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 10.77% p.a. with a volatility of 6.93%, compared to the ASX200 Accumulation's return of 5.71% p.a. with a volatility of 13.48%.

• 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.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - February 2018 (pdf format)

Banking revelations surprise even the most cynical, but on reflection, no surprises.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry hit the headlines this week with mis-deeds and malpractice in the banking sector front and centre. Even those who expected that Australia's banks would probably not emerge from Court Room 4A in Melbourne's William Street smelling like roses, might not have suspected the levels of graft, seriously poor practices, corporate governance and criminality that were revealed.

In particular lending for Australia's residential property market, which makes up such a large proportion of each bank's loan book, came under scrutiny, with executives from NAB and Commonwealth, and their respective distribution and mortgage broking arms, uncomfortably sharing the limelight.

It seems inevitable that if you hire a sales team, place them on significant commissions and incentives, (including both upfront and the trailing variety) and then set aggressive sales targets, selling into a market desperate to buy your product, you are going to end up with only one result - or more correctly one result, many thousands of times over.

To what extent part of this was either part cause, or effect, or a bit of both of the residential property boom is unknown. Maybe it's just a part of it, but given the record of the culture in the US mortgage broking and loan origination leading up to the GFC, surely Aussie banks' senior management must have seen it coming?

We suspect they did, but hey! Preventing, or stopping it would have been what is known in some parts of the industry as "commercially naive". Hence the old "sweep it under the carpet if possible" strategy.

That doesn't directly correlate with the fund management sector, but we'd be surprised if at some stage the Commission doesn't turn its attention to the banks' vertical integration in funds management and distribution, with banks wearing three hats (albeit frequently under different brands) as product issuers, (i.e. fund managers) gateways, (platforms) and distribution (financial planning groups).

While there are issues and potential for conflict abounding in the managed fund sector, they're likely to pale into insignificance compared with this week's revelations.

On a totally different note Stephen Hawking, one of the greatest minds of the last 100 years possibly longer, passed away this week, amazingly on March 14^th, Albert Einstein's birthday, which also happens to be Pi Day (Pi = 3.14 ) and just one day before the Ides of March.

What was so impressive about Hawking was not only his ability under such difficulty, and his sheer determination to not let that inhibit him, but above all his sense of humour, as summed up by one of his better-known quotations, "Life would be tragic if it weren't funny". 

ARCO ABSOLUTE TRUST (formerly Optimal Australia Absolute Trust)

AFM have released the most recently updated Fund Review on the ARCO Absolute Trust.

We would like to highlight the following aspects of the Fund;

• ARCO Investment Management is a specialist Australian equity investment manager and the Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. 

• The investment team comprising George Colman, Peter Whiting, and Stephen Nicholls bring 100 years combined experience in equity markets.

• The Fund has an annualised return since inception of +8.35%. The Fund's approach to risk is shown by the Sharpe ratio of 1.38 (Index 0.30), Sortino ratio of 2.89 (Index 0.33), both of which are well above the ASX 200 Accumulation Index and has recorded over 78% positive months.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - February 2018 (pdf format)

Trump's Tariffs obscures bond and equity market risks - for now.

Trump's trade restriction deal is still a work in progress, but in typical Donald style it's all part of a bigger negotiation play, and possibly directed as much at the rust belt which helped him into the White House in the first place than foreign nations dumping steel on the US market. 

We're not sure his change in US tariff policy (now clearly aimed at China and Asian imports, although that's gone unsaid) will necessarily turn around that section of the US economy, which is also facing other significant structural and long term issues. However, whilst not agreeing with his economic logic, one has to give Donald the politician points for keeping to his electoral promises.

We also noted that when it comes to trade and tariffs, he's now saying the Mexican's are his good friends, along with Canada. How much steel and aluminium (or even aluminum) is required to build the WALL?

Meanwhile the bond/equity market two step has receded from the front pages* of all but the financial press, but it is still there. As per this report from HSBC's Steven Major this morning:

"Our view is that the correction in risky asset markets (equities) should be taken as a warning of what could follow," Major wrote in the report. "Historical correlations between asset classes are unlikely to be stable as the global economy adjusts for the normalisation of unconventional monetary policy."

We've written about this for a while, but this chart from Deutsche puts it all in simple terms. As they say, a picture paints a thousand words...

This chart was produced before Trump's announcement on tariffs, but the key boxes are "An unfavourable rise in interest rates" and "Lower stock prices". Don't ignore the message!

In breaking news it has been announced that Donald Trump and North Korea's Kim Jong Un will meet in May - refer above to Trump's negotiating style rather than political skills.  There will be plenty of claims to bringing this historic meeting about, firstly from Trump himself by ramping up both rhetoric and sanctions, but also China for the pressure they've brought to bear behind the scenes. If nothing else it will put two of the most distinctive global haircuts into the same space at the same time. 

*So too, thankfully, has Barnaby's maybe baby and the PM's "bonk ban". The wider world must be wondering what life down under is all about.