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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 | Major contributors to the Trust's return for the month was driven by a return from both long investments (+0.22% attribution) and shorts (+1.25% attribution). The Australian equity market was very weak in May, finishing down 5.1%. There was a sharp reversal in the pattern of leadership, with the market led down by high-yield defensive and financials, and with the consumer staples and financial sectors both falling by over 9%. A key influence behind this was the decline in the AUD, which fell almost 7% during the month, to USD 0.966. The manager had the view that the AUD 'carry' trade (offshore yield-seeking investment) has worked its way right across the fixed income spectrum and into higher-yield equities. This 'carry' buying, when added to support from retail investors and (largely passive) institutional money flows, meant that way too much money was on this same trade. The result was a number of stocks in the broad yield category trading at valuations that were bewildering (at least to us) on almost any other metric, and the weaker currency in May was the trigger for a decent very decent correction in this group. |
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