24 Aug 2018 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	24 August 2018
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	July 2018
Latest Return	-0.68%
Latest 6 Months	0.49%
Latest 12 Months	6.42%
Latest 24 Months	5.70%
Annualised Since Inception	10.38%
Inception Date	01 May 2006
FUM (millions)	AU$192.62
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 has returned +10.38% p.a. since inception in May 2006, outperforming the ASX200 Acc. Index by +4.38% per annum. This return has been achieved with approximately half the volatility of the market; 6.90% vs the Index's 13.37% for performance over the same period. The Fund has achieved 71% positive months since inception versus the Market's 61%, with an average positive return of +1.73% and average negative return of -1.30%. The Fund's Sharpe and Sortino ratios are 0.96 and 1.76 respectively, which, by contrast the with market's Sharpe of 0.24 and Sortino of 0.23, emphasise that the Fund has successfully achieved superior risk-adjusted returns than the market with superior downside protection. The Fund fell -0.68% in July, with resources stocks weighing on performance. A short position in a consumer staples stock was the largest individual contributor (+49bp contribution), driven by a significant profit downgrade caused by higher input costs and strong competition. Other positive contributors included ANZ (+37bp), Qantas (+23bp), CYBG (+20bp) and Aristocrat Leisure (+14bp). The individual stock short book made a positive contribution, with shorts in consumer stocks driving most of the performance. Detractors included Independence group (-40bp contribution), a short position in Share Price Index Futures (-31bp), Nine Entertainment (-27bp), Emeco (-19bp) and AGL (-14bp). Net equity market exposure (including derivatives) was increased from 40.3% to 67.3% (86.8% long and 19.5% short), with the addition of stock including NAB, Tabcorp, Viva Energy, Oz Minerals and Reliance Worldwide, and a reduction in the Fund's short position in Share Price Index Futures contracts.
More Information	Fund Profile Manager's Report AFM Research Reports

Fund Monitors Pty Ltd

24 Aug 2018 - Performance Report: Bennelong Kardinia Absolute Return Fund