Twelve month industry and sector performance review

The past 12 months have not been easy for Australian investors, particularly those who had become used to double digit returns from high yielding equities, and bank stocks in particular, over the past couple of years. Just to add insult to injury, the ASX200 dropped over 5% in June as the crisis in Greece reached a crescendo.

As a result the ASX200 Accumulation Index managed to return only 5.67% for the financial year to 30 June, with 5 out of the 12 months in negative territory. Considering September 2014 recorded a negative -5.37% to add to June's -5.30% this was probably not a bad end result, although probably saved by the buoyant start to the calendar year which saw the market rise 3.27% in January, and a further 6.88% in February.

In the 12 months to June 2014 the market returned 17.43%, and for the period to June 2013 an even better 22.67%, so investors had been provided with a period of 24 months averaging 20% plus per annum. As most investors would appreciate most of the performance was coming from a handful of heavyweight financial stocks and Telstra, so the yield hungry, concentrated portfolios were doing even better.

By comparison, actively managed equity and hedge funds performed admirably in the most recent 12 months, returning 11.34% on average, with 75% outperforming the 5.68% return of the ASX200. Including non-equity funds took a little, but not a lot of, gloss off the result, with all single funds returning 10.53% for the same period.

Of interest was the fact that when looking at individual strategies, Long Only (+16.87%) outperformed Equity Long/Short (+11.76%), while Market Neutral struggled at 4.48%. Taking a geographical breakdown showed Asia leading the regions, with Asia up 12.95% and Asia ex Japan up 18%, while Global funds produced 10.72%, and Australian focused funds came in at 7.92%, with currency gains presumably providing significant tail winds for those not hedging their A$ exposure.

So while a creditable 75% of funds outperformed the local equity market, once again fund selection, and having a reasonably diversified portfolio balancing both performance and risk seemed the best solution for the smart investor.

Full details can be found on the www.fundmonitors.com industry and sector performance page.

Specific results received this week include the following PERFORMANCE UPDATES:

Insync Global Titans Fund outperformed its benchmark MSCI All Country World ex-Australia Net Total Return Index ($A) by 0.50%.

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return Fund; Pengana Absolute Return Asia Pacific Fund; Totus Alpha Fund; 

UPCOMING EVENTS:

20 - 21 August 2015 - The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

15 September 2015 - The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And now for something completely different: Today is the last day of July, ushering in the month of August, so named in 8BC by Julius Caesar in honour of Augustus around the time of several of his great triumphs, including the conquest of Egypt. 

So what you might ask? Well, there has been an email doing the rounds entiltled Silver Pockets Full which claims that this August will be unique in that it has 5 Fridays, 5 Saturdays and 5 Sundays, and that this phenomenon only occurs every 823 years.

For those of you who have received the email and belived it, take another look because you've been conned. Apart from the fact that today is Friday, July 31st, every month with 31 days has three days of the week which occur 5 times, and four that occur 4 times.

It took Hedge Clippings a while to work it out, by which time we had forwarded it to a few people, none of whom seemed to spot the issue either. But it does beg the question, who thinks of these things?

And while on the subject of something completely different.... politicians behaving badly: If we thought a $5,000 helicopter ride for our Speaker of the House was above and beyond, how about the (now former) Deputy Speaker of the House of Lords, Lord Sewel who was reported as saying "The question of whether my behaviour breached the code of conduct is important, but essentially technical". 

This after being filmed snorting cocaine, dressed in a red bra, while cavorting with a couple of prostitutes. 

On that note (a five pound one I understand) have a good week-end.

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.

GST finally on the table

It took New South Wales Premier Mike Baird to get the subject of raising and broadening the GST onto the front pages, and I expect we will never know if this was at the behest of Tony Abbott or Joe Hockey, or if he did it off his own bat. In any event at least it's done, and maybe there can now be a sensible debate about proper tax reform.

Regular readers of Hedge Clippings would know that we have been advocating for (or some would say banging on about) the need to expand the GST since Joe Hockey's first budget was released back in May 2014. In our view the rate could be increased to 15% and broadened across all goods and services, which would merely bring it into line with most other developed countries. In fact at 15% it would still be well under the rate charged in many parts of the world.

Of course the immediate response from some sections of the community, including a couple of State Labour Premiers, was that the GST was an unfair tax because it took a larger proportion of poorer people's incomes compared with higher earners. For some reason they completely ignored (presumably because they chose to) the logical suggestion put forward by Baird that there should be appropriate compensation for those on lower incomes, or on pensions.

They also ignored the fact that higher income earners are also higher spending consumers, and therefore would generate greater GST revenue. They also ignored the fact that now the system is installed, increasing the rate or broadening it is very simple from an administrative and collection perspective.

The risk now would seem to be that either the proposal doesn't make it through to reality, or worse still that a further compromise is done and it will take another 10 or 15 years before anyone has the political will to do it properly. One has to remember that the current system is a compromise in itself, with John Howard giving in to pressure from the Greens to apply GST to only half the economy in order to get it through Parliament.

Assuming the GST does get into the mix at the upcoming Taxation Review, which Abbott had previously indicated would not be the case, it might be helpful if the government allowed other taxation sacred cows, such as negative gearing and superannuation concessions, to be debated at the same time. There seems little point in having a taxation review, like the one organised by the previous government under the care of Ken Henry, if the entire system can't at least be explored.

Specific results received this week include the following PERFORMANCE UPDATES:

Pengana Absolute Return Asia Pacific Fund finished -2.39% for the month, compared to the Asia Pacific markets which fell -3.3%. Since inception the Fund has an annualised return of 10.90% p.a.

FUND REVIEWS released this week: Bennelong Long Short Equity Fund; Morphic Global Opportunities Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conferenc ewill provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300to all investors and advisors using coupon codepromoFMon registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And finally, best wishes for a happy and healthy week-end ahead,

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.

Greek double somersault and pike, with a twist.

Markets recovered over the past week based on one of the more spectacular backflips in political history. One wonders what the Greek referendum was all about, given the man who having called it, recomended a NO vote, and then got his wish, seemed to ignore the result. Irrespective of whether one belives the Greeks should, or should not accept the medicine their northern neighbours, particularly the Germans were prescribing' hardly matters. No wonder that the 60% of the Greek population that voted no are less than happy, or even decidely grumpy.

What seems odd to fathom is how anyone thinks the so called solution will cure the underlying problems? Adding more new debt to cover that already in place, as any consumer with a bunch of maxed out credit cards in their wallet would, or should know, would seem to be simply kicking the can a further three years down the road. So look out for Grumpy Greeks for at least the next three years, and Grumpy Germans when it all returns to bite them in three years' time. 

And so to China, which along with Greece seems to have been the major topic of Hedge Clippings for the past few weeks, as it has been for the mainstream financial press. Chinese quarterly GDP figures, once again delivered so swiftly that one has to assume they're fudged, came in at 7%, bang on target. What a wonderful co-incidence! Given Singapore's quarterly GDP declined sharply by 4% yoy, and a massive 14% annualised, in no small part as a result of reduced manufacturing and exports to China, it makes the Chinese GDP result even more questionable. 

What makes the data so rubbery is that power comsumption in China grew by just 0.8% over the quarter yoy, well below expectations and one of the lowest rates of quarterly growth in the past 20 years. Crude steel and pig iron production fell 1.7% over the quarter, the first decline since records began in 1994, cement was down 20.5% yoy, and glass by 6.6%, while rail volumes declined by 9%. Even though the reported GDP growth was 7% for the quarter, this was still the lowest in six years, assuming you take them as gospel.

People in some quarters have been unkind enough to call me a cynic (amongst other things) but I can't imagine why.

Specific results received this week include the following PERFORMANCE UPDATES:

The Paragon Fund returned -3.80% versus the ASX 200 Total Return Index's -5.30%, for the month of June 2015. The Fund's annual return since inception has been 18.82% p.a. versus the Index's 7.46% p.a. 

Morphic Global Opportunities Fund outperformed it's benchmark MSCI AC World Total Return in Australian Dollars by 0.31%.

FUND REVIEWS released this week: Monash Absolute Investment Fund; Optimal Australia Absolute Trust

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300to all investors and advisors using coupon codepromoFMon registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

It's a while since "Now For Something Completely Different" featured one of our four legged friends, so this might bring a smile to your face.

And finally, best wishes for a happy and healthy week-end ahead,

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.

Chinese authorities treading a dangerous path

The news that the China Securities Regulatory Commission was prohibiting investors who own more than 5% of a publicly traded company from selling shares for six months is likely to do more to damage their market than save it. The ban will include foreign investors who hold shares that trade on the Shanghai and Shenzhen exchanges, and comes after Chinese equities lost more than 25% of their value since mid-June.

If anyone can pull off what the Chinese authorities are trying to do, they can, but we doubt they'll succeed. They might be able to control their own citizens from selling shares in smaller caps, or freezing parcels of 5% or more of a publicly listed companies for six months, but the longer term damage to their reputation, and the confidence of traders, investors, and market participants at home and abroad, will be difficult to overcome.

What the Chinese authorities are doing is freezing liquidity, and in this regard it seems they haven't learned from the lessons of 2008 when central banks, governments, and regulators around the world tried to ban short selling, close markets, and in a word, panic. And if governments and the authorities panic, that's exactly what investors are likely to do as well.

Rudyard Kipling put it quite clearly: "If you can keep your head when all around you are losing theirs and blaming it on you" but it seems the Chinese authorities didn't listen, or haven't read Kipling.

By stopping investors selling smaller stocks, they're going to be forced to sell larger ones, and possibly the better ones, to cover their liquidity requirements, margin calls, their need for cash, or just to stuff under the mattress. While western authorities have probably learned from their mistakes of 2008 and might not make the same ones again in a panic, they also succeeded in restricting longer term liquidity through regulations on banks and other market participants in an effort to avoid another too big to fail scenario.

China threatens to make the Greek tragedy just a pimple by comparison. Whatever eventuates in Greece has largely been anticipated by most savvy investors over the past few years, and if a three year moratorium is agreed to it will probably only extend the agony further. There seems no way that the Greek economy, about the same size as that of the State of New South Wales, is ever going to be able to repay the levels of debt.

And so on to fund performance in June.

It was obviously a rocky ride on global markets in June, initially in response to Greece, but more recently as a result of China's problems. The ASX 200 Accumulation Index fell by 5.3%, and July has seen a continuation of the volatility since. Over the 12 months to the end of June the ASX200 rose only 1.17%, or 5.68% on an accumulation basis. By comparison and based on the 25% of fund returns received to date, equity-based hedge funds fell by only 1.41% in June, an outperformance of almost 4%, with 87% of those outperforming the ASX 200 Accumulation Index. Over the past 12 months equity-based funds have returned 11.57%, double the return of the accumulation index.

In addition to the performance updates below, results of note include Kentgrove Capital, (+4.1%) Totus Alpha Fund, (+6.3% (e)) QATO (+1.89%) Bennelong Long Short (+4.86%). 

Specific results received this week include the following PERFORMANCE UPDATES:

Monash Absolute Investment Fund fell 1.9% in June in a weak Australian equity market, but still taking the Fund's annualised return since inception to 14.11% p.a. 

FUND REVIEWS released this week: Totus Alpha Fund; Insync Global Titans Fund; Supervised High Yield Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300to all investors and advisors using coupon codepromoFMon registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And finally best wishes for a happy and healthy week-end ahead,

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.

Grexit Reality - But maybe we need a reality check ourselves?

Actually Greece isn't out of the EU just yet, but the default is a reality, and unless someone blinks, either as a result of Sunday's referendum, or the reality of the consequences of exiting both the political and currency union, the rest as they say, will be history. The problem is no-one can actually say in advance what that history might look like, apart from the certainty that it is going to get messy.

The fact is that the Greek problems were a classic example of the boiling frog syndrome, in that they developed, or simmered for a long time with nobody prepared to fix the problem until it was too late. The release this week of The Grattan Institute's working paper, entitled "Fiscal challenges for Australia", made us wonder if we aren't heading for our own equivalent of the Greek tragedy, even though to many it might seem we're a long way off at present.

At first glance we're sitting, if not pretty, but at the top of the tree when it comes to net levels of Commonwealth government debt to GDP, which is projected to peak at 18% in 2017. This excludes state government debt, and for good measure treats the value of the Future Fund as an asset. However, the Grattan report notes that when it comes to forecasting, the Federal government's forecasts consistently contains highly optimistic assumptions about revenue growth and spending restraint.

For the last six years budget outcomes have been worse than projections, and both the previous and current Governments have been unwilling to address deep seated issues, instead relying either on the mining boom (gone!) and personal income tax bracket creep to raise additional revenue, while refusing to curb excessive spending. In other words we haven't been the only ones not prepared to accept the austerity measures (increase taxes, reduce spending) needed.

In its place we have increased taxes by stealth, otherwise known as bracket creep. According to a recent article in the Financial Review, the government's reliance on bracket creep will push the average full time worker in Australia on $78,000 a year into the second highest tax bracket this financial year, with any earnings above $80,000 subject to a tax rate of 39% including the Medicare levy. This will earn the government, and cost the average income earner, an additional $1,200 per year over the next decade, and take their average tax rate from 21.7% to 27.4% over the next decade.

The current Federal Government has refused to address major issues such as changes to the taxation of superannuation, changes to the GST (as did the previous Labour government), or curbs on negative gearing, thereby excluding three major reforms which would get them out of the fiscal hole that has been deepening for some time. Relying on personal income tax bracket creep seems to be their only solution, with the creep the equivalent of the above mentioned frog in his slowly warming pot.

As the Grattan Institute correctly points out, hoping for the best is not a budget management strategy: It simply justifies putting off hard decisions, and shifts the costs and risks of budget repair onto future generations, with their research showing that each $40 billion dollar deficit increases the lifetime tax burden for households headed by a person aged 25 to 34 by $10,000.

Your Clippings correspondent can rest easy - it won't be his problem. He's waaay older than that, and will be part of the other side (expenditure) of the problem once he starts to draw a pension!

Specific results received this week include the following PERFORMANCE UPDATES:

The Insync Global Titans Fund increased by 3.0% in May, bringing the Fund's prior 12 month performance to 20.79%.

Totus Alpha Fund was down 1.80% in May, compared to the ASX200 Accumulation Index's 0.40%. However the Fund's annual performance of 23.31% p.a has been strong (Index 14.43% p.a.).

The Signature Quantitative Fund returned -1.20% for May, to bring the annual performance since inception to 11.34%.

Supervised High Yield Fund rose 1.04% during May to bring the Fund's annual return since inception to 10.22%. In the same time frame the RBA Cash Rate returned 3.45%.

FUND REVIEWS released this week:Aurora Fortitude Absolute Return Fund; Pengana Absolute Return Asia Pacific Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And now for something completely different. An article in today's Guardian Australia suggesting that in the mid eighties, with the Hong Kong handover looming, and the Troubles in Northern Ireland in full swing, UK officials considered relocating 5.5 million Hong Kong citizens to Ulster, but were concerned about how they'd adapt to the weather. Had it been April 1st you might understand it, but really?

And finally best wishes for a happy and healthy week-end ahead,

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.

The Game of Greek Chicken Continues

Last week's Clippings noted that Morphic's Jack Lowenstein thought that any Greek solution would (if any) be last minute, but not long lasting. He's certainly right on his first call, although it is too early to tell as yet if there will actually be a solution. We are not sure if they're playing a dangerous game of chicken or not, but it seems that those in the north of the EU are driving a hard bargain, and the Greek PM is between a rock (those in the North) and a hard place, namely the Greek electorate.

The Northerners want hard decisions made both on the revenue and expenditure side. That means increased taxes, and reduced spending. The electorate, who will decide new Greek PM Tsipras' fate at the end of the day, aren't too happy about that. One also has to remember that Tsipras, and his Finance Minister are or were both products of the Greek Communist Party, so fiscal discipline and economic management might not be their natural calling. In any event it seems that the Germans won't budge, and Tsipras has little room to move. For further background read this piece from Arminius Capital's Marcel von Pfyffer.

For what it's worth Marcel's view (he's Swiss Australian, in case you were wondering, not German) is that "Greece will, as sure as the sun sets, default on its debt."

Closer to home the revelations by Fairfax's Adele Ferguson last Saturday (and since) that there was a serious compliance issue at IOOF must have caused shudders in a number of quarters, including ASIC and the board of IOOF itself.

A brief read of IOOF's March 2015 quarterly report would have you beleive that compliance was front and centre in the board's minds. And inded it might have been, but between the board, the stated complaince policy covering 8 full pages, and what is alledged to have occured, there appears to be a significant gap.

This is obviously bad news, not only for IOOF, as it is a further nail in the coffin of much of the financial services sectors' reputation, coming after CBA, Macquarie and others' failings. Strangley in the Senate both sides of politics voted together to knock back a Royal Commission, but Clippings is not sure it would have proven, or changed much. 

As Mike Mangan, quoted (loosely) in the AFR said on Monday there's not going to be a change of behaviour in the industry until some serious sanctions are brought to bear on the wrongdoers. By serious he means jail time, and as he so succinctly put it "the only thing that scares the shit out of white collar workers is jail time."

To be fair a few have gone to jail since 2008, but only a few, including the notable Maddoff in the US, and closer to home Astarra's Shawn Richards. But in the meantime the collective fines and penalties paid by (shareholders of) financial institutions and banks worldwide to cover their corporate and management sins between 2008 and 2014 exceeds $150 billion, enough to go somewhere towards paying off some Greek debt. The "victims" of those misdeeds meanwhile haven't received a cent, penny, centime or drachma! 

Specific results received this week include the following PERFORMANCE UPDATES:

Avenir Value Fund had a strong performance of 4.50% during the month of May, compared to the ASX 200 Accumulation Index's 0.40%.

The Pengana Absolute Return Asia Pacific Fund finished +1% for the month, compared to the HFR Event Driven Index which closed +0.5%.

Since inception in August 2014, QATO Capital Market Neutral Long/Short Fund has returned 37.93%.

Freehold Absolute Return Fund has an annualised return of 17.48% p.a., compared to the ASX200 Accumulation Index's 15.15% p.a.

The Laminar Credit Opportunities Fund returned 0.65% over the month of Month, bringing its annual performance since inception to 18.96%.

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust; Morphic Global Opportunities Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And finally best wishes for a happy and healthy week-end ahead,

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.

Greece moves from close to the edge, to on the edge.

Four or maybe five years ago (Hedge Clippings loses track of time as the years roll by) at the GAIM hedge fund conference in Monaco, a show of hands was held to see how many of the 400 or so assembled attendees thought Greece would survive as part of the EU. To the surprise of some, myself included, less than half of the audience were positive about the eventual outcome.

Had further questions been asked about how soon such an exit might occur fewer might have picked 2015, but now  much wrangling has passed it appears that Greece is literally teetering on the edge of the EU cliff, and that a Grexit is more than just a 55/45 possibility. It is doubtful that a minor economy such as Greece's will have too much of a direct impact on Australia, but the indirect effects could be considerable. To be honest our expertise in this area is limited, so the opinion of those with greater knowledge is likely to be much more worthwhile.

Morphic Asset Management's recent blog (27th May) might be slightly more on the money, even if written a month or so ago. Their Greek expert, Irene Kardasis belives that an agreement will be reached sooner or later, and everyone will have to compromise. Meanwhile Morphic's risk averse CIO, Jack Lowenstein believes that the Europeans have already written Greece off, and that any deal, if there is one, will be last minute, but probably not long lasting.

He's right about it being last minute, and will probably be right about it not lasting long as well. You can find Morphic's full comments here.

Specific results received this week include the following PERFORMANCE UPDATES:

Allard Investment Fund net of all fees, increased 1.0% during the month of May 2015.

The Bennelong Kardinia Absolute Return Fund rose 0.41% in May, to bring the Fund's annual performance since inception to 13.01% compared to the ASX200 Accumulation benchmark's 5.60%.

Morphic Global Opportunities Fund rose 3.79% in May as its benchmark (MSCI AC World Total Return in Australian Dollars) rose 2.91%, resulting inoutperformance of 0.88%.

The Optimal Australia Absolute Trust reported a net positive return in May of 2.04%, compared to the ASX200 Accumulation Index of 0.40%.

The Paragon Fund returned 2.40% versus the ASX 200 Accumulation's 0.40%, for the month of May 2015. The Fund's annual return since inception has been 21.66% p.a. versus the Index's 10.39% p.a.

Cor Capital Fund returned 1.23% bringing the 12-month return to 8.04%, exceeding the RBA Cash Rate Benchmark by 5.6%.

FUND REVIEWS released this week: Bennelong Long Short Equity Fund; Monash Absolute Investment Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

We are going to avoid any political comments this week, inspite of there being much to comment on: Bill Shorten and the AWU; US Presidential candidates Donald Trump and JEB Bush; Tony Abbott's disdain for clean energy etc. We are probably spoilt for choice, particulary after the Pope's comments on climate change. 

Instead this week's "And Now for Something Completely Different" is altogether more hopeful and uplifting.

And finallybest wishes for a happy and healthy week-end ahead,

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.

That's not a bubble, This is a bubble! Or is it?

Hedge Clippings spent an interesting and informative morning this week at Money Management's Asset Allocation event. Apart from moderating a series of discussions covering retirement income amongst financial and wealth advisors, we were treated to a keynote presentation from Stephen van Eyk.

Stephen opened his address by stating that in preparing his presentation he had determined that he would try to put a positive view on his outlook for our collective financial outlook, but that having sifted through all the data and looked at the evidence, this would unfortunately not be possible. No matter which way one looked at it, Australia's low economic growth wasn't responding to interest rates of 2%, and weren't likely to, providing a headache for both the government and the RBA.

The event was wrapped up with a panel discussion entitled "What is the New Bubble", consisting of five leading fund managers, namely Alva Devoy from Fidelity, Tim Samway from Hyperion, Dr Phil Hofflin from Lazard, Anton Tagliaferro from IML, and Matthew Drennan from IOOF. Some interesting ideas, comments and statistics emerged with the usual varying degrees of optimism and pessimism, some of which I managed to recall after the event. Of course given the RBA's comments earlier in the week regarding Sydney house prices, and some typically insensitive, albeit obvious comments from the Treasurer, the discusion leaned towards a real estate bubble.

Anton noted that he did not expect a crash, as they only occurred when not expected, although he also noted the concentration risk within equity markets, and that in his opinion QE had resulted in one of the greatest examples of wealth transfer (from tax payers to financial markets) in history. His expectation was that low growth is set to continue.

Alva Devoy noted that we should get used to current conditions as the "new normal" and it was likely to be 10 years before interest rates returned to the old normal, and that as a result monetary policy would continue to support stretched equity valuations.

Phil Hofflin wondered if we were heading down the Japanese path of long term low growth in spite of central bank stimulation, and turning to the housing market warned of the 65/65 ratio: 65% of bank assets in Australia are in housing, which in turn is on a PE multiple of 65 times, and that the total value of Australia's housing market, if it does correct, is many times larger that the equity market.

Finally Matthew Drennan cautioned that traditional safe havens may not turn out to be so safe. All in all while some of the panel were more cautious than others, along with Stephen van Eyk, none were overly optimistic either.

Specific results received this week include the following PERFORMANCE UPDATES:

Monash Absolute Investment Fund returned -0.40% in May, taking annualised performance since inception in May 2012 to 15.35%.

The Bennelong Long Short Equity Fund performance in May was down 1.91% taking annualised performance since inception in January 2003 to 17.05%.

Allard Investment Fund  returned 1.0% during May, with annualised performance since July 2003 of 9.99%.

FUND REVIEWS released this week: Insync Global Titans Fund; Monash Absolute Investment Fund

UPCOMING EVENTS:

20 - 21 August 2015 - The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities.  Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

15 September 2015 - The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry. 

And finally best wishes for a happy and healthy week-end ahead,

Chris
CEO, AUSTRALIAN FUND MONITORS

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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.

Volatile global bond markets unsettle markets

While equity markets usually grab the business headlines, it is the global bond market which really carries the punch. The past month has seen some extreme, and worrying moves on bond markets, with German 10 year bonds moving from 0.05% to 0.90% in an unprecendented period of volatility, in part driven by dwindling liquidity.

Other markets have followed suit, with the US 10 year rate moving from 1.80 to 2.30%, and Australia's from 2.30 to 3.05%. 

The background for the situation has been created in part by central bank intervention which has pushed interest rates to unsustainably low levels on the back of QE, and in part by regulators forcing, or at least discouraging, banks from participating as market makers though legislation such as the Volker Rule contained in the Dodd Franks Act.

Expect to hear and feel much more of the outcome of these moves over the weeks to come, with bond markets reportedly 3 times the size of equities. As George Colman from Optimal notes in his monthly note "Beware the bonds: Central banks may just have lost control". Regular readers of Hedge Clippings will note we are prone to quoting George, who has been on the bearish side for some time, but having returned 2% for each of the past two months it is more than possible that his views are worth listening to.  

Australia's situation is somewhat different, although no less worrying, in spite of Treasurer Hockey's describing those concerned about the economy as "clowns" for being negative. No sooner had he done so than flat retail sales figures for April were released, possibly indicating who was really wearing the clown's outfit.  

Specific results received this week include the following LATEST PERFORMANCE UPDATES:

Supervised High Yield Fund rose 0.52% during April to bring the Fund's annual return since inception to 10.18% aganst the RBA Cash Rate return of 3.47%.

QATO Capital Market Neutral Long/Short Fund  although down -2.96% in April has still returned 16.93% over the last 6 months.

The Insync Global Titans Fund fell -0.40% in April, with 12 month performance 19.27%.

Signature Quantitative Fund returned -2.10% for April, to bring the annual performance since inception to 13.11%.

The Cor Capital Fund was down 0.65% in April to bring annual performance since inception to 5.55% p.a., compared to the RBA cash rate of 2.68% p.a.

Chris

CEO

AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn and Twitter

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.

Boombustology

The title of today's Hedge Clippings comes from a book of the same name by Vikram Mansharamani. As the name (the book's, not the author's) suggests, it explores the almost inevitable cycle between history's booms and their ensuing busts. 

Last week's Clippings explored two different opinions on the Chinese economy, with the bearish view referring to debt levels identified in an article in the Chinese language version of the People's Bank of China's (PBoC) first-quarter Monetary Policy Report. We also noted the risk created by the levels of margin lending at both street and corporate level.

Thursday's fall of over 6% on Chinese equity markets, reportedly on the back of a tightening of margin lending levels, possibly came a little faster than we had expected, but still reinforced the concept of boom-bust-ology. History has shown that for every irrational boom there is an inevitability that there will be an ensuing bust. It might be too early to call -6% a bust, but the speed and suddenness of the move would have to signify the potential for one.

Closer to home it would be a stretch to describe Australia's economy in the bust phase following the mining boom, but it is certainly struggling with the transition. Hence Philip Lowe, the Deputy Govenor of the Reserve Bank of Australia, in a speech entitled Managing Two Transitions, last week described the difficulty the economy is facing.

The problem is that Australia's manufacturing sector is not taking up the slack from the mining boom. As strong as the housing and property markets are, they are insufficient to prop up non-mining business investment. This is inspite of historically low interest rates, with Lowe making the point that Australian businesses have not reduced the hurdle rate of return required for making new investment decisions in line with lower rates.

Obviously investment decisions are driven by far more factors than interest rates, however when interest rates are high the hurdle does rise. The paradox for the economy is that the same is not true when they fall. As a result capital expenditure is falling, and is likely to continue to do so in spite of the RBA's requests.

To what extent the government (and opposition) are responsible for the lack of business confidence remain to be seen, and difficult to pinpoint, but it has been some years since either side of the political fence in Canberra provided any cause for optimism.

Specific results received this week include the following LATEST PERFORMANCE UPDATES:

KIS Asia Long Short Fund rose 4.04% during April, bring the Fund's annual return since inception to 15.48% p.a.

The Laminar Credit Opportunities Fund returned 0.54% over the month of April, bringing its annual performance since inception to 19.13%.

Morphic Global Opportunities Fund rose 0.02% in April as its benchmark (MSCI AC World Total Return in Australian Dollars) fell 0.33%, resulting in outperformance of 0.35%.

The Avenir Value Fund returned -3.57% in the month of April compared to the  ASX 200 Accumulation Index -1.70%.

Aurora Fortitude Absolute Return Fund  rose 0.34% as the market experienced higher volatility over the month of April.

The Paragon Fund returned 1.10% versus the ASX 200 Accumulation's -1.70%, for the month of April 2015. The Fund's annual return since inception has been 21.24% p.a. versus the Index's 10.60% p.a.

Totus Alpha Fund was down 4.5% in April compared to the ASX200 Accumulation Index's -1.70%. However the Fund's annual performance of 24.74% (ASX200 Accumulation Index 14.70% p.a.) has been strong.

Chris

CEO

AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn and Twitter

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.