Morningstar Preferred Stock List

Morningstar? Preferred Stock List

Key Benefits aa Provides a good starting

point from which to build a direct equity portfolio. aa Helps identify stocks that are higher quality or lower risk using our economic moat, stewardship, fair value uncertainty ratings in addition to our recommendations

The Morningstar Preferred Stock List is a screened subset of our coverage universe that we believe provides a good starting point from which to build a direct equity portfolio. In fact, our internal investment committee uses the same system to find compelling investment opportunities for our five model equity portfolios: Core, Income, Growth, Sustainable, and Small Cap.

The goal of the Morningstar Preferred Stock List, or PSL, is to identify stocks that are higher quality or lower risk using our economic moat, stewardship, and fair value uncertainty ratings, along with our buy, accumulate, hold, reduce and sell recommendations. We think it is important for clients to understand how to use all our proprietary data points in their investment decision-making process, rather than view any one characteristic in isolation. For more detail on our ratings and research process, please refer to the Morningstar Equity Research Methodology on page 5 or contact our equity analyst team.

The number of stocks on the PSL varies over time depending on prevailing market prices but tends to average about 100 stocks. We view this as a great head start for prospective direct equity investors as it balances the need for investment ideas that suit a variety of portfolio styles while remaining restrictive enough to prevent excessive exposure to high risk situations. For clients with specific needs regarding the size or quality of this list, we can discuss customisation ? please speak with your sales representative.

The Morningstar PSL applies five simple filters:

1. Start with the 230 Australia & New Zealand stock universe covered by our team of 20 analysts and strategists using our globally-consistent equity research framework. We intentionally focus our coverage universe on higher quality companies, so this is a powerful initial filter in finding portfolio candidates. If we don't cover the stock, it is often lower quality or too small to meet most client requirements.

2. Remove stocks that are rated `Very High' or `Extreme' fair value uncertainty rating by our coverage analyst. This step serves to limit exposure to hard-to-predict cash flows and often highly volatile share prices when viewed through the economic cycle.

3. Remove stocks with a `Sell' recommendation. This rating indicates our analyst believes the market has priced in an unrealistically optimistic outlook, implying that future share price returns are likely to be undesirable.

4. Remove stocks with both a `No Moat' rating and a `Reduce' recommendation. We prefer to keep a shorter leash on companies without sustainable competitive advantages, often removing them from our model portfolios when they appear somewhat overvalued rather than waiting for the material overvaluation indicated by our `Sell' rating.

5. Remove stocks that receive both a `No Moat' and `Poor Stewardship' rating. We prefer to limit exposure to firms with questionable strategies, particularly if their current business lacks competitive advantages, as an additional measure to avoid capital destruction.

The PSL provides guidance to a general audience and must be considered in the context of an individual's investment goals, risk tolerance, tax situation, time horizon, income needs, and complete investment portfolio, among other factors. There are several important steps beyond the Morningstar PSL that must be performed effectively to build a direct equity portfolio, such as number of holdings, position weighting, turnover, benchmark, etc. These elements are not considered here and are the responsibility of the end user. Investors can also consider subscribing to our model portfolios or separately managed accounts.

PSL Launch_1412

? 2014 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or `class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at . au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement (Australian products) or Investment Statement (New Zealand products) before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO").

Morningstar Preferred Stock List (Australia & New Zealand) 2 December 2014

Ticker Investment Name

Economic

Stewardship

Fair Valuation

Moat

Rating

Uncertainty

q securities with this symbol passed the previous monthly PSL review, but based on updated data do not currently meet the PSL criteria

Basic Materials

ABC

Adelaide Brighton Limited

AWC

Alumina Ltd

BHP

BHP Billiton Ltd

BKW

Brickworks Ltd

DLX

DuluxGroup Ltd

ILU

Iluka Resources Ltd

IPL

Incitec Pivot Ltd

JHX

James Hardie Industries PLC DR

NHC

New Hope Corp Ltd

NPX

Nuplex Industries Ltd

ORI

Orica Ltd

RIO

Rio Tinto Ltd

SFR

Sandfire Resources NL

SGM

Sims Metal Management Ltd

Narrow None Narrow None Narrow Narrow Narrow Narrow None None Narrow Narrow None None

Standard Standard Standard Standard Standard Exemplary Standard Standard Standard Standard Standard Standard Standard Standard

High High Medium High Medium High Medium High High High Medium High High High

Communication Services

CNU

Chorus Ltd

IIN

iiNET Ltd

MTU

M2 Group Ltd

SGT

Singapore Telecommunications Limited DR

SKT

Sky Network Television Ltd

SPK

Spark New Zealand Ltd

TLS

Telstra Corp Ltd

TPM

TPG Telecom Ltd

None Narrow None Narrow Wide Narrow Narrow Narrow

Standard Standard Standard Standard Standard Standard Standard Standard

High Medium High Medium High Medium Medium Medium

Consumer Cyclical

AGI

Ainsworth Game Technology Ltd

AMC

Amcor Ltd

ARP

ARB Corp Ltd

AHE

Automotive Holdings Group Ltd

CWN

Crown Resorts Ltd

FLT

Flight Centre Travel Group Ltd

GWA

GWA Group Ltd

IVC

InvoCare Ltd

KMD

Kathmandu Holdings Ltd

MYR

Myer Holdings Ltd

NWS

News Corp DR

NEC

Nine Entertainment Co. Holdings Ltd

PMV

Premier Investments Ltd

SKC

Skycity Entertainment Group Ltd

SGH

Slater & Gordon Ltd

SGN

STW Communications Group Ltd

SUL

Super Retail Group Ltd

TAH

Tabcorp Holdings Ltd

TTS

Tatts Group Ltd

Narrow Narrow Narrow Narrow Narrow Narrow Narrow Narrow None None None Narrow None Narrow Narrow None None Narrow Narrow

Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Exemplary Standard Exemplary Standard Exemplary Standard Standard

High Medium Medium High High High High Medium High High High High High High Medium Medium High Medium Medium

Consumer Defensive

AHY

Asaleo Care Ltd

BKL

Blackmores Ltd

CCL

Coca-Cola Amatil Ltd

GEM

G8 Education Ltd

GNC

Graincorp Ltd Class A

MTS

Metcash Ltd

NVT

Navitas Ltd

TRS

Reject Shop Ltd

WES

Wesfarmers Ltd

WOW

Woolworths Ltd

Narrow Narrow Narrow None None None None None Wide Wide

Standard Standard Standard Exemplary Standard Standard Standard Standard Exemplary Standard

Medium Medium Medium Medium High Medium High High Medium Low

Energy AWE ORG STO WOR

AWE Ltd Origin Energy Ltd Santos Ltd WorleyParsons Ltd

None None Narrow Narrow

Standard Standard Standard Exemplary

High Medium High High

Financial Services

AMP

AMP Ltd

ASX

ASX Ltd

ANZ

Australia and New Zealand Banking Group Ltd

BOQ

Bank of Queensland Ltd

BEN

Bendigo And Adelaide Bank Ltd

BTT

BT Investment Management Ltd.

Narrow Wide Wide None None Narrow

Standard Standard Exemplary Standard Standard Standard

Medium Medium Medium Medium Medium Medium

Morningstar Recommendation

Hold Accummulate Accummulate Hold Hold Accummulate Accummulate Hold Accummulate Hold Accummulate Hold Hold Hold

Hold Hold Hold Reduce Hold Hold Reduce Reduce

Buy Reduce Hold Hold Accummulate Hold Reduce Reduce Hold Accummulate Hold Hold Hold Hold Hold Accummulate Hold Reduce Reduce

Hold Hold Hold Accummulate Hold Hold Hold Accummulate Hold Accummulate

Buy Accummulate Buy Accummulate

Hold Hold Accummulate Hold Hold Hold

Morningstar Preferred Stock List (Australia & New Zealand) 2 December 2014

Ticker Investment Name

Economic

Stewardship

Fair Valuation

Moat

Rating

Uncertainty

q securities with this symbol passed the previous monthly PSL review, but based on updated data do not currently meet the PSL criteria

CGF

Challenger Ltd

None

Standard

High

CBA

Commonwealth Bank of Australia

Wide

Exemplary

Medium

FXL

FlexiGroup Ltd

None

Standard

High

FSF

Fonterra Shareholders Fund

None

Standard

High

GMA

Genworth Mortgage Insurance Australia Ltd

None

Standard

High

HGG

Henderson Group PLC DR

Narrow

Standard

Medium

IAG

Insurance Australia Group Ltd

None

Standard

Medium

IFL

IOOF Holdings Ltd

Narrow

Standard

Medium

MQG

Macquarie Group Ltd.

None

Standard

Medium

MFG

Magellan Financial Group Ltd

Narrow

Standard

High

NAB

National Australia Bank Ltd

Wide

Standard

Medium

NHF

NIB Holdings Ltd

Narrow

Standard

Medium

PPT

Perpetual Ltd

Narrow

Standard

Medium

PTM

Platinum Asset Management Ltd

Narrow

Exemplary

Medium

QBE

QBE Insurance Group Ltd

Narrow

Standard

High

SUN

Suncorp Group Ltd

None

Standard

Medium

TWR

Tower Ltd

None

Standard

High

TRG

Treasury Group Ltd

None

Standard

High

WBC

Westpac Banking Corp

Wide

Exemplary

Medium

Healthcare

ANN

Ansell Ltd

COH

Cochlear Ltd

CSL

CSL Ltd

EBO

Ebos Group Ltd

FPH

Fisher & Paykel Healthcare Corp Ltd

GXL

Greencross Ltd

HSO

Healthscope Ltd

MYX

Mayne Pharma Group ltd

MVF

Monash IVF Group Ltd

PRY

Primary Health Care Ltd

RHC

Ramsay Health Care Ltd

RMD

ResMed Inc DR

SIP

Sigma Pharmaceuticals Ltd

SHL

Sonic Healthcare Ltd

VRT

Virtus Health Ltd

Narrow Narrow Narrow Narrow Narrow None Narrow None None None Narrow Narrow Narrow Narrow None

Standard Exemplary Standard Standard Standard Standard Standard Standard Standard Standard Exemplary Standard Standard Standard Standard

Medium Medium Medium High Medium High Medium High Medium Medium Medium Medium High Medium Medium

Industrials

ALQ

ALS Ltd

AIO

Asciano Ltd

AIA

Auckland International Airport Ltd

AZJ

Aurizon Holdings Ltd

BKN

Bradken Ltd

BXB

Brambles Ltd

CDD

Cardno Ltd

DOW

Downer EDI Ltd

LEI

Leighton Holdings Ltd

MMS

McMillan Shakespeare Ltd

MRM

Mermaid Marine Australia Ltd

MND

Monadelphous Group Ltd

NWH

NRW Holdings Ltd

OFX

Ozforex Group ltd

QUB

Qube Holdings Ltd

REC

Recall Holdings Ltd

SVW

Seven Group Holdings Ltd

SKE

Skilled Group Ltd

SPO

Spotless Group Holdings Ltd

SYD

Sydney Airport

TOL

Toll Holdings Ltd

TOX

Tox Free Solutions Ltd

TPI

Transpacific Industries Group Ltd

TCL

Transurban Group

VED

Veda Group Ltd

SOL

Washington H Soul Pattinson & Co Ltd

Narrow Narrow Wide Narrow None Wide None None Narrow None None Narrow None None Narrow Narrow None None Narrow Narrow None None None Narrow Wide None

Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard Standard

High Medium Medium Medium High Medium High High High High High High High High Medium Medium High High Medium Medium Medium High High Medium Medium High

Real Estate

ABP

Abacus Property Group

LEP

ALE Property Group

AOG

AVEO Group

BWP

BWP Trust

CHC

Charter Hall Group

CQR

Charter Hall Retail REIT

None None None Narrow Narrow None

Standard Exemplary Standard Standard Standard Standard

Medium Medium Medium Medium Medium Medium

Morningstar Recommendation

Hold Hold Accummulate Hold Hold Accummulate Accummulate Hold Hold Hold Accummulate Hold Hold Accummulate Accummulate Hold Hold Hold Hold

Hold Hold Hold Hold Hold Hold Reduce Accummulate Accummulate Hold Hold Hold Hold Hold Accummulate

Hold Hold Reduce Hold Accummulate Hold Accummulate Hold Hold Hold Accummulate Accummulate Accummulate Accummulate Hold Reduce Accummulate Accummulate Reduce Reduce Hold Accummulate Hold Reduce Hold Hold

Hold Hold Accummulate Reduce Hold Hold

Morningstar Preferred Stock List (Australia & New Zealand) 2 December 2014

Ticker Investment Name

Economic

Stewardship

Fair Valuation

Moat

Rating

Uncertainty

q securities with this symbol passed the previous monthly PSL review, but based on updated data do not currently meet the PSL criteria

DXS

Dexus Property Group

Narrow

Standard

Medium

FDC

Federation Centres

Narrow

Standard

Medium

GMG

Goodman Group

Narrow

Standard

Medium

GPT

GPT Group

Narrow

Standard

Medium

HPI

Hotel Property Investments

None

Standard

Medium

IOF

Investa Office Fund

Narrow

Standard

Medium

MGR

Mirvac Group

None

Standard

Medium

NVN

Novion Property Group

Narrow

Standard

Medium

SCG

Scentre Group

Narrow

Standard

Medium

SCP

Shopping Centres Australasia Property Group

None

Standard

Medium

SGP

Stockland Corp Ltd

Narrow

Standard

Medium

WFD

Westfield Corp

Narrow

Standard

Medium

Technology

ALL

Aristocrat Leisure Ltd

BRG

Breville Group Ltd

CRZ

Ltd

CPU

Computershare Ltd

DWS

DWS Ltd

IRE

IRESS Ltd

REA

REA Group Ltd

RKN

Reckon Ltd

SEK

Seek Ltd

SMX

SMS Management & Technology Ltd

TNE

Technology One Ltd

TME

Trade Me Group Ltd

Narrow Narrow Narrow Narrow None Narrow Narrow None Narrow None Narrow Wide

Standard Exemplary Standard Standard Standard Standard Standard Standard Standard Standard Exemplary Standard

High High Medium Medium High Medium High Medium High High Medium Medium

Utilities AGL APA GNE IFZ MEZCA MYT

AGL Energy Ltd APA Group Genesis Energy Ltd Infratil Ltd Meridian Energy Ltd Mighty River Power Ltd

Narrow Narrow Narrow None Narrow Narrow

Standard Exemplary Standard Standard Standard Standard

Medium Medium High Medium High High

Morningstar Recommendation

Hold Hold Accummulate Hold Hold Hold Hold Hold Hold Hold Hold Hold

Reduce Hold Hold Accummulate Hold Reduce Hold Accummulate Reduce Hold Reduce Hold

Accummulate Reduce Hold Hold Hold Hold

Morningstar? Equity Research Methodology

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