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| Fund Overview | 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 | Kardinia Capital noted October was a brutal month for equity markets and the Fund. The Fund fell -5.71%, with performance impacted primarily by the Fund's Resources exposure (which they believe will be a primary beneficiary of the merging global reflationary environment) and core holdings in quality growth stocks like Aristocrat, CSL and Macquarie. However, fundamental stock-specific news flow was positive. Other detractors included WorleyParsons, Seven Group, Nine Entertainment, and a short position in MYOB. The Fund's shorts performed well overall, with Share Price Index Futures contracts adding 95bp for the month and individual stock shorts, led by financials, IT and bond proxy stocks, adding 44bp. In addition, during the sell-off Kardinia Capital added to their highest conviction positions, building net exposure to 55% (72.4% long and 17.4% short) from 30% on their expectation that this is a short but violent pullback rather than the beginning of a bear market. The key changes to the portfolio included new positions in Westpac, NAB and ANZ, as well as increased weightings in Macquarie Group, CSL and Aristocrat Leisure. Kardinia noted this was partly offset by the sale of Bluescope, Nine Entertainment, Services Stream and WorleyParsons. |
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