19 Mar 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	19 March 2019
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	February 2019
Latest Return	1.55%
Latest 6 Months	-8.51%
Latest 12 Months	-7.58%
Latest 24 Months	-0.60%
Annualised Since Inception	9.22%
Inception Date	01 May 2006
FUM (millions)	AU$161.26
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 returned +1.55% in February, taking annualised performance since inception in May 2006 to +9.22% versus the ASX200 Accumulation Index's +5.82%. This return has been achieved with almost half the market's volatility; 7.12% p.a. versus the Index's 13.35%. The Fund's Sortino ratio of 1.34 vs the Index's 0.22, average negative return of -1.44% vs the Index's -3.26%, largest drawdown since inception of -11.71% vs the Index's -47.19% and down-capture ratio of 40.11% collectively highlight the Fund's capacity to protect investors' capital in negative markets. Top contributors included ANZ (+44bp contribution), Macquarie Group (+34bp), Audinate Group (+31bp), Cleanaway (+29bp), Woodside Petroleum (+25bp) and Rio Tinto (+24bp). The short book was the largest detractor (-128bp), with individual stock shorts in the financial, consumer and healthcare sectors and a short in Share Price Index Futures the key detractors. Other detractors included Emeco (-13bp), Evolution Mining (-11bp), Whitehaven Coal (-8bp) and Computershare (-7bp). Net equity market exposure was increased from 40.2% to 42.6% (52.4% long and 9.8% short), with the key changes being new positions in ANZ, Goodman Group and James Hardie, the closure of several short positions and increased weightings in South32, Aristocrat Leisure, Computershare and Magellan. This was partly offset by the sale of positions in Woolworths, Transurban, BHP, Alumina and Evolution.
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Fund Monitors Pty Ltd

19 Mar 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund