1 Feb 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	01 February 2019
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	December 2018
Latest Return	-2.02%
Latest 6 Months	-11.02%
Latest 12 Months	-10.12%
Latest 24 Months	-3.35%
Annualised Since Inception	9.07%
Inception Date	01 May 2006
FUM (millions)	AU$166.59
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 +9.07% per annum with an annualised volatility of 7.16% since inception in May 2006. By contrast, the ASX200 Accumulation Index has returned +5.10% p.a. with an annualised volatility of 13.31% over the same period. The Fund's Sortino ratio of 1.29 versus the Index's 0.15, average negative return of -1.44% versus the Index's -3.26% and down-capture ratio of 40.11% highlight the Fund's capacity to outperform in negative markets over the long term. The Fund returned -2.02% in December. Top contributors included Northern Star (+37bp contribution), Evolution Mining (+26bp), BHP (+34bp) and Rio Tinto (+21bp). The individual stock short book also performed well (+11bp), with shorts in the financial services and waste management sectors the key contributors. Detractors included ANZ (-87bp), NAB (-22bp), Nine Entertainment (-43bp), Macquarie Group (-25bp) and Netwealth (-17bp). Net equity market exposure was reduced from 47.3% to 30.4% (41.7% long and 11.3% short), with the key changes being new positions in Northern Star, Evolution Mining, Transurban and Woolworths, the closure of a short position in Share Price Index Futures contracts offset by seven new individual stock short positions as well as the sale of ANZ, NAB, Westpac and Nine Entertainment.
More Information	Fund Profile Manager's Report AFM Research Reports

Fund Monitors Pty Ltd

1 Feb 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund