NEWS
19 Jun 2018 - Fund Review: Bennelong Long Short Equity Fund May 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 1.02 and 1.69 respectively.
For further details on the Fund, please do not hesitate to contact us.
AFM Fund Review - May 2018 (pdf format)
19 Jun 2018 - Challenging the Traditional Asset Allocation Model
18 Jun 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 May, 20 of the Fund's 22 positions contributed positively. Key positive contributors included Axsess Today (+10%), Acrow Formwork (+16%), Experience Co (+11%), Readcloud, Roots (+27%). The Fund has taken a handful of new investment positions in the past month, deploying a portion of the Fund's defensive cash balance. Cyan envisage further investment in the coming months as more new opportunities have now been identified. Cyan noted they have also reduced a couple of exposures as they are approaching Cyan's valuation target. |
| More Information |
15 Jun 2018 - Hedge Clippings, 15 June, 2018
A short week - and an argument for being short the banks, or avoiding ETF's.
It's been a pretty busy week for one with only four working days - in most of Australia at least. Quite how we have a system where the same event - the Queen's Birthday - is celebrated on three different Mondays in either June, September or October depending on which state you're in, is bizarre. It's no wonder we have a complex tax system if the same bureaucrats and politicians came up with dates for public holidays…
Firstly Trump, who no one thought would make it to the White House in the first place, achieved what many thought was a diplomatic impossibility by shaking hands with Kim Jong-Un and inking the bones of an agreement that none of his more diplomatic predecessors had even dreamed of.
Then Jerome Powell and the US Fed upped US rates by 25 bps, and the markets … did nothing. The RBA, and then the ECB, kept rates on hold, with the latter announcing the end of QE will take place in December. More of the same…
Fresh from Singapore, Trump is tonight scheduled to announce tariffs on $50 billion of Chinese products, which will inevitably lead to an upping of the trade war with both retaliation and rhetoric from China's President Xi Jinping. Watch that space with care.
Meanwhile at home we gave some focus to the banking sector (again) but this time on the big 4 banks' share price declines over the past 12 months, which caused Hedge Clippings to reflect on one of the great flaws in the passive investing approach of ETF's.
Consider this: Over the past 12 months the share price of each of the big four banks has fallen around 20%, whilst Telstra has fallen almost double that. These five stocks make up just under 30% of the market cap of the ASX200, which in spite of this Famous Five's 12 month performance, has managed to rise approximately 5%.
Any investor in an ASX200 ETF, or even worse in an ASX Top20 ETF, hase, for better or worse (in fact for worse!) had their returns dramatically curtailed as a result. Simply accepting whatever the market as a whole throws at you and justifying the decision on the basis of low fees makes little sense to us.
While we accept that the opposite can occur as well, boutique or concentrated funds which can avoid - or select - individual stocks, sectors or markets by using their skill and experience on a discretionary basis are worth finding and if appropriate, investing in. Certainly some will perform better than others, and not all of them will perform in unison. Whilst possibly biased, we would argue that a diversified portfolio of well researched boutique managers will provide a better return, with lower volatility and risk than the overall market, and its ETF equivalent.
15 Jun 2018 - Hedge Clippings, 15 June 2018
A short week - and an argument for being short the banks, or avoiding ETF's.
It's been a pretty busy week for one with only four working days - in most of Australia at least. Quite how we have a system where the same event - the Queen's Birthday - is celebrated on three different Mondays in either June, September or October depending on which state you're in, is bizarre. It's no wonder we have a complex tax system if the same bureaucrats and politicians came up with dates for public holidays…
Apologies - where were we? The busy week that was… Firstly Trump, who no one thought would make it to the White House in the first place, achieved what many thought was a diplomatic impossibility by shaking hands with Kim Jong-Un and inking the bones of an agreement that none of his more diplomatic predecessors had even dreamed of.
Then Jerome Powell and the US Fed upped US rates by 25 bps, and the markets … did nothing. The RBA, and then the ECB, kept rates on hold, with the latter announcing the end of QE will take place in December. More of the same… nothing.
Fresh from Singapore, Trump is tonight scheduled to announce tariffs on $50 billion of Chinese products, which will inevitably lead to an upping of the trade war with both retaliation and rhetoric from China's President Xi Jinping. Watch that space with care.
Meanwhile at home, we gave some focus to the banking sector (again) but this time on the big 4 banks' share price declines over the past 12 months, which caused Hedge Clippings to reflect on one of the great flaws in the passive investing approach of ETF's.
Consider this: Over the past 12 months the share price of each of the big four banks has fallen around 20%, whilst Telstra has fallen almost double that. These five stocks make up just under 30% of the market cap of the ASX200, which in spite of this Famous Five's 12 month performance, has managed to rise approximately 5%.
Any investor in an ASX200 ETF, or even worse in an ASX Top20 ETF, has, for better or worse (in fact for worse!) had their returns dramatically curtailed as a result. Simply accepting whatever the market as a whole throws at you and justifying the decision on the basis of low fees makes little sense to us.
While we accept that the opposite can occur as well, boutique or concentrated funds which can avoid - or select - individual stocks, sectors or markets by using their skill and experience on a discretionary basis are worth finding and if appropriate, investing in. Certainly some will perform better than others, and not all of them will perform in unison. Whilst possibly biased, we would argue that a diversified portfolio of well researched boutique managers will provide a better return, with lower volatility and risk, than the overall market and therefore a passive ETF.
15 Jun 2018 - Fund Review: Bennelong Kardinia Absolute Return Fund May 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 10.67% p.a. with a volatility of 6.91%, compared to the ASX200 Accumulation's return of 5.69% p.a. with a volatility of 13.44%.
- 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 - May 2018 (pdf format)
14 Jun 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 | Both the long and short portfolios contributed positively in May, with the majority of pairs positive. Bennelong noted company profit results and earnings guidance during the month's news flow affected the Fund; the portfolio experienced a positive skew of fundamental news with an even spread of upgrades to the long portfolio and downgrades to the short portfolio. The strongest pairs for the month were long Woolworths / short Metcash and long Aristocrat / short Tabcorp. The weakest pair was long Link / short ASX with Link affected by the Federal Budget proposal to close inactive and low balance superannuation accounts. |
| More Information |
13 Jun 2018 - Performance Report: Paragon Australian Long Short Fund
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| Fund Overview | Paragon's unique investment style, comprising thematic led idea generation followed with an in depth research effort, results in a concentrated portfolio of high conviction stocks. Conviction in bottom up analysis drives the investment case and ultimate position sizing: * Both quantitative analysis - probability weighted high/low/base case valuations - and qualitative analysis - company meetings, assessing management, the business model, balance sheet strength and likely direction of returns - collectively form Paragon's overall view for each investment case. * Paragon will then allocate weighting to each investment opportunity based on a risk/reward profile, capped to defined investment parameters by market cap, which are continually monitored as part of Paragon's overall risk management framework. The objective of the Paragon Fund is to produce absolute returns in excess of 10% p.a. over a 3-5 year time horizon with a low correlation to the Australian equities market. |
| Manager Comments | Positive contributions in May came from Global Geoscience (Phase 1 primary feasibility study upgrade), Seven Group (profit guidance upgrade), Aristocrat (profit guidance upgrade), Kidman (binding offtake with Tesla), Sino Gas (takeover offer) and Paragon's Telstra short (profit guidance downgrade). These were offset by declines in Jupiter Mines, Wattle Heath, Cann Group, Global Energy and the Fund's Nanosonics short. At the end of May the portfolio had 29 long positions, 10 short positions and 22.3% cash. Paragon noted the Fund continues to be impacted by short-term volatility, however the long-term outlook of the Fund's key stock positions remains strong. Read Paragon's latest report for their updates on some of the key stock catalysts that occurred in May, supporting the Fund's overall outlook. These include Aristocrat (long), Global Geoscience (long), Kidman (long) and Telstra (short). |
| More Information |
12 Jun 2018 - Weathering the storm clouds around bank stocks
8 Jun 2018 - Hedge Clippings, 8 June, 2018
Towards the end of each week we seek inspiration (that's probably a slight exaggeration - maybe "ponder" describes it better) for the subject matter of the weekly Hedge Clippings email. It is a sad reflection on the current state of financial markets that for the past couple of months we have become somewhat predictable, as the antics of bankers and other sectors of the financial services industry have dominated the commentary.
The list has been extensive, headlined by AMP, plus NAB, CBA in multiple guises, and the overall vertical integration structure of product distribution and sales masquerading as independent advice. The boardroom ranks of AMP in particular have been thinned out significantly as reputations have fallen by the wayside, and the damage has either been reputational, or borne by shareholders.
This week has seen the significant extra bite of criminal charges being laid against senior banking executives, including one chairman, at the top end of town amongst Citi, Deutsche, and ANZ over an underwriting shortfall. The problem with financial penalties, even those as large as the $700 million levied on CBA by AUSTRAC's for breaching AML regulations, is that generally speaking it is the shareholders who pay the price. Even then, unless the dividend is cut as a result, there is little pain in investors' hip pockets at the end of the day. That's all changed and the message will have been sent loud and clear not only in this case but to all boardrooms.
Some readers may have noticed that Hedge Clippings has joined none other than the Treasurer, Scott Morrison, in previously suggesting that the potential for an enforced "holiday" would be the ultimate deterrent for serious corporate wrongdoing in the banking sector. Without wishing to prejudice the outcome of this particular case, it will be a serious wake-up call to all executives and directors who elect to sail close to the wind based on "normal practice".
Passing on a hefty fine to shareholders is one thing. Taking the risk of getting one's reputation pinged by the regulator even - but the thought of packing one's toothbrush and being introduced to a new diet (and room-mate) will undoubtedly sharpen some directors' sense of priority - and self-perseveration.
In 1756 at the start of the seven years' war the British executed Admiral Byng for "failure to do his utmost" to avoid defeat at the hands of the French fleet in the Mediterranean. When a French Admiral was asked why, and if this was not a little harsh, he responded it was "pour encourager les autres" - to encourage the others.
Whatever the outcome of the upcoming court case over ANZ Bank's underwriting shortfall, there's no doubt the message has been sent to "discourager les autres".
