Last week we suggested that given the outlook for the local currency, Australian investors would be well served by including some offshore exposure to their portfolios as protection against further falls in the A$. With various economists now calling the Aussie down to US$0.80 this may well be the way to go. Certainly there seems to be an exodus of offshore investors from the equity market (where they constitute 47% total value) after the inflows of the past 12 months, which has further undermined the currency and the market.
In any event, local funds which invest offshore benefitted significantly (provided they weren't hedged) from the A$'s fall of over 7% in May, with strong double digit returns from the likes of PM Capital and Magellan amongst others. On the local front returns have been varied as usual depending on the manager, fund or strategy. Some of this week's reported highlights are featured below.
Last Monday we wrote an article for Alan Kohler's Eureka Report entitled "In defence of Hedge Funds" to counter some negative comments on the sector in Ian Verrender's article "The thin edge of the hedge wedge". Ian suggested that after fees investors might find it simpler and cheaper to merely purchase an index fund - in other words, just buy the market.
The thrust of our response was that given the diverse range of underlying assets and strategies which combine to make up the "hedge fund" sector, averages can be both dangerous and misleading, as can results of average returns.
But it did cause us to delve into the returns (after fees) of all funds in our database with a five year track record, and compare them against the market (using the ASX200 accumulation index as the benchmark). For the record, over the five years to the end of May, the market provided investors with an annualised return of 3.07%. Therefore, in one way Ian was correct: 37% of the 145 funds underperformed the market, and 15% underperformed to the extent they provided negative returns.
On the positive side, 63% of funds outperformed the market, and therefore presumably justified their existence up to a point. However given that the markets return of 3.07% is not what we would call acceptable, particularly given the risk and volatility concerned, that might not be saying much.
But 41% of all funds doubled the market's return, and 27 (or 18%) provided their investors with annualised five year returns ranging between 10 and 19%, which by any standard is impressive. The chart showing the spread of returns is below:
It does however emphasise that analysis and understanding of the strategy, manager and fund is essential when discussing hedge funds - as it is when investing in them.
Performance and News Updates on www.fundmonitors.com this week:
BlackRock Global Allocation Fund returned 2.04% in April, in line with its benchmark, and 14.10% over the preceding 12 months. The team continues to believe that equity valuations remain attractive relative to fixed income valuations, though the Manager has become incrementally more cautious over the short-term given increasing stock prices, weaker revenue expectations and uncertainty in Europe.
The Bennelong Long Short Equity Fund had a remarkable May delivering 9.49%, bringing its twelve month performance to 19.89%. The portfolio benefitted from a pleasing month, with both the long and short portfolios contributing positively.
Bennelong Kardinia Absolute Return Fund delivered 0.4% during May. The twelve month return now stands at 18.46%. The Fund's net equity market exposure, including derivatives was reduced to 31.3% (47.5% long and 16.2% short).
The K2 Asian Absolute Return Fund returned 2.38% during April to bring twelve month performance to 33.82%. The Fund's net exposure band has been maintained at 80-100%, ending the month at 96%, marginally lower than April. Increasing volatility in recent weeks, together with seasonal weakness justified a wider trading band of the Fund's net exposure.
And finally, for something completely different, The Swear Jar, probably something every office needs. Ours certainly does!!
On that note, I hope you have a happy and healthy weekend, or in Australia, a long weekend (all except Western Australia who will be celebrating the Queens birthday in September).
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
