L1 Long Short Fund (LSF) Status Update summary

Market outlook and macro themes

• Constructive global economic outlook, with U.S. growth driven by tax cuts, incentives, and expected rate cuts; significant CapEx in AI and similar global trends.

• Australian market up 12% YTD, but earnings outlook remains soft; returns supported by multiple expansion rather than earnings growth.

• ASX200 faces a weak FY25 reporting season with a declining EPS outlook and lower forward P/E ratios, reflecting cautious sentiment in Australian equities.

• U.S. inflation is expected to remain sticky, potentially limiting the scope for interest rate cuts.

• Australian market seen as fully valued, trading near 20x earnings; best opportunities found in mispriced stocks overlooked by the market.

Fund performance and positioning

• Long Short Fund up 31.4% YTD to October, outperforming the ASX200AI (11.9%) and MSCI World (19.8%), with broad-based performance across sectors and regions.

• Achieved 23% net performance over 1 year and 17% p.a. over 3 years, consistently outperforming the S&P/ASX 200 Accumulation Index.

• Since inception, the strategy has delivered 19.1% p.a., ranking as the best performing Australian long short strategy in its sector.

• Portfolio positioned more conservatively, with lower net exposure to Australia and focus on high-quality, undervalued stocks globally; median long positions have a 10.3x P/E and 6.1% free cash flow yield.

• Maintained high gross exposure (153% long, 79% short) with net exposure concentrated in Australia/NZ, North America, and Europe.

Investment process and key positions

• Investment decisions require agreement between both portfolio managers, ensuring robust risk management.

• Mineral Resources position increased after addressing concerns on governance, balance sheet, and project risks; announced a $1.2bn sale of lithium assets and completed key infrastructure upgrades.

• K92 highlighted as a favorite gold position, with production expected to more than triple in coming years.

• NexGen remains top uranium pick, approaching key project approval milestones and expected to become a major low-cost producer.

• Top long book contributors included Downer, CRH, Finning, NexGen, IMDEX, Qantas, Fraport, Chorus, Lloyds Bank, Westgold, and Mineral Resources.