10 Jan 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	10 January 2019
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	November 2018
Latest Return	-2.18%
Latest 6 Months	-9.89%
Latest 12 Months	-6.96%
Latest 24 Months	0.06%
Annualised Since Inception	9.31%
Inception Date	01 May 2006
FUM (millions)	AU$171.44
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 +9.31% p.a. with an annualised volatility of only 7.14% since inception in May 2006. Over the same period, the ASX200 Accumulation Index has returned +5.14% p.a. with an annualised volatility of 13.36%. The Fund's Sharpe and Sortino ratios, 0.80 and 1.35 respectively, by contrast with the Index's Sharpe of 0.18 and Sortino of 0.15, highlight the Fund's capacity to achieve superior risk-adjusted returns whilst avoiding the market's downside. This is also supported by the Fund's down-capture ratio of 38.59%, indicating that, on average, the Fund has fallen less than half as much as the market during the market's negative months. In November the Fund returned -2.18%, falling in line with the market as quality growth stocks such as Aristocrat and CSL hurt performance. The greatest positive contributor was a short position in Share Price Index Futures (+48 basis points contribution). The individual stock short book also performed well (+21bp) with shorts in the telco, health insurance and automotive retail sectors being the key contributors. Other positive contributors included ANZ (+37bp), NAB (+26bp), Netwealth (+28bp) and Qantas (+19bp). Detractors included Aristocrat (-65bp), CSL (-48bp), Seven Group (-41bp) and Computershare (-31bp). Net equity market exposure was reduced from 55.0% to 47.3% (81.3% long and 34.0% short), with the key changes being new positions in Commonwealth Bank, James Hardie, Nine Entertainment and Woodside Petroleum, as well as increased weightings in ANZ and NAB, offset by the sale of Whitehaven Coal and CYBG, seven new individual stock short positions and an increased short position in Share Price Index Futures.
More Information	Fund Profile Manager's Report

Fund Monitors Pty Ltd

10 Jan 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund