Research and Database Manager
Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund (pdf format)

A report in the latest Australian Banking & Finance this week quoting the Australian Bureau of Statistics report on household wealth and distribution in 2012 showed that just over 20% of Australian families can now claim to have household net worth of over $1 million.  This was up from 14.6% eight years ago, while those worth less than $50,000 have fallen from 14.6% to 12.7% over the same period.

Based on my simple logic this should equate to there now being more people with more wealth, and less people with less. However I have no doubt there are plenty of details within the overall numbers to hold true to the adage of lies, damn lies and statistics.  The headline numbers also seem to contradict the general anecdotal evidence in the community, given that eight years ago there was a raging bull market, the resources boom was building a head of steam, and the GFC in 2008 was yet to hit.

Household net worth averaged $728,139 in FY2012, down 4.1% over the previous 2 years on an inflation adjusted basis, while gross household assets averaged $858,200 with the average value of the home accounting for 43% of this, and investment property a further 15% for a total of 58%. 

These numbers tally with the results of a report by consultants WealthInsight reported in Alan Kohler's Eureka Report showing that those Australians with $1 million or more of investable funds (as opposed to the total value of household assets in the ABS numbers) have a total of just 28.8% in property of one sort or another.  

Superannuation was the second largest household asset in the ABS figures at 15.4%. Also released this week were figures showing the average contribution to superannuation had fallen significantly in 2013, presumably as a result in a reduction to $25,000 in the maximum permissible contribution.

Given the increasing proportion of the population at or approaching retirement age, when their taxation contribution reduces at the same time as the cost of their medical and aged care increases, I can't fathom why all politicians wouldn't want to increase retirees' financial self reliance through superannuation savings. 

Sooner or later one treasurer or the other is going to have to bite the budget bullet: The government either needs to spend less (i.e. reduce handouts where not justified) or increase income (otherwise known as taxation) whether the electorate like it or not.

Most households have worked it out.  Why can't the politicians?

Some specific results received this week include the following Performance and News Updates:

The Pengana Australian Equities Market Neutral Fund is notable for its low volatility relative to the ASX 300 and negative correlation with the same Index. Annualised standard deviation since inception in September 2008 is 8.1% p.a. compared to 15.58 for the Index while correlation is -0.04.  The Fund returned -0.5% during July and has returned 8.94% since inception with the risk and return data indicating the Fund is meeting its strategy goals.

Insync Global Titans Fund returned 3.87% during July and 23.60% over the last 12 months. The Fund has an annualised standard deviation of 8.71% pa as compared to the ASX 200 Accumulation number of 11.74% pa over the last 36 months. Returns over the same period were 14.16% pa with the Index at 8.79% showing that the Fund is continuing to deliver a return and risk profile in line with its strategy.

Updated Fund Reviews were also completed on the following funds this week:

The 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% pa. This very high rate of return has seen $100 compound up to $764 since inception in January 2003.

Optimal Australia Absolute Trust has a long/short equity strategy, typically has a low but variable net market exposure comprising 40 to 65 stock broadly selected from within the ASX200. The Fund is very risk aware and this is borne out in the risk data - approximately 84% of monthly performances have been positive with the largest drawdown only -1.38%. Annualised volatility is 3.66% as compared to 15.58% for the ASX 200 Acc since the Fund's inception in September 2008.

The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities with a strong focus on risk. The Market Neutral overlay is used across a multi strategy approach which allows for flexible asset allocation to maximise returns and minimise risk under a variety of market conditions and cycles. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. The success of this strategy is shown by the fact that over 87% of monthly performances have been positive and most notably, the Fund did not record any negative months in 2008, with the largest drawdown since inception in March 2005 of -2.09%.

For something completely different - I've received many remarkable nature photographs over the years but this photo of a nesting Falcon is perhaps the most remarkable Nature shot that I've ever seen. I hope you enjoy it as much as I did. Nature is truly breathtaking!

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

OPTIMAL AUSTRALIA ABSOLUTE FUND

Attached is our most recently updated Fund Review on the Optimal Australia Absolute Fund.  

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

• Optimal Australia is a specialist Australian equity investment manager established in 2008.
• The Fund's long/short equity strategy portfolio typically has a low but variable net market exposure comprising 40 to 65 stock broadly selected from within the ASX200.
• The investment team comprising George Colman, Peter Whiting and Stephen Nicholls have close to 90 years combined experience in equity markets.
• Consistent out-performance of the market: Approximately 84 % of monthly performances have been positive with a largest drawdown of -1.38%.

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Optimal Australia Absolute Trust (pdf format)

BENNELONG LONG SHORT EQUITY FUND

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

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

• 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% .
• Portfolio Manager Richard Fish has over 25 years market experience, while Bennelong Funds Management, who have over $4.5 billion in FUM across various funds, provide infrastructure, operational and compliance functions.
• The Fund's Investment history commenced in January 2002 and has 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.
• 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 (pdf format)

The debate on the timing and extent of the Fed's QE taper swung back in favour of "sooner rather than later" overnight as US 10 year yields climbed to their highest levels in two years, driven by a drop in unemployment claims, an improvement in the outlook for home building, and the US cost of living increasing for the third month in a row. With the US economy being so consumer centric it is no surprise that the jobs data has such a close correlation to everything else.

US Bond yields weren't the only ones affected.  Ten year yields were at their highs for 18 of 24 markets tracked by Bloomberg, while 65% of economists in Bloomberg's survey believe the Fed will start to taper at their next meeting, scheduled for mid September, which was up from 50% the previous month.

Equity markets were weak over night as a result, and as we have pointed out before, no one can claim they weren't warned that QE wouldn't last forever.  The S&P500 has risen 150% since its lows in early 2009, and has risen 20% in 2013 YTD.  For the time being at least the competing forces of the Fed's tapering plans vs an improving economy are likely to keep investors on the sidelines.

Reporting season won't help, both at home and in the US. Even though 72% of companies in the S&P500 index that have reported quarterly earnings to date have exceeded analysts' estimates, those that miss result in significant price falls.

August can traditionally be a difficult month for long/short managers as a result, although on a year to date basis to July AFM's index of equity funds has returned 11.27% against the ASX200 Accumulation Index return of 10.88%, with almost 30% of all funds outperforming.

Some specific results received this week include the following Performance and News Updates:

Optimal Australia Absolute Trust returned 0.35% over July bringing it's since inception (September 2008) return to 11.11% pa. The fund's risk statistics are notable. Downside capture ratios are -0.11, -0.12 and -0.22 over the last 12, 24 and 36 months respectively indicating that, on average, the fund has positive returns when the overall market is negative. Specifically, the fund has had positive monthly returns of 0.33%, 0.39% and 0.48% when the market is negative over the previous 12, 24 and 36 months.

The Pengana Australian Equities Fund returned 2.00% for July and now has an annualised return of 13.10% pa since inception in July 2008. As at 31st July, cash (including notes and preference shares) represented 28% of the Fund. The top five holdings by value were: DUET Group, ANZ Bank, Telstra, Resmed and the Caltex Group.

The Aurora Fortitude Absolute Return Fund returned 1.13% during July bringing it's since inception (Feb 2005) return to 8.29% pa with a very low volatility of 2.81% pa and maximum drawdown of 2.09%.

BlackRock Australian Equity Market Neutral Fund returned 1.92% for July. The since inception (August 2001) return is 12.23%.  The Fund's risk characteristics are notable with an annualised standard deviation of 5.71% and largest drawdown of -12.41% since inception, as compared to the ASX 200 Accumulation numbers of 13.27% and -47.19% respectively. In addition, over the same time frame, the Fund's up capture ratio is 0.11 and down capture ratio -0.60.

Updated Fund Reviews were also completed on the following funds:

The Morphic Global Opportunities Fund is an early stage, boutique, Sydney-based fund established in 2012 with experienced CIO's, and an investment team of 6 including a risk manager. The Board has a majority of independent members with significant risk and investment experience. The Fund is a global equity long/short manager with a long bias and a macro-economic overlay. The mandate allows the Fund to short sell, use derivatives and invest in assets such as commodities & currencies. Portfolio construction is stock selection agnostic with a bias to value based and momentum strategies. Risk management is a primary consideration in portfolio construction.

Morphic's philosophy is that only funds with flexible hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.

Bennelong Kardinia Absolute Return Fund is a boutique Australian based Fund Manager established in August 2011 in conjunction with the Bennelong Group to continue the management of the Herschel Absolute Return Fund. Long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record and an annualised return of 14.13% net of fees. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provides infrastructure, operational, compliance and distribution capabilities.

Key Performance and Risk Statistics indicate an attractive risk/reward profile, and a strong focus on capital protection in negative markets.

For something completely different - the dark and sultry tones of Leonard Cohen.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESFund Review: Morphic Global Opportunities 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. 

Key points regarding the Fund are:

• Kardinia is a boutique Australian based Fund Manager established in August 2011 in conjunction with the Bennelong Group to continue the management of the Herschel Absolute Return Fund.
• Long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record and an annualised return of 14.13% net of fees.
• Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provide infrastructure, operational, compliance and distribution capabilities.
• Consistent top decile long short equity sector performance with Key Performance and Risk Statistics indicating an attractive risk/reward profile. There is a strong focus on capital protection in negative markets.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Bennelong Kardinia Absolute Return Fund (pdf format)

Recent market volatility, which saw the ASX200 fall in March, May and June gave way to a much improved month in July, with the ASX200 Accumulation Index rising 5.2% to take 12 month performance to 23.75%.  Equity based hedge funds have on average only marginally underperformed, with average returns for July of +4.24%, and 12 months of 20.61%.

Based on the 39% of funds reported for July, returns to date 35% outperformed the ASX200, with that figure falling to 23% over the past 12 months. The best performing strategy for July was Equity 130/30 at 6.34% taking 12 month performance to +27%.

Rates down to historic lows

That the bulls are out in force in a market which has risen over 20% is positive news, although significant further gains seem to be at odds with some current fundamentals. The past week has seen the RBA cash rate fall to 2.50% on the back of a weaker overall economy, business confidence has reached a four year low, and unemployment a four year high. 

Election / Budget deficit expands to fit a black hole

Add to that an election campaign where the outcome is not the forgone conclusion that it was a month or two ago, and a revised budget deficit of $30 billion, up from the previous estimate of $18 billion which was only provided 10 weeks ago.  Given both sides of politics will no doubt be wanting to tempt voters with further welfare generosity and/or tax concessions over the next four weeks of the campaign, it would seem that whichever party wins the election will have to deal with further increases in the deficit.

Some specific results received this week include the following Performance and News Updates:

Allard Investment Fund returned 0.2% during June and 17.65% for the 12 months to June 2013. Returns since inception (July 2003) are 9.02% annualised.

The AUI Wingate Global Equity Fund returned 3.69% during June bringing the financial year performance for FY 13 to 29.79%.  On a monthly basis for the past 12 months, the portfolio captured 91% of the market's gain when the market was positive but only 54% when the market was negative.

Bennelong Kardinia Absolute Return Fund returned 1.31% during July bringing it's twelve month return to 15.20%. The since inception (May 2006) return is 14.13% pa.

The Morphic Global Opportunities Fund returned 7.71% during July and 41.16% over the previous twelve months.  The Fund is fully invested and overweight in the US and Japan, although the latter overweight has been reduced. The Fund remains un-hedged into Australian dollars and has slowly increased its short position in the currency versus the US dollar and the Euro.

Bennelong Long Short Equity Fund returned 3.52% during July.  Fund performance was solid with the long portfolio comfortably outperforming the negative impact from the short portfolio. At the sector level, the best positions were in Consumer Discretionary, Energy and Materials which were all strong but partially offset by negative returns in Industrials and Financials.

For something completely different - Oh What a Feeling?

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Markets powered ahead in July, with risk taking a back seat once more as the US economy continued its recovery, aided by QE and the absence of any powerful negative forces.  Fears that QE might end seemed to dissipate, or maybe investors began to get used to the fact that it must do so sooner or later.

Fresh highs on the S&P500 make a stark contrast to the performance of the Australian market which has been dogged by China and the resources perception, and more recently lower rates, both of which have accelerated the decline of the $A as offshore investors repatriated funds.  Along with this local investors are increasingly looking to diversify offshore, possibly too little too late, but the experts seem to think the trend will continue for a while yet.

Three pieces of news this week related to the funds management industry: ASIC released Phase 2 of their review of financial advice industry practice, specifically covering the 21^st to 50^th largest financial services licensees.  The 20 largest practices were covered under Report 251.

The new Treasurer, the Hon Chris Bowen released an exposure draft & explanatory memorandum on the proposed final element (stage 3) of the Investment Management Regime, or IMR which resulted from the Johnson report into Australia's standing as a financial services centre, completed in 2009. It still sounds complicated to me, particularly when the objective was to encourage offshore investors into Australia's financial services industry, which incidentally accounts for over 10% of GDP.

Finally the Treasurer also announced a planned five year freeze on major changes to Superannuation (excepting those recently announced) if re-elected.  Legislative certainty is essential for investors' confidence, so maybe the taxation of both local investors in superannuation, and offshore investors in Australian managed funds should both be formalised by whichever party wins the upcoming election.

Some specific results received this week include the following Performance and News Updates:

BlackRock Multi Opportunity Fund recorded a return of 0.10% during June 2013 and an annual return of 9.02%. The Fund is notable for its low risk attributes with a sixty month Sharpe ratio of 1.02, annualised standard deviation of 4.45% and Sortino Ratio of 1.24.

The Intelligent Investor Value Fund returned -0.69% over June and 36.89% over the financial year. The Fund has an annualised return of 11.3% pa since inception (31 October 2009), more than double the 5.1% pa return of the All Ordinaries Index.

Monash Absolute Investment Fund was up 5.6% after fees in July, bringing the 12 month return to 23.4%. The portfolio continued to more than keep up with the broader market this month despite action taken to protect returns by: trimming some holdings; increasing cash, and; adding to the short positions.

Fund Reviews updated this week include:

Morphic Global Opportunities Fund is an early stage, boutique, Sydney-based fund established in 2012 with experienced CIO's, and an investment team of 6 including a risk manager. The Board has a majority of independent members with significant risk and investment experience. The Fund is a global equity long/short manager with a long bias and a macro-economic overlay. The mandate allows the Fund to short sell, use derivatives and invest in assets such as commodities & currencies. Portfolio construction is stock selection agnostic with a bias to value based and momentum strategies. Risk management is a primary consideration in portfolio construction. Morphic's philosophy is that only funds with flexible hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.

The Aurora Fortitude Absolute Return Fund has an eight year track record and has consistently applied a low risk market neutral strategy focusing on ASX listed equities designed to provide investors with returns of 5% to 10% over cash, with low volatility and minimum drawdowns during varying market conditions. The overall strategy is Market Neutral, but the Manager uses five broad sub strategies with uncorrelated returns to build diversification into the portfolio. Over 87% of monthly performances have been positive, with no losing months in 2008 and a largest drawdown of -2.09%.

BlackRock Australian Equity Market Neutral Fund is managed by a 12 person Sydney based investment team following a systematic global research process investing in ASX listed stocks. The Fund's portfolio generally consists of approx. 180 stocks in equally weighted long and short portfolios to maximise potential returns while minimising market volatility. Blackrock's scientific approach is based on their philosophy that by blending highly qualified investment professionals (people skills) with the information, processing power and data collection capacity of powerful computer systems (quantitative) the result will be faster and better investment decisions and therefore outcomes.

For something completely different - getting it wrong: I'm sure we have all done this at some stage!

And for those not familiar with the dubious joys of NSW politics, this week saw the release of ICAC's findings and recommendations for the prosecution of former state Labour ministers Eddie "he who must be obeyed" Obeid, and Ian "Sir Lunchalot" Macdonald.

Not to be outdone, the current State Premier, liberal Barry O'Farrell gave his Finance Minister Greg Pearce his marching orders, admittedly for relatively insignificant misdemeanors.  We have to take our hat off therefore to the editor of the Daily Telegraph for today's photo and accompanying headline.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

BLACKROCK AUSTRALIAN EQUITY MARKET NEUTRAL FUND

ATTACHED FILESFund Review: BlackRock Australian Equity Market Neutral Fund - June 2013 (pdf format)