Focus on the Facts
May's performance data is behind us, but reflecting on it will serve to show the risk averse nature of absolute return funds in general. Against the ASX 200 accumulation index which fell 4.5%, (cutting year-to-date performance to just 5.4%) AFM's index of all funds rose by 0.36%.
Drilling down through this data on a regional basis is not quite as compelling, with funds investing domestically in Australia losing an average of -1.53%, although still an outperformance of 3% above the index. However it does bear out our previous view that with the A$ falling out of favour, local investors would benefit by looking for funds investing offshore.
Although just 7% of June fund returns are to hand, June performance is not looking as positive, with an average fall of 0.91% against the ASX 200 accumulation index fall of 2.32%. However it again indicates the potential defensive nature of the sector.
With that in mind we are always surprised that hedge funds are typified as risky. Certainly there are some that have shown significant risk, while there are others that have performed in line with expectations, and some outstandingly. Over 12 months fund returns in AFM's index have ranged from -59% through to +66%.
Recently to overcome the misconception that that there was limited choice of funds for retail investors we analysed the performance of funds with minimum investments of $50,000 or less on behalf of Alan Kohler's Eureka Report. The facts are that over 50% of the funds in AFM's database have minimum investments of $50,000 or less, and of those three quarters have minimum subscriptions of $25,000 or less. Full details of the analysis are available here.
The issue for retail investors therefore is not so much availability, as suitability, with the more complex investment strategies demanding greater understanding by investors, and therefore additional research and due diligence. Unfortunately the quality of some research recommendations available to retail investors has in our opinion been lacking, and in some cases out of date.
Guaranteeing or even predicting the future performance of managed funds is difficult, if not impossible. Analysis of their past performance, and in-depth analysis of processes and systems, while easier, provides some indications, but still requires a critical and quantitative approach. On the occasion of the Guardian newspaper's 100th anniversary in 1921 the editor C P Scott wrote "comment is free, but facts are sacred", a tag line the newspaper retains to this day.
Unfortunately some research on managed funds focuses excessively on comment (and opinion), and insufficiently on the facts.
Performance and News Updates on www.fundmonitors.com this week:
8IP Asia Pacific Partners Fund returned -1.36% during May and 18.58% for the last twelve months. The Fund's exposure in Australia and Japan detracted from performance as the small resource stock exposure continued to suffer and the Japanese financials experienced profit-taking.
The BlackRock Multi Opportunity Fund returned -0.16% during May and 8.98% since inception. The fund delivered a small negative performance in May with Global Equity Market Neutral, European equity long/short, and International Alpha Transport strategies adding value. Australian Equity Market Neutral, Global Macro, and Fixed Income Global Alpha strategies detracted.
AFM Prism Active Equity Fund returned 1.66% during May with the ASX 200 Accumulation Index down 4.5% over the same time. Of the five underlying funds, three had a positive month in May, and two had negative returns. One of the funds delivered a remarkable performance of 9.49% and this was the major contributor to the fund's performance.
The Bennelong Long Short Equity Fund returned 1.1% during May bringing it's since inception (Feb 2002) return to 21.03%. The Manager expects recent volatility to persist as markets and investors grapple with a potential change in ultra-loose monetary policy which has been in place for so long now.
You may also like to watch this most recent episode of Opalesque.TV, discussing Australian Hedge Fund Strategies, attractive liquidity terms and investors.
Now for something completely different, an unruly dog creates havoc in Richmond Park, sparking a host of parodys around the globe.
On that note I wish you a happy and healthy weekend.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
