In spite of the weakness in the financial and banking sector which dominates the ASX Top 20, and to a slightly lesser extent the ASX200, the Australian market has finally made up some ground over the past few days and is now in positive territory calendar YTD. To the end of April the ASX200 was still slightly in the red on a total return or accumulation basis (-0.11%) and only showing a return of 5.46% over 12 months.

Against this the FundMonitors.com index of actively managed investing in Australia and NZ have returned 12.08%. Across all strategies 89.97% of funds have provided positive returns, ranging from -17% to +73% with 57.58% of funds outperforming the ASX200.

We thought we'd throw that in before moving on to AMP...

Hedge Clippings remains sceptical about AMP on nearly every count. This is not only based on their past failings as revealed by the Royal Commission, but also on their response in the ensuing crisis, plus market and client perception, and evidence of investors' outflows as a result.

Last Friday AMP responded to the Royal Commission with what sounded suspiciously like a denial of wrongdoing, in spite of the fact that they had been found to have charged clients fees for services not performed, and then lied to ASIC (including at board level) on no less than 20 occasions.

In spite of losing the chief executive, chairman, three directors, and their chief legal counsel, (who we suspect was thrown under the proverbial bus) the tone of AMP's response was one of, if not denial, refusal to accept responsibility.

And yet to quote from the interim chairman's report to the AGM yesterday:

"I begin by reiterating and reaffirming our unreserved apology. We are truly sorry.

The issues highlighted in our advice business are unacceptable.

We let you down.

We have let our customers down.

And we have let the wider community down."

A little further on the blame was attributed to "a small number of individuals in our advice business who made the decision not to follow policy."

And "the situation was compounded through a series of communications that misrepresented the issue to - and therefore serve to mislead - our regulator on several occasions."

"On both counts the behaviour was absolutely unacceptable."

He then tried to claim that the board had accepted accountability, with some 50% of the board having left, or leaving.

The reality is that the previous chairman and CEO only departed when it became completely obvious that their positions were untenable, and the additional board members only resigned when it was clear they would not make it through the AGM. Hardly synonymous with "leaving of their own accord or willingly".

(The acting chairman also regretted having lost all female directors through the process, but the reality is that ALL directors should be appointed based on ability and experience, by what is between their ears, irrespective of gender. Hedge Clippings might be wise to keep out of that argument!)

But now they have the great white hope, David Murray, as the incoming Chairman.

David Murray is undoubtedly qualified and experienced in financial services. He was CEO of the Commonwealth Bank for 13 years from 1992 to 2005, and was the classic career banker having started as a teller, and rising through the ranks based on his undoubted ability.

However the problem is that Murray believes in the same vertically integrated structure which has not only caused such problems in the banking sector, but is also quite likely to come under pressure as the Royal Commission continues its hearings before making its findings and recommendations known early next year.

At CBA David Murray oversaw the acquisition and integration of Colonial, Count, and Aussie Home Loans, all of which have come under fire in various ways, as has the whole vertical integration structure where sales were repackaged as advice.

The danger for AMP will be that Murray still believes in that model and structure, and that his experience almost aligns itself to his DNA.

Murray has a couple of other problems apart from having to find quality directors with the experience and ability to take on the challenge, let alone instilling the change throughout the organisation.

One of them is his relationship with ASIC, where we would imagine that AMP needs to do some serious fence mending, having in 2016 likened ASIC's approach of trying to enforce corporate culture on boards to that of Adolf Hitler.

At least the 2014 Financial System Inquiry, chaired also by Murray, recommended significantly increased powers for ASIC, even though his later comments suggested that boards should not be held liable for a breach of culture.

The reality is that at AMP it has been that the culture, including at board level, as well as the structure of the business, that has been the problem, and it remains to be seen if Murray, in spite of his outstanding credentials and experience, will be able to, or is the best person to lead it into the future.

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 +8.29%. The Fund's approach to risk is shown by the Sharpe ratio of 1.38 (Index 0.30), Sortino ratio of 2.88 (Index 0.32), 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 - April 2018 (pdf format)

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 1.00 and 1.65 respectively.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - April 2018 (pdf format)

INSYNC GLOBAL TITANS FUND

Attached is our most recently updated Fund Review on the Insync Global Titans Fund.

We would like to highlight the following:

• The Global Titans Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.

• Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.

• Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - March 2018 (pdf format)

It's gone very quiet as the Financial Services Royal Commission took a well-earned breather from the excitement and revelations of the past couple of weeks, with Round 3 of the Public Hearings not due to begin again until 21 May. However, in the background the AMP machine (minus CEO, Chair and Legal Counsel) has been busy producing their response, mainly denying or refuting the allegations levelled against them.

For those not wanting to wade through the full 27 pages and 101 points in AMP's submission, here's a 4 page Fact Sheet summarising their response.

In the meantime of course the public fallout has been dramatic, and in spite of AMP's response and denial, necessary. However, the outcomes - both in the short, medium and long term remain to be seen. Here's Hedge Clippings' quick take:

Short Term: 

• AMP's AGM next week will be a cracker!
• AMP's reputation has been irreparably damaged. How long, and what it will take to recover it, is anyone's guess.

Medium Term:

• Expect more divestment of Banks' wealth divisions (with the exception of "private wealth"). NAB has flagged the spin-off of MLC, ditto ANZ, with CBA examining disposal of Colonial.  However, this will only separate the banks from the platforms.  The Product Issuer, Platform and the Advisor network model will most likely remain in place but under new ownership.
• Expect an exodus of bank aligned (and AMP) advisors to truly independent groups to gain independence from their current restricted approved product lists.
• Expect Investors, faced with having to pay for advice, will avoid visiting a financial advisor even more than they do now, which while it will help some, will unfortunately not necessarily benefit their financial future.

Longer Term:

• Vertical Integration to come under pressure and possibly be abandoned. The big banks' and AMP's vertically aligned platforms are reportedly losing market share, while industry evidence suggests that only 20 to 25% of SMSF's and self-directed investors use them - either due to cost, or the fact they don't seek the services of a financial advisor.
• Bank culture itself may or may not change, but the headcount, and the pecking order, of their internal compliance departments almost certainly will.

Meanwhile it remains to be seen if the findings of the Royal Commission, when eventually handed down and pondered over by the authorities, and then argued over through the courts, will actually result in any successful prosecutions, particularly at senior or board level.