NEWS
15 Mar 2016 - Fund Review: Bennelong Long Short Equity Fund February 2016
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 over thirteen year track record and annualised returns of 18.51%.
- 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. The Fund's Sharpe Ratio and Sortino Ratio are 1.14 (Index 0.26) and 1.97 (Index 0.26) respectively.
For further details on the Fund, please do not hesitate to contact us.
14 Mar 2016 - Fund Review: Optimal Australia Absolute Trust February 2016
OPTIMAL AUSTRALIA ABSOLUTE TRUST
AFM have released the most recently updated Fund Review on the Optimal Australia Absolute Trust.
We would like to highlight the following aspects of the Fund;
- Optimal Australia is a specialist Australian equity investment manager and the Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200.
- The investment team comprising George Colman, Peter Whiting supported by Stephen Nicholls and Justin Hay have over 100 years combined experience in equity markets.
- In February, the Fund rose 0.8%. The Fund's approach to risk is shown by the Sharpe ratio of 1.49 (Index 0.11), Sortino ratio of 3.36 (Index 0.04), both of which are well above the ASX 200 Accumulation Index and has recorded 80% positive months.
For further details on the Fund, please do not hesitate to contact us.
1.78% in February.
14 Mar 2016 - Bennelong Kardinia Absolute Return Fund
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| Fund Overview | The Fund's discretionary investment strategy commences with a macro view of the economy and direction to establish the portfolio's desired market exposure. Following this detailed sector and company research is gathered from knowledge of the individual stocks in the Fund's universe, with widespread use of broker research. Company visits, presentations and discussions with management at CEO and CFO level are used wherever possible to assess management quality across a range of criteria. Detailed analysis of company valuations using financial statements and forecasts, particularly focusing on free cash flow, is conducted. Technical analysis is used to validate the Manager's fundamental research and valuations and to manage market timing. A significant portion of the Fund's overall performance can be attributed to the attention and importance given to the macro economic outlook and the ability and willingness to adjust the Fund's market risk. |
| Manager Comments | The Kardinia portfolio had a Growth and Momentum bias which dragged on performance. At the individual stock level, Surfstitch did the majority of the damage. Other significant detractors from performance were Blackmores, Bellamy's, Isentia and National Australia Bank. On the positive side, short positions in Share Price Index futures and Bendigo and Adelaide Bank, as well as longs in BWX, Burson and Transurban were the best contributors. Net equity market exposure (including derivatives) was reduced over the course of the month from 32.3% to 27.0%. Click below to read the latest Fund Report. |
| More Information |
12 Mar 2016 - Hedge Clippings
Hedge funds aren't nasty, they're sensible!
Certain sections of the media have been getting excited about the prospect of those 'nasty' hedge funds with short positions losing money thanks to a "short squeeze" rally in the price of the banks and Fortescue Metals Group (FMG). Of course there are some who think (Gerry Harvey for instance, who has always been ready and willing to talk his own book) that all short sellers should "be put up against a wall and shot" (his words, not mine). Others seem to believe that the only reason share prices fall is because of short selling by hedge funds.
Let's put this in perspective: Firstly the banks:
The price of CBA fell from $95 twelve months ago to $72 during September, following which there was a rally back up to $85 by the end of the year. Then a further fall to $72 followed towards the end of February, since which time it rallied back towards $75.
So apart from the fact that most of the downward pressure on CBA has come from "long" investors exiting or reducing their holdings because it was overpriced, any smart hedge fund should have been "short" at prices of over $90, and would have been more than happy to exit those positions between $70 and $75.
Only about 3% of the total big four banks' stock is "borrowed", which includes borrowing by traders who need to cover their option positions. While the banking sector may be large, that's not enough to have enabled short sellers to have cut the price by 20%. The reality was that at $95 the CBA was overpriced and conditions for banks were, as George Colman from Optimal Australia said at the time, "as good as they get", and the downside was inevitable.
Let's take a look at Fortescue:
In June 2008 FMG was trading at close to $11, riding high on the back of iron ore prices of around $140 a tonne. By January 2009 the price at fallen to $1.94 before rallying over two years to $6.65 in January 2011, before falling to $1.60 in January 2016.
FMG's share price might well have bounced $1.00 from that low, but that completely ignores the fact that they had fallen from $11 to $1.60 during their volatile journey.
It's not only short sellers that push the price of stocks down. It is the outlook for the company's earnings and profitability. Long only investors reduce their holdings, and just as importantly buyers pull bids back because there is limited value, or the stock is overvalued.
Message: Don't blame short sellers for the company's prospects and share price. Having said that manipulation of news and research (whether positive or negative) should not be allowed to benefit the peddlers of such information.
Performance updates and reviews received this over the past week included the following PERFORMANCE UPDATES:
Against a backdrop of further volatility in commodities and general de-risking in February the ASX200 Accumulation Index fell 1.76%. The S&P500 fell and the Asia Pacific ex Japan Index fell 0.63%. Meanwhile:
The Optimal Australia Absolute Trust recorded a positive 0.80% return, in another tough month to outperform by 2.56%.
The Bennelong Long Short Equity Fund rose 2.37%, to outperform by 4.13%.
KIS Asia Long Short Fund returned a positive 0.67% for the month, to give an out-performance of 1.30% against the Asia Pacific ex Japan index.
The Alexander Credit Opportunities Fund returned +0.55% for the month of February.
Morphic Global Opportunities Fund fell 2.24% in February, underperforming its benchmark (MSCI AC World Total Return in Australian Dollars), which fell 1.65%, by 0.59%.
The Newgate Real Estate and Infrastructure Fund returned -0.24% for the month of January.
FUND REVIEWS released this week: Insync Global Titans Fund
And on that note, have a great week-end.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
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11 Mar 2016 - KIS Asia Long Short Fund
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| Fund Overview | Whilst the Fund's primary strategy is focused on long/short equities, the ability to retain discretionary powers to allocate across a number of other investment strategies is reserved. These strategies may include, but not be limited to: convertible bond investments, portfolio hedging, equity related arbitrage, special situations (e.g. merger arbitrage, rights offerings, participation in international public offerings and placements, etc.). The Fund's geographic focus is Asia excluding Japan, but including Australia). The Fund may invest outside of this region to the extent that: 1. The investment decision is driven from the Asian region or; 2. The exposure is intended to mitigate risk or enhance return from factors external to the Asian region. |
| Manager Comments | Since inception, the Fund has an annualised return of 14.45% p.a. In comparison, the AFM Asia Pacific ex-Japan Index has an annualised returned of 1.48% p.a. The Fund has achieved this double-digit performance with lower volatility of 5.60%, to give notable Sharpe and Sortino ratios of 1.88 (Index -0.13) and 4.20 (Index -0.24) respectively. |
| More Information |
11 Mar 2016 - Alexander Credit Opportunities Fund
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| Fund Overview | The Fund may also invest in derivatives for hedging purposes. The portfolio of the Fund comprises primarily Investment Grade holding of 75% of the Fund's assets. Benchmark allocations are Australasia 50% to 100%, North America 0% to 50% and Europe 0% to 50%. Currency hedging may take place depending on benefits to the Fund. |
| Manager Comments | For February majority of the Fund's portfolio composition was in Residential Mortgage Backed Securities (RMBS) at 53%, followed by Short-dated loans at 20%. For 2016, the asset class that has performed well for the Fund is government bonds. The price of the 10 year Australian government bond for instance started the year at 112 and rose 4.4% to 117 in mid-February. Though the Fund does not invest in government bonds or take interest rate risk generally (all of its assets are floating rate notes) but it does look to hedge market volatility via other methods. This has helped the Fund achieve positive returns for the first two months of the year. |
| More Information |
11 Mar 2016 - Morphic Global Opportunities Fund
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| Manager Comments | For February, the market exposure was managed closely, with cash reaching a peak of 15%, before returning to mostly full invested. The biggest cause of underperformance was the style rotation. The US bank holdings accounted for almost all of the Fund's underperformance. The Fund had three notable winners for the month - the US health insurer Cigna, Australian miner Fortescue and Tokyo based housing developer Open House. Value was also added through hedging some of the currency exposure into the Japanese Yen. For March, the Fund began fully invested. Click below to read more. |
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10 Mar 2016 - Bennelong Long Short Equity Fund
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| Fund Overview | In a typical environment the Fund will hold around 70 stocks comprising 35 pairs. Each pair contains one long and one short position each of which will have been thoroughly researched and are selected from the same market sector. Whilst in an ideal environment each stock's position will make a positive return, it is the relative performance of the pair that is important. As a result the Fund can make positive returns when each stock moves in the same direction provided the long position outperforms the short one in relative terms. However, if neither side of the trade is profitable, strict controls are required to ensure losses are limited. The Fund uses no derivatives and has no currency exposure. The Fund has no hard stop loss limits, instead relying on the small average position size per stock (1.5%) and per pair (3%) to limit exposure. Where practical pairs are always held within the same sector to limit cross sector risk, and positions can be held for months or years. The Bennelong Market Neutral Fund, with same strategy and liquidity is available for retail investors. |
| Manager Comments | Positive contributing pairs outnumbered loss-making pairs. The top contributors over the month was the long Seek / short Fairfax pair. The Fund continues to hold this pair. This pair was unprofitable last year, however Seek's increased investment spending improved top-line growth, and this came to fruition in the recent interim financial result. In contrast, Fairfax's interim financial result prompted earnings downgrades due to growing evidence that Fairfax is not sufficiently monetising it's digital audience to overcome continued declines across its print advertising publications. On the other side, a key negative contributor for the month was the long Ramsay / short Primary Healthcare pair. While, Ramsay delivered a quality result with (again) an upgrade to full year earnings guidance, Primary staged a strong rally following relief after it's financial result that a capital raising was not necessary. Click below to read the Fund Manager's commentary and market outlook. |
| More Information |
9 Mar 2016 - Optimal Australia Absolute Trust
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| Fund Overview | The Fund's bias is likely to be net long under normal market conditions, with the core strategy being to construct a portfolio of listed equity securities priced at levels that do not adequately reflect their underlying value. The Fund will seek to boost returns and limit potential market downside by selective short selling of individual stocks which are priced at levels that are viewed as materially above their underlying value. The Fund will also use certain trading strategies both within its core portfolio (through rebalancing stock weights and overall market exposure in response to price movements) and in certain other situations (typically of a shorter-duration and/or opportunistic nature) with the objective of further increasing returns. |
| Manager Comments | The Fund entered February with net long exposure, at 9% of NAV, and with a higher beta skew towards the Resources complex. The Fund's stock selection worked well during the month, as mean reversion finally paid. No multiple and no commodity exposure was low enough to be investible. In the current earning season, the Fund's strike rate on their higher conviction investments was generally good, despite one bad earnings miss in retail. The investment team continues to believe the recent market volatility is here to stay and therefore will continue to focus on stock opportunities, with limit the exposure to the market risk. Click below to read the latest Fund monthly report. |
| More Information |
8 Mar 2016 - Fund Review: Insync Global Titans Fund January 2016
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 increased by 0.2% in January. The performance was driven by positive contributions from their holdings in Time Warner, McDonald's, Microsoft and Unilever. The main negative contributors were Express Scripts, eBay and McGraw- Hill. 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. .
- 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.
Isync - AFM Fund Review January 2016 (pdf format)
