BENNELONG ALPHA 200 FUND

ATTACHED FILESBennelong Alpha 200 Fund Fund Review - December 2014 (pdf format)

Here we go again...

Welcome back to Friday afternoons, and Hedge Clippings. Even if you're still on holiday, languishing on the beach, or quietly sipping a glass of something cool and refreshing, you'll be pleased to know that some of us at least are back at the grindstone for another year.

So to kick off the year ahead let's look at the performance of funds and strategies over the past 12 months, and also preview some of the major themes or issues facing markets in 2015.

We need to be a bit careful on some of the numbers below but with just over 59% of December's results in to date, there's a pretty strong trend:

At the individual fund level 12 month performances ranged from -22% through to +54%. The ASX200 itself only rose 1.1% for the 12 months to 31 December, so dividends etc. added 4.5% to investors' returns, and that probably explained the strength of the yield chasing that was going on with interest rates so low - particularly in the banks and stocks such as Telstra.

Overall from an anecdotal perspective most managers found 2015 pretty tough - in fact a number have confided that they found it one of the hardest years they'd experienced. In particular low equity market volatility, although with some notable spikes at specific times, along with the punishment handed out to companies that disappointed analysts and investors, made it a difficult year.

Certainly the best performing funds were either the stock pickers (provided they got their picks right) or those funds investing overseas which had the double benefit of stronger offshore markets, and the A$ as it finally declined in the second half of the year.

Strategy wise there was the usual dispersion of returns, but not as extreme as in previous years, with only Currency (-1.04%) and Commodities/CTA's (-4.29%) posting negative numbers:

Of course the big themes for the year were the slump in commodity prices, record low interest rates, and towards the end of the year the oil price heading towards $50 per barrel.

Overseas the US saw off QE and seems to be prepared for rates to rise, Europe remains a dog's breakfast, and China remains a question mark.

So the big themes - or questions - for 2015?

1. Will the US equity markets actually handle a rate rise without too much of a rush for the exit sign? Valuations are pretty rich, so volatility could rise if the transition isn't smooth.
2. How will the oil price affect global economies - including Russia?
3. Can Europe pull itself out of the doldrums, and will Greece - or perhaps Portugal - exit the EU and create volatility.
4. Will RBA Governor Glen Stevens get his way, and will the A$ continue towards his $0.75c target, possibly driven by a further rate cut?
5. Locally 2014 was a year of missed opportunities and fumbles for the government, and although an expanded and increased GST is being discussed, it's unlikely for the time being. So what's in store for the budget and politics in general?

All these questions and more will be covered at AFM and Deloitte's "Looking Forward, Looking Back" lunchtime seminar on Thursday 12 February in Sydney. We'll have four of the best and brightest fund managers on hand, including Simon Shields, George Colman, John Corr and Monik Kotetcha to give you the benefit of their opinion, so if you would like to attend, please register your interest here.

Specific results received this week include the following PERFORMANCE UPDATES:

Bennelong Kardinia Absolute Return Fund returned 1.53% during December, bringing 2014 performance to 5.77% (ASX 200 Acc 5.61%) with volatility at 4.17% (Index 10.95%).

The Morphic Global Opportunities Fund 2.62% in December bringing the annual return to 13.99% (Global Equity Index 12.57%) with a volatility of 7.75%.

Bennelong Alpha 200 Fund returned -0.13% during December, bringing returns to 2.26% over 2014 (ASX Accum Index 5.61%).

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter

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.

This is the last edition of Hedge Clippings for 2014, but rest assured (or should that "be afraid"?) that, barring unforeseen circumstances, we will return in 2015. Although our offices will be closed from Christmas through until 12 January, fund performances on www.fundmonitors.com will continue to be updated, and the phone and emails will be monitored and attended to as required.

Looking back over 2014, and particularly the predictions and forecasts we made last January, we think we got some things right, and hope we got nothing disastrously wrong. However there's no doubt we missed a few significant trends or events. At that time we said that the general view of managers we had spoken to was for a more subdued return from markets in 2014 than in 2013 (which has certainly been the case) but with higher volatility, which with the exception of a few isolated outbreaks, did not eventuate.

We did forecast (correctly) that the Aussie dollar appeared to have further downside potential, but as it had already fallen 16% at that stage, that was probably not too difficult to call. What did surprise us was the stubbornness of the local currency to take the hint from falling commodity prices for a large part of the year.

Our opinion that Australia's economy was likely to see headwinds was correct, although with commodity prices falling further than we had anticipated, we probably also under-estimated the strength of those headwinds. What we also failed to foresee was the difficulties that the government would encounter in the Senate, which were compounded in our opinion by a poorly constructed, or at least poorly marketed, budget.

We suggested that the US recovery would gradually gain pace, and that politicians and policy both locally and overseas would continue to take centre stage. We thought China may or may not avoid a hard or soft landing, which would appear to still be the case, perhaps suggesting that they will manage to avoid the former. Sadly we suggested that the Middle East would continue to hit turbulence, but we certainly could not have envisaged the level of brutality involved.

Having noted the above, there were a few other things we completely missed or managed to forecast. Who would have thought that by the end of the year the price of a barrel of oil would halve, thereby placing significant pressure on the Russian economy, which was of course compounded by the political and military situation in the Ukraine. As noted above we also failed to anticipate the speed at which the new Federal government could lose its political way, thus affecting business confidence, although internally we have divided opinions as to the degree of damage this is doing to consumer confidence.

Of course when looking backwards everything seems relatively clear, but the real challenge will come in January next year when we will gaze once again into our economic crystal ball and try to provide some clarity for the following 12 months. With that in mind we have organised a lunchtime seminar on Thursday February 12 in conjunction with Deloitte entitled "Looking Forward, Looking Back" where a panel of four of the best and brightest fund managers will provide the benefit of their expert opinions. If you haven't already registered, please click here.

Finally this week we have a further video interview with Jack Lowenstein, joint CIO of the Morphic Opportunities Fund discussing his fund and the market's recent performance.

Meanwhile all of us at AFM and Hedge Clippings would like to take this opportunity of wishing you and your families a Happy Christmas and a prosperous and healthy New Year. Stay safe over the holidays, and be kind to each other.

Specific results received this week include the following PERFORMANCE UPDATES:

Bennelong Long Short Equity Fund returned 3.12% in November, outperforming the ASX 200 Accum Index.

The Optimal Australia Absolute Trust returned -0.53% against the ASC 200 Accum Index -3.25% in November with annual returns at 5.41%, and volatility of 2.08%.

Returning 6.14% during November and 15.05% over the prior 12 months Totus Alpha Fund has a volatility of 8.61%.

The Aurora Fortitude Absolute Return Fund returned 0.38% during November and 2.22% for the previous 12 months with a volatility of 1.07%.

In a difficult month for equities the Insync Global Titans Fund returned 5.67%, bringing 12 month returns 12.88% with volatility 8.87%.

The Alpha Beta Asian Fund returned 2.10% during November with annual performance of 6.18% with a volatility of 4.31%.

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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.