Benefits of investing in the Magellan High Conviction Fund

Investing in the Fund offers investors a range of benefits, including:

• access to our investment expertise and a professionally managed global equity portfolio;

• access to a concentrated portfolio of attractive investment opportunities in offshore markets; and

• participation in any capital appreciation and income distributions of the Fund.

An investment in the Fund may suit you if you are seeking a long-term investment exposure to international equities.

About the Fund

The Magellan High Conviction Fund seeks to invest in outstanding companies at attractive prices, while exercising a deep understanding of the macroeconomic environment to manage investment risk.

Investment philosophy

Magellan perceives outstanding companies to be those that are able to sustainably exploit competitive advantages in order to continually earn returns on capital that are materially in excess of their cost of capital.

While Magellan is extremely focused on fundamental business value, it is not a typical 'value' investor. The Magellan High Conviction Fund will invest in companies that have relatively high price-to-earnings and price-to-book multiples, provided that their businesses are outstanding and their shares are trading at an appropriate discount to their assessed intrinsic value. Equities that appear undervalued on the basis of a low price-to-earnings or price-to-book multiples will often prove to be poor investments if the underlying business is fundamentally weak and exhibits poor returns on capital.

Magellan focuses on risk-adjusted returns, rather than benchmark-relative returns. As a result, the Magellan High Conviction Fund's investment process is designed to generate an unconstrained, highly-concentrated portfolio of high-quality companies.

The Magellan High Conviction Fund's will comprise of 8 to 12 investments, with the portfolio weighted towards Magellan's highest-conviction ideas. The Fund may also hedge some, or all, of the capital component of its foreign currency exposure arising from investments in overseas markets back to Australian dollars.

Fund Features

• Unconstrained, long-only, highly concentrated

• High quality global equity strategy

• High individual stock exposure - 8 to 12 stocks

• Ability to actively hedge currency exposures, currently 64% hedged to AUD

• Maximum cash position of 50%

How we invest your money

The Magellan High Conviction Fund leverages off the Magellan Global Fund's investment process, which integrates three key disciplines:

1. Intensive bottom-up stock analysis and industry research.
2. Broad and detailed macroeconomic insight.
3. Rigorous portfolio construction and risk discipline.

Intensive bottom-up stock analysis and industry research is undertaken in order to identify outstanding companies. This involves the assessment of potential investments against key quality criteria, as well as assessments of their intrinsic value. Magellan uses a proprietary ranking tool, the Magellan Conviction Scoring Matrix, to rank these companies based on these factors. This process enables the portfolio to be weighted towards higher conviction ideas (on a risk-adjusted basis).

Magellan's detailed macroeconomic analysis is overlayed during portfolio construction, alongside the application of both fixed and dynamic risk limits. This process ensures that the portfolio is not overly exposed to aggregation risk (risk which arises from correlated portfolio positions) or macroeconomic event risk. Macroeconomic event risk can be a significant source of negative returns for investors. Magellan will make significant changes to the portfolio if it believes that macroeconomic events could lead to significant and sustained loss in value for investors. Such events would include a financial crisis, a sustained oil price shock, a global pandemic or a major global conflict.

Investments held

The Fund primarily invests in the securities of companies listed on stock exchanges around the world, but will also have some exposure to cash & cash equivalents. The Fund can use foreign exchange contracts to facilitate settlement of stock purchases and to mitigate currency risk on specific investments within the portfolio. As part of the investment objectives of the Fund, we may from time to time hedge some or all of the capital component of the foreign currency exposure of the Fund arising from investments in overseas markets back to Australian Dollars. However, there is no guarantee that any or all of the Fund will be hedged at any point in time.

Asset classes and asset allocation ranges

The Fund's assets are typically invested within the following asset allocation ranges:

• Securities: 50-100%

• Cash and cash equivalents: 0-50%