History might not always repeat itself, but it frequently rhymes

This week saw the 29^th anniversary of the 1987 stock market crash. For those that can't remember, (or choose not to) or weren't around to experience it, on "Black Tuesday" October 20^th the Australian market fell by 25%, following the DJIA's fall of 22% in the US the previous night ("Black Monday"). By the end of October '87 the local market had fallen by over 40%, and at its lows had recorded an overall drawdown of 50% (exciting the followers of Fibonacci along the way) from the highs it had reached in August of that year.

The actual catalyst for the crash can be traced back to a number of individual and varied events, including a storm in the UK the previous Friday which closed the London exchange and increasing tensions in the Middle East between the USA and Iran. However, the underlying causes were a combination of over-inflated valuations, excessive leverage, and debt, exaggerated by program trading during the crash itself.

Of course human traits such as fear and greed also exaggerated the problem, as they have in every boom and bust before and since, and no doubt will do so again in the future.

The problem in Australia was further exaggerated by the likes of Bond Corporation, Quintex, and Rothwells, where greed was alive and well, along with a complete lack of fear (at least when it came to playing with other people's money).

The same happened in 2008 and will happen again next time. In 2008 the local market fell over 45% between September and March 2009, and one could argue that the QE and easy credit response of central banks we have seen since could well be setting the scene for the bursting of the resultant asset bubbles.

Interestingly, or importantly, in 2008 almost one in four Australian hedge funds produced a positive annual result, with the average of all funds falling by less than half of the ASX 200.

The reality is that when asset prices become unreasonably inflated, for whatever reason, a series of potentially unrelated events can act as a catalyst for the end of the game. Whether the asset bubble is in equities, or real estate, or caused by corporate actions or central bank policy, the bigger the bubble, the louder the bang.

PERFORMANCE NEWS 

Bennelong Twenty20 Australian Equities Fund returned 0.07% in September to take latest 6-months return to 9.06%. 

APN Asian REIT Fund returned -0.70% in September, outperforming the Bloomberg Asia REIT Index which returned -1.53%, by 0.83%.

QATO Capital Market Neutral Long/Short Fund returned +1.23% for September, outperforming the ASX-100 by +1.21%, which returned +0.02%.

NWQ Fiduciary Fund returned +0.16% in September and +13.69% over the latest 24-months. 

Touchstone Index Unaware Fund rose 0.47% in September to take latest 6-months return to 8.26%.

Affluence Investment Fund rose 0.59% in September to take the annualised performance since inception to 10.95% p.a.

KIS Asia Long Short Fund rose 1.45% in September taking the return for the most recent 12 months to 16.55%. 

FUND REVIEWS released this week: Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; Pengana Absolute Return Asia Pacific Fund;  

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

US Federal Reserve chickens out

As expected the US Federal Reserve didn't have the nerve to increase rates when they met earlier this week, once again scared that any shift, however long it has been expected, will either damage a fragile economy, equity markets where valuations have been bloated by QE, or their own reputations. It seems unlikely that they will make the move in November either, given the looming presidential election and not wanting to be seen to be political.

Meanwhile, the Bank of Japan confirmed their negative interest rate stance of -0.1%, while back in Australia the market's expectation seems to be that rates may have fallen as far as they can go. What is certainly true is that with rates where they are the RBA's firepower seems limited.

Strange times indeed. Equally as pointed out by Hugh Dive from Aurora Funds Management, over the past week in the financial press there have been articles advocating a zero weighting to banks, and another one has taken the opposite view and saying that Australian bank shares are historically cheap, and investors should be buying with their ears pinned back. With 25% of the ASX 200 represented by six high-yielding bank stocks and investors' relentless search for yield, there is likely to be ongoing support. It will be a brave (and unlikely) retail investor that exits the sector entirely.

However as and when interest rates do start to rise, it is likely that the shift will start to occur. While the market has taken the gloss off bank shares this year, alternative income streams, or concerns about the bank's level of exposure to an overpriced property market, is likely to cause a serious rethink in valuations.

Back to politics for a second - next week sees the great US Presidential debate theatre in action. The big question seems to be whether Donald Trump will try to outdo even himself with further wild rhetoric, or pull his head in. Seeing as he has got this far with the former it seems unlikely he will change his tune, but it will certainly make for an entertaining, if somewhat alarming, TV fodder.

PERFORMANCE NEWS

Pengana Absolute Return Asia Pacific Fund returned 1.63% in August, compared to MSCI ACWI Asia Pacific markets which returned +0.91%.

APN AREIT Fund returned -3.29% in August. The long term performance since inception remains strong with annual returns of 18.62% p.a.

NWQ Fiduciary Fund fell 1.54% in August and has returned +12.72% over the last 24-months.

Affluence Investment Fund rose 1.06% in August, outperforming the ASX 200 Accumulation Index which returned -1.55%, by 2.61%.

King Tide NZ/Australian Long/Short Equity Fund returned -2.10% in August. Over the latest 24-months, the Fund has risen 20.31%. 

FUND REVIEWS released this week: Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; APN Asian REIT Fund; Bennelong Twenty20 Australian Equities Fund;

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Regal wears the crown at Annual Hedge Fund awards

Philip King's Regal Funds Management was awarded the Australian hedge fund manager of the year title at the annual "Hedge Funds Rock" event held in Sydney this week, as well as taking out the award for the best long-short equity manager for the Regal Atlantic Absolute Return Fund, having returned 136% in 2015, and an annualised return of 40% since inception in 2004.

Established by Philip's brother Andrew King in 2004, Regal Funds Management is a fundamental Long Short manager that has been one of the mainstays of the Australian industry for over a decade. Whilst probably best described as "old school" Regal's investment team are not scared of taking risk provided they see the potential for significant upside. Since inception, the fund has achieved an annual return of over 100% on no less than five occasions, whilst just missing out on the sixth with a return of 99.35% in 2005.

Those returns have not come without significant volatility with a standard deviation of 36% since inception, and some significant drawdowns along the way, but for those investors prepared to accept risk, 40% per annum after fees over 12 years provides much to write home about.

Other winners on the night included Bennelong's market neutral fund, and NWQ Capital Management, a West Australian based fund of funds which took the award for the best investor in hedge funds. Hedge Clippings has noticed an increase in the number of fund of funds in recent times, with NWQ joined by the likes of Affluence Funds Management, and New Zealand based King Tide Asset Management, each of which focus on investing in local Australian absolute return funds.

Fund of Funds were on the nose with investors around the time of the GFC after they were caught out investing (mainly overseas) while providing a liquidity mismatch between their investors and their underlying investments. However it is good to see that the modern breed, such as those above are gaining traction amongst both advisors and investors who don't necessarily have the capacity or potential to complete the detailed due diligence and monitoring required to put together a truly risk averse portfolio of underlying funds.

While the returns provided by the likes of Regal are highly attractive, they are not always suitable for the everyday investor who now has the word RISK firmly tattooed on his or her hip pocket, and the current trend is very much towards returns being balanced by the requirement for capital protection.

Elsewhere this week the media had a field day with the revelation that Morphic Asset Management, a local long-short fund that traditionally seeks investment opportunities offshore, had taken, and profited from a short position in the listed Australian hedge fund manager Platinum Asset Management. The fact that Morphic, along with all other equity-based hedge fund managers take short positions every day in various companies that they perceive to be overvalued seemed to miss the point. Neither was it a case that Morphic considered Platinum to be badly managed - far from it. Shorting merely consists of selling an asset that is overvalued, irrespective of its underlying quality.

It's probably just easier when or if the company's a dog, and more newsworthy when its a fellow fund manager.

PERFORMANCE NEWS

Insync Global Titans Fund rose 0.2% in July to take annualised return since inception to 9.63% p.a.

Bennelong Long Short Equity Fund returned -5.90% in August and +26.81% for the latest 24-months.

The Paragon Fund returned -7.80% after fees for the month of August. The Fund's latest 12-months return was 29.98%.

Totus Alpha Fund rose 2.58% for the month of August, outperforming the ASX 200 Accumulation Index which returned -1.55%, by 4.13%.

Pengana Global Small Companies Fund rose 3.3% in August 2016, compared to a 1.3% return for the MSCI AC World SMID Cap Index.

APN Asian REIT Fund returned +0.06% in August. Since inception, the Fund has an annualised return 17.10% p.a.

Optimal Australia Absolute Trust recorded a flat net return in August in a weaker market, with the ASX 200 Index down 2.3%.

Cyan C3G Fund rose 1.60% in August, outperforming the market (ASX 200 Total Return Index) that fell -1.55%, by 3.15%.

Bennelong Kardinia Absolute Return Fund returned -1.02% in August to take annualised return since inception to 11.71% p.a.

Signature Quantitative Fund returned -0.5% in August, outperforming the ASX 200 Accumulation Index by 1.05%. 

KIS Asia Long Short Fund rose 0.52% for the month of August taking the return for the most recent 12 months to 18.12% versus an S&P/ASX 200 Accumulation Index of 8.96% over the same period. 

Bennelong Twenty20 Australian Equities Fund returned -0.74% to take latest 6-months return to 13.42%. 

FUND REVIEWS released this week: Jamieson Coote Bonds Active Fund; Supervised Global Income Fund; Insync Global Titans Fund; Bennelong Long Short Equity Fund;

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Dear [FirstName],

Who won the election?

I noticed a comment in today's media by Graham Richardson, surely one of the more interesting and surprisingly non-partisan political minds around. To paraphrase "Richo", his view is that the government is sounding as if they won the recent election by a significant margin, rather than by one lower house seat and failing to control the Senate, while Bill Shorten is acting as if he won the election, rather than losing it.

Meanwhile, the Treasurer has suddenly worked out that the budget has both an income and an expenditure problem. Amazing that no one had worked that out before. It could be a long three years until the next election - or alternatively not long at all.

But that's not what Hedge Clippings should be all about - so back to fund performances which, again as reported in the media earlier in the week, have been pretty average.

Average. Who wants average?

Courtesy of the stellar post BREXIT bounce giving the ASX 200 a return of 6.29% in July, the local equity market has just managed to keep its nose above water since January, and has now returned 7.45%  -  although on a rolling 12-month basis the Index is only up 2.37% on an accumulation basis.

Without taking dividends and distributions into account the figures are even less impressive, with the ASX200 falling -2.4% over 12 months to the end of July. In other words dividend yields and distributions are running at over 4.5%, in large part explaining the resilience of the market in a low-interest rate environment, even if the overall performance is flat or negative.

Meanwhile, on the face of it's the average performance of equity-based absolute return funds has also been disappointing, with a January to July year-to-date performance of just 1.63%, and a 12-month rolling performance of 4.43%.

However, averages can be deceiving, particularly in a sector as diversified as actively managed, absolute returns, and hedge funds. While almost 60% of all funds have outperformed the ASX 200 accumulation index over the past 12 months (which based on the ASX200 returns noted above is not all that difficult), individual fund returns have ranged between -29% and +121%.

Importantly out of the 240 funds which have reported their July numbers so far, 74 have returned 10% or more over the past 12 months, and 31 have returned over 20%. The opportunities to gain excellent returns are alive and well, frequently with lower risk than the ASX and individual stocks, provided you do your research correctly. Some examples are shown below.

PERFORMANCE NEWS

Bennelong Kardinia Absolute Return Fund rose 2.95% in July to take annualised return since inception to 11.92% p.a.

Cyan C3G Fund returned a positive 5.80% in July to take latest 12-months return to 42.41%.

The Paragon Fund returned a positive 2.90% after fees for the month of July. Since inception, the Fund has an annualised return of 24.45% p.a.

Optimal Australia Absolute Trust returned -2.3% in July to take annualised return since inception to 8.71% p.a.

APN Asian REIT Fund rose 2.07% in July, outperforming the Bloomberg Asia REIT Index which returned 0.77%, by 1.30%.

Pengana PanAgora Absolute Return Global Equities Fund rose 1.08% in July.

QATO Capital Market Neutral Long/Short Fund returned 3.71% for the month of July.

APN AREIT Fund  rose 4.94% in July, to take annualised return since inception to 19.38% p.a.

Bennelong Twenty20 Australian Equities Fund returned +6.43% against the ASX 200 Accumulation Index's return of 6.29%.

KIS Asia Long Short Fund rose 2.99% in July to take latest 24-months return to 25.09%.

Pengana Absolute Return Asia Pacific Fund returned -0.97% after fees for the month of July. Since inception, the Fund has an annualised return of 8.70% p.a.

Signature Quantitative Fund recorded a flat return (0.003%) in July. Since inception, the Fund has an annualised return of 6.41%.

Affluence Investment Fund returned +2.98% in July to take the latest 12-months return to 12.28%.

Totus Alpha Fund rose 8.82% for the month of July, outperforming the ASX 200 Accumulation Index which returned 6.29%, by 2.53%

NWQ Fiduciary Fund returned 1.88% in July and returned +6.54% over the last 12 months.

Touchstone Index Unaware Fund returned +5.82% in July. Since inception in April 2016, the Fund has returned +7.4%, net of fees and expenses. 

King Tide NZ/Australian Long/Short Equity Fund returned +4.29% to take latest 12-months return to 11.29%.

Pengana Global Small Companies Fund rose 2.80% in July 2016, compared to a +3.3% return for the MSCI AC World SMID Cap Index.

FUND REVIEWS released this week: Meme Australian Share Fund; Bennelong Long Short Equity Fund; Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; APN Asian REIT Fund; QATO Capital Market Neutral Long/Short Fund; Pengana Absolute Return Asia Pacific Fund; Bennelong Twenty20 Australian Equities Fund;

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

RBA winds down the cash rate, while the Bank of England goes one better, and winds back the clock.

This week's news has been all about interest rates. In fact, when you think about it, it's been all about interest rates for the past few years.

Not only did the RBA drop interest rates by a further 0.25% to just 1.5% as expected, but there is a pretty fair chance that there will be a further cut before the end of the year. If you think that's low, the Bank of England announced a similar cut overnight, taking their rate to just 0.25%, the lowest since 1694. That's A.D. 1694 just in case there is any confusion.

For those with time on their hands over the weekend, or desperate to understand what our policy makers are thinking, here's a link to the RBA's Quarterly Statement on Monetary Policy.

For comparison, casting around the world the Bank of Canada's rate is 0.5%, the European Central Bank 0%, and the People's Bank of China a whopping 4.35%. In various parts of Europe, the rate is now negative.

Those of you (us) who are old enough, might remember the scary days of mortgage rates of 18 or 19%. At that time I remember being advised by the managing director of one Australian bank that we would never see interest rates in single digits again and our lifetime. It would be unfair to name him, or for that matter single him out, but he was one of the most successful and smartest in the business - then or since.

So here we are, locked into this low interest rate, low inflation environment which seems to be spiralling, or should that be inching, ever lower.

In the short term investors in equities will welcome this as good news. Minimal returns on cash in the bank, or invested in government bonds inevitably makes equities look attractive, with the result that equity PE multiples are at scary levels.

The danger of this is that increased PE multiples are not necessarily a reflection on economic or corporate health, or in many cases the result of increased earnings. Rather they are merely a reflection of the attractiveness of dividend yields, and particularly of franked dividend yields, of 4 to 6%.

As we enter the earnings season proper, it's worth noting that YTD to the end of July the ASX200 financial sector fell 9%, so merely chasing yield doesn't always provide a positive outcome.

By comparison, the Materials Sector (dominated by BHP and Rio) gained 23%, while REITs gained 20%.

So if the outlook for interest rates for the next one, three or five years is to remain low, expect that to support equity markets, in spite of the potential volatility and capital loss that can occur. The real risk will come when interest rates start to rise, and the inflows into equities of the past few years will convert to outflows.

Not tomorrow, but when it happens look out!

PERFORMANCE NEWS

Early results for July are thin on the ground so far, but with the ASX200 up over 6% in a post-Brexit selloff - rally yo-yo, are looking positive so far.

Meme Australian Share Fund rose 7.81% in July, outperforming the ASX-200 Accumulation Index which returned 6.29%, by 1.52%.

Bennelong Long Short Equity Fund returned +1.46% in July and +15.63% for the latest 12-months.

FUND REVIEWS released this week: Pengana Absolute Return Asia Pacific Fund; Supervised Global Income Fund; Insync Global Titans Funds;

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

What a mess - but we'd better just get used to it!

Political turmoil remains the order of the day, and as a result markets are likely to remain in limbo (at best). Of course this is not unique to Australia, given that the formerly Great Britain is undergoing massive turmoil with unknown outcomes. Meanwhile in the US could it really be possible that there will be a President Trump?                          

That thought was unthinkable just six months ago, but then so was Brexit, as was a tied vote in last week's Australian election. It is worth noting that while it looks as if the Liberals will scrape home with a semi workable majority, as of 2:20 this afternoon the Australian Electoral Commission's website showed that on a two-party preferred basis both the Labour and Liberal/National Coalition parties were both in a virtual dead heat at 50%, with just 8,288 votes separating them out of over 10.4 million counted.

As a result Bill Shorten is being hailed a hero by the faithful, concealing the fact that the Labour Party received its second lowest primary vote in almost 100 years. Meanwhile Malcolm Turnbull is having to face down his critics, who are conveniently ignoring the fact that Tony Abbott's primary vote fell by over 9%, indicating that had he remained PM he would have led the Liberals over the proverbial cliff which was Turnbull's justification for replacing him in the first place.

As such at least half population will be disappointed whichever way the result goes, but more importantly, assuming that Turnbull remains Prime Minister, will he be allowed to govern the way most voters wanted him to late last year when he took over? Alternatively, sadly, and most likely, he will be forced to compromise by the right-wing of his own party, and/or the minor parties on the cross benches.

So given Hedge Clippings is supposed to be an review on Absolute Return and hedge funds, why the political analysis? Quite simply because Standard and Poors have quickly announced that Australia is on credit watch, and that if the budget is not fixed we're likely to lose our coveted Triple-A rating.

The unfortunate thing is that there is simply no electoral will to fix the budget, and it seems no political will (or ability) to lead the electorate down the path needed to do so. On the expenditure side it seems too many people are hooked on government benefits, handouts, and concessions of one sort or another, on the income side no one wants to pay more tax or give up generous tax concessions on superannuation or negative gearing, while serious tax reform such as the GST and income shifting offshore are clearly in the too hard basket.

It is therefore difficult to imagine anything that is going to kick the market out of its current sideways trend, at least not in an upward direction. There is still the threat of a Royal Commission into the banking industry, while in the UK six retail UK property funds with $18 billion worth of assets have been frozen due to liquidity problems. Or should that be illiquidity problems?

Investors should therefore be careful. There may be a collective sigh of relief from the business sector that the Liberals will likely scrape home for the next three (difficult) years, but as the numbers above show a change of government is easily on the cards next time around.

Volatility in markets will continue to occur to match the lack of a clear political outcome both here and overseas. And in such markets investors need a hedge against volatility.

PERFORMANCE NEWS

Meme Australian Share Fund rose 0.61% in June, outperforming the ASX 200 Accumulation Index which returned -2.45%, by 3.06%.

Bennelong Long Short Equity Fund returned -1.04% in June and 24.05% over the last 12 months.

The Paragon Fund rose 6.30% after fees for the month of June, to take annualised return since inception to 24.06% p.a.

FUND REVIEWS released this week: Insync Global Titans Fund; Supervised Global Income Fund;

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Uncertainty Rules!

The fallout from Brexit, which had only just hit the newswires when Hedge Clippings went to print last Friday, continues, and what a shambles it shows democracy to be at times.

Of course, it was Winston S. Churchill who famously said that "Democracy is the worst form of government, except for all the others" although I am not sure he wouldn't reconsider that opinion given the uncertainty that not only the UK and Europe but also the rest of the world now faces. Of course, it's unlikely that had Churchill still been around that England would have joined the EU in the first place. It is even less likely that he would have fallen into the trap of leaving such an important decision to mere voters, particularly given the U.K.'s non-compulsory voting system which allowed a little less than 36% of those eligible to vote to carry the day.

We can't imagine that David Cameron will go down as a great British PM, and now Boris has pulled out of the race who knows what the outcome will be? The only definitive outcome is ongoing uncertainty, and uncertainty is not a friend of financial markets or economic growth.

Depending on which newspaper one reads in Australia, tomorrow's local election result is either going to be a cliff-hanger, or a win to Malcolm Turnbull and the Liberal coalition. Either way the worst outcome, although one that is quite possible, is that neither party will have the clear run or majority in the Senate to implement their stated policies. If you're on the side of the losing party of course this is probably seen as a positive, but from the point of view of strong government, and economic growth it will just lead to further uncertainty.

Whatever the result we can't see economic growth being anything other than lukewarm at best for the next three years as Australia, like the rest the world, will be impacted to a degree by Europe. And that's even before the potential for Donald Trump to make it to the White House following November's US election.

If that outcome eventuates any uncertainty will become a certainty.

PERFORMANCE NEWS

Pengana PanAgora Absolute Return Global Equities Fund generated a positive 0.88% for the month of May. The Fund has a low systematic risk (beta) to the ASX200 and the MSCI World Indices of 0.07 and 0.08 respectively.

Insync Global Titans Fund  returned +6.30% in May, outperforming the MSCI All Country World ex-Australia Net Total Return Index in $A which returned 5.5%, by 0.80%.

KIS Asia Long Short Fund returned -0.25% for the month of May, to take annualised return since inception to 14.70% p.a.

FUND REVIEWS released this week: Bennelong Twenty20 Australian Equities Fund; QATO Capital Market Neutral Long/Short Fund;

And on that note, try to have a great weekend working out not only the strange ways of the democratic World, but also the Australian Senate voting paper.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Be careful of what you wish for....

I suppose it's always gratifying to be able to say "I told you so", or "don't tell me you weren't warned", but last week's Hedge Clippings was entitled "Lookout for the unknown unknowns", and went on as follows:

"I don't know if it is just me, boredom with the election campaign both here and in the US, or a case of going  grey, getting old (and grumpy) but I get the feeling that something significant is going to shake the world's major economies and their current low growth, low inflation trends."

And even though we noted that Brexit was a "known unknown", all the smart money, if that's how one describes the bookies and various UK fund managers, were backing the REMAIN vote, and presumably putting their money where their mouths were. Sadly (for them) and for the stability of financial markets for the foreseeable future, based on current indications they got it badly wrong.

Of course in last week's Clippings we did go on to say that we didn't know what the event might be, when all the time it was right there in front of us. However, sometimes you just have trust your gut feeling, combined with a reasonable understanding of the peculiar vagaries of the psychology of the English, and the peculiarity of a voting system that relies on the weather to determine a nation's future.

So what happens now is anyone's guess, but what is certain is that volatility will be back with a capital V. Markets hate uncertainty, and that's now what they've got, and here in Australia we will not be immune to it.

PERFORMANCE NEWS

Affluence Investment Fund rose 1.87% to take annualised return since inception to 11.8% p.a.

NWQ Fiduciary Fund rose 2.86% in May bringing the net performance for the trailing 12 months to 9.50%.

Bennelong Twenty20 Australian Equities Fund returned +4.48%, outperforming the ASX200 Accumulation Index by 1.39%.

Signature Quantitative Fund generated a positive return of 0.40% in May to take annualised return since inception to 7.18% p.a.

APN AREIT Fund returned +1.58% in May to take annualised return since inception to 18.46% p.a.

QATO Capital Market Neutral Long/Short Fund returned 2.19% in May. The Fund is negatively correlated to the S&P/ASX-100 Index (beta of -0.33).

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return Fund; Pengana Absolute Return Asia Pacific Fund; APN Asian REIT;

And on that note, try to have a great weekend working out the ways of the World.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Look out for the unknown unknowns...

I don't know if it is just me, boredom with the election campaign both here and in the US, or a case of going grey, getting old (and grumpy) but I get the feeling that something significant is going to shake the world's major economies and their current low growth, low inflation trends.

In the US the Fed kept things on hold once again this week. They have been trying to raise rates for at least a year, but the combination of the economy and the markets won't let them do it. They also have to worry about the potential election of President Trump… 12 months ago that was considered unlikely and therefore, a known known. Now its a known unknown.

Europe is on hold waiting to see if Brexit occurs, and if it does what impact it will have on both economies and markets, and whether it will lead to other European countries following suit. Even six months ago Brexit was hardly mentioned - now it's a known unknown.

Locally we're stuck waiting for the outcome of the July 2 election result, which before Christmas was considered a known known. Now, with the whole nation (excepting the politicians themselves) becoming immune to the daily dose of political campaigning it looks like a known unknown. Even after the election is over, whoever is elected will have to work out how to pay for their promises and kick-start a post-mining boom economy. Another known unknown.

Whilst not always a fan of Donald Rumsfeld, Hedge Clippings would agree that it is the  "unknown unknowns - the ones we don't know we don't know…. that tend to be the difficult ones."

The bottom line  is that whenever investors get used to or expect something to happen (or in this case not to happen), there is the potential for the "unknown unknowns" to arrive unexpectedly and (normally) negatively affect markets.

Of course, as it's unknown, it would be unwise for me to try and predict what such an event might be, and maybe I am being excessively cautious.

So while from week to week we look at some of the best performing funds, there is also  sound reasoning for also looking at the most defensive. Those funds that in spite of the worst that markets throw at them, protect investors' capital.

PERFORMANCE NEWS

Overall the share markets rose in May. The Australian share market (S&P/ASX 200 Index) was up +2.4% for the month. The US market (S&P 500 Index) returned +1.5%, Europe (MSCI Europe Index) gained +1.5%, Japan rose +3.4%, while the rest of Asia was slightly weaker (MSCI Asia ex-Japan -1.6%).

Bennelong Kardinia Absolute Return Fund rose 1.60%, to take annualised return since inception to 11.86% p.a.

Pengana Absolute Return Asia Pacific Fund returned -0.56%, for an annualised return of 9.75%.

Totus Alpha Fund rose 9.36%, to take annualised returns since inception to 25.89% with standard deviation of 15.91%.

Pengana Global Small Companies Fund generated a positive return of 5.11% in May.

APN Asian REIT Fund returned +0.90%, outperforming the Bloomberg Asia REIT Index which returned 0.64%, by 0.26%  and taking annualised returns since inception to 17.09%.

FUND REVIEWS released this week: Meme Australian Share Fund; Jamieson Coote Bonds Active Fund; Optimal Australia Absolute Trust; Bennelong Long Short Equity Fund;

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

World Bank cuts 2016 growth forecast  from 2.9% to 2.4%

Hedge Clippings sometimes wonders at those really smart people who are tasked with producing economic forecasts. Why can't they ever seem to get it right? OK, we accept that it's not an easy job, but a 50 basis point cut since their previous forecast issued in January suggests they need to take a look out of the window, or even take a walk in the street.

To make matters worse the overview on their website included the warning (if you didn't need it) that their "projections are subject to substantial downside risks, including additional growth disappointments in advanced economies or key emerging markets and rising policy and geopolitical uncertainties". That sounds to us like hedging their bets, with the likelihood that at some time in the next few months they will announce further (downward) adjustments. They'd better get a move on, because the year is almost half gone already, so the margin for error is getting slimmer by the day.

To be fair these are difficult times, and there are a significant number of risks out there. It seems that Janet Yellen and the US Fed have put off a rate rise in the immediate future, while in Germany of all places, that European powerhouse of industrial growth, yields have finally slipped into negative territory. 

And talking of false or wildly hopeful expectations, how either of Australia's two political parties expect the electorate to believe that the budget can be brought back into surplus within the next five years, or for that matter the next ten, without a major overhaul of both spending and taxation, neither of which are politically acceptable to a significant proportion of the population, never ceases to amaze us.

On a completely different and unrelated note and nothing to do with the World Bank, economic forecasts, or unrealistic politicians, Mohammed Ali sadly passed away last week-end. Among all the articles that were written was one by Peter FitzSimons which (probably correctly) blamed boxing for our heroes' condition, and ultimately his untimely end. However, Fitzy missed the point that without boxing it is unlikely that Cassius Clay would have ever emerged onto the world stage, and we would all have been worse off as a result.

So as a tribute to a real hero, a couple of quotes out of the thousands from the man who rightly claimed to be the "greatest" - in many senses of the word, in and out of the ring:

"Impossible is just a big word thrown around by small men who find it easier to live in the world they've been given, than to explore the power they have to change it. Impossible is not a fact. It's an opinion. Impossible is not a declaration. It's a dare. Impossible is potential. Impossible is temporary. Impossible is nothing."

And another:

"Don't count the days, make the days count."

RIP

PERFORMANCE NEWS

APN Asian AREIT Fund  rose 4.57% for the month of April, compared to the BBAREIT Index's return of 5.68%. Since inception, the Fund has an annualised return of 17.19% p.a.

Insync Global Titans Fund returned 0.7% in April, taking annualised return since inception in October 2009 to 9.2%.

Meme Australian Share Fund rose 5.43% for the month of May, to take latest 12 months return to 22.93%.

Cyan C3G Fund returned +5.70% in May 2016. Over two years since inception, the Fund has an annualised return of 35.07% p.a.

Jamieson Coote Bonds Active Fund rose 1.19%, against the Bloomberg Australian Government Bond Index which returned 1.37%.

The Paragon Fund rose 7.0% for the month of May to take annualised return over 3 years since inception to 22%.

Optimal Australia Absolute Trust returned 2.29% to take annualised return since inception in 2008 to 9.22% p.a; standard deviation of just 3.68%, and a Sharpe ratio of 1.53.

Bennelong Long Short Equity Fund rose 7.58% in May, outperforming the ASX 200 Accumulation Index by 4.49%, while taking 12-month performance to 31%, and annualised performance over 13 years to 18%.​

FUND REVIEWS released this week: APN Asian REIT Fund; Insync Global Titans Fund;  

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.