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

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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.

INSYNC GLOBAL TITANS FUND

Attached is our most recently updated Fund Review on the Insync Global Titans Fund.

We would like to highlight the following:

• The Fund's unit price decreased by 1.45% in June. The performance was driven by positive contributions from our holdings in Medtronic, Mead Johnson Nutrition, BAT, Nestle and Unilever. The main negative contributors were PayPal, Sanofi, Visa and Microsoft. 

• The Global Titans Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.

• Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.

• Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - June 2016 (pdf format)

SUPERVISED GLOBAL INCOME FUND

Attached is AFM's updated Fund Review on the Supervised Global Income Fund (SGIF).

We would like to highlight the following aspects of the Fund:

• The Supervised Global Income Fund (previously Supervised High Yield Fund) has a 6-year track record investing in fixed interest investments. The Investment strategy aims to deliver returns with zero correlation to equity markets by investing in debt securities with minimal default probability and offering a premium return above the risk-free rate.
• The Fund is managed by Philip Carden whose experience in debt and capital markets spans over 33 years, including time with JB Were's Capel Court Securities and Macquarie Bank, where he was the Executive Director responsible for the Debt Markets Division.
• SHYF is an Alternative Income fund which invests in Global and Australian debt markets, with all foreign currency receivables hedged back to Australian dollars.
• The Fund utilises a top-down analysis of the economic environment and market to screen and identifies debt market opportunities which it believes offer low risk with high yield. The next stage is the development of a risk matrix and investment strategy, following which detailed research is undertaken on specific investment opportunities which meet the pre-defined criteria established in the investment strategy.
• Prior to approving an investment for the Fund, each potential investment is subject to two stress tests. The first of these is of credit and default risk, in which the investment is stress-tested to ensure that in a worst case economic environment it can repay 100% of its principal and interest obligations case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation. Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided The second test examines market risk.  In this case, Carden looks at the worst case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation.  Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - June 2016 (pdf format)

PENGANA ABSOLUTE RETURN ASIA PACIFIC FUND

Attached is our most recently updated Fund Review on the Pengana Absolute Return Asia Pacific Fund.

• The Pengana Absolute Return Asia Pacific Fund ("PARAP") was established in 2008 by portfolio managers Antonio Meroni and Vikas Kumra. The Fund is a feeder fund into a Cayman Islands AUD share class fund.
• The Fund invests both long and short in Asia Pacific equities, including in Australian and New Zealand, after a stock specific "event" has either occurred or been announced and the portfolio aims to be uncorrelated to the underlying equity markets. A combination of the Manager's experience, thorough research and continuous back- testing identify the most attractive of these events.
• Risk controls include limits on individual positions as well as gross and net exposure. Limits are in place for option exposure and cash borrowing, with stop loss limits on individual positions. Overall the manager is looking to derive returns from the event strategies as opposed to any currency or market exposures.
• Since inception, the Fund has an annualised return of 8.93% p.a., compared to the AFM's Asia Pacific Index of 4.75%. The Fund has achieved this with lower volatility of 6.38% (Index 11.95%).

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - June 2016 (pdf format)

Jamieson Coote Bonds Active Fund

Attached is our most recently updated Fund Review on the Jamieson Coote Bonds Active Fund

We would like to highlight the following aspects of the Fund;

• Jamieson Coote Bonds is a Melbourne-based Boutique Manager launched in December 2014.
• The Founders, Charles Jamieson and Angus Coote bring over 30 years of international experience dealing with central banks, hedge funds and real money managers.
• The Jamieson Coote Active Bond Fund is a long-only macroeconomic investment fund, investing in Australian Dollar denominated bonds backed by AAA and AA+ rated Government, Semi (State) Government and Supranational agencies.
• The Fund Objective is to out-perform the Bloomberg Australian Government Bond Index through active management in a sound risk-managed framework and usually holds around 20 bond securities of varying maturities.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - June 2016 (pdf format)