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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 Fund's top performing pair in May was long Woolworths / short Metcash. The weakest pair was long Mineral Resources / short BHP following changes to Mineral Resources' operations and monetisation strategy at its Wodgina lithium project. In their latest report, Bennelong contrast price gains for various equity indices against their respective 12m forward EPS for the purpose of observing whether price gains are being supported by earnings delivery (i.e. fundamentals) or otherwise (e.g. sentiment, liquidity). They noted that, for the most part, earnings change was greater than price change over the past financial year which is in stark contrast to fiscal 2017 where price gains outpaced earnings (with the exception of Australia). They believe that this year's decline in P/E ratios are evidence of the impacts to the valuation of all asset classes (equities included) in the face of the world's central banks commencing the unwinding of very loose monetary policy settings. Bennelong aren't ruling out further multiple compressions in the coming fiscal year, given the current accommodative policy settings and strained geopolitical tensions. |
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