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 10.74% p.a. with a volatility of 7.06%, compared to the ASX200 Accumulation's return of 5.27% p.a. with a volatility of 13.78%.

• 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 - July 2017 (pdf format)

Reporting season - An opportunity or a threat?

George Colman from ARCO Investment Management (formerly called Optimal Australia) probably summed up reporting season best by referring to it as "the moment of truth".  Although the fund had negotiated it well so far, he expected the full season unlikely to be so easy.

Midway into reporting season 2018 and it would seem that Telstra has grabbed the most headlines in the media, and occupied the minds of investors more than most, although whether positively or negatively would depend on their position - long or short.

While many long term retail investors are understandably keen to hold onto their Telstra shares for the (shrinking) dividend, and others may buy it based on its yield, no one could complain the decision to reduce the dividend wasn't well flagged to the market. A payout ratio of 100% was unlikely to be maintained, and Telstra Chairman John Mullen did indicate in a recent interview that if nothing else the issue was one the board was looking at. For the many fund managers who were short the stock it will no doubt be a "told you so" situation, but it does indicate the dangers that investors face as companies delight or disappoint the market.

Particularly so long/short managers who are taking multiple bets, some long, some short, or just to not hold a position in a stock. Not only do they need to get their call correct, there's no guarantee the market will always react to good news positively, or alternately to bad news negatively. Add this to a normally concentrated portfolio, and full year reporting does indeed risk becoming a moment of truth, and not an easy one at that. For those on their game the moment can make them, for those that aren't it can take a while to catch up.

While on the subject of catching up, past mistakes and a lack of judgement regarding issues such as Storm Financial, CommInsure and AUSTRAC all culminated in the board of the CBA taking it one step further for embattled CEO Ian Narev this week, flagging his departure by next July. Any sooner would have smacked of panic and given insufficient time to find a replacement, but following legal action from AUSTRAC, pending investigations from ASIC, and almost unprecedented negative comments from the RBA's Governor Dr Philip Lowe, there was only going to be one outcome for the Kiwi born CEO.

Hedge Clippings assumed that radio host Alan Jones' suggestion today that Narev would be well qualified to take over the CEO's position of the equally inept Wallabies' management was a joke, but on reviewing the article and video it appears not.

Maybe he would indeed be perfect, but would anyone notice a difference?

A glance in the rear view mirror...

Every so often Hedge Clippings likes to track through our prior meanderings. There are a number of reasons for this - not wanting to repeat oneself too often and thus become tedious is one, or regurgitate last week's views and be considered forgetful, or worse, being another. However now and again we like to check that our weekly gibber is not overly gibberish, and that what we might have written in the past remains relevant.

Of course, if one of our past editions was shown to be completely incorrect we might not highlight the fact. However, in this case we looked at a "Hedge Clippings" from early June when we mentioned, amongst other things, the possibility that North Korea might overstep the mark.

Far be it from us to try to predict who will win the chest beating exercise between North Korea's presidential nutter, Kim Jong-un and his US counterpart, Donald Trump, but it would seem that neither is renowned for stepping back from a fight, even if in Kim's case it is one that numerically only one side can win, while everyone else also loses. However it has finally jolted markets and the VIX out of their low interest rate stupor. Kim cares not a jot for world opinion, and based on his previous rhetoric, Trump not a lot more. However, we would agree with Trump that a line has to be drawn in the sand somewhere, and as previous US administrations have failed to do so, we are reminded of the old saying that "people behave the way they're allowed to".

In the same edition we also commented on the seeming malaise in Australian politics, and this week's decision (or abdication of one) to resolve the same sex marriage question by holding a non binding, non-compulsory, postal opinion poll seems to personify the issue. Without wanting to enter the debate on either side, the process seems to be symptomatic of the current disconnect between business confidence and household sentiment.

Business confidence is high as a result of low interest rates, low inflation, low wages growth,little in the way of labour shortages, and the use of technology to reduce costs. The other side of the coin is that consumer sentiment is low due to high housing costs, low wages growth, uncertain employment prospects, and looming high utility bills. However we suspect that's not all that is troubling the average household. There would seem to be a lack of clear national direction, which is also affecting the widespread optimism that was apparent when Tony Abbott was removed as PM, and could it be a reflection of the fact  - or perception - that in reality he's still there pulling strings?

Finally, while on the subject of malaise, a word on corporate governance at the big end of town in a week where it was announced that in the US since the start of the GFC 10 years ago, financial institutions have paid fines totaling US$150 billion for the various misdeeds of management. More correctly the shareholders of those financial institutions have presumably paid the $150 billion in fines. Full marks therefore to the board of the CBA for at least slapping the wrist of a few senior executives. However, in reality, and as one who has spent some considerable time and effort to keep up to date with the AUSTRAC Anti Money Laundering (AML) provisions, those responsible at CBA must have either been asleep on the job, or incompetent, (or both) to have permitted such extensive and long running cash deposits to have occurred right under their noses.

OPTIMAL AUSTRALIA ABSOLUTE TRUST

AFM have released the most recently updated Fund Review on the Optimal Australia 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.

• In July, the Fund returned +0.24%, taking annualised return since inception to 8.12% p.a. The Fund's approach to risk is shown by the Sharpe ratio of 1.32 (Index 0.26), Sortino ratio of 2.71 (Index 0.26), both of which are well above the ASX 200 Accumulation Index and has recorded over 79% positive months.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - July 2017 (pdf format)