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| Fund Overview | In a typical environment the Fund will hold around 70 stocks comprising 35 pairs. Each pair contains one long and one short position each of which will have been thoroughly researched and are selected from the same market sector. Whilst in an ideal environment each stock's position will make a positive return, it is the relative performance of the pair that is important. As a result the Fund can make positive returns when each stock moves in the same direction provided the long position outperforms the short one in relative terms. However, if neither side of the trade is profitable, strict controls are required to ensure losses are limited. The Fund uses no derivatives and has no currency exposure. The Fund has no hard stop loss limits, instead relying on the small average position size per stock (1.5%) and per pair (3%) to limit exposure. Where practical pairs are always held within the same sector to limit cross sector risk, and positions can be held for months or years. The Bennelong Market Neutral Fund, with same strategy and liquidity is available for retail investors as a Listed Investment Company (LIC) on the ASX. |
| Manager Comments | The long portfolio generated a positive return in a negative month for equities, however, the short portfolio was the key driver, contributing three quarters of the Fund's return. Top performing long/short pairs included long Xero (XRO)/short MYOB (MYO), long BlueScope Steel (BSL)/short Sims Metal (SGM) and long Qantas Airways (QAN)/short Flight Centre (FLT). Amongst the Fund's losing pairs, only one was significant - long James Hardie (JHX)/short CSR (CSR). Bennelong continue to see equities as offering less attractive returns in the future than in recent years. They believe that, while earnings fundamentals remain sound, the graduated reduction in monetary policy stimulus will weigh on future returns. Bennelong note that the S&P 500 P/E ratio, currently at 18x, indicates that based on historical S&P 500 P/E data future returns will likely be zero or negative. |
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