Bell Global Equities FundPlatform Class Fund Summary ... · VIX index spiked to levels not seen since 2015. From our perspective, the volatility spike and drawdown on equity prices

Bell Global Equities Fund 1

Bell Global Equities FundPlatform Class Fund Summary - Period Ending 28 February 2018

Net Performance^Returns in AUD Fund Index*

1 Month^ -0.34% -0.41%

3 Months^ -0.27% -0.40%

6 Months^ 9.98% 10.91%

1 Year^ 14.83% 15.99%

3 Years (pa)^^ 7.27% 8.47%

5 Years (pa)^^ 16.46% 17.23%

Strategy Inception (pa)^^ 7.32% 6.47%

Strategy Inception - Total Return^^ 192.4% 158.8%

* Index is the MSCI World ex Australia in $A Unhedged with net dividends reinvested.^ Inception date of the Platform Class is 7 May 2015. Returns are based on the Platformredemption price and are net of fees.^^ The Bell Global Equities Fund - Platform Class has been operating since May 2015.To give a longer term view of our performance in the asset class, we have shownlonger term returns for a representative global equities strategy managed by Bell AssetManagement with an inception date of 1 Jan 2003. We have adjusted the returns toreflect fees representative of the Bell Global Equities Fund - Platform Class units.

Sector Exposure▬ Consumer Discretionary 14.5%

▬ Consumer Staples 12.6%

▬ Financials 6.8%

▬Health Care 18.5%

▬ Industrials 14.1%

▬ Information Technology 21.9%

▬Materials 4.4%

▬ Telecom Services 1.3%

▬ [Cash] 5.9%

Geographic Exposure▬Africa/Mideast 1.0%

▬ Europe 33.8%

▬ Japan 1.2%

▬North America 58.2%

▬ [Cash] 5.9%

Top 10 HoldingsCompany Sector Geography Weight

Alphabet Inc. Information Technology US 2.8%

Apple Inc. Information Technology US 1.8%

Johnson & Johnson Health Care US 1.8%

Roche Holding AG Health Care CH 1.6%

Oracle Corporation Information Technology US 1.6%

Siemens AG Industrials DE 1.4%

UnitedHealth Group Health Care US 1.3%

Verizon Comms Inc Telecom Services US 1.3%

BAE Systems plc Industrials GB 1.3%

Airbus SE Industrials FR 1.3%

Best & Worst Performers - 1 Month

Top 5 - Relative Contribution

Publicis Groupe SA 0.20%

Booking Holdings Inc. 0.13%

Cognizant Technology 0.12%

Airbus SE 0.12%

Zoetis Inc. 0.10%

Bottom 5 - Relative Contribution

Ingenico Group SA -0.15%

Lowe's Companies, Inc. -0.07%

Henry Schein, Inc. -0.06%

Gartner, Inc. -0.06%

Reckitt Benckiser -0.06%

Investment MetricsPortfolio Index Relative

Risk

Total Risk 10.6 10.7

Number of Stocks 103 1,580

Active Share 76.7

Value

P/E 17.2 16.0 107%

PEG Ratio 1.7 1.3 130%

EV/EBITDA 12.0 10.2 117%

Growth (%)

Sales Growth 6.0 5.6 106%

EPS Growth 10.5 11.8 90%

Quality

Return on Equity 24.0 11.8 203%

Net Debt / EBITDA 0.7 1.6 44%

Bell Global Equities FundCommentary 28 February 2018

Bell Global Equities Fund 2

Ned Bell CIO / Portfolio Manager

Adrian Martuccio Portfolio Manager

Fund Overview

Asset Allocation Long Only Global Equities

Inception Date 7 May 2015

Fund Size $37.2mn

Entry Unit Price 1.3536

Index MSCI World (ex Australia) Index

Performance

The Bell Global Equities Fund delivered a modest negative return of -0.34% in February, which was marginally better than index return of -0.41%.

Market Activity

Global equities went on a pretty wild ride in February, ultimately closing modestly down on the month in AUD terms. In USD terms, equities were hit particularly hard in the first part of the month – declining by 7.6%, only to subsequently stage a 5.3% rebound off the lows of the month. Needless to say that volatility finally reared its head as the VIX index spiked to levels not seen since 2015. From our perspective, the volatility spike and drawdown on equity prices is symptomatic of a long bull market staring down a rising interest rate environment. The initial pull back that we saw shouldn’t really come as a big surprise – especially as equity prices rallied by 8.3% (USD terms) in December & January alone. To put this initial market tremor in perspective, the MSCI World Index closed at about the same level where it was at the end of December.

As far as market performance is concerned, all regions posted negative returns of more than 3% with European equities being hit particularly hard – declining by 5.4% in USD terms. Sector performance was very diverse in that IT stocks were almost flat while Energy, Consumer Staples, Real Estate, Telecoms and Materials were all down by more than 5% for the month. One particularly interesting observation we would make related to trade action in US equities over the period from 26 January to 8 February, when the S&P 500 Index declined by 10.2%. Over this period we noticed a pattern of late afternoon selling into the close and also that the Dow Jones constituents tended to decline by very similar percentages. To us this pattern is indicative of broad based passive / ETF selling, and arguably the first crack in the momentum trade in U.S. equities. We have been arguing for some time that the performance of many of the US mega cap stocks is increasingly driven by momentum itself rather than a change in the fundamental backdrop.

Performance Attribution

In what proved to be an extremely volatile month for equities we managed to outperform our benchmark for a variety of reasons. Our relative sector allocations worked in our favour – i.e. U/W Energy & Real Estate and O/W IT – as did our average cash position of 3.2%. As far as our underlying positions are concerned, our better performers were Publicis, Booking Holdings, Airbus, Cognizant & Zoetis, while our laggards were Ingenico, Lowe’s, Gartner, Henry Schein & Reckitt Benckiser. We also suffered through lack of exposure to several strong performing index heavyweights – i.e. Amazon, JP Morgan Chase, Bank of America and Intel.

Research Focus

As far as research trips are concerned, members of the investment team travelled to Japan in February as well as to the US & Europe with an industrials focus. On a day to day basis, the volatility which has appeared before us should be throwing up opportunities for us as long term quality investors. As such, the team is focused on updating our theses on companies on our watchlist and as well as looking for opportunities to pick up oversold names.

Trade Activity

We did make several changes to the Fund during the month which we felt were particularly opportunistic. On a net basis we invested 3.1% in several new positions and sold two positions which accounted for 1.6% - so the overall magnitude of change was relatively minimal. On the sell side, we exited our positions in Kroger and United Technologies. The decision to sell Kroger was a function of a) acknowledging the increasingly competitive environment in US food retailing, and b) recognizing that we had some better ideas to allocate capital to at the time of the sale. United Technologies has been a long-term holding for us in the Core portfolio (over 5 years) and the decision to sell was triggered by our view that the valuation had become full and our scepticism around their M&A activity in the aerospace sector.

On the buy side of the equation, we initiated positions in Facebook, Compass,

Bell Global Equities FundCommentary 28 February 2018

Bell Global Equities Fund 3

Proctor & Gamble, Hoya and Genmab for a variety of reasons. In regard to Facebook, we have increasingly developed a view that the company has one of the more sustainable franchises in the global IT space and also represents a company that comes with an attractive LT growth trajectory. As far as valuation is concerned, at the time of purchase the company’s P/E was actually at a 5 year low relative to the rest of the market. While the stock trades on a P/E of 24x, it has a net cash position equivalent to 8% of its market cap and should continue to grow top & bottom line by more than 20% annually for the next few years.

Having previously owned Compass and Proctor & Gamble, the decision to reinitiate positions was predicated on the view they have both become oversold in the recent market malaise. Hoya is in our opinion one of the better Japanese companies with a leading position in the global eye lenses industry. The recent weakness in the stock price gave us an opportunity to inexpensively initiate a position (i.e. EV/EBITDA 12.4x). Genmab is a really interesting Danish healthcare company that we have been building our thesis on since meeting them in Copenhagen in October and have ultimately decided to start a position.

Portfolio Positioning

As we have flagged in recent months, we have been adopting a slightly more conservative portfolio stance as equities have continued to power higher. The market gyrations we witnessed early in the month were arguably a sign of things to come as investors gradually come to grips with what a rising interest rate environment means for equities. Over a period of months we have been increasingly skewing the portfolio away from Mega Cap US names and increasing our weightings to the names in the portfolio with more of a value bias.

While we remain optimistic about the underlying global economic backdrop, as always we are wary of areas of the market that are overbought and are actively looking to capitalise on disconnects in equity prices.

Important Information: Bell Asset Management Limited (BAM) ABN 84 092 278 647, AFSL 231091 is the responsible entity for the Bell Global Equities Fund (the Fund). This report has been prepared by BAM for information purposes only and does not take into consideration the investment objectives, financial circumstances or needs of any particular recipient – it contains general information only. Before making any decision in relation to the Fund, you should consider your needs and objectives, consult with a licensed financial adviser and obtain a copy of the product disclosure statement, which is available by calling BAM on 1300 305 476 or visiting www.bellasset.com.au. No representation or warranty, express or implied, is made as to the accuracy, completeness or reasonableness of any assumption contained in this report. Past performance is not necessarily indicative of expected future performance.

Key Features Investment Objectives Outperform the index* over rolling three year periods*Index is MSCI ex Australia

Asset Allocation Long only global equities, no gearing, no derivatives

Investment Style Fundamental bottom up approach ‘quality at a reasonable price’

Investment Highlights

• Global equity portfolio• ‘Quality’ focus - consistently high returning companies• Long-term horizon - typically 3-5 year holding periods• Benchmark agnostic• Diversified portfolio structure• Maximum cash position10%• Fund inception 2007 (strategy inception 2003)• Highly experienced investment team

Benchmark MSCI World (ex Australia) Index

Currency Exposure Unhedged

Investment Timeframe At least 5 years

Number of Holdings 90-110

Fund Terms Fund Inception Date December 2007

Product Structure Wholesale Registered Managed Investment Scheme

Investment Manager Bell Asset Management

Responsible Entity Bell Asset Management

Custodian National Australia Bank

mFund Code BLL01

Unit Pricing & Liquidity

DailyPublished on www.bellasset.com.au & market data servicesApplications using application form attached to the PDSRedemptions typically paid out within 10 days

Minimum Investment Minimum investment - $25kMinimum transaction - $1k

Indirect Cost Ratio 0.9%p.a

Buy / Sell Spread +/-0.21%

ReportingTransaction confirmations upon transacting, half yearly transaction and valuation statement, annual periodic statement, tax statement, distribution statement & Annual Financial Report

Income Annual distribution of taxable income

Contact Details Xanthe Virtue Head of WholesaleTelephone: +61 2 9255 7281Email: [email protected]