BENNELONG KARDINIA ABSOLUTE RETURN FUND

Attached is our most recently updated Fund Review. You are also able to view the Fund's Profile.

• The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with over ten-year track record. 

• The Fund has significantly outperformed the ASX200 Accumulation Index since its inception in May 2006 and also has significantly lower risk KPIs. The Fund has an annualised return of 10.16% p.a. with a volatility of 6.89%, compared to the ASX200 Accumulation's return of 5.93% p.a. with a volatility of 13.29%.

• The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while Bennelong Funds Management provide infrastructure, operational, compliance and distribution capabilities.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - September 2018 (pdf format)

Imitation is the sincerest form of flattery…

Here at Hedge Clippings we spend much of our week reading a wide selection of monthly reports and articles from fund managers. Then we spend at least some of each Friday trying to ensure we have gleaned enough of their market insight to gather our thoughts and try to appear coherent in our weekly musings.

For the past few months the Hayne Royal Commission, ably assisted by those in their sights in the witness box, have made our weekly subject matter a simple, if somewhat repetitive, choice. This week the market turmoil has put even badly behaving (but now we note, somewhat contrite) bankers in the shadows. While we would claim to have warned of some impending market volatility each week, we were never game to predict its timing.

So this week, rather than try to compose the "why" and "what next" for markets, we're going to simply reproduce an excellent, concise summary received from Marcel von Pfyffer from Arminius Capital whose intelligence and market savvy we respect. It is much simpler than trying to re-write it, with the risk of missing the point, or being accused of plagiarism. 

It is headed, somewhat disturbingly, The Next Bear Market Has Just Begun:

"For the last six months we have been warning our investors that the end was nigh for the US bull market which has appreciated by a colossal +423% for the S&P500 TR index from 6 March 2009 to 21 September 2018. Arminius Capital ALPS fund investors have benefitted from this since the fund's inception in 2014, until we became very concerned at the end of the first quarter 2018 and began to materially add to (increasingly expensive) hedges. The recent rises in US 10 year bond yields and falls in global equities have signalled that the long bull market is over.

The coming global bear market will not be like the GFC. It wasn't caused by a US housing bubble, it won't cause a US and European banking crisis, and it won't be limited to developed economies. But the US and other share markets will fall by 20% or more, many companies will go bust, and a recession will follow.

We can't yet predict how long this bear market will last. It may be over in three months (like the 1987 crash), or it may drag out for eighteen months (like the GFC). No two crises' manifestation or duration is ever the same. In Australia it will be complicated by the housing downturn and the retreat of commodity prices. Oil and gas producers, however, will do well. It will certainly damage all portfolios (individual investors, superannuation & pension funds, speculators & traders) which don't have short positions or derivative protection.

The Trump Administration has made the bear market worse by its foolish policies. The trade war with China is already increasing US costs and causing hardships to some US industries. Further retaliation by both sides will make matters worse and most likely not remedy the one fact the US, EU & Japan all have openly acknowledged and agree upon: that the global trade playing field is not level - in China's favour.

In particular, The Donald's decision to re-impose sanctions on Iran have propelled oil prices upward. The effect of sanctions will be to cut Iran's oil production from 2.5 million barrels per day to between 1.0-1.5 million barrels per day. China will continue to import Iranian oil, carried in Chinese ships, and Iran has four decades of experience in evading US sanctions. But there is not enough spare production capacity in the world to make up the lost Iranian production, so oil prices are rising, and may soon reach USD$100 per barrel again. US and Australian motorists are going to be paying more!

One of the reasons we are confident that the next bear market is under way is the behaviour of the technology sector. Tech stocks have led the way down in the US, and most of them do not have the earnings or dividends to justify a price floor. Over the last eight years, the tech sector has grown to make up 25% of the S&P500 index, so the sector and the index have a long way to fall. The big tech stocks - such as Facebook, Apple, Amazon, Netflix, and Google will still be in business, but they will be a lot smaller, just as they were after the dotcom boom and the GFC."

The Arminius Capital ALPS Fund is short several US tech stocks, as well as many other US, European, Japanese, and Australian stocks. Just as absolute return and hedge funds provided downside protection during the GFC (falling on average less than half the ASX200's -45%) we expect that once again these funds will perform significantly better than the market, and adhere to their ethos of long term capital preservation.