Volatility Reigns

The volatility that has been threatening markets for the past 12 months has finally taken effect, but even so the lifeline that central banks in both the US and Europe have thrown the financial system over the past few years still seems to be distorting how markets are reacting.

In part this could be a result of comments in some quarters in the US that there should be a pause in the QE taper. Looking at the trading on the S&P 500 over the past few days shows an extraordinary level of intraday volatility, with Wednesday probably the prime example when the market fell from 16,200 to below 15,900 in a matter of hours, only to immediately bounce just as sharply back to where it had come from (almost).

Bond markets have been equally volatile. There certainly seems to have been plenty to be concerned about over the past six months, and the surprise to many has been that the markets have not given way earlier. This undoubtedly has been due to central banks on both sides of the Atlantic distorting "normal" market action, and one can only wonder how much of the intraday activity noted above has also been central bank related.

In the face of all this absolute return fund managers tend to come into their own. This was certainly the case in September for Australian fund managers. Against a fall of 5.38% by the ASX 200 Accumulation Index, the average of all funds' September returns to date is -0.22%. Separating equity-based hedge funds makes some, but little difference, with their average return -0.43%, effectively an outperformance of 5%. Most importantly they are, by and large, protecting their investors' capital.

Obviously it hasn't all been plain sailing, and those funds with US dollar exposure have benefited accordingly, and no doubt improved the averages. Also benefiting the absolute return sector is that many funds have been increasing their cash allocation, while most also been reducing their net exposure over the past six months.

While there are various commentators urging investors to treat this as a great buying opportunity, it would seem to us that caution in the current environment is a more prudent strategy.

Specific results received this last fortnight include the following PERFORMANCE UPDATES:

Supervised High Yield Fund returned 0.54% during August and 6.95% for the year (RBA Cash Rate average 2.5%) with a volatility of 0.70%.

During August, the Nanuk Global Alpha Fund returned 0.52% and 16.39% for the prior year with a volatility of 8.98%.

The Monash Absolute Investment Fund returned -4.30% during September, a very weak month for domestic equities, which fell 5.4%. The Fund's annual return was 8.27%.

Still in it's first year of operation, the Bennelong Alpha 200 Fund returned 0.56% during September.

Optimal Australia Absolute Trust returned 0.64% during September, a month in which the ASX 200 fell -5.38%. Optimal's 12 month return is 6.51%.

The Morphic Global Opportunities Fund returned 3.20% in September and 17.93% for the prior 12 months with a volatility of 8.39%.

In a weak month for domestic equities the Microequities Deep Value Microcap Fund returned -2.59% bringing 12 month performance to 16.31% with volatility of 7.40%.

Bennelong Kardinia Absolute Return Fund returned -0.31% during September, while ASX 200 Acc stocks fell 5.38%, bringing annual performance to 5.29%.

CPD points are available for allFUND REVIEWS released this week including:

Supervised High Yield Fund; Totus Alpha Fund; Morphic Global Opportunities Fund; Aurora Fortitude Absolute Return Fund; Optimal Australia Absolute Trust; Microequities Deep Value Microcap Fund

UPCOMING EVENTS:

21-22 Octoberin Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.

Next Friday 24 Octoberin Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

This week's Now For Something Completely Different...Bill Bailey, who is performing in Sydney tonight, teams up with Robin Williams keeping it Royal.

Best wishes for a happy and healthy weekend,

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.

MICROEQUITIES DEEP VALUE FUND

Attached is our most recently updated Fund Review on the Microequities Deep Value Fund.

• The Microequities Deep Value Fund has a 5 year track record investing in ASX listed equities.  The Fund is a fundamental, research-driven Fund investing in equities with a market cap below $250m. The Fund uses a value philosophy based on the view that microcaps are often under-researched and under-valued.CIO Carlos Gil has over 15 years financial market experience across a broad range of equities.
• The Fund does not short, use derivatives or borrow i.e., it is long  only and is concentrated; usually with 15 to 20 companies across industrial sectors.
• Resource stocks are avoided.

If you have any questions in relation to the Fund Review or the CPD points, please do not hesitate to contact us.

ATTACHED FILESMicroequities Deep Value Fund AFM Report Sept 2014 (pdf format)

OPTIMAL AUSTRALIA ABSOLUTE TRUST

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

CPD Points are now available for all AFM Fund Reviews. Read the review and answer 5 questions to earn half a point toward your continuing professional development.

We would like to highlight the following:

• 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 Fund's approach to risk si shown by the Sharpe ratio of 1.80, Sortino ratio of 5.29, both of which are well above the ASX 200 Acc Index, and volatility of 3.41%. The Fund has also recorded 85% positive months.
• The investment team comprising George Colman, Peter Whiting supported by Stephen Nicholls and Justin Hay have over 100 years combined experience in equity markets.

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

Sean Webster
Research and Database Manager
Australian Fund Monitors

ATTACHED FILESOptimal Australia Absolute Trust AFM Fund Review Sept 2014 (pdf format)