April was a tough month at the office for Absolute Return and Hedge Fund managers based on the 70% of performance reports received to date.
While the ASX 200 Accumulation Index rose 1.77%, AFM's index of all funds lost 0.23%, with equity-based funds bearing the brunt, down an average of 0.34%. While we are used to, and would expect hedge funds to underperform in strongly rising markets, lagging by 2% and with a negative number to boot is unusual.
While the performance for a single month is disappointing, over 12 months there is little difference across all 333 funds which have gained 10.02% versus the ASX 200 accumulation index at 10.46%. Equity-based funds, which make up 60% of the total have done better, with a 12 month average return of 14.08%.
58% of fund returns to date were positive, against 90% over the past 12 months, while only 15% outperformed the ASX 200 in April, rising to 54% over 12 months.
There are probably a number of reasons for April's disappointing returns: Firstly divergences between large and small cap stocks, with the ASX 200 adding 1.7%, and the Small Cap Index falling 1.2%. As a further indication the ASX Top 20 rose 2.2% for the month, with yields once again driving this segment of the market. Although the absolute return sector is not homogenous it is fair to say that on average they have less exposure to the large end of the market, preferring to seek value down paths that are less trodden by broking analysts.
Secondly there was a sell-off in growth and tech stocks, reflecting the same scenario in the US, which have risen over the past 12 to 24 months to be on unacceptably high future earnings multiples. Once again this has been a happy hunting ground for many of Australia's smaller boutique fund managers, who have benefited significantly from positions in stocks such as Seek, Xero and REA.
Further damage was done to the small cap sector with anecdotal evidence that a couple of large institutional mandates had switched managers, and the change in portfolio holdings had damaged prices as a result of the limited liquidity at this end of the market.
It was interesting to note that some of the best performing funds, which had provided annualised terms of over 30% in the past 12 to 24 months, found April difficult and struggled to produce a positive return. We doubt that April was the start of a new trend, but was more likely to be a month in which various factors, which had previously provided some excellent returns, shifted, and the very nature of their styles will enable them to adjust accordingly.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
The Totus Alpha Fund has returned a strong 39.11% over the last 12 month with a volatility of 16.37%.
Alpha Beta's Asian Fund recorded a return of -1.23% during April and 10.37% over the prior 12 months with a low volatility of 5.41%.
The Intelligent Investor Value Fund returned -3.44% (Small Cap Index -1.2%) in a weak small cap market with the 12 month result 18.67%.
Aurora Fortitude's Absolute Return Fund returned 0.01% in a choppy month for market neutral funds, bringing its annual return to 5.96%.
The Insync Global Titans Fund returned -1.0% in April with annual performance coming in at 15.97% with a Sharpe ratio of 1.39.
Cor Capital's Fund returned +0.51% for the month of April 2014. The total return since inception in August 2012 is 9.0% or 5.1% p.a.
FUTURE EVENTS: coming up this week
Wednesday 28 May in Sydney: Lunchtime education event presented by AIMA - the panel will explore topics such as Marketing and fund raising for Australian hedge funds & boutiques; Maintaining independence vs aligning with fund incubators / investment partners and more. Speakers include Jarrod Brown from Bennelong Funds Management and John Corr from Aurora.
28-30 May 2014 in Sydney: IBR Conferences presents the Asset Allocation Conference. This event has been designed to both update and educate investors by taking an in-depth look at these more adaptive asset allocation strategies and practices and where the best opportunities for high return lay in the current climate.
If you would like your Event listed in our calendar, please contact us.
And now for something completely different this week, I'd like this guy on my side - aged 18 and 134 kgs.
On that note, I hope you have a safe and happy weekend.
Best wishes,
Chris
CEO, AUSTRALIAN FUND MONITORS
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Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.
