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JULY 2012 FUND UPDATE by Chief Investment Officer Carlos Gil

MARKETS AND ECONOMY The risk free rate is an integral part of investing for two key reasons; it is the return that a risk free asset provides an investor that wants no exposure to risk, the bird in the hand. For those investors that are willing to assume an investment with some level of risk, it is used to calculate expected future cash flow returns from that investment and therefore are integral to calculating intrinsic value of the investment. The lower the risk free rate the higher the value of our investments because future expected cash flows are discounted at a lower rate. The Australian Government 10 year bond yield is currently around 3.10%, historically low levels. This low risk free rate is pushing up the intrinsic value of our owned businesses whilst at the same time the alternative uses of our capital remaining in cash, are paying considerably lower returns. These conditions are occurring at a time when poor market sentiment and risk aversion has driven market pricing down for some very good businesses, this scenario provide us with a rather obvious conclusion, we have never experienced risk free returns as low as these, whilst, for our owned businesses the gap between market value and intrinsic value continues to widen. In all our Funds we will continue to deploy cash and new investment inflows because we consider the current opportunities to be highly compelling from a long term, value investment perspective. Microequities Deep Value Microcap Fund returned a positive +4.20% versus the All Ordinaries Accumulation Index positive +3.74% in July; this brings the total return net of fees to 130.75% for the Fund compared to 57.74% for the All Ords Accumulation since inception in March 2009. Just as our previous month we were unmoved by the negative -3.4% performance in our Fund, we are equally unmoved by this months positive +4.20%. Our key focus is on the fundamentals of the businesses we have invested in and we fully accept that the market pricing over the short to medium term can be significantly inefficient. During the next month we will be receiving operational updates from our invested businesses. From the fundamentals of these businesses we derive at our intrinsic value. For the majority of our businesses (there are a couple of exceptions) we expect solid growth in earnings. Further information will be provided in next months update.

7.7% 6.3% 3.5% 9.5%


Cash Software & Services Telecommunications Services

Latest Unit Price $1.9744

Latest Fund Performance as at July 31, 2012
FUND 1 Month 3 Month 6 Month 12 Month 2 yrs comp pa 3 yrs comp pa Inception AOAI* OP*


Media Health Equipment & Services Comercial Services & Supplies Diversified Financials

10.8% 11.8% 9.0%

Utitlities Hotels Restaurants & Leisure

+4.20% -4.05% +8.03% +11.49% +8.23% +20.71% +130.75%

+3.74% -3.71% +1.41% -0.17% +1.87% +4.57% +57.74%

+0.46% -0.88% +6.63% +11.66% +6.36% +16.15% +73.02%

(Returns are calculated after all fees and expenses and reinvestment of distributions. Inception of Fund March 2009) *AOAI: All Ordinaries Accumulation Index. *OP: Out-performance. 2 & 3 year performance calculated as compound per annum. Past performance is not indicative of future performance.

*Deep Value Microcap Portfolio as of 31 of July 2012


MICROEQUITIES ASSET MANAGEMENT |AFSL 287526 |Suite 702, 109 Pitt Street, Sydney NSW 2000 Office: +61 2 9231 6169 Fax: +61 2 9475 1156