Macquarie Funds Group

Emerging Markets Equities Manager Profile

PRODUCT

Macquarie Emerging Markets Tactical Allocation Fund (Unhedged)

ORGANISATION

Macquarie Funds Group (MFG) is Macquarie Group’s funds management business. MFG is Australia’s largest asset manager and a top 40 asset manager globally, with A$305 billion in assets under management as at 31 March 2011. MFG is a full service asset manager, offering a diverse range of products including securities investment management, infrastructure and real asset management and fund and equity-based structured products.

INVESTMENT PROCESS

Investment Philosophy

The Manager believes that systemic risk in global and emerging markets is as relevant a factor as the risks associated with individual companies and sectors. The most important source of outperformance is in the weighting of countries, followed by choosing sectors to express a thematic view. The Manager also believes that portfolio risk is best mitigated by active portfolio management and the use of cash holdings.

Investment Strategy

The Fund uses a long only, actively managed equity strategy to invest in global emerging market securities. The Manager uses a top-down thematic approach which it believes allows the Funds to make more flexible short, medium and long term value investments in emerging markets. The Manager focuses on fundamental country analysis within the broader global macroeconomic and geopolitical environment, rather than attempting to pick individual stocks in emerging market countries.

The Manager places primary emphasis on global macroeconomic and geopolitical factors and then looks at a country’s fundamentals and key themes (such as oil and other commodity prices, interest rates, inflation, growth and valuations) when determining the industries or sectors in which to invest. The Manager will then make investments, for example in index-linked securities or individual shares that provide the desired country, industry and sector exposure.

Investment Process

The Manager narrows its investment universe through an initial screening process based primarily on external research including research from independent research firms, independent consultants and international investment banks. Some emerging market countries may be excluded from further analysis on the basis of illiquidity and inadequate expected investment returns.

This initial screening process results in a pool of approximately 15 investable countries on which the Manager will undertake its own rigorous first-hand top-down analysis. Because the research process is iterative, this pool of investable countries may change if changes in the market conditions of countries in the investment universe are identified. Once the research has been undertaken, the Manager constructs a portfolio based on both quantitative factors (such as gross domestic product, current account balance and equity market flows) and qualitative factors (such as local sentiment and political conditions) representing a country’s current and trend fundamentals. The portfolio ordinarily consists of 15 to 30 securities and takes into account country outlooks, need for cash holding and preference for high portfolio liquidity.

The Manager looks to invest the assets of the Unhedged Fund predominantly in listed equity securities such as exchange-traded-funds (ETFs), index futures and large cap equity American Depository Receipts (ADRs) and Global Depositary Receipts (GDRs) traded on international exchanges such as the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE). These listed equity securities will provide the exposure to emerging market listed equities. The Manager is able to take positions through a variety of other instruments including, but not limited to, derivative instruments, structured securities, country specific closed or open ended mutual funds, shares traded in local markets, cash and cash equivalents.

PERFORMANCE to 31 May 2011 (in USD and net of fees)

* Since inception: 2 November 2006

 ASSESSMENT

The Fund is managed by an experienced and focused team of seasoned equity security professionals. Significant research and back office support is provided under the Macquarie Funds umbrella. The investment process is clearly defined and differentiated from its peers. Active management of country weights is the major contributor to relative performance.

The Manager consistently takes high tracking error positions, with an aim of significant outperformance against the market. Outperformance over the three year period has been significant. Management fee for the Fund is slightly above peer average and performance fee is payable on excess return.