21 Jun 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	21 June 2019
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	May 2019
Latest Return	-0.03%
Latest 6 Months	2.15%
Latest 12 Months	-7.96%
Latest 24 Months (pa)	-0.39%
Annualised Since Inception	9.12%
Inception Date	01 May 2006
FUM (millions)	AU$135.26
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 was flat in May, with short positions in banks the key detractors given the strong rally following the unexpected Coalition victory in the federal election. Since inception in May 2006 the Fund has returned +9.12% p.a. with an annualised volatility of 7.06%. By comparison, the ASX200 Accumulation Index has returned +6.09% p.a. with an annualised volatility of 13.23% over the same period. Top contributors included Evolution Mining (+33bp contribution), Northern Star (+29bp), Audinate Group (+32bp), Polynovo (+19bp) and Aristocrat Leisure (+19bp). The short book was the biggest detractor (-90bp), driven by short positions in two of the major four banks as well as a short position in Share Price Index Futures. Other detractors included Macquarie Group (-35bp), A2 Milk (-18bp) and Oz Minerals (-15bp). Net equity market exposure was decreased from 51.5% to 13.5% (47.6% long and 34.1% short), with the key changes being the sale of Bluescope, Fortescue and Worley Parsons and a large increase in their short position in Share Price Index Futures. This was partly offset by new positions in Evolution Mining and Flight Centre, as well as increased weightings in Commonwealth Bank, Polynovo and Northern Star.
More Information	Fund Profile Manager's Report AFM Research Reports

Fund Monitors Pty Ltd

21 Jun 2019 - Performance Report: Bennelong Kardinia Absolute Return Fund