16 Jun 2020 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	16 June 2020
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	May 2020
Latest Return	0.73%
Latest 6 Months	-1.53%
Latest 12 Months	1.77%
Latest 24 Months (pa)	-3.22%
Annualised Since Inception	8.58%
Inception Date	01 May 2006
FUM (millions)	AU$60.27
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 +0.73% in May, taking annualised performance since inception in May 2006 to +8.58% with an annualised volatility of 7.18%. By contrast, the ASX200 Accumulation Index has returned +5.13% p.a. with an annualised volatility of 14.47% over the same period. The Fund's focus on protecting investors' capital in falling markets is highlighted by the following statistics (since inception): Sortino ratio of 1.22 versus the Index's 0.16, maximum drawdown of -11.71% versus the Index's -47.19%, and down-capture ratio of 45%. Top contributors for May included Saracen, James Hardie, Pointsbet, Ramelius and Appen. Key detractors included NAB, CSL, Jumbo Interactive and Sydney Airport. The Fund's Short Book detracted -185bp from performance due to the strong rally in the market. Kardinia also participated in a significant number of capital raisings/placements during the month, including Qube, Elmo Software, Megaport, Incitec Pivot, Breville Group, Bigtincan and Decmil. The Fund's net equity market exposure was increased from 43.3% to 71.3% (95.3% long and 24.0% short), with the key changes being a significant increase in the Fund's banking exposure (CBA, NAB) as well as technology, resources and oil stocks. Kardinia believe the recent lifting of restrictions across the nation and the magnitude of the stimulus provided offer significant short-term positives, however, they don't believe the recent rally represents a new bull market. Their view is that volatility will remain high and that a new bull market is several years away. They expect the market to trade in a broad range until the outcome of the US election is known.
More Information	Fund Profile Manager's Report AFM Research Reports

Fund Monitors Pty Ltd

16 Jun 2020 - Performance Report: Bennelong Kardinia Absolute Return Fund