Markets muddle through the five stages of grief  Jamieson Coote Bonds July 4 2022 As the second quarter ends, investors are licking their wounds from negative asset returns as policy withdrawal corrodes asset values around the world. Investor sentiment has swung wildly throughout the year but now seems firmly entrenched in Kubler-Ross's famed five stages of grief - denial, anger, bargaining, depression and acceptance. Make no mistake, things do not look good in the near term for economies as central banks raise rates the world over, lifting interest servicing costs and reducing discretionary spending. Bond markets have already priced in the most substantial and violent rate hiking cycle in generations - far beyond the 2.5 per cent US Federal Reserve rate hiking cycle peak of 2018 that crashed the corporate credit markets (and ultimately the equity market). As investors are entering the bargaining phase of grief, perhaps there is some glimmer of hope emerging, as inflation data and the inventory cycle (the bullwhip effect) can help ease the pathways into 2023. It is very likely there will be some depression as the markets continue to adjust (illiquid assets need to play rapid catch-up to listed assets) and finally an acceptance that our new geopolitical world order requires a vast recalibration of energy and labour markets that will have far-reaching effects, add risk premia to asset classes in higher volatilities and crimp the lofty growth valuations seen in the last cycle. Government bonds led asset underperformance, correctly signalling tougher times ahead for the economy as reopening inflation was turbocharged by the Russia-Ukraine conflict and further China lockdowns. Early in the year, many investors seemed in ''denial'' that markets could fall abruptly, despite the early warning signs from the bond market that funding interest rates would be moving significantly higher, tightening the economy at significant pace despite the economy opening the year in great health. No doubt significant ''anger'' has been experienced as many risk assets followed the lead of bonds over the second quarter, playing catch-up and slingshot in a spectacular fashion (the US Nasdaq is now down 29 per cent). The cult of crypto has been forced to stare into the abyss and contemplate life without self-reinforcing feedback loops, amid nasty infighting among the tribal communities. Australian equities have thankfully been well insulated from larger global declines to date, thanks to heavy commodity exposures which have outperformed significantly so far in a supplyconstrained world. This requires some investor consideration should growth fall substantially, as commodities can flip from leader to laggard very quickly despite supply constraints - in the Global Financial Crisis of 2008, oil fell from $140 a barrel to $44 in a matter of months. Are we somewhere around the ''bargaining'' phase currently - looking for pathways that can deliver a soft economic landing? There are certainly signs that goods inflation has significantly abated in the US - major retailers such and Walmart and Target have reported a surge in inventory accumulation and expect consequential goods discounting as a result. Supply lines are healing, and freight costs have fallen - this is known as the ''bullwhip'' effect, where inventory can flip from deficit to surplus almost instantaneously. Many businesses perhaps over-order inventory, knowing their order may be scaled back, but as supply lines heal one day the entire order arrives and they find themselves overstocked, leading to poor inventory turnaround times. This may also be the result of changing consumer demand, but either way discounting occurs and inflation pressures ease as a result until the excess inventory is cleared to restore equilibrium. This should help inflation begin to moderate, along with a more stable energy complex (oil peaked at $US130 after the outbreak of the Russia-Ukraine conflict; now $US106). However, services inflation is still expected to rise in the near term, leading to an ongoing, volatile series of outcomes in the inflation data. We expect that inflation will moderate over the balance of the year which will help central bankers find a change of narrative towards a ''pause'' of policy from the highly restrictive settings they are currently embarking upon. Sadly, while this improvement in inflation will help lift the angle of decay, we still have some difficult times to navigate as interest rates rise over the balance of the year, as expected by the bond market which has fully priced these expected outcomes. And so the ''depression'' phase may remain ahead as a ''pause'' of policy may help alleviate the declines, they will not bring back the financial asset lunacy of 2021 (anyone for a digital ape drawing for a few hundred thousand?). Assets are finding new valuation ranges for a post-Covid geopolitical world. This is probably a world where inflation can oscillate from inflationary (supply disruptions from war) to disinflationary (capitalism solves the problem) as secular forces clash and government policy stimulates or destroys demand, chasing inflation mandates. Investors must finally find ''acceptance'' that the pandemic uprooted a rule-based system, led to the great resignation, accelerated working from home - essentially it threw the economic and social jigsaw puzzle into the air and pieces have landed all over the place. Incredible government policy saved economies from their stark realities at that time, but the entropy of that volatility has returned and will leave us with a more unstable world. Part of that acceptance will be to realise that asset allocation is paramount for investors, who will be reminded that some equity is worthless, some dividend policies are best endeavours only, some credit will default, and many boring and and conservative assets play a critical role. In combination, strong and diverse asset allocation will generate good outcomes through the uncertainty we continue to face. Contractually and legally binding bond coupons from highly rated governments are close to certain for income investors (unless you think the governments will not exist in time to repay you). They might find growing acceptance in a world where the only certainties are death and taxes.

Funds operated by this manager: CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged), CC Jamieson Coote Bonds Global Bond Fund (Class B - Unhedged)

Super-sized rate hikes, super-sized credit risk, super-size problems. Follow the dominoes.  Jamieson Coote Bonds June 2022 The change of policy in 2022 has set off a series of dominoes for asset markets. Government Bonds were first to fall in quarter one, with other assets also following aggressively into quarter two. Listed assets are marked to market instantly (which can often be unpleasant) whilst illiquid or private markets can hold previous asset valuation marks as there is no observable price where price discovery could occur. It is worth considering what those realisable values might be if higher quality or liquid public assets are already -10, -20, -30%? Is a credit crisis about to erupt? The dominoes of change are quickly bringing attention to credit default as it stands to reason that refinancing outstanding lowly rated corporate debt will become increasingly problematic. The Australian Government was borrowing 10-year money at 1.05% in August last year, these rates have now moved to over 4.05% today. If the Government has to pay over 4% when it used to pay a bit above 1%, then spare a thought for corporate borrowers who might have borrowed at super low rates and are now asked to refinance at Government Yield of 4% plus some large credit spread component. How long will the markets have confidence in these lowly rated corporates to refinance at such punitive interest rate levels? The danger here is that they cannot ROLL those existing borrowings forward. That means there is no further credit extended and they need to REPAY the initial borrowing amount as well. That is exactly how a credit crisis erupts.  The markets essentially say "we will not re-lend to you and we'd like to be repaid as well." This usually requires the lender of last resort - the Central Bank - to step in and provide a safety net of support. This is the policy pivot we have written about for some time and has marked a turning point in asset performance. But how does a Central Bank do that here with inflation globally between 5 and 8 %? Central Bankers are now rapidly raising rates as fighting inflation has taken absolute priority over saving corporate zombies from bankruptcy, generating material stress in the credit complex as many investors flee the asset class. Credit risk has been spectacularly dormant as the broad decline in long term Government Bond yields since the 1980's, plus support from Central Banks, has fostered a "begin" environment for the assets class, slingshot by the massive support of flows and investor sponsorship in the ''search for yield'', under the financial repression of low interest rates. That sponsorship and flow looks likely to have ended with rates markets having a stunning sell off this year, leading most asset markets to weak performance. Many public credit assets have also underperformed - primarily from their inherent fixed income duration, rather than the material recalibration of credit (spread) risk.  The US Federal Reserve (the US Fed) is quickly approaching levels that flawed the credit markets in the last hiking cycle of 2018. At that time, in a peaceful and stable world, the US Fed Funds rate climbed to 2.50% before credit markets locked in November 2018, causing significant market stress through December 2018 for risk assets. The US Fed moved to 1.75% this week and suggested its next move is either 0.50% or 0.75% hike to 2.25 or 2.50% in July to continue the fight against inflation by killing demand in the economy. The forces corporate credit markets are now facing So, the next complex issue facing markets will likely revolve around credit default and the stunning rebirth of credit risk in the corporate credit fixed income space. Credit is a high specialised market which is little understood by most investors. Credit quality, as measured by ratings agencies, ranges from the highly converted (but low yielding) AAA rated issuers, all the way through to lower CCC rated issuers classified as having substantial risk of default (known in markets as 'junk'). Due to the inherent credit risk in these lower rated securities, yields are far higher to entice investors to take on the risk of default. Spreads on CCC rated US corporate bonds are approaching 1,000 basis points for the first time since the Covid-19 crisis, when the US Fed magically halted default issues by flooding the market with unprecedented amounts of liquidity and buying corporate credit as part of the Covid-19 stabilisation programs. Any such support for the market looks very difficult to achieve this time as Central Bankers are now rapidly raising rates to fight inflation. Would you lend money to a buy now pay later platform or a growth company with no sustainable earnings to meet debt repayments in the current environment? Thankfully for Australian investors we have very few names like this, but our corporate credit does move its sympathy with global markets which are full of such names. Rate hikes strike in an uncertain world With materially higher rates now priced by Government Bond markets, the economy is expected to slow rapidly as rate hikes bite, hitting the public, lowering confidence and curtailing discretionary spending. Liquidity and asset quality will become important considerations for portfolios looking to benefit from steep discounts in many quality assets. We do not expect that rates will fall back to anything like the emergency levels we have seen post pandemic, so it feels like the re-birth of credit and default risk could be with us for some time yet as we move to a structurally higher rate environment than in recent years. It is important to acknowledge that the playbook in the last few episodes of a corporate credit seizure (Central Bank rate cuts and Quantitative Easing) will not work under a higher inflation and unstable geopolitical environment. That pivot of policy simply isn't available if inflation remains above Central Bank mandate levels as we would expect for the balance of 2022 due to the global energy shock.

Funds operated by this manager: CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged), CC Jamieson Coote Bonds Global Bond Fund (Class B - Unhedged)

The Growing Esg Trend In Fixed Income Jamieson Coote Bonds 08 November 2021 INTRODUCTION The focus on ESG, sustainable investing and investment stewardship has dramatically risen in recent times. However, 2020 marked a significant turning point. Prior to COVID-19, while considerations of ESG and sustainability had become prominent, progress remained slow. However, the emergence of COVID-19 in combination with extreme events triggered by the climate crisis heightened global focus on ESG matters and starkly highlighted the challenge before us all.  A perfect storm had been brewing fueled by habitat destruction, biodiversity loss and social inequality. In addition, as the COVID-19 crisis has unfolded, millions of people crashed down through Maslow's Hierarchy of Needs, revealing the widespread nature of social inequality and insecure work practices. Given the systemic weaknesses that were unveiled and the broad-based issues facing society, it became rapidly evident (even to the naysayers) that all participants in the investment supply chain have a role to play, including sovereign bond investors.  We need to build in greater levels of system strength and resilience (economically, environmentally, and socially) as we collectively recover from COVID-19. THE GROWING ESG TREND IN FIXED INCOME - NOT JUST A THEME FOR EQUITIES Historically, ESG focus has largely been on equities: this was a space where asset managers and asset owners felt comfortable and had clarity around what they could do and how to do it. Attention has also evolved to similar areas of comfort: real assets (property and infrastructure) are asset classes where the what, why and how of ESG is readily understood.   In the mind of many investors, fixed income tended to be obscured, as it perhaps felt less tangible and therefore more difficult to tackle from an ESG perspective. However, the focus has now duly turned to fixed income.  This is critical, in that when we consider the capital stack, global debt markets (~$281T in size at the end of 2020) are almost triple the size of global equity markets (~$105T), yet almost all ESG focus has been in the listed equity space, leaving a large gap in approach (and potentially outcomes and impact). In the context of fixed income, greater emphasis has tended to have been placed on corporate debt. The reason being that much of the ESG and investment stewardship knowledge, and practical experience, garnered in and from public equity markets can be transposed into how one approaches ESG in public debt markets - from issuer ESG analysis through to engagement. Whereas, in the context of sovereign debt, it may have been conceptually overwhelming to know where to focus, e.g.: • How to engage with a sovereign counterparty or influence change when it comes to ESG. • Government activities are broad in nature, some of which may be detrimental from an ESG perspective, others which are either neutral or positive. INTEGRATING ESG INTO SOVEREIGN BOND INVESTMENT   Notwithstanding, the focus is now turning to sovereign bonds.  This is important given the size of the sovereign debt market which accounts for roughly two thirds of total fixed income market capitalisation.  Further, we all have a role to play in driving positive change and delivering impact on the ground. We also believe that the ESG and investment stewardship lessons learned in public equity markets and listed corporate debt can be elegantly leveraged in a sovereign debt context. Consideration of ESG factors has long been part of, and an input into, JCB's investment decision making process as a means by which to manage risk, make informed decisions and influence positive change. We have continued to further refine and develop our approach, which is now centred around three core pillars of focus, namely: 1. ESG research and integration 2. Active ownership 3. Collaboration and information sharing Sovereign debt investors, JCB included, have utilised ESG research and integrated ESG considerations into their investment analysis and decision-making processes for some time. While ESG factors may not drive the ultimate investment decision, they provide another lens by which to view a prospective investment opportunity. This goes to making well informed investment decisions. In addition to this, when thinking about ESG integration, ESG factors are not only relevant as an input but can be a key output. The market has witnessed an exponential rise in green, social and sustainable debt issuances. This provides investors with an opportunity to finance impactful activities, projects and programmes at a sovereign and semi government level. Further, such issuances also "serve as a commitment device for politicians". Government policies and commitments can always be watered down or resiled from, however: "...when a finance ministry creates a green-bond programme and builds out a "green curve", backing out of specific policies may become harder...Doing so would hurt liquidity and anger investors." ["A wave of green government bonds is flooding markets", The Economist, 9 October 2021]. Anchored to the need for ESG integration and investing in impact, is the opportunity (and some may say obligation) to: • Engage with issuers and other relevant parties • Collaborate with others to influence change Engagement and collaboration, in the context of ESG and investment stewardship, have long been the domain of listed equity investors. However, this is evolving, and sovereign debt investors increasingly recognise that they also have a role to play. Historically, it has been posited by some that it is not appropriate for sovereign debt investors to utilise their ownership rights and engage on the basis that it may be construed as undue political influence. Our view is that such engagement is incumbent upon us as a responsible market participant, and it provides a constructive tool to: • Communicate our approach and client expectations • Share our key focus areas and encourage action • Communicate our desire to see the development of more sustainable and resilient financial systems • Maintain ongoing dialogue and conversations regarding ESG related issues Accordingly, we are in the process of increasing our levels of engagement with issuers, originators, and other market participants as a means by which to stimulate ongoing dialogue and where possible influence for positive change regarding ESG matters. We firmly believe that having conversations can create awareness and drive positive change. Related to active ownership, we are also seeing that the appetite to collaborate (e.g., via the PRI) has risen.  JCB has recently joined the PRI as a signatory and is actively looking for ways in which to collaborate with others to influence positive change. This will also be an area of ongoing focus. WHAT ARE THE OPPORTUNITIES FOR INVESTORS? There are opportunities and benefits for sovereign bond investors who are integrating ESG and focused on participating in the Green Social and Sustainable (GSS) bond space. Specifically, consideration of ESG factors leads to better informed investment decisions, and when combined with the tools of active ownership, it provides such investors with the capacity to influence positive change. In addition, investing in labelled sovereign GSS issuances enables the delivery of real impact on the ground. In doing so, it also provides the ability to ensure that such Government commitments to positive GSS projects and outcomes are executed on irrespective of the political cycle. Consideration of ESG factors and investment stewardship practices, combined with participating in GSS issuances also ensures that portfolios are better aligned with client expectations and outcomes, and provides a source of portfolio diversification. CONCLUSION We are witnessing a maturation in ESG practices combined with the ever-growing need for capital markets to influence positive change from a social and environmental perspective. Given that sovereign debt constitutes a large part of the capital stack, sovereign investors such as JCB have a role to play in building in economic and ecosystem resilience. Particularly given that against the backdrop of COVID-19 the awareness of the intersectionality between environmental and social issues and capital markets has amplified.  More is now rightly being asked of all capital market participants. Ultimately, as an active sovereign debt investor, we feel that ESG is both an important input and output of the investment management process. If you are interested in learning more about how sustainable investing works, view our ESG Approach to investing.

Funds operated by this manager: CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged), CC Jamieson Coote Bonds Global Bond Fund (Class B - Unhedged)