Michelle Lopez from Aberdeen Standard Investments presented on identifying small cap stocks that will perform well over the long term. The presentation focused on the importance of evaluating company fundamentals, including business strategy, management quality, financials, and ESG factors. Lopez emphasized that active investment including shareholder engagement is important for achieving strong risk-adjusted returns from small cap stocks.

1. Identify small cap stocks
that will last the distance
Presented by
Michelle Lopez
Deputy Head of Australian Equities
Aberdeen
21 May 2019

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This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090 569 109,
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Michelle Lopez
Deputy Head of Australian Equities
Aberdeen
Meet today’s speaker

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May 2019
Netwealth Learning Webinar
Good Governance
Strong amplifier of small cap performance
For professional investors only – not for public distribution
Michelle Lopez, CFA, Deputy Head of Australian Equities
Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.

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• One of the largest investment houses globally
• Geographically diverse – 50 office locations globally with investment
management in 24 offices
• Highly diversified business – by revenue, asset class, client and geography
• Aberdeen Standard Investments will offer a comprehensive range of developed
and emerging market equities and fixed income, multi-asset, real estate and
alternatives solutions
• Aberdeen Standard Investments is a brand of the investment businesses of
Aberdeen Asset Management and Standard Life Investments
About Aberdeen Standard Investments
Figures may appear not to add due to rounding. An exchange rate of £1:AU$1.7869 as at 30 June 2018 has been
used. Source: Aberdeen Standard Investments, 30 June 2018.
Total AuM AU$995.5 billion
Equities
26%
Fixed Income
25%
Multi-Asset
16%
Private Markets and
Alternatives
5%
Real Estate
7%
Quantitative
12%
Cash/
Liquidity
10%
• The Australian Equities team is responsible for approx. $1bn in Australian
Equities
• Long track record in Australian equity
• As part of regional portfolios since 1985
• Dedicated Australian equity portfolio since 1997
• Dedicated Australian small caps equity portfolio since 2007
Mid and Small Caps
63%
Income 4%
Large Caps
32%
REITS
1%

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Source: Aberdeen Standard Investments, 31 Mar 19.
* Regional numbers include Head of desk, Deputy head, fund managers and embedded ESG personnel
Includes affiliated persons operating under inter-company agreement
Stuart Ives
Global Head of Business
Strategic Development
Edinburgh
15 investors
London
1 investor
Boston
2 investors
New York
1 investor
Stephen Docherty
Head of Global
Dominic Byrne
Deputy Head
Devan Kaloo
Global Head of Equities
Stan Pearson
Deputy Head of Equities
Mark Vincent
Global Head of Research
Ralph Bassett
Deputy Head
Ben Ritchie
Deputy Head
Andrew Paisley
Deputy Head
Lesley Duncan
Deputy Head
Joanne Irvine
Deputy Head
Kwok Chern-Yeh
Deputy Head
Tokyo
6 investors
Singapore
16 investors
Sydney
8 investors
Bangkok
4 investors
Kuala Lumpur
7 investors
China/Hong Kong
7 investors
Jakarta
4 investors
Boo Siew Yan
Global Head of Business
Operations
Equity
Dealing
(24)
Equity
Investment
specialists
(12)
ESG Cross-
Asset Class
Team
Research/Quant support (11)
Investment support (36)
ESG (8)
Flavia Cheong
Head of Asia Pacific
Devan Kaloo
Head of GEM
Jeff Morris
Head of North America
Andrew Millington
Head of UK
Stan Pearson
Head of Europe
Harry Nimmo
Head of Smaller
Companies
London
17 investors
São Paulo
5 investors
Edinburgh
7 investors
Our equity teams
Boston
10 investors
Philadelphia
11 investors
Edinburgh
11 investors
London
5 investors
Edinburgh
9 investors
London
9 investors

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Alpha Potential
Source: Aberdeen Standard Investments, S&P, Factset, Jan 2004 –Dec 2018
Benchmark Cross-Volatility Comparison
0.00
5.00
10.00
15.00
20.00
25.00
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
S&P/ASX 300 S&P/ASX 300 ex S&P/ASX 20 S&P/ASX Small Ordinaries
Increasing Opportunity

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A more diversified opportunity set
Source: Aberdeen Standard Investments, Factset, As at 31 Dec 2018. Source: Aberdeen Standard Investments, 30 Apr 2019.
6%
16%
8%
5%
9%
7%8%
12%
18%
11%
0%
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials Ex Reits
Health Care
Industrials
Information Technology
Materials
Reits
Utilities
4%
7%
6%
6%
32%
8%
8%
2%
18%
7%
2%
S&P/ASX Small
Ords
S&P/ASX 200
0
1
2
3
4
5
6
7
8
9
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
S&P/ASX300, stocks 1-20 (57% of index)
S&P/ASX Small Ords, stocks 1-20 (15% of index)
Index stock position
The Australian market is highly skewed
Sector breakdown – S&P/ASX200 vs. S&P/ASX Small Ords
%ofIndex
Stock position in the index

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The challenge is that small cap stocks are prone to disappointment and volatility
Source: Aberdeen, Macquarie, IRESS total returns data for ASX Small Ordinaries, 28 Sep 2018. For illustrative purposes only.
Return dispersion for Australian small companies over 5 years (as at 28 Sep 18)
-120%
80%
280%
480%
680%
880%
53% of all stocks
posted negative
returns
31% lost over half
their value
16% of all stocks doubled in value
• Reality: small caps are highly skewed to negative returns
• Challenge: Finding those quality companies that generate sustainable earnings growth over the long term

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Company fundamentals
Source: Aberdeen Standard Investments
Drivers of success or failure
Business
strategy
Management
Financials
ESG
Ownership
structure

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• Primary responsibility is to generate the best long-term outcomes for clients
• ESG factors are financially material, and impact corporate performance
• Understanding ESG risks and opportunities alongside other financial metrics allows better investment decisions to be made
• Informed and constructive engagement helps foster better performance, protecting and enhancing the value of clients’
investments
Why ESG and why does it matter?
Invest for a better future
A comprehensive assessment of environmental, social and governance (ESG) factors, combined with constructive company engagement,
leads to better client outcomes
Source: Aberdeen Standard Investments

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Stewardship and ESG deeply embedded within investment process
ESG assessment and corporate engagement enhances returns
Source: Aberdeen Standard Investments
Active corporate engagement
Frequent dialogue
• Senior executives
• Board members
• Site visits
On-going due-diligence
• Business performance
• Company’s financials
• Corporate governance
• Company’s key risks
and opportunities
Exercise rights
• Always vote
• Explain voting decisions
• Attend AGM/EGMs as required
Consider all options
• Buy, sell or fight
• Seek to collaborate
• Legal action, if necessary
ESG at the heart of company research
Clear ESG strategy
• We aim to be an industry leader in ESG
• Stewardship and ESG are fundamental components of our
investment process
• Critical to protecting and enhancing the value of the portfolios
we manage on behalf of clients
ESG investment resource
• Large team of 30+ ESG professionals
• Centralised function and integrated on-desk analysts
• Expertise in each of the functions of environmental, social,
governance
Integrated, in depth research
• Thought leadership in major ESG issues
• Company specific assessment of the management of ESG
issues and risks
• Insight informs our investment decisions

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ESG / Governance Case studies
Source: Aberdeen Standard Investments, Bloomberg, 30 Apr 2019.
0
3
6
9
12
15
18
21
24
27
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
0
1
2
3
4
5
6
7
8
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
ARB Corporation Ltd.
Share Price – 10 years to 30 April 2019
Cabcharge Australia Ltd.
AU$
0
10
20
30
40
50
60
70
80
90
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Domino's Pizza Enterprises Ltd.
AU$
AU$*
Domino’s: A high growth market darling.
ESG is not an issue until it is
Cabcharge: Can companies create a
turn-around by implementing a strong
governance framework?
ARB Corporation: an exemplary niche
player with a willingness to incorporate a
strong ESG foundation

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Strong Governance is an amplifier of small cap performance
Source: Aberdeen Standard Investments
• Australian small cap universe: greatest opportunity for alpha generation and amongst them our future market leaders
• ESG matters and leads to better informed investment decisions
• Active investment: it’s about engagement, not just stock selection
• The outcome: better long term risk adjusted returns

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Investment Process
Long term investing in high quality businesses at appropriate valuations
Source: Aberdeen Standard Investments
Step 1: Quality
Pass or fail?
• Ownership structure
• Business strategy
• Management
• Financials
• ESG
ASI universe of
stocks
• Price/earnings
• Price to cash flow
• Price to book
• ROE
• Dividend yield
Step 2:
Valuation
Cheap or expensive?
Step 3: Portfolio
construction
• Risk controls
• Model portfolio
• Portfolio ‘balance’
Revisit Watch list Monitor
Stock research note

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Diversified portfolio of high quality companies
• Higher dividend yields
• Strong balance sheets
• Superior margins
• Higher Return on Equity and Return on Assets
Portfolio characteristics: Aberdeen Standard Australian Small Companies Fund vs Index
#Excluding banks and insurance
* Historic
Source: Aberdeen Standard Investments, Bloomberg, Mar 19
P/E 2019 P/E 2020 Portfolio
yield*
Net Debt/
Equity
#
Operating
Margin
ROE* ROA*
Aberdeen Standard Australian Small Companies Fund 19.8x 19.7x 3.3% 25.6% 27.8% 15.4% 9.4%
S&P/ASX Small Ordinaries 17.8x 15.4x 3.0% 24.9% 19.8% 13.9% 7.9%

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Upside/Downside Capture
Low downside capture – Aberdeen Standard Australian Small Companies Fund
Data through 31 Mar 19
Source: Aberdeen Standard Investments, 31 Mar 19. Past performance is not indicative of future results.
Since inception: 1 May 2009.
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
3-yr 5-yr Inception
• Performance outcomes are consistent with long term quality style
• Low downside capture
• Strong upside participation
Market return (ASX Small Ords)Downside Capture Upside Capture

22. | netwealth22
Generating strong returns with less volatility – 5 years
Source: MercerInsight. The Mercer Australian Small Cap universe consists of long only Australian small cap equity strategies. Past performance is not a guide to future results
Performance is shown gross of fees and does not reflect investment advisory fees; had such fees been deducted, returns would have been lower. Net of fees performance can be found on the slide titled
“Performance: Aberdeen Australian Small Companies Fund”. Performance is supplemental to the composite. Additional composite information can be found at the end of this presentation
Risk/Return
5 years ending Mar 19
Aberdeen Standard Australian Small Companies Composite
0
2
4
6
8
10
12
14
9 10 11 12 13 14
Return(%pa)
Risk (%)
S&P/ASX Small Ordinaries TR
Average small cap fund
Aberdeen Standard Australian Small
Companies Composite
S&P/ASX200 TR
S&P/ASX100 TR

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Aberdeen Standard Australian Small Companies Fund vs Small Ordinaries Index
Inception: 1 Mar 01.
* Prior to 1 May 2009 the Fund was managed by Credit Suisse.
Source: Aberdeen Standard Investments, 31 Mar 19.
Past performance is not a guide to future results.
Performance, net of fees
Growth of $10,000
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Aberdeen Standard Australian Smaller Companies Fund (net) Index: ASX Small Ordinaries S&P/ASX Small Industrial TR
Fund acquired from CS*

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“Plan for the future because that’s
where you are going to spend the
rest of your life”

25. | netwealth25
Issued by Aberdeen Standard Investments Australia Limited ABN 59 002 123 364 AFSL No. 240263. Aberdeen Standard
Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments. This
document has been prepared with care, is based on sources believed to be reliable and opinions expressed are honestly held
as at the applicable date. However it is of a general nature only and we accept no liability for any errors or omissions. This is
not an offer of securities. A Product Disclosure Statement (PDS) and application form is available for each Fund by calling
Aberdeen Standard Investments Client Services on 1800 636 888, at www.aberdeenstandard.com.au, or from your financial
adviser. This document has been prepared without taking into account the particular objectives, financial situation or needs of
any investor. Investments are subject to investment risk, including possible delays in payment and loss of income and principal
invested. It is important that before deciding whether to acquire, hold or redeem an investment in a Fund that investors
consider the Fund’s PDS, the Fund’s appropriateness to their own circumstances, objectives and financial situation and consult
financial and tax advisers. Past performance is not a reliable indicator of future results. All dollars are Australian dollars unless
otherwise specified. Indices are copyrighted by and proprietary to the issuer.
Disclaimer

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This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090 569 109,
AFSL 230975. It contains factual information and general financial product advice only and has been prepared without taking into
account the objectives, financial situation or needs of any individual. The information provided is not intended to be a substitute for
professional financial product advice and you should determine its appropriateness having regard to you or your client’s particular
circumstances. The relevant disclosure document should be obtained from Netwealth and considered before deciding whether to
acquire, dispose of, or to continue to hold, an investment in any Netwealth product.
While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person,
including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any loss suffered by any
person arising from reliance on this information.
Disclaimer
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