up their plans. Companies like James Hardie Industries (JHX) and Cochlear (COH) are winning market share and investing in new product while peers retreat. We will continue to focus on those companies where we see opportunities to enhance their value in the current climate.

Performance Report June 2020

.4.10.2006

Disclaimer This document has been prepared by DNR Capital Pty Ltd, AFS Representative - 294844 of DNR AFSL Pty LtdABN 39 118 946 400, AFSL 301658. It is general information only and is not intended to be a recommendation to invest in any product or financial service mentioned above. Whilst DNR Capital has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and you must make your own enquiries concerning the accuracy of the information within. The information in this document has been prepared for general purposes and does not take into account the investment objectives, financial situation or needs of any particular person nor does the information constitute investment advice. Before making any financial investment decisions you should obtain legal and taxation advice appropriate to your particular needs. Investment in a DNR Capital managed account can only be made on completion of all the required documentation. DNR Capital does not guarantee the repayment of capital from the portfolio or the investment performance of the portfolio.

If you have invested in the Australian Equities High Conviction Portfolio via a service such as investor directed portfolio service, managed account service or separately managed account (‘Portfolio Service’), you can obtain information from the Portfolio Service operator. If you invest via a Portfolio Service, different terms may apply to your investment. You should read the disclosure document for that Portfolio Service and consider your circumstances prior to investing.

Office address Postal address Telephone Email WebsiteLevel 23 GPO Box 3263 07 3229 5531 info@dnrcapital.com.au www.dnrcapital.com.au307 Queen Street Brisbane QLD 4001Brisbane QLD 4000

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