17 Jul 2020 - Performance Report: Bennelong Kardinia Absolute Return Fund

By: Australian Fund Monitors

Report Date	17 July 2020
Manager	Kardinia Capital, a Bennelong boutique
Fund Name	Bennelong Kardinia Absolute Return Fund
Strategy	Equity Long/Short
Latest Return Date	June 2020
Latest Return	-2.13%
Latest 6 Months	-0.81%
Latest 12 Months	-3.13%
Latest 24 Months (pa)	-3.88%
Annualised Since Inception	8.36%
Inception Date	01 May 2006
FUM (millions)	AU$56.92
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 +4.55% over FY20, maintaining an annualised volatility over the past 12 months of 8.19% against the Index's 25.39%. The Fund's down-capture ratio of 30.62% over the past 12 months indicates that, on average, the Fund captured only 30% of the Index's downside, highlighting its defensive nature. Since inception in May 2006, the Fund has returned +8.36% p.a. with an annualised volatility of 7.20%. By contrast, the Index has returned +5.29% p.a. with an annualised volatility of 14.44% over the same period. Key positive contributors included Commonwealth Bank, JB Hi-Fi, Alumina, Ramelius and REA Group. Key detractors included Virgin Money, Vicinity Centres, Worley and City Chic. Given the major rally in the market, the Short Book was the major detractor from performance this month (-218 basis points). Kardinia reduced the Fund's net equity exposure from 71.3% to a net short position of -4.0% (62.6% long and 66.6% short), with the key change being a significant increase in the Fund's short position in Share Price Index Futures (SPI). Kardinia noted they use SPI to reduce net exposure when they see shorter-term risk as it allows them to keep the long book largely intact whilst protecting the downside. Other key changes to the portfolio included new long positions in Boral, Kogan, Macquarie Group, West African Resources and Zip. Kardinia noted that, with central banks globally attempting to set the shape of the yield curve lower, they believe investors will continue to move capital into equities to chase yield in a world seemingly devoid of such opportunities.
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Fund Monitors Pty Ltd

17 Jul 2020 - Performance Report: Bennelong Kardinia Absolute Return Fund