NEWS
Fed's Bad Santa
10 Dec 2018 - Geoff Wood, Morphic Asset Management
In our office, we have switched from Secret Santa to Bad Santa. In Bad Santa, each member of the office draws a number from a hat. The lowest number then starts by picking and opening a present from a pile of wrapped presents. The next...
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10 Dec 2018 - Fed's Bad Santa
By: Geoff Wood, Morphic Asset Management
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Hedge Clippings - 7 December, 2018
7 Dec 2018 - Australian Fund Monitors
There's not much good news around unless you're an extreme, and possibly unrealistic, optimist!
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7 Dec 2018 - Hedge Clippings - 7 December, 2018
By: Australian Fund Monitors
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There's not much good news around to welcome Santa!
Nearly every economist got this week's GDP figures for the September quarter wrong (+0.3% and 2.8% YoY). Now there's speculation that the R word will be back on the agenda. And if not a Recession, then possibly a slowdown, and rate cuts down the track from the RBA if the December quarter figures are equally disappointing. That's a big turnaround in expectations, even if most experts weren't expecting an upward movement in rates any time soon.
Anecdotally, based on going to a department store earlier this week, and worse still, a shopping mall, (which Hedge Clippings generally tries to avoid like the plague unless absolutely necessary) there doesn't seem to be much Christmas cheer running through retailers' cash registers. Maybe consumers are all shopping online, maybe they're waiting until the last moment (like yours truly), but quite possibly they're just pulling their heads in.
Why? Because as noted above, there's not much good news around unless you're an extreme, and possibly unrealistic optimist!
- As recently as May this year one of the (so called) expert real estate commentators downgraded their 2018 housing price forecast on a weighted capital city basis to between -2% to +2%. Fast forward just 6 months and with the property market down 10% they're realising a further 10% fall is not out of the question as banks pull their heads (sorry, lending criteria) in and faith in the financial markets has been tested by the exposure of the Hayne Royal Commission on the front pages and TV nightly news.
- Irrespective of one's political preferences there's a general lack of confidence in our glorious pollies, and an election, and a change in government is just around the corner.
- Globally the Trump / China spat is far from resolved, creating uncertainty in US markets. Brexit is uncertainty personified, and even the German economy - not long ago the envy of the world - is suffering.
- In the US, 10 year bond yields, having recently threatened to rise above 3.5% and spoil the equity market's party, are now threatening to fall below 3% based on concerns about a US slowdown in 2019. The yield curve is close to inverting as 10 and 2 year bond rates are dangerously close to each other.
- Every US recession for more than half a century has been preceded by an inversion of the curve, although to be accurate not every inversion has been succeeded by a recession.
Could the unthinkable - an end to Australia's record growth run - happen? Hopefully not, but there are enough signs, and opinions pointing in that direction, that it would be unwise to rule it out completely.
You Have Been Warned
7 Dec 2018 - Marcel von Pfyffer, Arminius Capital
For the last twelve months Arminius has been pointing out that the next financial crisis is fast approaching, and that it will be very different from the GFC. The GFC was a banking crisis triggered by massive defaults on securitised...
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7 Dec 2018 - You Have Been Warned
By: Marcel von Pfyffer, Arminius Capital
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Performance Report: NWQ Fiduciary Fund
6 Dec 2018 - Australian Fund Monitors
The NWQ Fiduciary Fund returned -3.44% in October, outperforming the ASX200 Accumulation Index by +2.51% and taking 12-month performance to +3.59%.
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6 Dec 2018 - Performance Report: NWQ Fiduciary Fund
By: Australian Fund Monitors
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| Fund Overview | The Fund aims to produce returns, after management fees and expenses of between 8% to 11% p.a. over rolling five-year periods. Furthermore, the Fund aims to achieve these returns with volatility that is a fraction of the Australian equity market, in order to smooth returns for investors. |
| Manager Comments | NWQ noted amidst the October turmoil there was a sharp rotation from high-quality growth stocks, which are those expected to outperform in the medium to long term and are typically favoured by the Fund's underlying managers, into defensive value stocks, which are typically candidates for being shorted by the Fund's underlying managers. As a result of this rotation, the short portfolio did not provide sufficient hedge to offset the losses in the long portfolio. NWQ noted there are positive early signs in November that this rotation is reversing. The NWQ Fiduciary Fund is a diversified multi manager portfolio. The principal investment objective of the Fund is to produce attractive positive returns irrespective of market direction. This is achieved through active allocations to selected Australian equity fund managers that employ a variety of traditional and absolute return strategies. The Fund places emphasis on managers who demonstrate a rigorous and repeatable investment process that has delivered a strong track record. |
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Performance Report: Wheelhouse Global Equities Income Fund
5 Dec 2018 - Australian Fund Monitors
The Wheelhouse Global Equity Income Fund has returned +9.84% over the past 12 months versus AFM's Global Equity Index's +7.75%. This has been achieved with a volatility of 7.72% versus the Index's 9.36%.
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5 Dec 2018 - Performance Report: Wheelhouse Global Equities Income Fund
By: Australian Fund Monitors
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| Fund Overview | To pursue this objective, the Investment Manager is responsible for actively managing, monitoring and tailoring the integration of derivative contracts alongside the Morningstar Portfolio, while taking into account changing market and stock specific conditions. The Investment Manager is responsible for maximising the structural benefits of short option positions (lowered Volatility, improved capital preservation, higher income generation), whilst mitigating, minimising and monitoring the structural negatives (variable market exposure, option expiries, collateral management and asymmetric return profiles). In addition, long derivatives positions are also used to enhance the capital preservation characteristics of the Fund in more extreme market movements. As a consequence of the integration of Derivatives, returns of the strategy, intra-cycle, are expected to vary from the underlying Morningstar Portfolio due to these characteristics. For example in weak markets, or in extended sideways markets, the Fund is expected to outperform relative to the Morningstar Portfolio. Conversely in strong positive markets the Fund is expected to underperform. |
| Manager Comments | The Fund returned -4.39% in October, ahead of the benchmark (MSCI World Index ex Australia) return of -5.40%. This return comprised a return of -6.34% from the portfolio (in USD) and a positive return of +1.95% from the weakening of the Australian dollar against the US dollar. The Wheelhouse Global Equity Income Fund is designed to deliver equity returns with higher income generation and active downside protection. The strategy's high-income generation and active tail risk program are designed to lower risk and deliver equity returns with a smoother, more retiree-friendly return profile. As a result, Wheelhouse intend for returns to add relative value in weak and low-growth markets and to drag in more positive markets. |
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Performance Report: Bennelong Emerging Companies Fund
5 Dec 2018 - Australian Fund Monitors
The Bennelong Emerging Companies Fund has returned +19.93% over the past 12 months versus the ASX200 Accumulation Index's +2.94%.
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5 Dec 2018 - Performance Report: Bennelong Emerging Companies Fund
By: Australian Fund Monitors
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| Fund Overview | The Fund may invest in securities expected to be listed on the ASX within 12 months. The Fund may also invest in securities listed, or expected to be listed, on other exchanged where such securities relate to ASX-listed securities |
| Manager Comments | The Fund's top holdings as at the end of October were Baby Bunting, Clover, Helloworld, Cml and Pinnacle Investment Management. The Fund invests predominantly in micro and small-cap stocks listed on the ASX. It is managed via a research-intensive and predominantly bottom-up investment approach. The Fund focuses on high quality stocks and seeks to avoid the higher risk that usually comes with micro and small-cap stocks. |
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Performance Report: Insync Global Capital Aware Fund
4 Dec 2018 - Australian Fund Monitors
The Insync Global Capital Aware Fund has returned +9.98% over the past 12 months versus AFM's Global Equity Index's +7.75%. This return has been achieved with a similar level of volatility and includes the cost of fees and put protection.
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4 Dec 2018 - Performance Report: Insync Global Capital Aware Fund
By: Australian Fund Monitors
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| Fund Overview | Insync employs four simple screens to narrow the universe of over 40,000 listed companies globally to a focus group of high quality companies that it believes have the potential to consistently grow their profits and dividends. These screens are size of the company, balance sheet performance, valuation and dividend quality. Companies that pass this due diligence process are then valued using dividend discount models, free cash flow yield and proprietary implied growth and expected return models. The end result is a high conviction portfolio of typically 15-30 stocks. The principal investments will be in shares of companies listed on international stock exchanges (including the US, Europe and Asia). The Fund may also hold cash, derivatives (for example futures, options and swaps), currency contracts, American Depository Receipts and Global Depository Receipts. The Fund may also invest in various types of international pooled investment vehicles. At times, Insync may consider holding higher levels of cash if valuations are full and it is difficult to find attractive investment opportunities. When Insync believes markets to be overvalued, it may hold part of its resources in cash, or use derivatives as a way of reducing its equity exposure. Insync may use options, futures and other derivatives to reduce risk or gain exposure to underlying physical investments. The Fund may purchase put options on market indices or specific stocks to hedge against losses caused by declines in the prices of stocks in its portfolio. |
| Manager Comments | The Fund posted -5.82% after fees and downside protection in October. Insync noted that, unlike most long-only managers, they don't have a high cash allocation in the Fund should they believe danger lies ahead in shorter term valuations. They believe this enables them to maximise returns by staying focused on longer term outcomes. Additionally, Insync add that, given the indirect way in which they tend to gain exposure to the many positive trends occurring within several emerging markets, the current negative turmoil they are facing has had a very limited negative impact on the Fund. The Fund continues to have no foreign currency hedging in place as Insync consider the main risks to the Australian dollar to be on the downside. |
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Performance Report: Glenmore Australian Equities Fund
4 Dec 2018 - Australian Fund Monitors
The Glenmore Australian Equities Fund has risen +14.68% over the past 12 months versus the ASX200 Accumulation Index's +2.94%. Since inception in June 2017, the Fund has returned +24.87% per annum.
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4 Dec 2018 - Performance Report: Glenmore Australian Equities Fund
By: Australian Fund Monitors
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| Fund Overview | The main driver of identifying potential investments will be bottom up company analysis, however macro-economic conditions will be considered as part of the investment thesis for each stock. |
| Manager Comments | The Fund returned -8.7% in October. This return was driven by a large number of portfolio stocks falling by more than 5% despite no company-specific announcements. Glenmore noted sentiment was the dominant driver of stock prices during the month, with the result that most stocks' prices declined regardless of business quality and earnings growth prospects. In particular, small/mid cap stocks (which the Fund has a strong exposure to) were sold off much more than larger cap stocks, with the Small Ords Accumulation Index declining -9.6%. Glenmore added that it is frustrating to see good quality businesses falling 10-20% on no news, however, they believe at times investors must be willing to incur periods of underperformance in order to achieve above average long-term returns. Key detractors included Pinnacle Investment Management (-30.6%), WorleyParsons (-24.7%) and Navigator Global Investments (-16%). Glenmore remain confident in the composition of the portfolio. Importantly, they noted that during the month there were no negative announcements regarding operational performance from any of the Fund's investments. |
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Performance Report: Loftus Peak Global Disruption Fund
3 Dec 2018 - Australian Fund Monitors
The Loftus Peak Global Disruption Fund has returned +11.07% over the past 12 months, outperforming AFM's Global Equity Index by +3.32%. Since inception in November 2016, the Fund has returned +22.67% per annum.
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3 Dec 2018 - Performance Report: Loftus Peak Global Disruption Fund
By: Australian Fund Monitors
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| Fund Overview | The investment process involves a combination of top-down analysis with fundamental bottom-up qualitative and quantitative research to derive a risk-adjusted discounted cash flow (DCF) valuation of companies in the target universe. The investment team will generally buy stocks from the pool of securities that are trading below Loftus Peaks' valuation and sell them when they are trading above Loftus Peak's valuation. The approach allows for both fundamental accounting information as well as market-oriented inputs to be factored into the portfolio construction process. Loftus Peak's model typically does not rely on leverage to deliver investment returns and specifically takes into account risk in the valuation process. Capital preservation can be managed by holding up to 50% cash. Index and currency options and futures may also be used to manage risk. |
| Manager Comments | In reference to the market's performance in October, Loftus Peak noted it is never the case that stock market performance is linear. They therefore used the weakness in October to add to a number of key strategic holdings at low prices, starting the month with 10% in cash and finishing with 2%. The Fund is 98% invested in 24 holdings which the manager considers likely outperformers. Key detractors included Nvidia, Tencent, Alibaba, Amazon and Qualcomm, whilst on the positive side Tesla performed well on the back of US$1.4b of operating cashflow in the quarter. Loftus see the falls in Tencent and Alibaba to be the result of the impact of tariffs on China, whilst they believe the fall in Amazon was expected after some very aggressive price targets. They believe Nvidia to hold an important role in machine learning and global data centres, and thus remain invested. They also see Qualcomm as being key in the roll out of the 5G network, which is why they continue to invest. In addition, the Australian dollar depreciated 2.05% over the month against the US dollar, which meant the value of the Fund's US dollar positions increased. As at 30 October 2018, the Portfolio carried a foreign currency exposure of 99%. |
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Performance Report: Touchstone Index Unaware Fund
3 Dec 2018 - Australian Fund Monitors
The Touchstone Index Unaware Fund has returned +3.23% over the past 12 months versus the ASX200 Accumulation Index's +2.94%. Since inception in April 2016, the Fund has returned +9.96% per annum.
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3 Dec 2018 - Performance Report: Touchstone Index Unaware Fund
By: Australian Fund Monitors
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| Fund Overview | The portfolio is constructed using Touchstone's Quality-At-a-Reasonable-Price ('QARP') investment process. QARP is a fundamental bottom-up process, however, it also incorporates a top-down risk management framework designed to successfully manage the portfolio during varying market conditions and economic cycles. The Touchstone Fund is concentrated, typically holding between 15-20 stocks. No individual stock will ever make up more than 10% of the portfolio at any one time. The Investment Manager may temporarily exceed the exposure limits of the Fund occasionally, particularly during periods of market volatility, to allow for holdings in excess of this 10% limit where the increase in value of the underlying security is due to market movement. The Fund may also hold between 0-50% of the portfolio in cash. The Fund has a high level of associated risk, therefore, the minimum suggested investment time-frame is 5 years. |
| Manager Comments | As at the end of October, the Fund held 20 stocks with a median position size of 4.6%. The portfolio's holdings had average price/earnings of 14.9, EPS growth of 11.8%, tangible ROE of 27.0% and dividend yield of 4.9%. The Fund's cash weighting increased to 7.0% from 4.5% at the end of September. The Touchstone Index Unaware Fund primarily selects stocks from the ASX300 Index, typically holding between 10-30 stocks. The Fund seeks to invest in reasonably priced, good quality companies with a significant share of expected returns coming from sustainable dividends. |
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