NEWS
10 Mar 2022 - Performance Report: Bennelong Concentrated Australian Equities Fund
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| Manager Comments | The Bennelong Concentrated Australian Equities Fund has a track record of 13 years and 1 month and has outperformed the ASX 200 Total Return Index since inception in February 2009, providing investors with an annualised return of 15.6% compared with the index's return of 10.02% over the same period. The Manager has delivered these returns with 1.8% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.89 since inception. The fund has provided positive monthly returns 90% of the time in rising markets and 20% of the time during periods of market decline, contributing to an up-capture ratio since inception of 143% and a down-capture ratio of 93%. |
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10 Mar 2022 - How to Handle the Current Falling Market
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How to Handle the Current Falling Market Wealthlander Active Investment Specialist February 2022
Some investors have asked us how to handle a falling market as many of their investments are losing a lot of money. Here is a summary list of our suggestions about what can be done to stop the unnecessary pain, and adapt portfolios to the new environment. 1. Recognise the Game has Changed Inflation hurts the poor and the middle class who make up the majority of US voters. A significant majority of US voters don't own much in the way of anything that benefits from price increases and haven't benefitted meaningfully from historic asset price inflation. Hence a heavily politicised FED may be forced politically to prioritise fighting inflation ahead of boosting investment markets. They do this by reducing stimulus and raising interest rates. Unfortunately for investors, fighting inflation through reducing balance sheet expansion and raising interest rates only works by crushing demand first. This means economic demand and demand for equities need to get crushed as a necessary precondition to central banks effectively fighting inflation, if they attempt to do so. We might think of this as a policy mistake or a central bank choice, as other measures of fighting inflation (such as addressing supply and labour force issues) are better than anything central banks can do - but it is what it is and comes attendant potentially dramatic effects on mainstream markets. Effectively, one needs to acknowledge the investment cycle, as we highlighted in our article in early January "Four Ways to Massively Improve Performance in 2022: https://www.livewiremarkets.com/wires/four-ways-to-massively-improve-performance-in-2022 By recognising that the game has changed, investors can pivot their portfolio approach from what has worked in a bull market driven by disinflation and interest rates moving to 0, to what works better in a bear market caused by inflation, higher interest rates and reduced stimulus and demand (as massive stimulus packages are withdrawn and inflation bites into real wages growth). The first thing that astute investors can and are doing is reduce the risk of losing money by selling or reducing assets that don't work outside a bull market, and which are at risk of building larger losses. Importantly, it is not losing small amounts but losing large losses in bear markets that destroy investors' long term geometric returns. By way of illustration of this, if you lose 33% you need a massive 50% gain to get back to even; lose 50% and you need 100% gain just to stay still. Furthermore, the journey of the investor is far from pleasant when you are in large losing territory much of the time. Far better not to lose the 33% or 50% in the first place as there is no good cure, but only prevention. 2. Take Advantage of Volatility The assets which are better suited to rising inflation and interest rates include numerous alternatives. These alternatives include skill dependent rather than market dependent managers, market neutral and long short funds, volatility funds, insurance strategies, some CTAs, commodities such as oil and gold, and small subsets of the equity and property market such as shorter duration equities including resources, farmland and water. You probably don't own much of these currently and hence aren't protecting capital from losses as well as you could be in early 2022. The asset classes don't have the marketing and media budgets of the mainstream approaches so you probably don't know as much about them. Importantly, these assets are less likely to lose large amounts over an inflationary period compared with the financial assets mentioned previously. Not losing much in tough periods is the name of the game for long term returns and compounding, as well as the more risk averse. By potentially making money or not losing as much, the assets and strategies mentioned are far better suited to protecting capital and enabling long term compounding of your wealth, and particularly so compared with financial assets which are being meaningfully devalued. Furthermore, they offer a way of crystallising and cashing in strong equity and property gains of the last few years permanently, while still offering growth potential in the future. 3. Take Advantage of Volatility 4. Emphasize Better Value Niche Assets In summaryThere is much you can do not to be a deer in the headlights. Inflationary periods haven't been seen for a long time and most investors need to learn how to adapt to this different environment while it lasts. The ostrich approach with a portfolio suited to an entirely different economic regime doesn't work well when inflation is here. If you're losing large money, it's probably because your portfolio is poorly diversified and extrapolating history that is no longer with us, rather than being adapted to the times. It is far more prudent in current circumstances to adapt to the new investment environment, and buy a broader mix of assets that provide diversification and resilience. This includes a wide range of alternatives, managers that can take advantage of volatility, and better value niche assets. True diversification is the only free lunch in town right now and there is a delicious smorgasbord on offer to choose from. Venison and ostrich is missing from the menu. Funds operated by this manager: WealthLander Diversified Alternative Fund DISCLAIMER: This Article is for informational purposes only. It does not constitute investment or financial advice nor an offer to acquire a financial product. Before acting on any information contained in this Article, each person should obtain independent taxation, financial and legal advice relating to this information and consider it carefully before making any decision or recommendation. To the extent this Article does contain advice, in preparing any such advice in this Article, we have not taken into account any particular person's objectives, financial situation or needs. Furthermore, you may not rely on this message as advice unless subsequently confirmed by letter signed by an authorised representative of WealthLander Pty Ltd (WealthLander). You should, before acting on this information, consider the appropriateness of this information having regard to your personal objectives, financial situation or needs. We recommend you obtain financial advice specific to your situation before making any financial investment or insurance decision. WealthLander makes no representation or warranty as to whether the information is accurate, complete or up-to-date. To the extent permitted by law, we accept no responsibility for any misstatements or omissions, negligent or otherwise, and do not guarantee the integrity of the Article (or any attachments). All opinions and views expressed constitute judgment as of the date of writing and may change at any time without notice and without obligation. WealthLander Pty Ltd is a Corporate Authorised Representative (CAR Number 001285158) of Boutique Capital Pty Ltd ACN 621 697 621 AFSL No.508011. |
9 Mar 2022 - Performance Report: L1 Capital Long Short Fund (Monthly Class)
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| Fund Overview | L1 Capital uses a combination of discretionary and quantitative methods to identify securities with the potential to provide attractive risk-adjusted returns. The discretionary element of the investment process entails regular meetings with company management and other stakeholders as well as frequent reading and analysis of annual reports and other relevant publications and communications. The quantitative element of the investment process makes use of bottom-up research to maintain financial models such as the Discounted Cashflow model (DCF) which is used as a means of assessing the intrinsic value of a given security. Stocks with the best combination of qualitative factors and valuation upside are used as the basis for portfolio construction. The process is iterative and as business trends, industry structure, management quality or valuation changes, stock weights are adjusted accordingly. |
| Manager Comments | The L1 Capital Long Short Fund (Monthly Class) has a track record of 7 years and 6 months and has outperformed the ASX 200 Total Return Index since inception in September 2014, providing investors with an annualised return of 23.61% compared with the index's return of 7.37% over the same period. Over the past 12 months, the fund's largest drawdown was -7.21% vs the index's -6.35%, and since inception in September 2014 the fund's largest drawdown was -39.11% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in February 2018 and lasted 2 years and 9 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by November 2020. The Manager has delivered these returns with 6.7% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 three times over the past five years and which currently sits at 1.07 since inception. The fund has provided positive monthly returns 79% of the time in rising markets and 64% of the time during periods of market decline, contributing to an up-capture ratio since inception of 100% and a down-capture ratio of 3%. |
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9 Mar 2022 - Performance Report: Bennelong Australian Equities Fund
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| Manager Comments | The Bennelong Australian Equities Fund has a track record of 13 years and 1 month and has outperformed the ASX 200 Total Return Index since inception in February 2009, providing investors with an annualised return of 13.85% compared with the index's return of 10.02% over the same period. Over the past 12 months, the fund's largest drawdown was -15.96% vs the index's -6.35%, and since inception in February 2009 the fund's largest drawdown was -24.32% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in February 2020 and lasted 6 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by August 2020. The Manager has delivered these returns with 1.34% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.81 since inception. The fund has provided positive monthly returns 91% of the time in rising markets and 18% of the time during periods of market decline, contributing to an up-capture ratio since inception of 135% and a down-capture ratio of 97%. |
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9 Mar 2022 - The question is, when should you invest?
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The question is, when should you invest? Insync Fund Managers February 2022 Why we don't try to predict macro-market changes. We don't need to, no investor does. It is well established that the total returns of a stock follow the earnings growth of a business in the long term. Companies that can sustainably grow their earnings at a high rate over the long term are called compounders. Investing in a portfolio of compounders is one of the best ways to generate wealth for longer-term oriented investors that beat market averages. A major benefit of compounders is that market timing is rarely an issue, hence risk is also reduced. Our industry spends an inordinate amount of time trying to predict or forecast the future of markets. Sophisticated soothsaying by in-large. The probability of getting this right on a consistent basis is very low. Many espouse otherwise but a check of their historical records on predictions are quite revealing. Consider this:
What about the worst 20? It is also valid that avoiding the worst 20 days would have boosted your return beyond the fully invested 7.5% annualised return. The best and worst return periods show that extreme events have a large bearing on investor returns. Based on volatility around extreme events (and their mostly unpredictable appearances), it is impossible to predict the worst and best days. Indexing cannot filter in/out the extremes. If only those sophisticated 'crystal balls' in the hands of commentators and fund managers actually worked! Insync's "active" basket of 28 compounder stocks, carefully constructed to control the risk, delivers outperformance over passive benchmarks, over both full and multiple investment cycles, and does so without having to predict extreme events. Fastest decline in history. The Covid-19 pandemic clearly demonstrates the folly of an approach based on prediction. It created the fastest stock market decline in history catching out investors who believed prediction works. Let's say however, you were right and got out in time. Next and without warning, the fastest recovery in history then occurred. Unless you were in the market you missed out in a big way.
Predictions require constant and correct timing decisions. Stay in or out? If out, when? Then to where? And for how long? Thus, multiple questions need to be answered just for each event. Now, repeat over the life of your investment hundreds of times. No person or organisation has successfully got these answers sustainably right to produce great enduring outcomes. Market timing strategies also cannot benefit from the compounders. This is because timing tends to interrupt the powerful process of the conversion of earnings into price appreciation. Insync's focus on investing in compounders means we don't need to concern ourselves with the low hit-rate strategy of market timing stocks we hold. This is just one way we lower risk to our investors yet retain above average returns over time that endure. Examples of compounders
Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund |
8 Mar 2022 - Performance Report: Quay Global Real Estate Fund (Unhedged)
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| Fund Overview | The Fund will invest in a number of global listed real estate companies, groups or funds. The investment strategy is to make investments in real estate securities at a price that will deliver a real, after inflation, total return of 5% per annum (before costs and fees), inclusive of distributions over a longer-term period. The Investment Strategy is indifferent to the constraints of any index benchmarks and is relatively concentrated in its number of investments. The Fund is expected to own between 20 and 40 securities, and from time to time up to 20% of the portfolio maybe invested in cash. The Fund is $A un-hedged. |
| Manager Comments | The Manager has delivered these returns with 8.35% less volatility than the index, contributing to a Sharpe ratio which has fallen below 1 four times over the past five years and which currently sits at 0.69 since inception. The fund has provided positive monthly returns 76% of the time in rising markets and 25% of the time during periods of market decline, contributing to an up-capture ratio since inception of 41% and a down-capture ratio of 56%. The Quay Global Real Estate Fund (Unhedged) returned -4.89% in February, a difference of -6.31% compared with the S&P/ASX 200 A-REIT Index which rose by +1.42%. Over the past 12 months, the fund has risen by +20.78% compared with the index which has returned +23.93%, for a difference of -3.15%. |
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8 Mar 2022 - Performance Report: Bennelong Kardinia Absolute Return Fund
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| Fund Overview | There is a slight bias to large cap stocks on the long side of the portfolio, although in a rising market the portfolio will tend to hold smaller caps, including resource stocks, more frequently. On the short side, the portfolio is particularly concentrated, with stock selection limited by both liquidity and the difficulty of borrowing stock in smaller cap companies. Short positions are only taken when there is a high conviction view on the specific stock. The Fund uses derivatives in a limited way, mainly selling short dated covered call options to generate additional income. These typically have less than 30 days to expiry, and are usually 5% to 10% out of the money. ASX SPI futures and index put options can be used to hedge the portfolio's overall net position. The Fund's discretionary investment strategy commences with a macro view of the economy and direction to establish the portfolio's desired market exposure. Following this detailed sector and company research is gathered from knowledge of the individual stocks in the Fund's universe, with widespread use of broker research. Company visits, presentations and discussions with management at CEO and CFO level are used wherever possible to assess management quality across a range of criteria. |
| Manager Comments | The Manager has delivered these returns with 6.42% less volatility than the index, contributing to a Sharpe ratio which has fallen below 1 three times over the past five years and which currently sits at 0.67 since inception. The fund has provided positive monthly returns 86% of the time in rising markets and 33% of the time during periods of market decline, contributing to an up-capture ratio since inception of 17% and a down-capture ratio of 52%. The Bennelong Kardinia Absolute Return Fund returned -1.72% in February, a difference of -3.86% compared with the ASX 200 Total Return Index which rose by +2.14%. Over the past 12 months, the fund has returned -3.08% compared with the index which has returned +10.19%, for a difference of -13.27%. |
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8 Mar 2022 - Manager Insights | Cyan Investment Management
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Chris Gosselin, CEO of FundMonitors.com, speaks with Dean Fergie, Director & Portfolio Manager at Cyan Investment Management. The Cyan C3G Fund has a track record of 7 years and 6 months and has outperformed the ASX Small Ordinaries Total Return Index since inception in August 2014, providing investors with an annualised return of 13.69% compared with the index's return of 8.08% over the same period. The fund has achieved a down-capture ratio since inception of 57.19%, indicating that, on average, the fund has outperformed in the market's negative months.
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8 Mar 2022 - Aligning Interests: (no freeloading on my tab!)
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Aligning Interests: (no freeloading on my tab!) Colins St Asset Management February 2022 |
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Fat salaries. Big bonuses. Plummeting share price. Sound familiar?That an article discussing the benefits of aligned interests should even need to be written deeply concerns and somewhat surprises me. Nevertheless, it's clear from our experiences that there are plenty of companies where the interests of the executives and the interests of the shareholders are in direct and lopsided conflict. It boggles my mind that investors would put up with such situations, but it seems that many people out there are either unconcerned that the managers and directors looking after their money don't care about their goals or are simply too busy speculating to notice. So, though it pains me to my value investing roots to prepare this article, here are our thoughts on where investor interests and attention should be (in our humble opinion). "Show me the incentive, and I will show you the outcome." - Charlie Munger, Berkshire Hathaway There are many factors we consider when looking to invest in a company. No doubt, the basic matters such as balance sheet strength, return on equity, and competent management rank highly, but even when all of those factors are in place, a conflict of interest between the incentives for the management team and the interests of shareholders can see an otherwise attractive investment opportunity devolve into an expensive 'learning experience'. It should go without saying that a management team and investors should make all possible effort to ensure that their interests are aligned, but shockingly it is far less common than one would expect. Where investors are concerned with positive long-term outcomes, strong balance sheets, return on assets, return on invested capital, and primarily an increasing share price, many managements incentive schemes (both short term and long term) stunningly disregard some (or all of those factors) in lieu of more 'inventive' measures of success. We've seen management teams align their incentive schemes to revenue, or market cap growth, we've even seen some propose that the management team be rewarded for product growth. In each of those circumstances, we've seen time and again, management teams sacrifice balance sheet strength (via leverage), long term share prices (with dilutionary capital raisings), and margins (in search of wider and less profitable products). None of that behaviour suits shareholders, but all too often, the powers that be, who create long and short-term incentives get lost in the excitement of a good story or an exciting 'opportunity' and forget that the only role a management team should be playing is that of enriching the company's shareholders. Now it's important to note that even a perfect alignment of interests is not a guarantee of success. There have been plenty of companies with the best of intentions that have failed. However, we would suggest that over the long term, misaligned interests are a guarantee of failure. HOW TO ALIGN INTERESTS:There is no one-size-fits-all approach, but broadly speaking there are a few basic things a board should look to do.
2. An improvement on our first point is to align management interests with shareholders by insisting that they become shareholders.
3. Once we've seen management align their interests to both the upside and the downside of the company, we also like to see the directors consistently increase their stake in the business.
If we can find a competent team that is prepared to support the company and align their interests with shareholders, it is one of the best indicators we can find for positive outcomes. A great example of this in practice is National Tyre and Wheel (NTD.ASX). National Tyre and Wheel is a Queensland based business that, through its 28 different distribution centres spread over 3 countries, distributes tyres across a range of industries and sectors as diverse as emergency services, agriculture, off-road adventure driving and industrial vehicles (such as forklifts). The Board and Senior Management have been working together for over 30 years, well before the company was listed on the ASX. Key things that I like about the structure and alignment of interests within National Tyre and Wheel include:
Some other questions investors should be asking: There are no perfect solutions, but there are some simple steps we can take, and some indications we can look out for.
If the company is consolidating, incentives should reflect that. If the company is growing, then the incentives would be reflective of that.
It's worth offering highly attractive incentives to entice and retain quality staff. At the same time, it's important that those benefits are earned.
If the company's employees and Board are confident in the outlook of the business, receiving part of their salary in equity is enticing.
A toxic culture may achieve seemingly good outcomes in the short term but could have catastrophic consequences in the long term. Again, there is no guaranteed method for ensuring success, but knowing that the management team are working towards the same goals that we investors seek, and that a loss to investors will be equally felt by the management team is as good an indicator of the quality and prospects of a business as any we've been able to identify. How we align our interests. At Collins St Value Fund we take these lessons to heart. We expect the directors of the companies we invest in to align their interests with ours, and we expect nothing less from the investors who have entrusted us to look after their capital. As such the team have meaningfully invested in the fund and have done so on the same terms as all our investors. Additionally, the fund only receives a fee when our investors profit (focussing our attention on both genuinely protecting the downside and maximising the upside) - there are no fixed management fees skimmed off the top of investors capital as we believe, that in the Australian equities context, they incentivise little more than asset gathering, rent-seeking, index hugging and, ultimately, mediocrity. Author: Michael Goldberg, Managing Director and Portfolio Manager
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8 Mar 2022 - Webinar | Premium China Funds Management - Asian Fixed Income Webinar
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Webinar | Premium China Funds Management - Asian Fixed Income The travails of certain Chinese property developers continue to impact Asian corporate bonds. Jonathan Wu has an update on how we are traversing this landscape. Speaker: Jonathan Wu, Premium's Head of Distribution and Operations & Chief Investment Specialist
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