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 cap stocks from the ASX/S&P100 Index, with over thirteen year track record and annualised returns of 18.51%.

• The consistent returns across the investment history indicates 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 1.14 (Index 0.26) and 1.97 (Index 0.26) respectively.

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

Australian Fund Monitors

ATTACHED FILESBennelong L/S Equity Fund AFM Monthly Review February 2016 (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 supported by Stephen Nicholls and Justin Hay have over 100 years combined experience in equity markets.

• In February, the Fund rose 0.8%. The Fund's approach to risk is shown by the Sharpe ratio of 1.49 (Index 0.11), Sortino ratio of 3.36 (Index 0.04), both of which are well above the ASX 200 Accumulation Index and has recorded 80% positive months.

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

Australian Fund Monitors

ATTACHED FILESOptimal Australia Absolute Trust AFM Fund Review February 2016 (pdf format)

Hedge funds aren't nasty, they're sensible!

Certain sections of the media have been getting excited about the prospect of those 'nasty' hedge funds with short positions losing money thanks to a "short squeeze" rally in the price of the banks and Fortescue Metals Group (FMG). Of course there are some who think (Gerry Harvey for instance, who has always been ready and willing to talk his own book) that all short sellers should "be put up against a wall and shot" (his words, not mine). Others seem to believe that the only reason share prices fall is because of short selling by hedge funds.

Let's put this in perspective: Firstly the banks:

The price of CBA fell from $95 twelve months ago to $72 during September, following which there was a rally back up to $85 by the end of the year. Then a further fall to $72 followed towards the end of February, since which time it rallied back towards $75.

So apart from the fact that most of the downward pressure on CBA has come from "long" investors exiting or reducing their holdings because it was overpriced, any smart hedge fund should have been "short" at prices of over $90, and would have been more than happy to exit  those positions between $70 and $75.

Only about  3% of the total big four banks' stock is "borrowed", which includes borrowing by traders who need to cover their option positions. While the banking sector may be large, that's not enough to have enabled short sellers to have cut the price by 20%. The reality was that at $95 the CBA was overpriced and conditions for banks were, as George Colman from Optimal Australia said at the time, "as good as they get", and the downside was inevitable.

Let's take a look at Fortescue:

In June 2008 FMG was trading at close to $11, riding high on the back of iron ore prices of around $140 a tonne. By January 2009 the price at fallen to $1.94 before rallying over two years to $6.65 in January 2011, before falling to $1.60 in January 2016.

FMG's share price might well have bounced $1.00 from that low, but that completely ignores the fact that they had fallen from $11 to $1.60 during their volatile journey.

It's not only short sellers that push the price of stocks down. It is the outlook for the company's earnings and profitability. Long only investors reduce their holdings, and just as importantly buyers pull bids back because there is limited value, or the stock is overvalued.

Message: Don't blame short sellers for the company's prospects and share price. Having said that manipulation of news and research (whether positive or negative) should not be allowed to benefit the peddlers of such information.

Performance updates and reviews received this over the past week included the following PERFORMANCE UPDATES:

Against a backdrop of further volatility in commodities and general de-risking in February the ASX200 Accumulation Index fell 1.76%. The S&P500 fell and the Asia Pacific ex Japan Index fell 0.63%. Meanwhile:

The Optimal Australia Absolute Trust recorded a positive 0.80% return, in another tough month to outperform by 2.56%.

The Bennelong Long Short Equity Fund rose 2.37%, to outperform by 4.13%.

KIS Asia Long Short Fund returned a positive 0.67% for the month, to give an out-performance of 1.30% against the Asia Pacific ex Japan index.

The Alexander Credit Opportunities Fund returned +0.55% for the month of February.

Morphic Global Opportunities Fund fell 2.24% in February, underperforming its benchmark (MSCI AC World Total Return in Australian Dollars), which fell 1.65%, by 0.59%.

The Newgate Real Estate and Infrastructure Fund returned -0.24% for the month of January.

FUND REVIEWS released this week: Insync Global Titans Fund  

And on that note, have a great week-end.

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.