23 Apr 2020 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	23 April 2020
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	March 2020
Latest Return	-4.32%
Latest 6 Months	-1.60%
Latest 12 Months	0.92%
Latest 24 Months (pa)	-2.26%
Annualised Since Inception	8.58%
Inception Date	01 May 2006
FUM (millions)	AU$58.93
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 outperformed the ASX200 Accumulation Index by +16.33% in March, returning -4.32%. Since inception in May 2006, the Fund has returned +8.58% p.a. with an annualised volatility of 7.22%. By contrast, the Index has returned +4.24% p.a. with an annualised volatility of 14.35% over the same period. The Fund's Sortino ratio of 1.20 versus the Index's 0.08 and down-capture ratio for performance since inception of 45% highlight the Fund's focus on protecting investors' capital in falling markets. In March, the Fund's short book and low net market exposure protected the portfolio from the significant coronavirus-induced market decline. The Short Book contributed +600 basis points to performance. Other positive contributors included Fisher & Paykel, Fortescue, Jumbo Interactive and Rio Tinto. Key detractors included Macquarie, CBA, Aristocrat Leisure, Charter Hall and CSL. Net equity market exposure was increased from -5.6% to +28.4% (36.1% long and 7.7% short) during the month. Key changes to the portfolio included the closure of most of the Fund's individual stock shorts and a significantly reduced short position in Share Price Index Futures, partially offset by the sale of a significant portion of the long book. Kardinia also added a number of new long positions including Fortescue Metals, Fisher & Paykel Healthcare and JB Hi-Fi.
More Information	Fund Profile Manager's Report AFM Research Reports

Fund Monitors Pty Ltd

23 Apr 2020 - Performance Report: Bennelong Kardinia Absolute Return Fund