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)

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Aurora Fortitude Absolute Return Fund (pdf format)

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESFund Review: Morphic Global Opportunities Fund (pdf format)

Averages can be dangerous, or misleading, and frequently both. Take the average 12 month performance of absolute return and hedge funds in AFM's database compared with the ASX200 accumulation index.

Firstly it's not always logical or correct to compare the performance of a fund investing in commodity futures or currencies with an equity index such as the ASX200. Secondly the range of performances, and the underlying range of strategies differ so widely that averages, or conclusions are frequently meaningless. As of course is the performance range of ASX200 companies  where the performance of top and bottom stocks varied from +381% to -90.3%

In simple terms the ASX200 Accumulation index has returned 22.67% in the 12 months to June, compared with an average return of 12% for all funds in AFM's database. Drilling down by strategy shows a wide divergence, with the average Equity 130/30 fund returning 23.71%, closely followed by Equity Long funds at 21.10%. At the other end of the scale Commodity funds and CTA's lost an average of -5.19%, and Currency funds averaged a loss of -4.29%.

Unfortunately (or fortunately as the case may be) the performance divergence doesn't end there. In the 12 months to June the best performing fund returned 65.9%, and the worst -59.9%. Performance spreads within strategies are equally diversified, with the best Long Only funds (investing in industrials) returning over 34% while the worst (which invested in gold) fell 45%.

What's the point of all this? Smart investors need to look beyond the headlines and drill down to the details, as they do when considering the detailed analytics of each fund's performance and risk profile.

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

The Pengana Australian Equities Market Neutral Fund rose 5.00% during June bringing its since inception (September 2008) return to 9.22% pa as compared to the Fund's equity benchmark return of 3.2% pa.  

Aurora Fortitude Absolute Return Fund returned 0.46% during June for a full year return of 5.70%. The Fund's risk profile is notable with an annualised standard deviation of 2.81% pa compared to the benchmark S&P/ASX 200 Acc with 14.42% pa.

The Pengana Asia Special Events (Onshore) Fund returned -0.92% during June bringing its 12 month return to 10.65%, outperforming both the RBA Cash Rate and the HFR Event Driven Index.

BlackRock Australian Equity Market Neutral Fund reported 1.15% during June with it's since inception (August 2001) return now 12.14% pa.

Fund Reviews updated this week include:

Insync Global Titans Fund is a concentrated, long only equities strategy investing in 15 to 25 large cap ($2 billion and above) global companies. Current average market cap of stocks in the portfolio is USD89bn. These are selected for their ability to consistently increase shareholder value based on return on invested capital (ROIC), and a strong track record of expanding dividends.

And finally, for something completely different - a story on inspiration and self worth.

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