Curiouser and Curiouser...

This week Hedge Clippings turns to the mystery of Philip Parker and Altair Asset Management, the previously unheard of fund manager who made it to the front pages with his bold decision to hand back investors' money (actually not that much it seems - from what we can discern there was only $5 million in one fund, and $7 million in another) because he thought market valuations were unrealistic, and that the property market was due for a crash.

Our first thought was that Mr Parker is not Robinson Crusoe in his view of the markets. Plenty, if not most fund managers on AFM's radar have been concerned about stretched valuations for some time, and have been particularly concerned about the excessive multiples that Australia's banks are or were trading at. Equally, one would have to have been living on a different planet (or with Robinson Crusoe on his desert island) if you weren't aware of the fact that Australia's property prices are sky-high, as they are in many other countries of the world, including Hong Kong, Canada and the UK.

Of course there are opposing opinions as to whether this is going to lead to a property crash, or just a slowing of the price increases. The former would certainly lead to a significant fallout across the economy, and particularly affect the banks, and their share prices. The issue however is quite simply: Why would a fund manager simply hand the money back to investors given his view of the market, rather than managing their money responsibly to protect their investment?

One argument might be that Altair's funds were "long" only, and indeed two of them were, and on the latest numbers available both were fully invested with only 1% held in cash. One of them had an exposure to the major banks of 30%, and the other over 20%. Surely the responsible approach would have been for Mr Parker to write to his investors, advising them of his opinion, and giving them the option of redeeming their investment.

As it turns out, since June 29, 2012 Altair Assets Ltd has also been licensed by ASIC to operate the Parker Absolute Return Fund (ARSN 159 082 630) which, as the name suggests, is licensed to hold derivatives. There is a little clue there in the word "derivatives" as to what he might have done to protect his investors.

If Mr Parker was so concerned about equity valuations and an impending property crisis, then surely put options over the banks, or an index put over the whole market would not only have protected his investors, but could have provided them with a significant return if his doom and gloom forecast was proven to be correct.

Curiously, or not surprisingly, once the other side of the story, (namely a minor issue in the courts relating to his mother's shares which had been sold without her knowledge) came to light, Mr Parker was much keener to communicate through his solicitor, rather than through the lens of the camera and via the front pages of the financial press.

Given that the market was down sharply in May, with the worst performance since January 2016, Mr Parker may well be right in his market view, but we would have thought completely wrong in his implementation. Hedge Clippings suspects there is more to this story than meets the eye.

On a different note, there are reports that the UK election result may continue the run of political suprises of the past few years. Unless Hedge Clippings is hallucinating (again) this seems improbable based on logic, but so did Macron, Brexit, and Trump. For that reason we'll leave political comment to others more qualified, and stick to subjects we're at least supposed to understand.

PERFORMANCE NEWS

As above, early days for May performance updates, but with the market having had its worst month since Janaury 2016 it is fair to expect that most absolute return and hedge funds will significantly out-perform. In the meantime below is a selection of April's results.

Affluence Investment Fund increased 0.53% in April, resulting in a +11.18% return for the latest 12 months. Since inception, the Fund's has an  annualised return of 9.77% p.a.

APN AREIT Fund gained 2.27% for the month of April, to take the latest 24 months return to +22.79%. The Fund has an annualised return since inception of  16.69% p.a.

Bennelong Australian Equities Fund returned a positive 2.79% in April, outperforming the S&P/ASX-300 Accumulation Index which returned 0.98%, by +1.80%. Over the past 12 months, the Fund has returned +15.24%, taking the annualised return since inception to 13.82% p.a.

Bennelong Concentrated Australian Equities Fund outperformed the market (S&P/ASX 300 Accumulation Index) posting a positive return of 2.91% for the month of April 2017. Since inception in January 2009, the Fund has an annualised return of 17.96% p.a.

Bennelong Kardinia Absolute Return Fund rose 0.89% in April, taking the annualised return since inception to 11.09% p.a.

Bennelong Twenty20 Australian Equities Fund returned +1.25% for the month of April, slightly outperforming the S&P/ASX-300 Accumulation Index by +0.26%.  For the most recent 12 months, the Fund has gained 16.25%, taking the annualised return since inception to 10.5% p.a.

Cyan C3G Fund returned +1.9% in April, to take the Fund's one year return to +14.49%. Since inception, the Fund has an annualised return of +25.8% p.a, against the S&P/ASX200 Accumulation Index's +6.6% p.a. return.

Insync Global Titans Fund increased 5.2% in April, outperforming the MSCI All Country World ex-Australia Net Total Return Index ($A), which returned 3.7%, by +1.5%. The Fund has an annualised return since inception in October 2009 of 9.58% p.a.

NWQ Fiduciary Fund returned +0.25% in April and has returned +5.74% p.a. since its inception in May 2013.

Pengana Global Small Companies Fund returned +6.7% in April, outperforming the MSCI AC World SMID Cap Index, which returned 4.0%, by +2.7%. The Fund has returned a positive 24.74% over the past 12 months and +9.93% p.a. annually since inception in April 2015.

Pengana Absolute Return Asia Pacific Fund finished up 0.7% for the month of April 2017, compared to Asia Pacific markets which posted a gain of 1.3%. Since inception, the Fund has an annualised return of 8.26% p.a.

Pengana PanAgora Absolute Return Global Equities Fund returned -1.17% for the month of April. The Fund has a low systematic risk (beta) to the ASX 200 and the MSCI World Indices of 0.07 and 0.08 respectively. Since inception the Fund has an annualised return of 9.79% p.a.

Touchstone Index Unaware Fund recorded a net gain of 3.5% for the month of April, which was broadly in line with the FTSE 50/50 Infrastructure Index, which returned 3.62%. Since inception in March last year, the Fund has an annualised return of 14.34% p.a. 

FUND REVIEWS released this week: Bennelong Long Short Equity Fund; APN Asian REIT Fund; Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust;  Bennelong Twenty20 Australian Equities Fund; Pengana Absolute Return Asia Pacific Fund; Insync Global Titans Fund;

And, on that note, have a great weekend. 

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

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Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

The financial media is full of the news that Philip Parker of Altair Asset Management - a fund manager variously described as a "star" and a "veteran" - is liquidating all assets in the funds he manages, and will return the proceeds to investors as believes the current environment for equities and property is excessively risky. In the meantime he will take a year off.

On one hand he should be congratulated for putting investors' interests first, rather than "charging our clients fees when there are so many early warning lead indicators of clear and present danger". However if his prediction is proved correct, it should be a fair warning to all those investors who have happily given their money to other index, long only or ETF fund managers, that they have some sleepless nights ahead.

Alternatively, had his investment mandate provided sufficient flexibility, he could manage the downside risk with index put options, which intelligently and appropriately managed could not only manage the downside risk of a sharp fall across all equity or property prices, but also potentially provide significant upside reward.

Meanwhile not only has he captured the headlines, it seems he may in fact be part of the catalyst to cause the very sell off he's predicting, and if so it will be interesting to see if investors at large, including his own, will thank him. Plenty of long short or alternative managers however may well do as those are just the conditions they are designed for.

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 Fund's unit price increased by 5.2%, after the cost of protection, in April. The performance was driven by positive contributions from the Fund's holdings in PayPal, Heineken, Comcast Corp, Unilever and Microsoft Corp. There were no negative contributors during the month. 

• 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 - April 2017 (pdf format)

PENGANA ABSOLUTE RETURN ASIA PACIFIC FUND

Attached is our most recently updated Fund Review on the Pengana Absolute Return Asia Pacific Fund.

• The Pengana Absolute Return Asia Pacific Fund ("PARAP") was established in 2008 by portfolio managers Antonio Meroni and Vikas Kumra. The Fund is a feeder fund into a Cayman Islands AUD share class fund.
• The Fund invests both long and short in Asia Pacific equities, including in Australian and New Zealand, after a stock specific "event" has either occurred or been announced and the portfolio aims to be uncorrelated to the underlying equity markets. A combination of the Manager's experience, thorough research and continuous back- testing identify the most attractive of these events.
• Risk controls include limits on individual positions as well as gross and net exposure. Limits are in place for option exposure and cash borrowing, with stop loss limits on individual positions. Overall the manager is looking to derive returns from the event strategies as opposed to any currency or market exposures.
• Since inception, the Fund has an annualised return of 8.26% p.a., compared to the MSCI ACWI Asia Pacific Price Index's return of 3.92 p.a.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - April 2017 (pdf format)

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 - April 2017 (pdf format)

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 11.09% p.a. with a volatility of 7.11, compared to the ASX200 Accumulation's return of 5.65% p.a. with a volatility of 13.89%.

• 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 - April 2017 (pdf format)

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;

• Optimal Australia 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 April, the Fund returned +0.0.7%, to take annualised return since inception to 8.08% p.a. The Fund's approach to risk is shown by the Sharpe ratio of 1.29 (Index 0.28), Sortino ratio of 2.63 (Index 0.30, 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 2017 (pdf format)