Antipodes Portfolio update 26 March 2020 Antipodes | 1 Global - - PowerPoint PPT Presentation

Antipodes | 1

Click to edit Master title style

Antipodes

Portfolio update 26 March 2020

Antipodes | 2

Click to edit Master title style

Factor valuations are a ratio of the median multiple of the highest to lowest quintile (cheapest to most expensive for Value), expressed as a z-score. Our approach to measuring multiples comprises an equal weighted composite of EV/CE, EV/Sales, forward PE and EV/normalised EBIT. As at Dec 2019.

Composite valuation (30Y z-score)

Expensive Cheap

*Cumulative price performance of long low multiple/high growth and short high multiple/low growth

• strategies. Common currency terms.

Global factors: performance and valuation

Global factor performance*

Source: Factset, Antipodes

Factors 2020 YTD1 Q4 2019 2019 2017-19 p.a. 2015-19 p.a. 2010-19 p.a Value

(20.1%)

0.9% (7.0%) (3.1%) 1.4% (0.5%) Growth

(0.1%)

1.8% 8.0% 9.4% 6.5% 0.8% Profitability

9.0%

3.3% 11.0% 11.1% 7.9% 5.0% Resilience

8.2%

1.7% (2.0%) 1.3% 0.2% (0.4%) Momentum (12m)

27.2%

(5.4%) (4.0%) 5.1% (1.4%) 3.6%

Factors returns measure global price performance of the highest to lowest quintile (cheapest to most expensive for Value).

1 As at March 17th 2020.

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20

High growth Low multiple 35%

Antipodes | 3

Click to edit Master title style

1 10 100 1000 10000 100000 1000000 22-Jan 27-Jan 1-Feb 6-Feb 11-Feb 16-Feb 21-Feb 26-Feb 2-Mar 7-Mar 12-Mar 17-Mar

<10 10 - 15 15 - 20 20 - 30

Source: John Hopkins University, National Oceanic and Atmospheric Administration, Antipodes. As at 17/03/2020.

TOTAL CASES – TEMPERATURE (CELSIUS, LOG SCALE) CHANGE IN CASES – 7-DAY ROLLING CAGR

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% D1 D3 D5 D7 D9 D11 D13 D15 D17 D19 D21 D23 D25 D27 D29 D31 D33 D35 D37 D39 D41 D43 D45 D47 D49 D51 D53 D55 D57 D59

Source: John Hopkins University, Antipodes Partners. As at 24/03/2020

RoW Italy Iran US Western Europe RoW x Italy and Iran Western Europe x Italy Spain Germany France

Coronavirus: Flattening the infection curve

• Efficacy of various emerging treatments such as Hydroxychloroquine/Azithromycin
• Correlation to colder/dryer climates
• Extent/duration of any herd immunity

Recession severity will be highly dependent on the duration and effectiveness of the virus lockdown … shorter the better The unknowns …

Antipodes | 4

Click to edit Master title style

Stimulus measures announced

Covid-19 started supply chain shock -> Global demand/credit shocks

Supply chain shock/margin call: Stress in offshore USD markets that fund trade Central Bank USD swap lines Funding stress in domestic banking systems as credit lines are drawn Rates cut globally, US to zero Unlimited QE in the US €870b QE in Europe US banks can borrow from the Fed Fed to lend up to 3m Commercial Paper market Demand shock/Solvency risk Requires large scale fiscal stimulus to support household and corporate cashflows during lock-down Fiscal response US $2t package = 10% GDP Germany €750b = c. 20% GDP UK & France €300b each = 10% GDP High Yield corporate tail risk Seeking approval to buy Corporate Bonds (IG) Central banks will need to intervene and buy HY debt

USD should weaken as $2 trillion in fiscal stimulus takes centre stage Banks much stronger than in 2009, HY tail risk lies with institutional/retail direct investors

Antipodes | 5

Click to edit Master title style

US NON-FINANCIALS EBITDA MARGIN

12% 13% 14% 15% 16% 17% 18% 19% 1 9 9 5 1 9 9 7 1 9 9 9 2 1 2 3 2 5 2 7 2 9 2 1 1 2 1 3 2 1 5 2 1 7 2 1 9 Source: Refinitiv, Credit Suisse research Source: Bloomberg Barclays, S&P, US Bureau of Economic Analysis

Including technology Excluding technology

0% 2% 4% 6% 8% 10% 12% 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 2 1 8 2 1 9

High yield debt Leveraged loans

Source: Bloomberg Barclays, S&P, US Bureau of Economic Analysis

Outside of the large software-internet stocks, US corporates have struggled to lift profit margins in the current cycle. Almost all improvement in return on equity since 2009 has resulted from lower interest rates, higher leverage and lower tax rates – all of which have arguably reached their structural limit

US JUNK DEBT AS % OF GDP

Disruptive pressures building

Private equity buyer of last resort …

Antipodes | 6

Click to edit Master title style

250 300 350 400 450 500 550 600 650 700 2012 2013 2014 2015 2016 2017 2018 2019

Source: Bloomberg. As at 17/03/2020

Outbreak announced

MARKIT CDX NORTH AMERICA HIGH YIELD INDEX (BPS SPREAD)

Response in equity and credit markets

10 20 30 40 50 60 70 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Volatility Correlation

US EQUITIES: 6M ROLLING VOLATILITY AND CORRELATION

Antipodes | 7

Click to edit Master title style

Inflates assets not activity, accelerates disruption Social media echo chamber Trade wars and regulation Fiscal stimulus, pressure on rates Inflation/currency devaluation

QE debt monetization / MMT QE Wealth disparity Populism/ Polarisation Lower growth Duration bubble collapses

Significant fiscal stimulus has arrived

Is debt monetisation the only way forward for the US?

Antipodes | 8

Click to edit Master title style

• 12%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 United States China Eurozone (ex Germany) Germany

Source: Bloomberg, Morgan Stanley Research

FISCAL SURPLUS % of gross domestic product

Germany/Europe has fiscal firepower

Source: EC, OPENEXP, EIB, McKinsey, Antipodes estimates

500 1,000 1,500 2,000 2,500 3,000 1920 1940 1960 1980 2000 2020 2040 Apollo missions $150b Recovery Act (post GFC) $1t Selected EC ‘Green Deal’ items $1t EC estimate to reach current 2030 climate and energy targets $2.8t

STIMULUS PACKAGES IN PERSPECTIVE In today’s dollars

FDR New Deal (post Great Depression) $850b

Monetary policy failure?

Fiscal policy takes centre stage, Europe/China have the most dry powder

Antipodes | 9

Click to edit Master title style

• Long duration stocks are still priced for perfection
• Beware growth and profitability traps
• Coronavirus to force response from policy makers
• Central bank failure/populism leads to fiscal stimulus
• Europe and China have the firepower to stimulate, while domestic facing businesses are priced

for a recession

• A world that may decarbonise - generational investment cycle

Look for great business at attractive valuations

Longer-term outlook

Antipodes | 10

Click to edit Master title style

Social commerce Uber Alibaba Facebook Incumbent software platforms SAP Microsoft Enabling the future ST Micro Qualcomm Samsung Electronics Secular industrials GE Continental Norsk Hydro Cleaner energy EDF Siemens Strong retail banks ING ICICI CapitalOne Tail risk protection Newcrest Barrick Gold Credit Protection Consumer incumbents Ping An Yum China Coke & Pepsi Pharma with pipeline Merck Roche

Antipodes Global Portfolio

Antipodes | 11

Click to edit Master title style

Portfolio vs. benchmark weights and valuations

As at March 2020. Dec19 multiples use 31/12/19 prices over 2019 EPS. Our recessionary valuation scenarios use today’s prices over 2019 EPS post an earnings haircut; 30% for cyclicals/15% for defensives (ex Asia domestic), 20% for all Asia domestic. When applied to the global benchmark, the weighted average haircut is ~24%. The benchmark multiple has moved from 17.5x in Dec19 to 17x post earnings haircut (13x today). Source: iShares, FactSet, Antipodes Global Cyclicals = Commodities, Chemicals, Industrials, Autos/other durables, Hardware; Global Defensive = Internet, Software, Staples, Pharmaceuticals; Domestic = Retail, Housing & Construction, Media, Transport, Consumer/commercial services, Health services, Financials, Communications, Infrastructure, REITS

Antipodes | 12

Click to edit Master title style

Cheap exposure to quality and growth

10 20 30 40 50 60 70 Value Growth Quality

Long Short

Average Low Cheap Above average High Expensive Market median

Percentile score of fully invested long and short books (50 = market median)

Source: Antipodes Partners

Cheap exposure to quality and growth

Style exposures

Antipodes | 13

Click to edit Master title style

Source: Morningstar Direct

A “pragmatic” approach to downside protection

Appendix

Antipodes | 15

Click to edit Master title style

As at March 2020 Source: Antipodes Partners

22Y Z Score of EV/Sales relative to World (Price/Book for Financials)

Global valuation clustering

Stark contrast between long and short duration equities

Antipodes | 16

Click to edit Master title style

Performance Portfolio

1

Benchmark2 Alpha Long 10.2% 14.6% (4.4%) Short (2.3%)

• (2.3%)

Currency/Other3 1.0%

• 1.0%

Total 9.0% 14.6% (5.6%) Top Five Contribution to alpha4 Qualcomm 1.4% Barrick Gold 0.9% Sony 0.7% Alibaba 0.7% Samsung Electronics 0.6% Bottom Five Contribution to alpha4 Apple (no position) (1.4%) Tapestry (0.7%) TechnipFMC (0.5%) Amazon (under weight) (0.5%) Short (Online Services DM) (0.5%) Performance Portfolio

1

Benchmark2 Alpha Long (1.3%) (0.9%) (0.4%) Short 1.5%

• 1.5%

Currency/Other3 0.6%

• 0.6%

Total 0.9% (0.9%) 1.7% Top Five Contribution to alpha4 Electricite de France 0.8% Uber 0.6% Short (Index DM) 0.3% Barrick Gold 0.2% Short (Index Asia/EM) 0.2% Bottom Five Contribution to alpha4 TechnipFMC (0.5%) KB Financial (0.4%) ING Groep (0.3%) Eni (0.3%) Siemens (0.3%)

12 Month (Feb 20) Calendar YTD (Feb 20)

1 Based on gross of fees returns to Feb-20 2 Benchmark for Global Long-Short is the MSCI ACWI Net Index 3 Other offsets the impact of expenses, payables/receivables, cash flows and intraday trading, among other accounting elements. 4Contribution to alpha measures over/underperformance relative to the iShares MSCI ACWI ETF in AUD

Source: Factset, Antipodes

Global Long Short attribution summary

Antipodes | 17

Click to edit Master title style Global Long-Short portfolio clusters

Sector Long Short Net Long cluster examples Short cluster examples Global 44.3% (11.7%) 32.6% Industrials 12.6% (5.0%) 7.6% GE, Siemens, Honda, Continental Aerospace & automation roll-ups Oil/Natural gas 7.1% (0.6%) 6.5% ENI, Inpex, TechnipFMC Expensive oil Healthcare 9.5% (2.6%) 7.0% Merck, Roche, Medtronic Weaker competitors Connectivity/compute 10.2% (2.2%) 8.0% Samsung Electronics, Qualcomm, Cisco Weaker competitors Software 4.8% (1.3%) 3.5% Microsoft, SAP Narrow feature-sets vulnerable to platform competition NA/Europe Domestic 23.3% (7.3%) 16.0% Online services 5.5% (1.9%) 3.6% Facebook, Uber Narrow feature sets vulnerable to increasing competition Consumer defensive 3.5% (0.6%) 2.9% Coke, Pepsi, Equifax Under investing brands Consumer cyclical 10.7% (3.1%) 7.6% ING, UniCredit, Capital One, Tapestry Weaker competitors facing disruptive pressures Telco/infrastructure 3.6% (1.8%) 1.8% EDF Infrastructure assets facing competitive and/or regulatory headwinds Asia/EM Domestic 19.7% (2.8%) 16.9% Online services 4.9% (0.5%) 4.4% Alibaba, Sony Narrow feature-sets vulnerable to platform competition Consumer defensive 7.0% (0.6%) 6.4% Ping An, Yum China Under investing brands Consumer cyclical 5.1% (0.6%) 4.4% KB Financial, ICICI Bank Chinese property developers with weak balance sheets Telco/infrastructure 2.7% (1.0%) 1.7% KT, China Unicom, China Telecom Infrastructure assets facing competitive and/or regulatory headwinds Tail Risk Hedge 3.1% (12.4%) (9.3%) Barrick Gold, Newcrest Indices Total 90.3% (34.1%) 56.2%

As at Feb 2020

Global Long Short portfolio

Antipodes | 18

Click to edit Master title style

Performance to Feb 20 Period Fund Benchmark1 Alpha Quarter to Date 0.9% (0.9%) 1.7% Year to Date 0.9% (0.9%) 1.7% 1 Year 9.0% 14.6% (5.6%) 3 year p.a. 10.6% 13.4% (2.8%) Inception p.a. 11.3% 10.3% 1.0% Inception2 64.9% 58.0% 6.8% Annual performance Period Fund Benchmark1 Alpha 2019 11.0% 26.8% (15.8%) 2018 2.7% 0.6% 2.1% 2017 14.5% 14.8% (0.3%) 2016 19.2% 8.4% 10.8% 20152 5.1% 0.5% 4.6%

Past performance is not a reliable indicator of future performance. Performance based on gross returns in AUD, Jul-15 to Feb-20.

1 MSCI All Country World Net Index in AUD 2 Inception 1 July 2015

• 70%
• 50%
• 30%
• 10%

10% 30% 50% 70%

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 CUMULATIVE RETURN RETURN Fund MSCI AC World Net Index Cumulative Return (RHS)

Global Long Short performance summary

Antipodes | 19

Click to edit Master title style Global Long-Short portfolio clusters

As at Feb 2020

Global Long portfolio

Sector Long Long cluster examples Global 40.4% Industrials 11.9% GE, Siemens, Honda, Continental Oil/Natural gas 5.8% ENI, Inpex, TechnipFMC Healthcare 9.6% Merck, Roche, Medtronic Connectivity/compute 8.4% Samsung Electronics, Qualcomm, Cisco Software 4.8% Microsoft, SAP NA/Europe domestic 22.0% Online services 5.0% Facebook, Uber Consumer defensive 3.8% Coke, Pepsi, Equifax Consumer cyclical 9.6% ING, UniCredit, Capital One, Tapestry Telco/Infrastructure 3.6% EDF Asia/EM domestic 18.3% Online services 4.5% Alibaba, Sony Consumer defensive 6.8% Ping An, Yum China Consumer cyclical 4.3% KB Financial, ICICI Bank Telco/infrastructure 2.6% KT, China Unicom, China Telecom Tail risk hedge 4.2% Barrick Gold, Newcrest Total 84.8%

Antipodes | 20

Click to edit Master title style

Performance Portfolio

1

Benchmark2 Alpha Long 9.9% 14.6% (4.7%) Currency/Other3 0.8%

• 0.8%

Total 10.7% 14.6% (4.0%) Top Five Contribution to alpha4 Qualcomm 1.3% Barrick Gold 0.9% Sony 0.7% Alibaba 0.6% Roche 0.6% Bottom Five Contribution to alpha4 Apple (no position) (1.4%) Tapestry (0.6%) TechnipFMC (0.6%) Amazon (underweight) (0.5%) Alphabet (underweight) (0.4%) Performance Portfolio

1

Benchmark2 Alpha Long (1.3%) (0.9%) (0.4%) Currency/Other3 0.6%

• 0.6%

Total (0.7%) (0.9%) 0.2% Top Five Contribution to alpha4 Electricite de France 0.8% Uber 0.5% Barrick Gold 0.2% Roche 0.2% Gilead Sciences 0.2%

12 Month (Feb 20) Calendar YTD (Feb 20)

Bottom Five Contribution to alpha4 TechnipFMC (0.4%) KB Financial (0.4%) ING Groep (0.3%) Siemens (0.3%) ENI (0.3%)

1 Based on gross of fees returns Feb-20 2 Benchmark for Global Long is the MSCI ACWI Net Index 3 Other offsets the impact of expenses, payables/receivables, cash flows and intraday trading, among other accounting elements. 4 Contribution to alpha measures over/underperformance relative to the iShares MSCI ACWI ETF in AUD

Source: Factset, Antipodes

Global Long attribution summary

Antipodes | 21

Click to edit Master title style

Cheap exposure to quality and growth

Source: Antipodes Partners

Global Long performance summary

Past performance is not a reliable indicator of future performance. Performance based on gross returns in AUD, Jul-15 to Feb-20.

1 MSCI All Country World Net Index in AUD 2 MSCI All Country World Value Net Index in AUD 3 Inception 1 July 2015

Performance to Feb 20 Period Fund Benchmark1 Alpha ACWI Value2 Quarter to Date (0.7%) (0.9%) 0.2% (4.4%) Year to Date (0.7%) (0.9%) 0.2% (4.4%) 1 Year 10.7% 14.6% (4.0%) 6.4% 3 Year p.a. 13.3% 13.4% (0.2%) 8.5% Inception p.a. 12.4% 10.3% 2.1% 7.4% Inception3 72.7% 58.0% 14.6% 39.7% Annual performance Period3 Fund Benchmark1 Alpha ACWI Value2 2019 18.7% 26.8% (8.1%) 20.8% 2018 (0.2%) 0.6% (0.9%) (0.9%) 2017 21.8% 14.8% 7.0% 9.5% 2016 17.3% 8.4% 8.9% 13.1% 20153 2.8% 0.5% 2.3% (1.4%)

• 80%
• 60%
• 40%
• 20%

0% 20% 40% 60% 80%

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 CUMULATIVE RETURN RETURN Fund MSCI AC World Net Index Cumulative Return (RHS)

Antipodes | 22

Click to edit Master title style

Disclaimer

This communication has been prepared by Antipodes Partners Limited (‘Antipodes Partners’, ‘Antipodes’) ABN 29 602 042 035 AFSL 481580. Interests in the Antipodes Global Fund (ARSN 087 719 515), Antipodes Global Fund – Long Only (ARSN 118 075 764) and Antipodes Asia Fund (ARSN 096 451 393) (‘Funds’) are issued by Pinnacle Fund Services Limited, ABN 29 082 494 362, AFSL 238371. Antipodes Partners is the investment manager of the Funds. The Product Disclosure Statements (‘PDS’) for the Funds are available at www.antipodespartners.com/funds. Any potential investor should consider the relevant PDS in deciding whether to acquire or continue to hold units in a fund. The issuer is not licensed to provide financial product advice. Please consult your financial adviser before making a decision to invest in a fund. Antipodes Partners and Pinnacle Fund Services Limited believe the information contained in this communication is reliable, however no warranty is given as to its accuracy and persons relying on this information do so at their own risk. Any opinions or forecasts reflect the judgment and assumptions of Antipodes Partners and its representatives on the basis of information at the date of publication and may later change without notice. The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. This communication is for general information only. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should

• btain professional advice before doing so. Past performance is not a reliable indicator of future performance. Unless otherwise specified, all amounts are in

Australian Dollars (AUD). To the extent permitted by law, Antipodes Partners and Pinnacle Fund Services Limited disclaim all liability to any person relying on the information in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or arise directly or indirectly in respect of such information contained in this communication. The information contained in this communication is not to be disclosed in whole or part or used by any other party without the prior written consent of Antipodes

• Partners. Antipodes Partners and their associates may have interests in financial products mentioned in this communication.