Only Performance is Reality

As you might have noticed Hedge Clippings has been off the air (no comments please) for a few weeks. In a case of either poor timing (or bad management) Clippings has been in the UK, leaving for home just as the RWC was getting under way, and missing the Wallabies' winning performance against England. One swallow doth not a summer make, but there was an improved air of confidence notable both on and off the field.

Which leads of course to the change of PM which also took place in my absence. Having been both vocal and critical over the past few years regarding the performance of a succession of Prime Ministers and their Treasurers of various persuasions, I can only say "welcome" and let's move ahead. Although only three or four weeks has passed since Malcolm Turnbull became PM there seems to a new mood, and once again an improved air of confidence amongst both business and consumers.

Tony Abbott may not be happy, but only performance is reality. Of course the biggest potential loser is probably Bill Shorten.

Enough of politics!  Talking of performance and reality, economies globally have taken a beating as China's inevitable slowdown has taken its toll on markets. The extreme volatility has seen the ASX200 Accumulation Index fall almost 13% from its February high to the end of September, with the September quarter falling 6.6%, although month to date half of that loss has been recovered.

In that volatile environment absolute return and hedge funds have once again proven themselves to be risk averse as opposed to risky. YTD the average equity fund is up 7.31%, an outperformance of 10% vs the market, and over 12 months they're up 9.68%, again 10% better than the ASX200 Accumulation Index. Over 12 months 81% of the funds in AFM's database have outperformed the index, and YTD that number rises to almost 92%.

Of course these are averages, with the best doing considerably better than that. Over 12 months: Totus Capital, up over 30%; Bennelong Long Short, up 27%; QATO, up 24%, to name just a few.

In spite of this there remains a small section of the media, probably prompted either by lack of hard facts, and passive index funds, driven by vested interests that continue to sing the "risky and expensive" tune, although in times like these as above, Only Performance is Reality.

FUND REVIEWS released this week: Totus Alpha Fund; Supervised High Yield Fund; Meme Australian Share Fund; APN Asian REIT Fund; QATO Capital Market Neutral Long/Short Fund; 

And now (and about time) for something completely different: Malcolm Turnbull!

And on that note I wish you an enjoyable week-end. It's good to be back, and Go! The Wallabies against Wales at Twickenham!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Don't say we didn't warn you!

Every now and again - and frequently more often if the truth be known - we choose, or are forced to look back at what we've said or written previously. Occasionally  - and more often than we'd care to admit - we have to revise our thinking, but hopefully not too often.

One has to remain open to the possibility that we might have been wrong. However as Sir Winston Churchill once famously said, quoting economist John Maynard Keynes, "when the facts change I change my mind. What do you do Sir"?

So having said that I'm now going to say we were right, and in our opinion the facts haven't changed. Back on 11th July in Hedge Clippings we said "if anyone can pull off what the Chinese authorities are trying to do, they can, but we doubt they'll succeed".  At the time we were referring to their ability to control or ban investors putting in sell orders, but it matters not. The Chinese are now realising that as great as their economic growth miracle has been, once it becomes a market economy, the market takes over.

The trouble is that it is not just the Chinese economy that's at stake. So much has the global economy been tied to the Chinese miracle, that now the real slowdown has become apparent, the reverberations have set in.

Australia, having missed the post GFC global slowdown thanks to Chinese demand for our resources, failed to make the most of it, and failed to adjust the rest of the economy whilst it could. Now we're suffering as a result, added to which the liquidity of both the market and the currency makes us easy prey to global capital flows.

Thanks in part to an overheated market (and possibly the irrational valuations of Aussie bank shares on the back of the yield trade) the ASX200 has just suffered its worst monthly return since the height of the GFC in 2008. As we have indicated in previous Clippings, this will sort the fund manager men from the boys (sorry, a little sexist) and the wheat from the chaff. Numbers are scarce to date, but a good example is George Colman's Optimal Australia Trust. Having struggled for the past year in the irrationally exuberant markets which ignored the fundamentals of what was going on, they returned a positive (repeat, positive) return of 1.5% in August, an outperformance of just over 10% for the month.

Two predictions from here: One, that interest rates will now stay lower for longer, both here and in the USA as the authorities have limited room or levers left to pull. Two, that the current volatility will remain as global investment banks, plus the combined effects of ETF's, move markets.

And one more: Volatility, while it may settle down from these levels, is never far away, particularly when you least expect it. High returns may be appealing, but not nearly as comforting as capital preservation.

Specific results received this week include the following PERFORMANCE UPDATES:

FUND REVIEWS released this week: Pengana Absolute Return Asia Pacific Fund; Supervised High Yield Fund;

UPCOMING EVENTS:

17 September 2015 - The 14th Annual Hedge Fund Rock and Australian Hedge Fund Awards 2015 as the industry lets its hair down with some drinks, music and great videos. All proceeds go to Redkite helping childern with cancer and their families.

Now for Something Completely Different is taking a rest this week, but try to have a good week-end anyway.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Boring bonds vs. Volatile equities

Australia seems to be a bit player in a wildly fluctuating equity market, with daily swings in either direction of between 2 and 4%, or if you're in China, double that. What's been more difficult to fathom are the intraday swings on the Dow of 400 points - or up to 2% on the day.

It is hard to work out what is really driving the market's volatility, but it certainly seems sound logic is not. There may be an element of buying the dips, and with high yielding stocks such as Commonwealth Bank off around 20% that might not be surprising. However the more likely answer is a combination of a lack of liquidity, a surplus of fear, combined with quant/ETF trading and traders moving the market while having to negotiate the mayhem.

What is amazing is how quickly markets have become disorderly, and how quickly equity investors have come around to understanding that while equities might take up the majority of the financial media, they're not always orderly.

This week Hedge Clippings met with Charlie Jamieson and Angus Coote of (the appropriately named) Jamieson Coote Bonds, who reminded us of the Economics 1.01 lesson that bonds remain a cornerstone asset class in both European and US markets, provide stable income plus return of principle if held to maturity, plus some potential for capital gains (or losses) if realised before their stated maturity. 

One problem for Australian investors is that there's minimal understanding of these low risk "boring" fixed income and bond markets and how they operate. Globally the bond market is many, many times larger, and in many ways far more influential, than the equity market. Another is that there has been much negative press around fixed income and bonds in the face of rising US interest rates. In spite of this bond returns remain positive, and with low volatility. In fact last Monday and Tuesday bond prices rose significantly as equities suffered substantial losses. 

Are bonds without risk? Of course not, as investors in Greek Government Bonds would no doubt agree. However, like any market, different security selection comes with differing risk profiles of credit quality and liquidity dynamics. However bonds can generate a significant counter weight to equity portfolios, bringing low volatility and excellent liquidity from high quality issuers such as Governments or highly rated corporates. In fact the 10 year Australian Government bond (often referred to as the risk free rate) returned over 15% in 2014 from a combination of capital appreciation plus paid interest income. 

Last week Hedge Clippings advised that August would become a critical test for many equity investors and managers. Evidence to date is that while many have performed well in protecting investors' capital, others will have failed the test. We await the final returns with interest. However for investors not prepared to accept the current levels of market volatility, a dose of boring bonds might just be the answer.

Bonds: Stirred maybe, but not shaking!

Specific results received this week include the following PERFORMANCE UPDATES:

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust; Aurora Fortitude Absolute Return Fund

UPCOMING EVENTS:

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

17 September 2015 - The 14th Annual Hedge Fund Rock and Australian Hedge Fund Awards 2015 as the industry lets its hair down with some drinks, music and great videos. All proceeds go to Redkite helping childern with cancer and their families.

And Now for Something Completely Different: I try to avoid parking fines - sadly with limited sucess. But when I do get them I usually find it easier to pay them than spend the time and frustration of fighting the bureacrats. Not this fellow...

On that note, have a good week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

When the going gets tough....

Regular readers of Hedge Clippings will know that our commentary frequently varies from a focus on fund or industry returns. This week however, given the volatility in markets and the uncertainty that prevails, we will take a look at how actively managed funds as a whole have performed in recent times.

Prior to doing so however it's worth just reflecting on some of the factors disappointing markets. Firstly in Australia the reporting season has been less than stellar, with more disappointments evident than surprises to the upside. Elsewhere the overnight news from Greece was probably a surprise, but it's doubtful if anyone outside Greece is taking much notice any more.

China and the USA remain the big issues driving markets, with two big questions arising: Will the Chinese authorities have a Mario Draghi moment and actually come out and declare that they'll do "whatever it takes", or have they already indicated that they'll do so by their actions? Meanwhile in the US we are getting closer and closer to the day when interest rates will finally rise, and this week has shown that while most understand that, when it actually happens there will be a significant impact on the market.

And so back to the performance of absolute return and actively managed funds. There have been plenty of comments in the press over the past few years that as a whole active managers have not performed sufficiently to justify their fees. In somecases that may well have been the case, but it's difficult to outperform in a strongly rising market, while still protecting the downside.

However, it is evident that when markets begin to underperform, or become volatile, absolute return funds come into their own. Over the past 12 months to the end of July the ASX 200 Accumulation Index has risen 5.68%. When one considers that the index includes dividends, the ASX 200 (excluding dividends) has risen just 1.18%.

Over the same 12 month period equity-based funds in AFM's database have risen 13.43% on average, with 63% of funds outperforming the ASX 200 Accumulation Index. Taking June returns by themselves, when the market fell 5.3% funds significantly protected investors' downside, albeit that they also fell 1.88%. That's still an outperformance of almost 3.5 percent, with 85% of all funds outperforming the market.

Specific results received this week include the following PERFORMANCE UPDATES:

FUND REVIEWS released this week: Monash Absolute Investment Fund; Morphic Global Opportunities Fund; Bennelong Long Short Equity Fund

UPCOMING EVENTS:

20 - 21 August 2015 - The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

17 September 2015 - The 14th Annual Hedge Fund Rock and Australian Hedge Fund Awards 2015 as the industry lets its hair down with some drinks, music and great videos. All proceeds go to Redkite helping childern with cancer and their families.

And Now for Something Completely Different. Koala's are renowned for all sorts of things, but generally for being cute, cuddly and sleepy, I'm told becasue they're stoned on the gum leaves they munch all day. Not this one.

On that note, have a good week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Known knowns, and surprising surprises

Maybe it was just the team at Hedge Clippings that weren't expecting it, but we should know that surprises that are unexpected are more damaging than those that are. I'm sure there's a lack of logic in there somewhere because surprises that are expected can't be a surprise, as am sure some of our readers will pick up on.

What we are getting at is this: Greece wasn't really a surprise as many investors were fully aware of the problems for four or five years. So when the potential of Grexit finally came to the crunch, although there were some market wobbles, most investors had come to terms with reality.

Ditto, we expect, with interest rate rises in the US. Although we have yet to see an actual rise to occur, it would be difficult for any investor to say they weren't aware of what is going to happen, even if that doesn't mean to say there won't be a significant market reaction when the inevitable happens.

The China situation is a little different. Firstly  there had been differing views on the Chinese economy, with some participants following the line that the Chinese economy would stay "stronger for longer", whilst others were talking about the inevitability of a slowdown. Secondly, until very recently Chinese economic data wasn't as transparent as many would have liked, so no one really knew.

What shouldn't take investors by surprise is the determination of the Chinese authorities to retain tight controls, be they on the economy, markets, the currency, or if it comes that any other aspect of life in China. Their attempts to control the markets by limiting investors' ability to sell stocks for example, were ham fisted at best, but did show they meant business, and in the short-term at least appear to have been reasonably successful.

What did take investors by surprise was their devaluation of the Yuan this week, not once, not twice, but three days in a row, and counting. And what markets hate most is either an absence of information, or being surprised by it when it occurs.

Specific results received this week include the following PERFORMANCE UPDATES:

FUND REVIEWS released this week: Supervised High Yield Fund

UPCOMING EVENTS:

20 - 21 August 2015 - The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

17 September 2015 - The 14th Annual Hedge Fund Rock and Australian Hedge Fund Awards 2015 as the industry lets its hair down with some drinks, music and great videos. All proceeds go to Redkite helping childern with cancer and their families.

A couple of suggestions for And Now for Something Completely Different recieved this week were "interesting" to say the least, but probably would not have been appreciated by all our subscribers. Thank you anyway - I tried the cider, but am still looking for the watch.

As much as we don't like to replay old clips, this one is special, partly as it was the first one we ever used, and partly because it is still such great value. Enjoy!

On that note, have a good week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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 4.4% bounce in Australia's equity markets in July would have been welcome news to investors, providing the first positive month since February, with the market making up most, but not all of June's fall of 5.3%. The reality however is that the market is jumping up and down on the same spot, and has been doing so for the past year, with 12 month performance of the ASX200 just 1.18% to the end of July, or 5.68% on a total return basis.

At least the resulting 4.5% in dividend yield looks attractive against 2% in the bank, but it certainly doesn't pay for the risk and volatility of the market.

Across the Pacific in the US the market's a little better, but not much, with Calendar YTD returns of 2.18%, or 3.35% on a total return basis.  Research out of the US based on analysis by Factset of company reports suggest there remain a number of recurring concerns, including Greece, China, (with the Shanghai market falling 14% in July, adding to June's drop of 7%), and the strength of the US Currency. Somewhat surprisingly the spectre of increasing interest rates didn't feature.

In Australia the concerns are China, Resources (each linked at the hip), and to a lesser degree Greece (which seems to have slipped off the risk radar somewhat).

The major issue locally is the generally poor outlook for consumer and business confidence. Yesterday's employment numbers were a double edged sword, with the participation rate offsetting the actual increase in employment. The elephant in the room from a business confidence perspective would appear to be the ongoing lack of vision coming from either side in Canberra, and the recent focus on the front pages of the shenanigans (a kind term for it) with "entitlements" haven't helped.

As the August reporting season moves into full swing the risk will probably increase, with the general theme of limited earnings' growth (or in the case of resources, negative earnings' growth of around 30%) as the economy remains limp at best.

As Richard Fish from Bennelong Long Short Asset Management (having notched up a return of 8.85% for the month) noted in their July performance report "unless the market is overcome with good results in coming weeks and upbeat outlook statements (which is hard to reconcile with economic data and the direction of recent earnings revisions), it's most probable that the market remains range bound over the balance of this calendar year".

Specific results received this week include the following PERFORMANCE UPDATES:

FUND REVIEWS released this week: Aurora Fortitude Absolute Return Fund; Insync Global Titans Fund

UPCOMING EVENTS:

20 - 21 August 2015 - The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

17 September 2015 - The 14th Annual Hedge Fund Rock and Australian Hedge Fund Awards 2015 as the industry lets its hair down with some drinks, music and great videos. All proceeds go to Redkite helping childern with cancer and their families.

On that note, have a good week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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.

Twelve month industry and sector performance review

The past 12 months have not been easy for Australian investors, particularly those who had become used to double digit returns from high yielding equities, and bank stocks in particular, over the past couple of years. Just to add insult to injury, the ASX200 dropped over 5% in June as the crisis in Greece reached a crescendo.

As a result the ASX200 Accumulation Index managed to return only 5.67% for the financial year to 30 June, with 5 out of the 12 months in negative territory. Considering September 2014 recorded a negative -5.37% to add to June's -5.30% this was probably not a bad end result, although probably saved by the buoyant start to the calendar year which saw the market rise 3.27% in January, and a further 6.88% in February.

In the 12 months to June 2014 the market returned 17.43%, and for the period to June 2013 an even better 22.67%, so investors had been provided with a period of 24 months averaging 20% plus per annum. As most investors would appreciate most of the performance was coming from a handful of heavyweight financial stocks and Telstra, so the yield hungry, concentrated portfolios were doing even better.

By comparison, actively managed equity and hedge funds performed admirably in the most recent 12 months, returning 11.34% on average, with 75% outperforming the 5.68% return of the ASX200. Including non-equity funds took a little, but not a lot of, gloss off the result, with all single funds returning 10.53% for the same period.

Of interest was the fact that when looking at individual strategies, Long Only (+16.87%) outperformed Equity Long/Short (+11.76%), while Market Neutral struggled at 4.48%. Taking a geographical breakdown showed Asia leading the regions, with Asia up 12.95% and Asia ex Japan up 18%, while Global funds produced 10.72%, and Australian focused funds came in at 7.92%, with currency gains presumably providing significant tail winds for those not hedging their A$ exposure.

So while a creditable 75% of funds outperformed the local equity market, once again fund selection, and having a reasonably diversified portfolio balancing both performance and risk seemed the best solution for the smart investor.

Full details can be found on the www.fundmonitors.com industry and sector performance page.

Specific results received this week include the following PERFORMANCE UPDATES:

Insync Global Titans Fund outperformed its benchmark MSCI All Country World ex-Australia Net Total Return Index ($A) by 0.50%.

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return Fund; Pengana Absolute Return Asia Pacific Fund; Totus Alpha Fund; 

UPCOMING EVENTS:

20 - 21 August 2015 - The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 - The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300 to all investors and advisors using coupon code promoFM on registration.

15 September 2015 - The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And now for something completely different: Today is the last day of July, ushering in the month of August, so named in 8BC by Julius Caesar in honour of Augustus around the time of several of his great triumphs, including the conquest of Egypt. 

So what you might ask? Well, there has been an email doing the rounds entiltled Silver Pockets Full which claims that this August will be unique in that it has 5 Fridays, 5 Saturdays and 5 Sundays, and that this phenomenon only occurs every 823 years.

For those of you who have received the email and belived it, take another look because you've been conned. Apart from the fact that today is Friday, July 31st, every month with 31 days has three days of the week which occur 5 times, and four that occur 4 times.

It took Hedge Clippings a while to work it out, by which time we had forwarded it to a few people, none of whom seemed to spot the issue either. But it does beg the question, who thinks of these things?

And while on the subject of something completely different.... politicians behaving badly: If we thought a $5,000 helicopter ride for our Speaker of the House was above and beyond, how about the (now former) Deputy Speaker of the House of Lords, Lord Sewel who was reported as saying "The question of whether my behaviour breached the code of conduct is important, but essentially technical". 

This after being filmed snorting cocaine, dressed in a red bra, while cavorting with a couple of prostitutes. 

On that note (a five pound one I understand) have a good week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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.

GST finally on the table

It took New South Wales Premier Mike Baird to get the subject of raising and broadening the GST onto the front pages, and I expect we will never know if this was at the behest of Tony Abbott or Joe Hockey, or if he did it off his own bat. In any event at least it's done, and maybe there can now be a sensible debate about proper tax reform.

Regular readers of Hedge Clippings would know that we have been advocating for (or some would say banging on about) the need to expand the GST since Joe Hockey's first budget was released back in May 2014. In our view the rate could be increased to 15% and broadened across all goods and services, which would merely bring it into line with most other developed countries. In fact at 15% it would still be well under the rate charged in many parts of the world.

Of course the immediate response from some sections of the community, including a couple of State Labour Premiers, was that the GST was an unfair tax because it took a larger proportion of poorer people's incomes compared with higher earners. For some reason they completely ignored (presumably because they chose to) the logical suggestion put forward by Baird that there should be appropriate compensation for those on lower incomes, or on pensions.

They also ignored the fact that higher income earners are also higher spending consumers, and therefore would generate greater GST revenue. They also ignored the fact that now the system is installed, increasing the rate or broadening it is very simple from an administrative and collection perspective.

The risk now would seem to be that either the proposal doesn't make it through to reality, or worse still that a further compromise is done and it will take another 10 or 15 years before anyone has the political will to do it properly. One has to remember that the current system is a compromise in itself, with John Howard giving in to pressure from the Greens to apply GST to only half the economy in order to get it through Parliament.

Assuming the GST does get into the mix at the upcoming Taxation Review, which Abbott had previously indicated would not be the case, it might be helpful if the government allowed other taxation sacred cows, such as negative gearing and superannuation concessions, to be debated at the same time. There seems little point in having a taxation review, like the one organised by the previous government under the care of Ken Henry, if the entire system can't at least be explored.

Specific results received this week include the following PERFORMANCE UPDATES:

Pengana Absolute Return Asia Pacific Fund finished -2.39% for the month, compared to the Asia Pacific markets which fell -3.3%. Since inception the Fund has an annualised return of 10.90% p.a.

FUND REVIEWS released this week: Bennelong Long Short Equity Fund; Morphic Global Opportunities Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conferenc ewill provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300to all investors and advisors using coupon codepromoFMon registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And finally, best wishes for a happy and healthy week-end ahead,

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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.

Greek double somersault and pike, with a twist.

Markets recovered over the past week based on one of the more spectacular backflips in political history. One wonders what the Greek referendum was all about, given the man who having called it, recomended a NO vote, and then got his wish, seemed to ignore the result. Irrespective of whether one belives the Greeks should, or should not accept the medicine their northern neighbours, particularly the Germans were prescribing' hardly matters. No wonder that the 60% of the Greek population that voted no are less than happy, or even decidely grumpy.

What seems odd to fathom is how anyone thinks the so called solution will cure the underlying problems? Adding more new debt to cover that already in place, as any consumer with a bunch of maxed out credit cards in their wallet would, or should know, would seem to be simply kicking the can a further three years down the road. So look out for Grumpy Greeks for at least the next three years, and Grumpy Germans when it all returns to bite them in three years' time. 

And so to China, which along with Greece seems to have been the major topic of Hedge Clippings for the past few weeks, as it has been for the mainstream financial press. Chinese quarterly GDP figures, once again delivered so swiftly that one has to assume they're fudged, came in at 7%, bang on target. What a wonderful co-incidence! Given Singapore's quarterly GDP declined sharply by 4% yoy, and a massive 14% annualised, in no small part as a result of reduced manufacturing and exports to China, it makes the Chinese GDP result even more questionable. 

What makes the data so rubbery is that power comsumption in China grew by just 0.8% over the quarter yoy, well below expectations and one of the lowest rates of quarterly growth in the past 20 years. Crude steel and pig iron production fell 1.7% over the quarter, the first decline since records began in 1994, cement was down 20.5% yoy, and glass by 6.6%, while rail volumes declined by 9%. Even though the reported GDP growth was 7% for the quarter, this was still the lowest in six years, assuming you take them as gospel.

People in some quarters have been unkind enough to call me a cynic (amongst other things) but I can't imagine why.

Specific results received this week include the following PERFORMANCE UPDATES:

The Paragon Fund returned -3.80% versus the ASX 200 Total Return Index's -5.30%, for the month of June 2015. The Fund's annual return since inception has been 18.82% p.a. versus the Index's 7.46% p.a. 

Morphic Global Opportunities Fund outperformed it's benchmark MSCI AC World Total Return in Australian Dollars by 0.31%.

FUND REVIEWS released this week: Monash Absolute Investment Fund; Optimal Australia Absolute Trust

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300to all investors and advisors using coupon codepromoFMon registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

It's a while since "Now For Something Completely Different" featured one of our four legged friends, so this might bring a smile to your face.

And finally, best wishes for a happy and healthy week-end ahead,

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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.

Chinese authorities treading a dangerous path

The news that the China Securities Regulatory Commission was prohibiting investors who own more than 5% of a publicly traded company from selling shares for six months is likely to do more to damage their market than save it. The ban will include foreign investors who hold shares that trade on the Shanghai and Shenzhen exchanges, and comes after Chinese equities lost more than 25% of their value since mid-June.

If anyone can pull off what the Chinese authorities are trying to do, they can, but we doubt they'll succeed. They might be able to control their own citizens from selling shares in smaller caps, or freezing parcels of 5% or more of a publicly listed companies for six months, but the longer term damage to their reputation, and the confidence of traders, investors, and market participants at home and abroad, will be difficult to overcome.

What the Chinese authorities are doing is freezing liquidity, and in this regard it seems they haven't learned from the lessons of 2008 when central banks, governments, and regulators around the world tried to ban short selling, close markets, and in a word, panic. And if governments and the authorities panic, that's exactly what investors are likely to do as well.

Rudyard Kipling put it quite clearly: "If you can keep your head when all around you are losing theirs and blaming it on you" but it seems the Chinese authorities didn't listen, or haven't read Kipling.

By stopping investors selling smaller stocks, they're going to be forced to sell larger ones, and possibly the better ones, to cover their liquidity requirements, margin calls, their need for cash, or just to stuff under the mattress. While western authorities have probably learned from their mistakes of 2008 and might not make the same ones again in a panic, they also succeeded in restricting longer term liquidity through regulations on banks and other market participants in an effort to avoid another too big to fail scenario.

China threatens to make the Greek tragedy just a pimple by comparison. Whatever eventuates in Greece has largely been anticipated by most savvy investors over the past few years, and if a three year moratorium is agreed to it will probably only extend the agony further. There seems no way that the Greek economy, about the same size as that of the State of New South Wales, is ever going to be able to repay the levels of debt.

And so on to fund performance in June.

It was obviously a rocky ride on global markets in June, initially in response to Greece, but more recently as a result of China's problems. The ASX 200 Accumulation Index fell by 5.3%, and July has seen a continuation of the volatility since. Over the 12 months to the end of June the ASX200 rose only 1.17%, or 5.68% on an accumulation basis. By comparison and based on the 25% of fund returns received to date, equity-based hedge funds fell by only 1.41% in June, an outperformance of almost 4%, with 87% of those outperforming the ASX 200 Accumulation Index. Over the past 12 months equity-based funds have returned 11.57%, double the return of the accumulation index.

In addition to the performance updates below, results of note include Kentgrove Capital, (+4.1%) Totus Alpha Fund, (+6.3% (e)) QATO (+1.89%) Bennelong Long Short (+4.86%). 

Specific results received this week include the following PERFORMANCE UPDATES:

Monash Absolute Investment Fund fell 1.9% in June in a weak Australian equity market, but still taking the Fund's annualised return since inception to 14.11% p.a. 

FUND REVIEWS released this week: Totus Alpha Fund; Insync Global Titans Fund; Supervised High Yield Fund

UPCOMING EVENTS:

20 - 21 August 2015 -The 2nd Superannuation Fund Investment Operations Forum 2015 is a two day forum providing invaluable technological, regulatory compliant and best practice insights into improving back and middle office efficiency to drive member loyalty, bottom line profitability and a competitive edge

26 - 28 August 2015 -The 15th Annual Wraps, Platforms & Masterfunds Conference will provide solutions for succeeding in a distribution world of endless possibilities, showcasing strategies to help business achieve the biggest bite of market share, use innovation to overcome problems and support opportunities. Australian Fund Monitors is pleased to offer a discount of $300to all investors and advisors using coupon codepromoFMon registration.

15 September 2015 -The AIMA Australia Hedge Fund Forum 2015 is the annual non-profit hedge fund conference organised by the industry for the industry.

And finally best wishes for a happy and healthy week-end ahead,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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.