NEWS
24 Oct 2018 - Fund Review: Bennelong Long Short Equity Fund September 2018
BENNELONG LONG SHORT EQUITY FUND
Attached is our most recently updated Fund Review on the Bennelong Long Short Equity Fund.
- The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large-caps from the ASX/S&P100 Index, with over 15-years' track record and an annualised returns of over 16%.
- The consistent returns across the investment history indicate the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market. The Fund's Sharpe Ratio and Sortino Ratio are 0.99 and 1.66 respectively.
For further details on the Fund, please do not hesitate to contact us.
AFM Fund Review - September 2018 (pdf format)
23 Oct 2018 - Performance Report: Cyan C3G Fund
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| Fund Overview | Cyan C3G Fund is based on the investment philosophy which can be defined as a comprehensive, clear and considered process focused on delivering growth. These are identified through stringent filter criteria and a rigorous research process. The Manager uses a proprietary stock filter in order to eliminate a large proportion of investments due to both internal characteristics (such as gearing levels or cash flow) and external characteristics (such as exposure to commodity prices or customer concentration). Typically, the Fund looks for businesses that are one or more of: a) under researched, b) fundamentally undervalued, c) have a catalyst for re-rating. The Manager seeks to achieve this investment outcome by actively managing a portfolio of Australian listed securities. When the opportunity to invest in suitable securities cannot be found, the manager may reduce the level of equities exposure and accumulate a defensive cash position. Whilst it is the company's intention, there is no guarantee that any distributions or returns will be declared, or that if declared, the amount of any returns will remain constant or increase over time. The Fund does not invest in derivatives and does not use debt to leverage the Fund's performance. However, companies in which the Fund invests may be leveraged. |
| Manager Comments | In September the Fund returned -2.2%, taking the gain for the first quarter of FY19 to a modest +0.7% (after all fees). Throughout the month, there were three positive performers - Acrow, Noni B and newly added Spicers Paper. The remaining 20 or so positions fell between 1% - 13% which Cyan noted was in part due to the slightly bearish market disposition mirrored by the -1.1% fall in the All Ords. In addition, Cyan have been involved in a number of transactions (both IPO's and placements) that they expect to add meaningful value to the Fund in the coming months. Cyan noted that, in light of recent performance, their philosophy acknowledges the reality of stock volatility. They noted that even great multi-year investments will have periods of retracement and consolidation, highlighting the fact that CSL, despite rising more than 500% over the past 10 years, has suffered 15 monthly falls of more than 5% during that timeframe. Cyan aim to ignore market gyrations and focus on the underlying fundamentals and growth paths of their investee companies. Cyan remain confident in the future earnings capabilities of their investments. |
| More Information |
22 Oct 2018 - Bennelong Twenty20 Australian Equities Fund September 2018
BENNELONG TWENTY20 AUSTRALIAN EQUITIES FUND
Attached is our most recently updated Fund Review on the Bennelong Twenty20 Australian Equities Fund.
- The Bennelong Twenty20 Australian Equities Fund invests in ASX listed stocks, combining an indexed position in the Top 20 stocks with an actively managed portfolio of stocks outside the Top 20. Construction of the ex-top 20 portfolio is fundamental, bottom-up, core investment style, biased to quality stocks, with a structured risk management approach.
- Mark East, the Fund's Chief Investment Officer, and Keith Kwang, Director of Quantitative Research have over 50 years combined market experience. Bennelong Funds Management (BFM) provides the investment manager, Bennelong Australian Equity Partners (BAEP) with infrastructure, operational, compliance and distribution services.
For further details on the Fund, please do not hesitate to contact us.
AFM Fund Review - September 2018 (pdf format)
19 Oct 2018 - Hedge Clippings - 19October, 2018
For a moment this week it looked as if investors were going to ignore the market volatility of the past week or so, but overnight the US market put paid to that. However, it is more likely that the conditions underlying the volatility - including rising US 10 year bond rates, falling unemployment levels raising the potential for a breakout in wages fuelled inflation, and the outcome of the US/China trade war - aren't going to change in a hurry.
Overlay these conditions with a market until recently trading at all-time highs, driven by low rates, improving earnings and dominated by tech stocks with stretched valuations, tax cuts flowing through, and an increase in infrastructure spending which is likely to run for the next decade at least, and it becomes less a case of potential for volatility, as a certainty.
Thus with the ASX200's Accumulation Index recording a negative return of -1.26% in September, and in all likelihood worse than that once October is done and dusted, the outlook for the actively managed fund space is going to be varied. Whilst index funds and ETF's will bear the brunt of the negative performance, falling in line with the market, we are already seeing the divergent performance of active funds based on September's results.
The average reported September return of funds in AFM's database is -0.33% almost 1% better than the ASX200, with 70% outperforming the market, and 32% recording positive results. Averages can be misleading, as the range of September's returns to date varies from +9.85% to -12.09%, the latter due to the market's rout in India.
While averages can be misleading, we all use them. After all, the performance of the ASX200 is the weighted average of all 200 stocks. We have recently analysed a range of key performance numbers over a range of time frames, and after wading through all the numbers one of the most telling results was just that: Averages don't tell the full story.
For instance, over the past 10 years, average annualised performance based on a fund's year of inception (with one exception) has been gradually increasing since 2007, while increasing dramatically for funds launched in 2017 to well over 25%.
Allocating each fund into quintiles based on performance shows an even larger discrepancy. Meanwhile breaking down each fund's performance based on their track record - Year 1, Year 2, Year 3 etc, clearly shows funds perform best during their early years - particularly year 1.
This has long been accepted, although not always understood exactly why. It raises the paradox however that although funds perform better in their early years, research houses, consultants, dealer groups and platforms traditionally insist that a fund has at least a 3 year track record - and in some cases 5 - prior to investing in or recommending them.
Whatever conservative or risk-averse logic is involved, the investor misses out on the fund's first three years - and their best period of performance.
19 Oct 2018 - M&A Spotlight: Takeda Pharmaceutical and Shire Pharmaceutical
18 Oct 2018 - Fund Review: Bennelong Kardinia Absolute Return Fund September 2018
BENNELONG KARDINIA ABSOLUTE RETURN FUND
Attached is our most recently updated Fund Review. You are also able to view the Fund's Profile.
- The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with over ten-year track record.
- The Fund has significantly outperformed the ASX200 Accumulation Index since its inception in May 2006 and also has significantly lower risk KPIs. The Fund has an annualised return of 10.16% p.a. with a volatility of 6.89%, compared to the ASX200 Accumulation's return of 5.93% p.a. with a volatility of 13.29%.
- The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while Bennelong Funds Management provide infrastructure, operational, compliance and distribution capabilities.
For further details on the Fund, please do not hesitate to contact us.
AFM Fund Review - September 2018 (pdf format)
17 Oct 2018 - Performance Report: NWQ Fiduciary Fund
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| Fund Overview | The Fund aims to produce returns, after management fees and expenses of between 8% to 11% p.a. over rolling five-year periods. Furthermore, the Fund aims to achieve these returns with volatility that is a fraction of the Australian equity market, in order to smooth returns for investors. |
| Manager Comments | In September, the Fund returned -0.46%. NWQ noted increasing market volatility due to rising global interest rates, as well as increasing divergence in global growth rates, is likely to continue and present ongoing challenges to risk assets. Market and manager return dispersion remains high and the overall portfolio exposure to the market remains relatively low at approximately 12%. NWQ believe an equity market neutral portfolio that substantially eliminates the likely ongoing equity and bond market volatility should serve investors well over the coming months. |
| More Information |
16 Oct 2018 - Performance Report: Bennelong Long Short Equity Fund
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| Fund Overview | In a typical environment the Fund will hold around 70 stocks comprising 35 pairs. Each pair contains one long and one short position each of which will have been thoroughly researched and are selected from the same market sector. Whilst in an ideal environment each stock's position will make a positive return, it is the relative performance of the pair that is important. As a result the Fund can make positive returns when each stock moves in the same direction provided the long position outperforms the short one in relative terms. However, if neither side of the trade is profitable, strict controls are required to ensure losses are limited. The Fund uses no derivatives and has no currency exposure. The Fund has no hard stop loss limits, instead relying on the small average position size per stock (1.5%) and per pair (3%) to limit exposure. Where practical pairs are always held within the same sector to limit cross sector risk, and positions can be held for months or years. The Bennelong Market Neutral Fund, with same strategy and liquidity is available for retail investors as a Listed Investment Company (LIC) on the ASX. |
| Manager Comments | In September the Fund returned -3.85%, which Bennelong noted was due to a lack of profitable pairs. The short portfolio produced a small positive return whilst the long portfolio fell with the market. At the pair level around one third of pairs were positive, which Bennelong noted was out of the ordinary as a more typical outcome is that between half and two thirds of pairs tend to be profitable. Bennelong noted that, post reporting season, there was limited fundamental news during the month. Noteworthy for the Fund was a strong TPG Telecom FY18 result; the Fund is long TPG/short Telstra. Bennelong are optimistic about the proposed merger with Vodafone. In addition, Sims Metal downgraded their guidance only four weeks after delivering their result and guidance; the Fund is long BlueScope Steel/short Sims Metal. |
| More Information |
15 Oct 2018 - The Next Bear Market Has Just Begun
12 Oct 2018 - Hedge Clippings - 12 October, 2018
Imitation is the sincerest form of flattery…
Here at Hedge Clippings we spend much of our week reading a wide selection of monthly reports and articles from fund managers. Then we spend at least some of each Friday trying to ensure we have gleaned enough of their market insight to gather our thoughts and try to appear coherent in our weekly musings.
For the past few months the Hayne Royal Commission, ably assisted by those in their sights in the witness box, have made our weekly subject matter a simple, if somewhat repetitive, choice. This week the market turmoil has put even badly behaving (but now we note, somewhat contrite) bankers in the shadows. While we would claim to have warned of some impending market volatility each week, we were never game to predict its timing.
So this week, rather than try to compose the "why" and "what next" for markets, we're going to simply reproduce an excellent, concise summary received from Marcel von Pfyffer from Arminius Capital whose intelligence and market savvy we respect. It is much simpler than trying to re-write it, with the risk of missing the point, or being accused of plagiarism.
It is headed, somewhat disturbingly, The Next Bear Market Has Just Begun:
"For the last six months we have been warning our investors that the end was nigh for the US bull market which has appreciated by a colossal +423% for the S&P500 TR index from 6 March 2009 to 21 September 2018. Arminius Capital ALPS fund investors have benefitted from this since the fund's inception in 2014, until we became very concerned at the end of the first quarter 2018 and began to materially add to (increasingly expensive) hedges. The recent rises in US 10 year bond yields and falls in global equities have signalled that the long bull market is over.
The coming global bear market will not be like the GFC. It wasn't caused by a US housing bubble, it won't cause a US and European banking crisis, and it won't be limited to developed economies. But the US and other share markets will fall by 20% or more, many companies will go bust, and a recession will follow.
We can't yet predict how long this bear market will last. It may be over in three months (like the 1987 crash), or it may drag out for eighteen months (like the GFC). No two crises' manifestation or duration is ever the same. In Australia it will be complicated by the housing downturn and the retreat of commodity prices. Oil and gas producers, however, will do well. It will certainly damage all portfolios (individual investors, superannuation & pension funds, speculators & traders) which don't have short positions or derivative protection.
The Trump Administration has made the bear market worse by its foolish policies. The trade war with China is already increasing US costs and causing hardships to some US industries. Further retaliation by both sides will make matters worse and most likely not remedy the one fact the US, EU & Japan all have openly acknowledged and agree upon: that the global trade playing field is not level - in China's favour.
In particular, The Donald's decision to re-impose sanctions on Iran have propelled oil prices upward. The effect of sanctions will be to cut Iran's oil production from 2.5 million barrels per day to between 1.0-1.5 million barrels per day. China will continue to import Iranian oil, carried in Chinese ships, and Iran has four decades of experience in evading US sanctions. But there is not enough spare production capacity in the world to make up the lost Iranian production, so oil prices are rising, and may soon reach USD$100 per barrel again. US and Australian motorists are going to be paying more!
One of the reasons we are confident that the next bear market is under way is the behaviour of the technology sector. Tech stocks have led the way down in the US, and most of them do not have the earnings or dividends to justify a price floor. Over the last eight years, the tech sector has grown to make up 25% of the S&P500 index, so the sector and the index have a long way to fall. The big tech stocks - such as Facebook, Apple, Amazon, Netflix, and Google will still be in business, but they will be a lot smaller, just as they were after the dotcom boom and the GFC."
The Arminius Capital ALPS Fund is short several US tech stocks, as well as many other US, European, Japanese, and Australian stocks. Just as absolute return and hedge funds provided downside protection during the GFC (falling on average less than half the ASX200's -45%) we expect that once again these funds will perform significantly better than the market, and adhere to their ethos of long term capital preservation.
