So long 2016: Welcome 2017 but stay on your toes!

Firstly, Happy New Year from Hedge Clippings. We trust you have had a relaxing and peaceful break and, depending where in the world you are, have survived the extremes of temperature. From our perspective in Sydney it has been hot and humid which, while not unusual for this time of the year, seems to have been more so than usual.

And so goodbye to 2016. Judging by the comments received from many over the past few weeks there aren't too many who were sad to see the back of it. It was certainly a turbulent year from a political point of view, and depending on one's leanings, either very satisfactory or very disappointing. Brexit, the potential for which was only brought to our attention 12 months ago, although done and dusted has a long way to run, longer certainly than most of the proponents originally envisaged.

Meanwhile, tonight sees the inauguration of probably the most unexpected (at least from an outsider's point of view) of US Presidents in memory. Looking back over our commentaries of the past 12 months it would be fair to say we misjudged the mood of middle America, as did most of those on the east and west coast. To what extent President Trump will be able to bring the disbelievers along with him on his journey of 'Making America Great Again' remains to be seen but is certainly going to make for interesting, and turbulent times.

Turbulent probably also describes Australia's equity markets in 2016. It's fair to say that they started the year with a whimper, falling 10% in the first two months, only to end the year with a roar, rising 8% in the last two months, and as pointed out by George Colman of Optimal Australia, rising 13.1% between November 9 and January 9 this year.  Furthermore in the three weeks from December 19 only three stocks in the ASX 100 lost ground.

Going forward it is probably fair to say that, with valuations at current levels and earnings still uncertain, there is plenty of room for volatility. And whilst on the subject of volatility and earnings, woe betide any company missing expectations or disappointing investors.

From a fund manager's perspective, it was also a tough year. With 70% of AFM's database reported, only 11% outperformed the ASX 200 Accumulation Index. Many proven, tried and tested funds found it difficult to negotiate and navigate both political and earnings uncertainties over the year, particularly the strength of the last two months. For many, it will go down as a forgettable year, and probably one in which the marketers will be reminding investors that its a longer term game.

On the other hand, there were some excellent performances particularly from new and smaller managers, and those investing outside the top 100, who benefited from the ability to select outstanding companies, and profit accordingly. We look forward to bringing you information, news and research on these, and others, over the coming 12 months.

PERFORMANCE NEWS 

Over the last 12 months, the S&P/ASX 200 Total Return Index returned +11.80%, the MSCI Asia Pacific Ex-Japan Index returned +9.49% and the S&P 500 Total Return Index returned +14.77%.

Allard Investment Fund rose 0.57% in December (MSCI Asia Pacific ex-Japan A$ +1.28%). The Fund has returned 9.25% over the past 12 months, taking annualised return since inception to 9.02% p.a.

The Paragon Australian Long Short Fund returned +0.80% in December, +6.82% for the latest 12 months and since inception, the fund has an  annualised return of 15.11% p.a. 

Totus Alpha Fund returned +2.74% in December and -14.25% for the latest 12 months. Since inception in April 2012, the Fund has an annualised return of 21.02% p.a.

Bennelong Kardinia Absolute Return Fund gained 1.45% in December, however, fell -2.44% for the most recent 12 months. 2016 marked the first negative year for the Fund since inception in May 2006, taking the annualised return to 11.22% p.a.

Optimal Australia Absolute Trust returned +0.29% in December 2016 and +4.75% for the latest 12-months. The Fund has not recorded a negative year since inception in September 2008 and has an annualised return of 8.54% p.a.

Touchstone Index Unaware Fund generated +4.42% in December, slightly ahead of the market rise of 4.38% (S&P/ASX 200 Accumulation Index). Since inception in April 2016, the Fund has returned +14.24%.

Cyan C3G Fund returned -1% in December, taking the most recent 12 months return to 14.79%. Since inception in August 2014, the Fund has an annualised return of 27.15% p.a.

Affluence Investment Fund increased 1.08% in December resulting in a +10.65% return for the 2016 calendar year, and 10.01% p.a. annualised returns.

APN AREIT Fund increased 6.80% in December, taking the prior 12 months performance to +13.73%. Since inception in February 2009, the annualised return for the Fund is 17.22% p.a.

Pengana Absolute Return Asia Pacific Fund finished up +0.37% for December 2016, marking the first negative year for the Fund, returning -2.10%. Since inception, the Fund has an annualised return of 8.56% p.a.

KIS Asia Long Short Fund returned -0.42% in December, taking the return for the most recent 12 months to +13.46%. The Fund has an annualised return of 14.63% p.a. since inception in October 2009.

Bennelong Long Short Equity Fund returned -3.23% in December taking the latest 12 months to -13.07%, in a rare negative year over 15 years of history. Since inception in February 2002, the annualised return for the Fund is 16.14% p.a.

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return 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.

Hindsight is so easy!

I can't imagine there is anything left to say about Donald Trump's stunning victory last Tuesday that hasn't been said or written elsewhere, but for better or for worse, here's a few more.

It is probably fair to say that the only people who were truly surprised were either those outside the USA, or Democrats within it. And possibly a few Republicans as well, although they might not choose to be reminded of it.

There will no doubt be books written, lectures given, and certainly debates held for a long time to come as to what, depending on one's opinion, went right or wrong. What is most surprising however is the "new" Donald Trump - gracious, polite and reasonable, all characteristics that would have been difficult to ascribe to him based on his electioneering over the past 18 months or so.

Only time will tell whether this is a temporary reprieve, or if Trump in election mode was just a carefully devised plan to gain attention from the so-called "forgotten and downtrodden" and in so doing polarise the electorate. Irrespective of the answer, he is now the President-Elect, and his Party has a seemingly iron grip on government at all levels for the next four years. (Malcolm, how would you like that?)

Over the past few weeks Hedge Clippings has received regular feedback to our Trump/Clinton election comments from a U.S. based subscriber who was adamant that those outside the US, plus those on the West and East coast, simply did not understand reality. Needless to say soon after the result was known we received an email from him titled: Was I Right?

Given that he was 100% spot on, it is worth taking notice of his opinion that "contrary to what the Australian media would like you to believe and have been toting, Donald Trump may make a good President". Assuming he will or can curb the excessive rhetoric, maybe he will.  Our 100% correct subscriber went on to add that it will be interesting to watch Trump and Putin as he feels there will be a big change in the relationship between Russia and the USA.

Certainly equity markets, which had previously been nervously awaiting the outcome, seem to think the outcome is positive, even if it just serves to remove the uncertainty of the unknown. Trump's massive infrastructure spending promise ($1,000 billion over 10 years) could well kick the economy along, and provide some much needed inflation to boot. If only it were all so simple.

Locally there's market uncertainty however, as Trump will govern for America first, and the rest of the World, and Australia second. The potential for trade, or currency wars, would seem to heightened.

PERFORMANCE NEWS 

Bennelong Long Short Equity Fund returned -1.76% in October. The Fund is up 33.63% for the latest 24-months.

Optimal Australia Absolute Trust rose 0.35% in October 2016, outperforming the ASX 200 Total Return Index, which returned -2.15%, by 2.50%.

Pengana Global Small Companies Fund returned -1.20% in October 2016, outperforming the MSCI AC World SMID Cap Index which returned -2.4%, by 1.2%.

Bennelong Kardinia Absolute Return Fund returned -1.85% in October to take the annualised return since inception to 11.29% p.a.

Finally, news has just arrived that one of our favourites from "and now for something completely different", Leonard Cohen has died aged 82. Hedge Clippings is old enough to remember seeing him at the Isle of Wight in 1969. Here's a link to a live version (and explanation) of his great hit Chelsea Hotel.

And on that sad 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.

Inertia and indecision to decide the outcome.

The spectre of President Trump is looming larger than ever with investors certainly taking risk off the table - or at least holding fire until the outcome of Tuesday's vote is known, next Wednesday (AEST).

What seemed unthinkable until recently to those outside the Trump camp is now a distinct possibility, but this is going to be difficult to predict and according to the polls, will go down to the wire. There is no doubt that like the recent Brexit vote, it will be the voters who DON'T vote who will decide the outcome of who sits in the White House for the next four years.

As bizarre as this might seem in a country with compulsory voting such as Australia, there is no doubt that Americans, and probably the British, who think a system whereby an upper house candidate can do secret deals and thus, in spite of only achieving a minute vote in percentage terms, hold sway over the government of the day, is equally crazy. Or that the State with the smallest population has the same representation in the Senate as the largest.

And while on politics and Brexit, an interesting dilemma has emerged for British MP's, with the High Court ruling overnight that any decision to invoke Article 50 to leave the EU must be made in Parliament. Should each MP follow the outcome of a national referendum, where less than 40% of the eligible population voted to leave? Or should they abide by the wishes of the voters of their own constituency, who elected them in the first place, the majority of whom may have voted to stay? 

Meanwhile to markets: Trump as Commander-in-Chief would undoubtedly un-nerve markets if for no other reason than it will invoke change, uncertainty, and a fear of the unknown. A second President Clinton (back) in the Oval Office will unnerve investors based on higher taxes, and a Democrat who according to many, (including the Russians who have reportedly been behind her hacked email account) has a dubious past.

Hence risk off.

Meanwhile October fund performances have yet to emerge, but with the ASX falling 2.15% over the month for a 12 month return of 6.1% there is likely to be the usual range. 

FUND REVIEWS released this week: 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.

Could we be misjudging the US election outcome?

We are less than two weeks away from the US election which will provide both a media frenzy, and likely decide all our futures. Sitting in Australia the feeling is that no one in their right mind would vote for a President Trump, but sitting in Australia we are not voting.

However, what happens if Trump wins? And could Trump be Hilary Clinton's greatest electoral asset, who based on Wikileaks reports might not be a perfect candidate anyway?

Is there the possibility that like Brexit, a combination of non-compulsory voting, voter apathy with conventional politics, and not being close enough to the detail, means that we are not in a good place to judge the outcome? Today's media seems to indicate that the unthinkable might actually happen.

Either way, Hilary Clinton has promised to raise taxes and spend $500 billion on infrastructure. Trump has promised to reduce taxes and spend double that on infrastructure. That will surely change the supply/demand ratio in the bond market, and send interest rates upwards.

In that environment what will happen to equities? The optimists are hoping that increased economic activity will generate sufficient growth to offset the increase in interest rates, while the doomsday merchants believe it's all going to come down to a case of tears before bedtime.

Remembering what happened when interest rates rose unexpectedly in 1987 - before the stock market crashed - even without the buildup of debt we have seen over the past 7 years, suggests caution will be the investor's best friend.

PERFORMANCE NEWS 

Pengana PanAgora Absolute Return Global Equities Fund rose 1.77% in September. The Fund continues to have a low systematic risk (beta) to the ASX200 and the MSCI World Indices of 0.08 and 0.09 respectively.

APN AREIT Fund returned -3.21% in September. The long term performance since inception remains strong with annual returns of 17.90% p.a.

Totus Alpha Fund returned -5.31% in September. Since inception, the Fund has an annualised return of 24.74% p.a.

Insync Global Titans Fund returned -1.75% in September, compared to the MSCI All Country World ex-Australia Net Total Return Index in $A, which returned -1.20%.

King Tide NZ/Australian Long/Short Equity Fund rose 1.83% in September and +23.77% over the latest 24-months.

FUND REVIEWS released this week: Qato Capital Market Neutral Long/Short 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.

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.