22 Aug 2017 - Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	22 August 2017
Manager	Kardinia Capital, A Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	July 2017
Latest Return	-0.65%
Latest 6 Months	1.25%
Latest 12 Months	-0.68%
Latest 24 Months	3.06%
Annualised Since Inception	10.74%
Inception Date	01 May 2006
FUM (millions)	AU$293
Fund Overview	The Fund consists of a concentrated long/short portfolio typically comprising 20 to 50 ASX300 listed stocks, generally with a long bias aligned to the overall market direction. On average since inception the Fund's exposure has averaged 40% net long. There is a slight bias to large cap stocks on the long side of the portfolio, although in a rising market the portfolio will tend to hold smaller caps, including resource stocks, more frequently. On the short side, the portfolio is particularly concentrated, with stock selection limited by both liquidity and the difficulty of borrowing stock in smaller cap companies. Short positions are only taken when there is a high conviction view on the specific stock. The Fund uses derivatives in a limited way, mainly selling short dated covered call options to generate additional income. These typically have less than 30 days to expiry, and are usually 5% to 10% out of the money. ASX SPI futures and index put options can be used to hedge the portfolio's overall net position. The Fund's discretionary investment strategy commences with a macro view of the economy and direction to establish the portfolio's desired market exposure. Following this detailed sector and company research is gathered from knowledge of the individual stocks in the Fund's universe, with widespread use of broker research. Company visits, presentations and discussions with management at CEO and CFO level are used wherever possible to assess management quality across a range of criteria. Detailed analysis of company valuations using financial statements and forecasts, particularly focusing on free cash flow, is conducted. Technical analysis is used to validate the Manager's fundamental research and valuations and to manage market timing. A significant portion of the Fund's overall performance can be attributed to the attention and importance given to the macro economic outlook and the ability and willingness to adjust the Fund's market risk.
Manager Comments	The Bennelong Kardinia Absolute Return Fund fell 0.65% in July, weighed down by its exposure to companies with significant offshore earnings. Since inception in May 2006, the Fund has gained 10.74% p.a. against the ASX300 Accumulation Index which has risen 3.89% p.a. over the same period. The Manager notes that the selloff in 'offshore earners' during the month was influenced by the strong rally in the A$ after the RBA suggested the neutral cash rate was 3.5%. Positive contributors to performance included BHP (+0.35%), JB Hi-Fi (+0.29%), South32 (+0.17%) and RCR Tomlinson (+0.12%). Detractors included Aristocrat Leisure (-0.34%) and Amcor (-0.17%), both of which were impacted by the strong A$/US$, as well as James Hardie (-0.14%) and Oil Search (-0.13%). The Fund's short positions outperformed the long positions with Asaleo Care, Telstra and Westfield all making solid contributions. Net equity market exposure including derivatives increased from 55.4% to 60.4% (65.8% long and 5.4% short) as the Manager increased the Fund's holdings in Bluescope, JB Hi-Fi and three of the four major banks (CBA, ANZ & NAB).
More Information	Fund Profile Manager's Report

Fund Monitors Pty Ltd

22 Aug 2017 - Bennelong Kardinia Absolute Return Fund