Hey! Big spenders.

Thankfully we only have one more week (well eight days if you want to be pedantic) of this election campaign to endure.  I have to say it's been pretty colourless given the leadership events of the past three years. Even (or maybe particularly) the leadership debates between PM Rudd and PM in waiting Abbott have been tedious, save perhaps for one brief "won't this guy ever shut up" moment.

Most people think the outcome's a foregone conclusion, and today's AFR reported that one bookie has already paid out on a bet that the coalition will win. I'm presuming that no-one, not even the man himself, backed Clive Palmer to win his seat, but who knows, stranger things have happened.

What is a certainty is that there'll be a big black budget hole whoever wins, and at the risk of carrying on where we left off last week, sooner or later governments either need to spend less, or increase income (aka tax), to prevent it becoming larger. 

Expenditure on health, education and welfare runs at around 60% of federal government's total payments. This has remained reasonably constant since 2007/8, and is forecast to remain so out to 2017.  However, in dollar terms these three areas have increased by 38% since 2008, and are forecast to increase by a further 20% by 2017.

That's a compound increase of 66% in ten years, assuming the forecasts are correct, which I doubt.

The difficulty the politicians face, and indirectly the country faces, is that outlining the inevitable solution as part of an election manifesto is likely to see you spend the next three years in opposition, and probably the three beyond that as well.

Anyway, roll on next week's election. After that I promise not to mention it again.  By the way, that's likely to be as good as a politician's promise.

In other news, the AIMA Hedge Fund Forum will be held on Tuesday 10th September at Hilton Hotel, Sydney. For further details visit AIMA Australia's website or register here.

Some specific results received this week include the following Performance and News Updates

Pengana Asia Special Events (Onshore) Fund returned 1.09% over July 2013 and 11.35% for the previous 12 months with the Fund maintaining average net and gross exposure of 11% and 179% respectively over the month.  Capital Management trades contributed over half of the Fund's absolute performance during July and in terms of country positions Japan and Hong Kong / China proved the most fruitful, while Australian positions detracted slightly.

The Auscap Long Short Australian Equities Fund had a strong July returning 4.70% with an average net exposure of 53.1%. Average gross capital employed by the Fund was 107.1% long and 54.0% short. The Fund's performance since inception is now 25.35%.

BlackRock's Multi Opportunity Fund returned 0.40% for July and 7.18% for the last 12 months and notably this was achieved with a remarkably low risk profile and very strong risk-adjusted statistics. The annualised volatility is 1.59% vs 10.99% for the ASX 200 Accumulation Index over the last 12 months and a Sharpe Ratio of 2.50 as compared to 1.74 for the Index over the same time frame.

Updated AFM Fund Reviews were also completed on the following funds this week:

The Insync Global Titans Fund invests in a concentrated portfolio of 15-25 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection with portfolio selection 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... more..

BlackRock's Australian Equity Market Neutral Fund is managed by a 12 person Sydney based investment team following a systematic global research process investing in ASX listed stocks. The Fund's portfolio generally consists of approx. 180 stocks in equally weighted long and short portfolios to maximise potential returns while minimising market volatility... more..

The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities with a strong focus on risk. The Market Neutral overlay is used across a multi strategy approach which allows for flexible asset allocation to maximise returns and minimise risk under a variety of market conditions and cycles. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. The success of this strategy is shown by the fact that over 87% of monthly performances have been positive and most notably the Fund did not record any negative months in 2008, with the largest drawdown since inception in March 2005 of -2.09%.

For something completely different - following on last week from the photo of a nesting Falcon, we feature this clip featuring a different type of Falcon.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

INSYNC GLOBAL TITANS FUND

ATTACHED FILESFund Review: Insync Global Titans Fund (pdf format)

There has been a significant pickup in activity in the hedge fund sector over the past year, with a range of new funds being launched, and increased inflows from investors across the spectrum both locally and overseas. This has also been matched by increased activity from industry bodies, particularly AIMA under new Chairman Paul Chadwick and General Manager Brett Ireland. One significant initiative from AIMA is the upcoming Annual Hedge Fund Forum to be held on Tuesday 10^th September at Sydney's Hilton Hotel.

The AIMA Australia Hedge Fund Forum is Australia's leading hedge fund conference, and is being organised by the industry to cover a range of local and global topics.  The conference will feature a number of leading Australian and international speakers, including one of Australia's greatest hedge fund success stories, Sir Michael Hintze who will provide insights and a global perspective on the industry, and Gerard Minack, former strategist with Morgan Stanley.

Other speakers include ASIC's Greg Tanzer, APRA's Craig Roodt and Martin Codina from the Financial Services Council, and a wide range of Fund Managers including George Colman (Optimal Australia), David Hobart (Blue Sky Apeiron), Adam Phillips (Blue Fin Capital), Adrian Redlich (Merricks) and Gerard Satur (MST Capital).

Investors and Advisors will also be well represented, and include Simon Ford from ANZ Wealth, Michael Winchester from State Super Financial Services, Dr Alistair Rew from AMP Capital, David George from the Super Fund, and Miles Collins from the Myer Family Office.

Unlike many conferences which are outsourced to external organisers, this year's event has been organised by AIMA Australia and as a result pricing has been set to accommodate and encourage a wide range of industry attendees: Qualified investors will be admitted at no charge, and AIMA members will pay only $100.

For full details and registration visit AIMA Australia's website.

BLACKROCK AUSTRALIAN EQUITY MARKET NEUTRAL FUND

ATTACHED FILESFund Review:Blackrock Equity Market Neutral Fund (pdf format)

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund (pdf format)

A report in the latest Australian Banking & Finance this week quoting the Australian Bureau of Statistics report on household wealth and distribution in 2012 showed that just over 20% of Australian families can now claim to have household net worth of over $1 million.  This was up from 14.6% eight years ago, while those worth less than $50,000 have fallen from 14.6% to 12.7% over the same period.

Based on my simple logic this should equate to there now being more people with more wealth, and less people with less. However I have no doubt there are plenty of details within the overall numbers to hold true to the adage of lies, damn lies and statistics.  The headline numbers also seem to contradict the general anecdotal evidence in the community, given that eight years ago there was a raging bull market, the resources boom was building a head of steam, and the GFC in 2008 was yet to hit.

Household net worth averaged $728,139 in FY2012, down 4.1% over the previous 2 years on an inflation adjusted basis, while gross household assets averaged $858,200 with the average value of the home accounting for 43% of this, and investment property a further 15% for a total of 58%. 

These numbers tally with the results of a report by consultants WealthInsight reported in Alan Kohler's Eureka Report showing that those Australians with $1 million or more of investable funds (as opposed to the total value of household assets in the ABS numbers) have a total of just 28.8% in property of one sort or another.  

Superannuation was the second largest household asset in the ABS figures at 15.4%. Also released this week were figures showing the average contribution to superannuation had fallen significantly in 2013, presumably as a result in a reduction to $25,000 in the maximum permissible contribution.

Given the increasing proportion of the population at or approaching retirement age, when their taxation contribution reduces at the same time as the cost of their medical and aged care increases, I can't fathom why all politicians wouldn't want to increase retirees' financial self reliance through superannuation savings. 

Sooner or later one treasurer or the other is going to have to bite the budget bullet: The government either needs to spend less (i.e. reduce handouts where not justified) or increase income (otherwise known as taxation) whether the electorate like it or not.

Most households have worked it out.  Why can't the politicians?

Some specific results received this week include the following Performance and News Updates:

The Pengana Australian Equities Market Neutral Fund is notable for its low volatility relative to the ASX 300 and negative correlation with the same Index. Annualised standard deviation since inception in September 2008 is 8.1% p.a. compared to 15.58 for the Index while correlation is -0.04.  The Fund returned -0.5% during July and has returned 8.94% since inception with the risk and return data indicating the Fund is meeting its strategy goals.

Insync Global Titans Fund returned 3.87% during July and 23.60% over the last 12 months. The Fund has an annualised standard deviation of 8.71% pa as compared to the ASX 200 Accumulation number of 11.74% pa over the last 36 months. Returns over the same period were 14.16% pa with the Index at 8.79% showing that the Fund is continuing to deliver a return and risk profile in line with its strategy.

Updated Fund Reviews were also completed on the following funds this week:

The Bennelong Long Short Equity 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 a ten year track record and annualised net returns of over 20% pa. This very high rate of return has seen $100 compound up to $764 since inception in January 2003.

Optimal Australia Absolute Trust has a long/short equity strategy, typically has a low but variable net market exposure comprising 40 to 65 stock broadly selected from within the ASX200. The Fund is very risk aware and this is borne out in the risk data - approximately 84% of monthly performances have been positive with the largest drawdown only -1.38%. Annualised volatility is 3.66% as compared to 15.58% for the ASX 200 Acc since the Fund's inception in September 2008.

The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities with a strong focus on risk. The Market Neutral overlay is used across a multi strategy approach which allows for flexible asset allocation to maximise returns and minimise risk under a variety of market conditions and cycles. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. The success of this strategy is shown by the fact that over 87% of monthly performances have been positive and most notably, the Fund did not record any negative months in 2008, with the largest drawdown since inception in March 2005 of -2.09%.

For something completely different - I've received many remarkable nature photographs over the years but this photo of a nesting Falcon is perhaps the most remarkable Nature shot that I've ever seen. I hope you enjoy it as much as I did. Nature is truly breathtaking!

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

OPTIMAL AUSTRALIA ABSOLUTE FUND

Attached is our most recently updated Fund Review on the Optimal Australia Absolute Fund.  

We would like to highlight the following aspects of the Fund:

• Optimal Australia is a specialist Australian equity investment manager established in 2008.
• The Fund's long/short equity strategy portfolio typically has a low but variable net market exposure comprising 40 to 65 stock broadly selected from within the ASX200.
• The investment team comprising George Colman, Peter Whiting and Stephen Nicholls have close to 90 years combined experience in equity markets.
• Consistent out-performance of the market: Approximately 84 % of monthly performances have been positive with a largest drawdown of -1.38%.

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Optimal Australia Absolute Trust (pdf format)

BENNELONG LONG SHORT EQUITY FUND

Attached is our most recently updated Fund Review on the Bennelong Long Short Equity Fund.  

We would like to highlight the following aspects of the Fund:

• Research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a ten year track record and annualised net returns of over 20% .
• Portfolio Manager Richard Fish has over 25 years market experience, while Bennelong Funds Management, who have over $4.5 billion in FUM across various funds, provide infrastructure, operational and compliance functions.
• The Fund's Investment history commenced in January 2002 and has positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200.
• 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.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESBennelong Long Short Equity Fund (pdf format)

The debate on the timing and extent of the Fed's QE taper swung back in favour of "sooner rather than later" overnight as US 10 year yields climbed to their highest levels in two years, driven by a drop in unemployment claims, an improvement in the outlook for home building, and the US cost of living increasing for the third month in a row. With the US economy being so consumer centric it is no surprise that the jobs data has such a close correlation to everything else.

US Bond yields weren't the only ones affected.  Ten year yields were at their highs for 18 of 24 markets tracked by Bloomberg, while 65% of economists in Bloomberg's survey believe the Fed will start to taper at their next meeting, scheduled for mid September, which was up from 50% the previous month.

Equity markets were weak over night as a result, and as we have pointed out before, no one can claim they weren't warned that QE wouldn't last forever.  The S&P500 has risen 150% since its lows in early 2009, and has risen 20% in 2013 YTD.  For the time being at least the competing forces of the Fed's tapering plans vs an improving economy are likely to keep investors on the sidelines.

Reporting season won't help, both at home and in the US. Even though 72% of companies in the S&P500 index that have reported quarterly earnings to date have exceeded analysts' estimates, those that miss result in significant price falls.

August can traditionally be a difficult month for long/short managers as a result, although on a year to date basis to July AFM's index of equity funds has returned 11.27% against the ASX200 Accumulation Index return of 10.88%, with almost 30% of all funds outperforming.

Some specific results received this week include the following Performance and News Updates:

Optimal Australia Absolute Trust returned 0.35% over July bringing it's since inception (September 2008) return to 11.11% pa. The fund's risk statistics are notable. Downside capture ratios are -0.11, -0.12 and -0.22 over the last 12, 24 and 36 months respectively indicating that, on average, the fund has positive returns when the overall market is negative. Specifically, the fund has had positive monthly returns of 0.33%, 0.39% and 0.48% when the market is negative over the previous 12, 24 and 36 months.

The Pengana Australian Equities Fund returned 2.00% for July and now has an annualised return of 13.10% pa since inception in July 2008. As at 31st July, cash (including notes and preference shares) represented 28% of the Fund. The top five holdings by value were: DUET Group, ANZ Bank, Telstra, Resmed and the Caltex Group.

The Aurora Fortitude Absolute Return Fund returned 1.13% during July bringing it's since inception (Feb 2005) return to 8.29% pa with a very low volatility of 2.81% pa and maximum drawdown of 2.09%.

BlackRock Australian Equity Market Neutral Fund returned 1.92% for July. The since inception (August 2001) return is 12.23%.  The Fund's risk characteristics are notable with an annualised standard deviation of 5.71% and largest drawdown of -12.41% since inception, as compared to the ASX 200 Accumulation numbers of 13.27% and -47.19% respectively. In addition, over the same time frame, the Fund's up capture ratio is 0.11 and down capture ratio -0.60.

Updated Fund Reviews were also completed on the following funds:

The Morphic Global Opportunities Fund is an early stage, boutique, Sydney-based fund established in 2012 with experienced CIO's, and an investment team of 6 including a risk manager. The Board has a majority of independent members with significant risk and investment experience. The Fund is a global equity long/short manager with a long bias and a macro-economic overlay. The mandate allows the Fund to short sell, use derivatives and invest in assets such as commodities & currencies. Portfolio construction is stock selection agnostic with a bias to value based and momentum strategies. Risk management is a primary consideration in portfolio construction.

Morphic's philosophy is that only funds with flexible hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.

Bennelong Kardinia Absolute Return Fund is a boutique Australian based Fund Manager established in August 2011 in conjunction with the Bennelong Group to continue the management of the Herschel Absolute Return Fund. Long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record and an annualised return of 14.13% net of fees. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provides infrastructure, operational, compliance and distribution capabilities.

Key Performance and Risk Statistics indicate an attractive risk/reward profile, and a strong focus on capital protection in negative markets.

For something completely different - the dark and sultry tones of Leonard Cohen.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESFund Review: Morphic Global Opportunities Fund (pdf format)