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 10.90% p.a. with a volatility of 7.00%, compared to the ASX200 Accumulation's return of 5.81% p.a. with a volatility of 13.62%.

• 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 - December 2017 (pdf format)

Over the past couple of weeks Hedge Clippings has looked at the returns of Australian hedge funds over 2017 - particularly equity based funds which on average outperformed the market -  returning +13.02% against the ASX 200 Accumulation Index 11.8%. However we also noted that averages were sometimes misleading, with many funds significantly outperforming the average.

Looking at similar figures from Eureka Hedge (based in Singapore and whose focus is global funds rather than Australian), the average global fund was only up 8.25% for the year, with 79% of fund managers in positive territory, compared with Australian funds with almost 93% in positive territory. Comparing apples with apples on a strategy basis, Australian equity long/short funds returned 14.23% vs their global peers performance of +12.39%, while in the long only strategy the locals again outperformed returning 17.05% vs. 16.85%.

These results are even more impressive considering the local market's underperformance compared to the return of 21.83% by the S&P500 where the bulk of global equity managers invest. So not only did the locals outperform their overseas peers and the local market, but the global industry underperformed the global market.

There could be reasons for this of course, one being that the majority of funds in the www.fundmonitors.com database investing in Australia have limited FUM, and rarely above $1 billion, compared to the many larger $5bn+ US funds, with high FUM historically leading to lower returns. However to a great degree it is down to the depth of quality managers in Australia, and a market which is under researched - particularly outside the top 100 or 200 stocks, providing significant opportunities for managers investing in companies that are travelling under the brokers' research radar.

However the bottom line reality is that there are some outstanding local fund managers, large and small, who consistently perform on a global scale.

Moving away from the subject of hedge funds for a moment, and given that it is the day before Australia Day, Hedge Clippings has been pondering whether as a nation we are making the most of our opportunities. Australia is often considered to be the "lucky country" with its abundance of resources, a great climate, and a multicultural and generally tolerant society which most countries would be proud of.

For instance, take the ridiculous and distracting argument about the date upon which we celebrate Australia Day, and even what it should be called. All Nations and civilisations have aspects of their past they might prefer had not occurred. However, instead of arguing about the date or trying to airbrush history, surely we should be using the day to not only celebrate our successes, but also redoubling our efforts to ensure that we have a fairer and more inclusive society for all - irrespective of past wrongs.

And at the end of the day what event has shaped this nation, warts and all, more than the arrival of the First Fleet, on January 26, 1788?

Australia may well be the lucky country, but I'm not sure we are very smart. When in the UK recently (hardly renowned as one of the sunniest places in the world) I was struck by the number of fields alongside motorways in which there were rows and rows of solar panels. At the same time the UK, along with many other nations, are looking forward by planning for the end of the internal combustion engine.

Solar and alternative power and electric vehicles on just two examples of where the average Australian seems keen to move, but is being restricted by political dogma and vested interests, not only of certain industries, but also of an unsafe seat in Canberra.

There's an old saying: "Unless you embrace change before it occurs, you will be decimated by it when it does!"

And on that note, we wish all readers a Happy Australia Day, however you wish to spend it.

Hedge Clippings enjoyed catching up on Sky Business this morning with an old colleague, and frequently quoted market commentator, Macquarie Wealth Management's Martin Lakos, along with Ric Spooner from CMC Markets. Discussing actively managed funds with a couple of market professionals who come from a different section of the market provides one with a different perspective, which is always useful. Amongst other things we discussed the underperformance of the Australian equity market over the past 12 months (actually over the past 10 years) compared with other markets, particularly the S&P500, and how Australian managed funds have fared in this environment.

Inevitably these types conversations tend to quote averages, which remembering the old adage that if "one's head is in the freezer, and toes in the oven, than your average temperature is comfortable", means averages can be misleading. However we did quote both the average return of actively managed equity funds in 2017 (+13.10%) against the return of the ASX 200 accumulation index at +11.8% which suggested they performed marginally, but not dramatically better. However as per the freezer and oven analogy above, there's a dramatic range amongst the diverse nature of Australian actively managed funds.

For instance, taking all funds and all strategies, the best performing fund returned 75%, whilst the worst fell 21%. The median return was 13.34%, with 55% of all funds outperforming the ASX200, and with 95% of all funds in positive territory. With this extreme distribution spread of returns, inevitably questions were asked: Whilst there was certainly a focus on funds investing in small and micro cap stocks, plus those with Asian or global mandates amongst the top performers, this was by no means universal.

Equally it is difficult for a manager to consistently perform in the top quintile year in, year out, but undoubtedly the best ones manage to do so, if not every year, then at least regularly. Another aspect discussed was that top performance does not necessarily equate to the best returns: Frequently what investors are looking for, particularly in the absolute return space, is effective risk management thereby resulting in limited drawdowns.

Further discussions ensued regarding fund flows - whether positive or negative. We were happy to report that fund flows were broadly positive, albeit they obviously favour the better performing funds. However when looking behind the reasons for increased fund flows, anecdotal evidence would suggest that self-managed superannuation funds, or at least their trustees, are significantly made up of baby boomers, who as a natural result of their age, or financial security, are now more risk aware and less focused on trading individual stocks on the market than they were 10 or 20 years ago. At the same time they tend to have significantly more capital to invest, either on a personal basis or within their SMSF.

The other great benefit of a properly selected portfolio of managed funds, apart from hiring the expertise required, is the diversification obtained as a result. With most actively managed funds holding between say 25 to 75 individual stocks, with careful selection of even just five funds, an individual investor can have exposure to 100 to 300 stocks across multiple sectors and geographical markets, providing excellent diversification of risk. Certainly there is not the individual involvement of market trading that many investors enjoy, but sometimes leaving it to the experts is a safer and more relaxing option.

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.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - December 2017 (pdf format)