The volatility that had been threatening Australian equities for the past few months, but which had stubbornly refused to be reflected in the market, hit home severely in September with the ASX 200 Accumulation Index down -5.4%.

To put that into context, it's the worst performance by the Australian market since May 2012 (-6.64%) and the first time since August 2012 that the rolling 12 month return (+5.93%) has dipped into single figures. On a year-to-date basis the accumulated return of the ASX 200 is now just 2.42%.

At the same time, and undoubtedly connected, the Aussie dollar also took a bath (or at least a cold shower) as a combination of poor commodity prices, particularly iron ore as China's buying slowed, a resurgence in the US dollar on the back of the end of QE, and the threat of impending increases in US interest rates saw capital outflow across the Pacific.

The funds in the best position are likely to be those with offshore and US dollar exposure in particular, provided they had limited currency hedging in place.

None of this was particularly surprising, and in fact to many fund managers it was somewhat inevitable. Investor's incessant chase for yield, particularly in the banking sector, had seen valuations stretched, with more than a few managers struggling to outperform while staying true to type. While it is early days yet for accurate indications for September returns, those that we have seen indicate the manager's ability to outperform in falling markets.

For hedge funds in particular the past two years have not been the easiest of times, and whilst none will particularly like the falling market, the increase in volatility, and their general ability to protect capital will reinforce their value to investors.

Specific results received this week include the following PERFORMANCE UPDATES:

The Allard Investment Fund (Asian equity) returned 0.40% during August and 9.35% over the preceding year with a volatility of 5.46%.

During August, the Morphic Global Opportunities Fund delivered a return of 1.28% and 14.57% over the previous 12 months with a volatility of 8.23%.

CPD points are available for all FUND REVIEWS released this week including:

Insync Global Titans Fund; Bennelong Kardinia Absolute Return Fund; 

UPCOMING EVENTS:

15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.

21-22 October in 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.

Friday 24 October in 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... with a long weekend approaching, double demerit points are in force, so whatever you do, drive safely or take alternative forms of transport. This clip is quite sobering, but should be watched by everyone to remind us that we aren't invincible. 

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.

INSYNC GLOBAL TITANS FUND

ATTACHED FILESInsync Global Titans Fund August 2014 (pdf format)

And now for something completely different to start with. Hedge Clippings on a Monday.

The past couple of weeks have seen two "exit" news items out of the USA which have caught the attention of the absolute return sector. Firstly CalPERS, (California Public Employees' Retirement System) a significant and longstanding hedge fund investor, decided to exit their entire $4 billion exposure to the sector, followed last week by the news that investment manager Bill Gross, frequently cited as one of the industry's gurus and a founder and 40 year veteran of PIMCO, with a total of $2 trillion in FUM had quit to join the much smaller Janus Capital Group.

As this article from Forbes explains, while CalPERS' $4 billion seems a significant chunk of capital, it represented only a small portion of the $300 billion they manage in total. If one used the Australian Future Fund's hedge fund exposure of 16% as an example, CalPERS would have to increase their allocations by a massive $44 billion to match it.

CalPERS cited fees, performance and complexity as being amongst the reasons for their exit from hedge funds, and we have no doubt all are a significant factor. But with only just over 1% of their assets allocated to any one sector, it made it difficult (and expensive) to make a significant difference to their overall performance, which incidentally hadn't been too good.

The problem comes down to the trade-off between size and performance. It has long been understood that while the majority of institutional investors' capital flows into the largest 10% of funds, it is equally accepted that this is not where the best returns are to be found.

Take Bill Gross' fund at PIMCO for example. Over the past 15 years he provided returns in the top 12% of his peers, but over the past 12 months he has lagged to be in the bottom 20%. At his new home, Janus Capital Group, he will reportedly have just $13 million in FUM, and be in a significantly better position to outperform once again.

Anecdotal evidence suggests that there were other issues in his exit from Pimco, including differences of opinion over management. While his new fund won't have the luxury of the management fees he was earning, he will have the flexibility and freedom to return to being a nimble investor, one of the key drivers of small to medium funds' out performance of their larger competitors.

It seems size isn't just important, it just matters.

Specific results received this week include the following PERFORMANCEUPDATES:

KIS Asia Long Short Fund returned -0.1% during August and 9.57% over the prior twelve months with a low volatility of 2.65%.

Results for August show the Laminar Credit Opportunities Fund returned 0.53% for a 12 month return of 9.64% (RBA Cash Rate average 2.50%) with a volatility of 0.59%.

The Auscap Long Short Australian Equities Fund returned 5.24% during August, a strong out-performance of the equity market return of 0.62%, with a 12 month performance of 44.87% and a volatility of 6.55%.

Pengana Absolute Return Asia Pacific Fund returned 0.60% in August and 7.57% for the year with a volatility of 2.85% and a Sharpe ratio of 1.72.

During August, the Totus Alpha Fund delivered 2.02% bringing the 12 month performance to 37.96% with a volatility of 15.63%.

CPD points are available for all FUND REVIEWS released this week including:

Monash Absolute Investment Fund; Microequities Deep Value Microcap Fund; Optimal Australia Absolute Trust; Alpha Beta Asian Fund

UPCOMING EVENTS:

15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.

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.

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, this guy should buy a lottery ticket, he wasn't even wearing a helmet.

Best wishes for a happy and healthy week 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.

ALPHA BETA ASIAN FUND

ATTACHED FILESAlpha Beta Asian Fund August 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 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 - August (pdf format)

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 Microcap Fund Review August (pdf format)