Five years ago this week the world's financial system was in meltdown mode as Lehman Brothers filed for bankruptcy protection (September 15th 2008) and by September 22nd a deal was put to the bankruptcy court which saw Barclays acquire Lehman's core business. This was closely followed on 22nd September by Nomura acquiring Lehman's Asia Pacific businesses, including those in Australia.
Bankruptcy Judge James Peck was quoted as saying that Lehmans was "in effect the only true icon to fall in a tsunami that has befallen the credit markets." In reality plenty of others fell also, including local Australian companies such as Babcock and Brown and Allco, although whether they were "true icons" is perhaps debatable.
On the 15th September the Dow closed down 4.4%, and on September 29th it fell by an even larger 7%. Panic gripped investors as credit markets froze, counter party risk went off the Richter scale, and wealthy investors reputedly backed their cars up to their local bank branch with empty suitcases at the ready.
To be fair to Kevin Rudd and his so called "gang of four" the decision at the time to effectively guarantee the Australian banks prevented complete panic. Those not prepared to give Rudd any credit for anything will no doubt claim he did the only thing possible, and for once took the advice of others more knowledgeable than himself.
Wind forward five years and the Dow is back at record territory thanks to QE tapering being shelved indefinitely, while the ASX200 is at five year highs but still around 20% below its pre crisis highs. In spite of this some US based funds are rumoured to be shorting the Australian banks, based on their valuations and the risk of a property bubble.
Given the total reported short positions of the big four banks as per ASIC's reports dated 10th range from a low of 0.23% (NAB) to 0.72% (WBC) of total outstanding shares they're certainly not piling into the trade with their ears pinned back, which is probably sensible. Australian house prices might be expensive, but given local factors such as supply and demand, low interest rates, immigration and negative gearing they're unlikely to collapse any time soon.
Meanwhile fully franked bank yields (over 5% pre franking) and the lowest interest rates in most borrower's memory will probably support valuations as well. Of all these factors the removal of negative gearing probably poses the greatest threat, but given Tony Abbott's only just been elected, he's unlikely to want to jump off the political cliff quite that quickly.
So markets seem underpinned, hooked on QE. Maybe Ben Bernanke didn't want to end his tenure on a sour note.
An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.
If you are visiting Hong Kong, the UCITS Asia 2013 Conference is on 9-10 October. AFM have a 10% discount coupon available, more details here.
The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace hotel in Sydney. Details are here.
IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
Insync Global Titans Fund recorded -1.95% during August with the Fund's low risk shown by the maximum drawdown of -2.04% (ASX Accumulation Index -6.72%) over the last 12 months. The low risk attributes are further indicated by its downside deviation of 3.16% (Index 5.93%) and a down capture ratio of -0.80, also over the last 12 months.
The Pengana Asia Special Events (onshore) Fund returned 1.03% during August 2013 with gross and net exposure averaging 158% and 12% respectively. Short index futures protected the Fund during the month, while non-directional trades such as M&A and stubs trades also contributed positively to performance. Malaysian and Japanese trades proved particularly profitable during the month.
Auscap's Long Short Australian Equities Fund had a strong August returning 4.28% with an average net exposure of 61.1% (96.1% long and 35.0% short) across 22 long positions and 13 short positions. The Fund's biggest exposures were spread across consumer discretionary, financials, healthcare and telecommunications sectors. The manager has written an interesting article on the relative merits of investing in large and mid cap versus small caps. You can read the report here.
Updated AFM Fund Reviews were also completed on the following funds this week:
The Bennelong Kardinia Absolute Return Fund has returned consistent top decile long short equity sector performance with a since inception (May 2006) return of 14.11% pa (ASX Accumulation Index 4.18% pa) and a standard deviation of 7.89% pa (Index 14.86%) indicating the Fund's ability to generate strong risk-adjusted returns. The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record.
Optimal Australia Absolute Trust is a specialist Australian equity investment manager and the Fund has recorded out-performance of the market since inception in September 2008 with approximately 84% of monthly performances having positive returns and the largest drawdown -1.38%. The Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200.
The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities. Over 87% of monthly performances have been positive, with no losing months in 2008 and a largest drawdown of -2.09%. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation.
Morphic's Global Opportunities 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 and currencies. 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. Risk management is a primary consideration in portfolio construction and the strong emphasis on risk is evidenced by the Fund's very high Sortino ratio of 14.88 and maximum drawdown of -0.52%.
For something completely different - tomorrow is Leonard Cohen's 79th birthday. For someone who spent a reasonable part of his mis-spent youth listening to tracks such as "Suzanne" and "Bird on a Wire" I thought you might like to listen to the great man's live recording (and his explanatory preamble) of Chelsea Hotel. According to Wikipedia the landmark Chelsea Hotel is currently closed for renovations, but remains a feature in many films, songs and books.
On that note, enjoy the week-end!
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
