Research and Database Manager
Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund (pdf format)

With equity markets continuing to power ahead, as shown by the ASX200 adding 3.97% in October, and 25.5% over the past 12 months, and the S&P500 doing even better at 4.6% and 27.2% respectively, there is no surprise that, even before we see fund performances for October appearing, equity-based strategies, and particularly 130/30 and equity long, have been significant beneficiaries.

The S&P 500 of course is at all-time highs, whereas the ASX 200, although at post 2007 highs, still has some way to go. The challenge for markets from here will be for actual 2014 earnings to match the forward earnings estimates and of course to survive the effects of QE tapering when that eventually takes place.

Meanwhile there were some notable awards for Australian fund managers at the recent AsiaHedge Awards held in Hong Kong last week. Platinum Asset Management took out the 2013 Management Firm of the Year award, while PM Capital's Absolute Performance Fund won the Global Equity category, and LHC Capital's Australian High Conviction Fund won the Single Country award.

For the record PM Capital's Absolute Performance Fund returned 59.94% for the 12 months to the end of September with a Sharpe ratio of 3.22, while the LHC Capital High Conviction Fund returned 45.03% with a Sharpe ratio of 3.66%.

Platinum's funds have been no less impressive. For example the Platinum Japan Fund provided twelve-month returns of 69%, while their flagship Platinum International Fund which has $8.7 billion in FUM rose 40.21% over the same period.

Congratulations to all concerned!

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Totus Alpha Fund returned 6.48% during September bringing the annual performance to 32.2% (ASX 200 Accum 24.2%).  The Fund had a significant positive contribution from a small cap long position in the mobile payments space that was up strongly during September. The Manager trimmed the position slightly for risk management purposes but remain upbeat about the company's prospects over the medium term. There have been a number of notable success stories in this space in the USA and the investment is an early mover in the Australian market.

Since inception in July 2004 the BlackRock Multi Opportunity Fund has returned 8.65% pa with low volatility of 4.18%. The comparative numbers for the ASX 200 Accumulation Index are 9.07% and 14.01% indicating the Fund's risk controls. During September the Fund returned -0.17%. The Fund's absolute return mandate is shown by the maximum draw-down of 9.45% and 80 % positive months as compared to the Index of draw-down of 47.19% and 65% positive months.

The Aurora Fortitude Absolute Return Fund  recorded 6.28% over the last 12 months with a volatility of only 1.82%. During September the Fund returned 0.53%. Within the Fund, the Convergence strategy was the largest positive contributor for the month +0.26%. The main driver was the Wesfarmers Partially Protected shares against the underlying Wesfarmers shares. The Long / Short strategy, whilst not generally a large part of the Fund's exposure, was profitable (+0.12%) while the Mergers and Acquisitions strategy also performed well (+0.19%).  The Options portfolio was a large drawdown on the monthly return (-0.20%) as realisable volatility remained low despite the potential political and global macro catalysts.

Pengana's Australian Equities Market Neutral Fund has returned 9.4% pa (ASX 200 Acc 5.00% pa) since inception (Sept 2008) with an annualised standard deviation of 7.97% pa (15.37%). The Fund recorded -0.2% in September.  The Fund's lower risk is indicated by a downside deviation of 4.96% and largest draw-down of 13.47% as compared to 11.57% and 33.11% for the Index respectively.

The Cor Capital Fund has returned 6.00% pa since inception (August 2012) with a volatility of 6.64%. The September return was -1.49%. Over the last quarter all the Fund's asset classes of equities, gold, fixed interest and cash delivered positive returns for total return of 5.36%. 

The Manager notes that the Fund is currently earning about 4 per cent on portfolio cash. The Fund's fixed interest investments were slightly positive on a total return basis over the quarter as US long-term bond yields moved higher. Whether that continues due to a possible 'tapering' of Fed buying or because investors are becoming concerned about the absolute size of buying (government borrowing) will become clearer over time.

Allard's Investment Fund has returned 8.8% pa over the last five years with a volatility of 9.09% as compared to the ASX 200 Accumulation comparative data of 7.29% and 14.78%. The September return was -0.1%. The Fund's low risk exposure to Asia equities is shown by the largest draw-down of -18.29% and a downside deviation of 5.5% with the Index comparative data of -47.19% and 9.97%. 

At end-September the geographic breakdown was HK/China 32.6%, Singapore 13.3% and Korea 9.2%. Cash and Fixed Income holdings were 31.5%. The industry breakdown was Financial Services 13.8%, Conglomerates 12.4% and Telco's at 8.7%.

EVENTS

Hedgeopolis New York is being held on 4 November at the Metropolitan Club. Use AFM's discount code "fundmo" to obtain a discount, or contact Adriana Costov for additional information.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

Also on 19 November, at the Renaissance Hotel in Hong Kong - the Art of Asset Management - free for senior asset management professionals from both global and local asset management firms. View the agenda here.

We lost another great rocker this week, so we tribue this week's "and now for something completely different" to Lou Reed and Take a walk on the wild side, this particular clip from Farm Aid 1985.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

September Fund Performance

With close to 90% of single fund performances to hand, September is looking to be a pretty normal month for AFM's database of over 300 funds. By normal, I guess we're talking about averages - the ASX200 accumulation index rose 2.19% and the AFM Equity Fund Index as good as matched that at +2.17%.

Beyond that the breakdown and distribution of returns, be it by individual fund or strategy, was anything but stable: Equity based funds significantly outperformed those in the non-equity category, which only managed to return 0.49%.  Based on returns to date 32% of all funds outperformed the ASX200 and 84% provided positive returns, with individual performances as varied as ever, ranging from -12% through to +13%. While that might seem extreme, it is not particularly unusual as the distribution of returns over the past 12 months ranges from -42% through to +70%, with just over 25% outperforming the ASX200.

So there's nothing "normal" about hedge funds, each and every one is individual.

Meanwhile the Hedge Fund Association's Australian chapter held a seminar this week with David Walter of PAAMCO as the guest speaker. David has extensive industry experience and discussed the current environment for local funds wanting to raise institutional capital offshore. Amongst his other insights were:

• Cayman is the preferred fund domicile for international investors, although Europe and UCITS structures are making some inroads.
• An independent and appropriately experienced board of directors is becoming mandatory.
• Operational issues and compliance are increasingly important, including independent reporting lines to the board for risk and operations executives.
• The days of the "2 and 20" fee structure are gone, as are lockups and long redemption terms (although AFM's data shows this has long been the case locally).
• Transparency is essential, quoting one investor whose policy is "Why should we trust you with our money if you won't trust us with your information".

With the exception of the Cayman Island structure it would seem there's little difference between the demands of institutional investors here and overseas, it is just there are less of them locally and they allocate to the sector less.  So David's advice to managers wanting to raise FUM offshore to (apart from the above prerequisites) "travel, travel, travel" would seem spot on.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Auscap Long Short Australian Equities Fund gained 5.84% in September, taking YTD performance to an impressive 34.48% as they approach thier first anniversary.

Pengana's Asia Special Events (onshore) Fund rose 0.88% in September and 3% for the quarter, noticing a significant pick up in opportunity.

The Intelligent Investor Value Fund  has a 12 month return of 42.68% and annualised return since inception (November 2009) of 15.09%.

Pengana's Australian Equities Fund returned 1.38% in September to take it's 12 month performance to 24%, matching the ASX Accumulation Index, but with significantly less volatility.

FUND REVIEWS that have been updated this week include:

The Optimal Australia Absolute Trust is a specialist Australian equity investment manager with a long/short strategy, and has out-performed the market since it's inception in September 2008.

Insync's Global Titans Fund shows the fund delivering an annualised return of 9.26% and annualised standard deviation of 8.34%.

The Morphic Global Opportunities Fund recently completed it's first year of operation, having returned 29.91% over 12 months with volatility of under 10%.

BlackRock's Australian Equity Market Neutral Fund has a market neutral strategy that gains exposure to long and short positions in Australian equities.

EVENTS

Hedgeopolis New York is being held on 4 November at the Metropolitan Club. Use AFM's discount code "fundmo" to obtain a discount, or contact Adriana Costov for additional information.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

Also on 19 November, at the Renaissance Hotel in Hong Kong - the Art of Asset Management - free for senior asset management professionals from both global and local asset management firms. View the agenda here.

And now for something completely different, this video is called Funny Friday and I hope it brings a smile to your face.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities Fund (pdf format)

INSYNC GLOBAL TITANS FUND

ATTACHED FILESInsync Global Titans Fund (pdf format)

BENNELONG KARDINIA ABSOLUTE RETURN FUND

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

The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. The Bennelong Kardinia Absolute Return Fund rose 0.93% in September.

Long positions in Bank of Queensland, Seek and JB Hi-Fi were all meaningful positive contributors. The largest detractors from performance were Share Price Index Futures contracts (hedging long positions), CSL and BHP. Net equity market exposure including derivatives was increased slightly to 29.6% (67.7% long and 38.1% short).

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

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

Australian Fund Monitors

ATTACHED FILESBennelong Kardinia Absolute Return Fund (pdf format)

Wiser heads than mine (and the market) all predicted that the US debt ceiling debacle would be resolved prior to the deadline simply because the option of not finding a resolution was going to be completely unacceptable. I have to admit to not being as confident based on the view that Obama was intent on defining his presidency on Obamacare, and he had to draw a line in the sand somewhere, having compromised previously. I think I got that part right.

What I failed on was the view that the Tea Party hardheads would cave in as they did, making somewhat of a mockery of their previous rhetoric and arguments.

As it came to pass they (the wiser heads) were correct, but there still seems to be the issue that we are likely to have to go through the whole exercise again early in the new year. That's not to say that the Tea Party minority might not wake up to themselves in the meantime, who knows.  What does seem certain is that Obama scored a major victory, and will be encouraged to continue to stand his ground next time around.

What is interesting is that in spite of the world's largest economy going to the brink of defaulting, the S&P500 was still within a whisker of all-time highs even if volatility did increase over the previous few weeks. That presumably is a reflection on the market's view that QE3 is unlikely to be tapered any time soon under new Treasury Secretary Janet Yellen.

On a different note there was an article in last Friday's Financial Times entitled "Population growth and the labour market" from 1950 through to 2100 which, if you are a student of demographics as an indicator for economic growth and activity, made for interesting reading. In total the global working age population has grown from  1.53 bn in 1950 to 4.54 bn today, and is forecast to reach 6.53 bn by the end of this century.

The breakdown by various countries however is of greater interest and significance with China (currently with a working age population of 1 bn, up from 332m in 1950) and India (800m, up from 223m) and to a lesser degree the US (210m up from 102m) dominating the numbers at present.  Looking forward to 2100 however China's working age population is forecast to decline to 614 million, while India's will increase to 1.1 bn by 2050 before declining to 930 million. The US will steadily increase to 261 million by 2100 with the real game changer being Nigeria, which having had a working age population of only 20 million in 1950, and has less than 100 million now, but is predicted to reach 600 million by 2100. 

Indonesia is currently in fourth place at somewhere north of 150 million, reinforcing the point made to me during the week by Wayne Peters of Allard Partners that 43% of the world's population currently live in China, India and Indonesia, and hence their focus on investing in those three countries. The interesting question of course is not only the growth of each country and region, but as the FT article points out how to find jobs for those of working age, and how to support their variously expanding aging populations. 

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Optimal Australia Absolute Trust recorded 0.43% in September bringing it's since inception (Sept 2008) return to 10.85% vs 5.00% for the ASX 200 Accum. The Fund's risk controls are indicated by the very low annualised volatility of 3.62% vs 15.37% for the Index over the same time frame. 

Despite very rich valuations, defensive yield and financials still seem to attract the majority of fresh money flows in our market, and the Fed's recent actions may continue to limit the perceived utility of valuation for a while longer, dangerous as that is. In this environment, hedging risk has been a frustrating and expensive exercise, although in the Manager's view, an increasingly essential one. Risk still strikes the Manager as being asymmetrically priced, with only low single-digit returns on offer from equity and debt securities if things hold together, and the prospect of much more substantial losses if they do not.

Insync Global Titans Fund has just completed its fourth year with a return of 9.26% (ASX 200 Accumulation 7.03%) and annualised volatility of 8.34% (Index 12.35%) since inception. The main detractors for the month were GlaxoSmithKline, General Mills and SAP. The largest positive contributions came from our holdings in Reckitt Benckiser, British Sky Broadcasting, Safran and Nestle. Safran has more than a 75% market share in narrow-body aircraft engines, an industry with very high barriers to entry.

The Morphic Global Opportunities Fund  returned 0.26% during September and 29.91% for the last 12 months achieved with a notable Sharpe ratio of 2.91. The Fund had a net exposure of 98% and gross exposure of 139% at month-end. The Fund ended the month underweight the US and overweight Japan, Europe and Emerging Markets; reflecting the view that a trend that began in April of industrial and cyclical stocks outperforming more defensive equities is set to continue.

BlackRock Australian Equity Market Neutral Fund has a low overall risk profile with an annualised volatility of 5.69% (13.19% for the Index) since inception in Sept 2001. The Fund returned -0.64% during September.

The Fund had little net exposure to the global risk sentiment effects, with offsetting long mining and short mining services positions. Stock picking within the domestic sectors added value, especially during the lead up to the August reporting season, when many companies made pre-emptive announcements to foreshadow poor results.

FUND REVIEWS that have been updated this week include:

The Bennelong Kardinia Absolute Return Fund The Bennelong Kardinia Absolute Return Fund rose 0.93% in September. Long positions in Bank of Queensland, Seek and JB Hi-Fi were all meaningful positive contributors. The largest detractors from performance were Share Price Index Futures contracts (hedging long positions), CSL and BHP. Net equity market exposure including derivatives was increased slightly to 29.6% (67.7% long and 38.1% short).

EVENTS

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

A free event being held for Fund Managers next Friday 25 October at KPMG Sydney offices that may be of interest is the HFA Australia Charter Symposium. Register here.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace Hotel in Sydney. Details are here.

Hedgeopolis New York is being held on 4 November at the Metropolitan Club. Use AFM's discount code "fundmo" to obtain a discount, or contact Adriana Costov for additional information.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

Also on 19 November, at the Renaissance Hotel in Hong Kong - the Art of Asset Management - free for senior asset management professionals from both global and local asset management firms. View the agenda here.

And now for something completely different, a good example of why you should not stop to assist stranded vehicles.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

BLACKROCK AUSTRALIAN EQUITY MARKET NEUTRAL FUND

ATTACHED FILESBlackRock Australian Equity Market Neutral Fund August 2013 (pdf format)

Rally on what?

The overnight rally on Wall Street, and the follow on today from the ASX200 would indicate that the "market" is confident that the political stalemate in the US is going to be resolved without, or before, the US defaults on its debt at the end of next week.

While most people would desire that to be the outcome, it would seem to stem more from hope than certainty.  The two sides appear to be coming from the opposite ends of the spectrum, and there seems little goodwill between them. If anything, toes have been dug in on both sides, and talk of a six week debt extension to the ceiling wouldn't seem to justify the market's overnight rally.

Maybe the confirmation of Janet Yellen's appointment had something to do with it, but following Larry Summers's previous withdrawal that was a forgone conclusion anyway.  Yellen's more likely to extend QE than start any early move to taper, but that would still not justify the extent of the Dow's overnight movement.

Meanwhile at home there seems to be improved confidence at the big end of town that is yet to filter down to small business and consumers. As yet there's no clarity on where earnings improvements are going to come from to replace the mining capex and investment boom, and no clarity on how the government will manage its minority in the Senate. What does seem clear is that the Palmer United Party, now with an effective four senators from next July, will have significant influence on any outcomes.

Equally clear is that Palmer himself will certainly liven things up.  Hopefully both he and his senators will be more constructive and flexible than the members of the Tea Party within the Republicans in the US.  

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Insync Global Titans Fund has just completed it's fourth year with a return of 9.26% (ASX 200 Accumulation 7.03%) and annualised volatility of 8.34% (index 12.35%) since inception.

Bennelong Kardinia Absolute Return Fund returned 0.93% for September bringing it's since inception (May 2006) return to 14.08% pa as compared to the ASX 200 Accumulation return of 4.44% pa. The Fund's annualised volatility is 7.85% which is low compared to the Index?s volatility of 14.79%, over the same time frame.

Updated FUND REVIEWS this week included the following Fund Managers:

The AFM Prism Active Equity Fund comprises a portfolio of 5 to 10 underlying Australian absolute return managers each investing in ASX listed equities with the objective of achieving double-digit annualised returns with significantly lower volatility than the underlying equity markets, and a focus on capital protection. To date the Fund has delivered 5.59% and, in keeping with the low volatility mandate, has an annualised standard deviation of 2.48% (since inception in October 2012). The Fund's maximum drawdown is 1.42% as compared to 6.72% for the ASX 200 Acc Index.

Bennelong Long Short Equity Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a ten year track record and annualised net returns of over 20%. The Fund has had positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200. The Fund's risk statistics are also sound with maximum drawdown of 12.22% and 71% positive months. Both the Sharpe Ratio at 1.27 and the Sortino ratio at 2.21, indicate a high reward-to-risk ratio.

The BlackRock Australian Equity Market Neutral Fund portfolio consists of approx. 180 stocks in equally weighted long and short portfolios to maximise potential returns while minimising market volatility. The strategy has recorded a return of 12.14% since inception (Sept 2001) as compared to the ASX 200 Accumulation Index return of 8.37% and with a volatility less than one-half that of the Index at 5.7% pa as compared to 13.23% pa. The Fund has also recorded a maximum drawdown of 12.41% as compared to 47.19% for the Index and has had 78% positive months since inception.

EVENTS

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

If you are visiting Hong Kong, the UCITS Asia 2013 Conference is on 9-10 October. AFM have a 10% discount coupon available, more details here.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace Hotel in Sydney. Details are here.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

Also on 19 November, is the Art of Asset Management industry event for the asset management community, being held in Hong Kong, more here.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

BENNELONG LONG SHORT EQUITY FUND

Attached is our most recently updated Fund Review on the Bennelong Long Short Equity Fund.  

• The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a ten year track record and annualised net returns of over 20%.
• Since inception in January 2002 the Fund has had positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200.
•  The Fund's risk statistics are also sound with maximum drawdown of 12.22% and 71% positive months. Both the Sharpe Ratio at 1.27 and the Sortino ratio at 2.21, indicate a high reward-to-risk ratio.
• The consistent returns across the investment history indicates the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESBennelong Long Short Equity Fund September 2013 (pdf format)