November Performance:

November saw the ASX200 decline for only the fourth month since June 2012, falling 1.94%, or 1.31% on a total return basis. The Australian market also disconnected from the S&P500 which rose 2.8%, and the A$ also lost ground. November fund results are positive overall, currently +1.59%, although with only 10% of fund reports to hand it is early days yet.

Even with the limited sample size there's a clear indication of where the action was in November, with the combination of positive offshore markets and a falling A$ clearly evident.  Funds investing in Asia are currently averaging +5.2% for the month, Asia ex Japan +4.91% and Global +2.76%. Meanwhile Australian strategies are negative -0.18%. Only one week into December and there's some unfamiliar softness around the local market, with managers reporting that local investors are cashing up to take advantage of the pre-Christmas IPO rush, and offshore investors are concerned about potential further weakness in the A$ on the back of a stronger US currency.

There could also be some investor fatigue, combined with the realisation that 12 month equity returns of 25% don't continue forever. Perhaps some disappointment over what's looking like the shortest political honeymoon in history is also having an effect, along with the realisation that actual forward earnings might not match current expectations. Overseas indications are that QE tapering will eventually end, with US 10 year bond futures moving towards 3% also pressuring offshore markets.

Christmas cheer of the liquid kind might also be distracting some local  investors, with only two week's full trading remaining before the traditional summer break looms for most market participants, with indications that many won't return to the fray until mid-January at least.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Cor Capital Fund returned 0.56% during October and has delivered a return of 6.05% p.a. since inception (August 2012) with a volatility of 6.41%; in line with its goal of stable medium-term returns with liquidity, transparency and balance.

The Manager comments that during October the Fund's equities holdings contributed the most to performance (+1.07%) and this was partly offset by precious metals (-0.46%). Following a movement of some asset classes above defined limits, funds were allocated to precious metals and away from equities, fixed interest and cash at the end of the month in line with the Fund's re-balancing policy. This active risk management is critical to the Fund remaining prepared for a range of market outcomes.

BlackRock Multi Opportunity Fund returned 1.54% during October and 6.69% over the last 12 months with a volatility of 2.16%.

The Multi Opportunity Fund delivered strong performance in October with strong contributions from both Global Equity Long/Short and European Equity Long/Short strategies. The International Alpha Transport, Fixed Income Global Alpha and Australian Equity Long/Short strategies also added value. The fund returned 1.83% gross of fees versus the RBA cash benchmark return of 0.21%. Year to date, the Fund has returned 7.36% gross of fees.

The Australian Equity Long/Short strategy's performance benefited from an overweight to iron ore producers versus other miners. Underweight positions in mining services companies were also profitable with further downgrades across the sector. Other outperforming positions were over-weights in wealth managers which continue to run due to exposure to the rising market, and positive stock selection within the healthcare sector. The main performance detractors came from underweight positions in domestic cyclicals such as building materials, retail and media.

The CSAG Long Only Program returned -0.28% during October and -7.09% for the previous twelve months in a difficult commodities market. At month-end the Fund's allocations were approx Soft Commodities 8%, Grains 5%, Energy 20% and Metals 25%. The residual of 42% was in cash.

Since inception in April 2004 the Fund has delivered 5.68% p.a. as compared to the Dow Jones- UBS Commodities Index return of -0.30% p.a. over the same time frame. Annualised standard deviation for the Fund was 13.18% as compared to 18.26% for the Index.

FUND REVIEWS updated this week include:

The Aurora Fortitude Absolute Return Fund (AFARF) has a 8 year track record investing in ASX listed equities. A 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.CIO John Corr has over 20 years financial market experience with a strong focus on risk.

Significant use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. Annualised return since inception is 8.17% with a very low standardised standard deviation. Over 87% of monthly performances have been positive, with no losing months in 2008 and a largest drawdown of -2.09%.

ASX listed Aurora Funds Limited was established on the merger of three existing fund management businesses, managing approx. $480m on behalf  of more than 2,500 retail and wholesale investors.

BlackRock's Australian Equity Market Neutral Fund portfolio generally consists of approx. 180 stocks in equally weighted long and short portfolios to maximise potential returns while minimising market volatility. The strategy has recorded a return of 12.01% since inception (Sept 2001) as compared to the ASX 200 Accumulation Index return of 8.80% and with a volatility less than one-half that of the Index at 5.67% pa as compared to 13.18% pa.

The Fund has also recorded a maximum drawdown of 12.41% as compared to 47.19% for the Index and has had 78% positive months since inception.

Blackrock operates in 27 countries including Australia (where BlackRock has A$48.6 billion in FUM - March 2013) managing a broad range of strategies across a variety of asset classes.

FUTURE EVENTS

12 February 2014: Investment Administration Conference - Efficiency in a Regulated World.

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

As we mentioned last week, for something completely different Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. Although we usually like to include a humorous clip every week, we were moved by watching Gavin's Bridge Climb and urge you to take a few minutes to see it for yourself.

Did You Know?

• Did you know that every 15 hours an Australian child is born with Cerebral Palsy, that means 1 in 500 babies. 
• Did you know Cerebral Palsy is the most common physical disability in children.
• Did you know that 1 in 3 children with cerebral palsy cannot walk; 1 in 5 children cannot talk; 1 in 4 children have epilepsy and 1 in 2 children live with chronic pain every day.
• The Cerebral Palsy Alliance Research Foundation was established in 2005 and over half of the most effective treatments have been discovered since then.
• Before 2005 less than $1 million per year was being spent in Australia on relevant research. 

For more information visit www.cpresearch.org.au or contact me by email [email protected]

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund AFM Fund Review October 2013 (pdf format)

Looking back over previous issues of "Hedge Clippings" we frequently mention the subject of demographics and the challenges ahead for Australia's and the world's economies, and society. Maybe that's an indication of the fact that in one way, as a member of the over '50's generation, advancing age, like an option's time decay, affects me more as I approach expiry. High on our list of concerns is the challenge facing governments regarding the expansion of the ageing population, longevity and the cost of lengthening retirements.

With that in mind this week we attended an excellent Deloitte's presentation of the findings of their research and forecast into the Dynamics of the Australian Superannuation System.  Space doesn't permit listing all the findings or recommendations, so you can find a copy of the presentation here.  However some pertinent facts include the projection that over the next 20 years:

• The value of assets in Australia's superannuation system will grow from the current $1.6 trillion to $7.6 trillion by 2033.
• This growth is based on the super guarantee level rising to 12% (deferring the introduction of the 12% level makes little difference) and an average annual return rate of 6.8%.
• Increasing the retirement age by 5 years from the current 65 to 70 would add a further $1 trillion.
• SMSF's, already the largest market segment will remain so, are forecast to grow to $2.25 trillion, with over one third of that held in post-retirement assets.
• For every three (tax paying) workers in 2033, there will be more than one retiree, most of whom will be on a government pension.
• While overall population growth is forecast at around 27%, it will exceed 100% in the age brackets of 75-80, 80-85, and 85+.

Meanwhile 50% of all children born today will live to be 100, and the life expectancy of a 65 year old retiring today is 85, and rising. Consider the fact that when the aged pension was first introduced in Europe, if you retired at 65 you were unlikely to live more than 3 more years.

Governments meanwhile are between a rock and a hard place, needing to fund the ageing and increasingly long lived and expensive retirees, but reluctant to take the unpopular decisions to do so.

So what's my point, apart from the fact that although technically correct that I'm a member of the over '50's generation, I am sadly beyond that milestone as well? Firstly given the above statistics, the 12% SGL is insufficient to fund most peoples' retirement.

Secondly, as far as investment strategy and asset allocation are concerned, finding a home for the $7.6 trillion in super over the next 20 years will force, or encourage, greater investment in global markets. 

And finally, although hard to achieve, a return of greater than 6.8% per annum will be required to fund a reasonable retirement, and in our (possibly biased view) that's more likely to be achieved through an increased allocation to absolute return strategies.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Totus Alpha Fund returned a very strong 14.2% for October bringing the since inception (April 2012) annualised return to 32.83%. The Fund has a Sharpe ratio of 1.76 and a Sortino ratio of 5.70 indicating a sound risk-reward ratio. The comparative data for the ASX 200 Accumulation is 1.42 and 2.14.

Auscap's Long Short Australian Equities Fund recorded a strong 5.46% during October bringing the six month return to 26.66%. The Fund's up and down capture ratios are notable at 1.02 and -0.62 respectively. The Fund's average gross capital employed was 122.8% long and 24.3% short. Average net exposure over the month was +98.4%. At the end of the month the Fund had 24 long positions and 7 short positions. The Fund's biggest exposures at month-end were spread across the consumer discretionary, financials, healthcare and telecommunications sectors.

The AFM Prism Active Equity Fund returned 1.29% (e) for October and has returned 6.08% p.a. with a volatility of 2.43% since inception.  The Fund is characterised by very low risk with a standard deviation of 2.43% as compared to the ASX 200 Accumulation Index number of 10.75%, a maximum draw-down of -1.42% (Index -6.72%) and a worst month performance of -0.62% (Index -4.50%). The Sharpe ratio was 1.27 and the average monthly return in negative markets was 0.49%. All statistics are since inception in October 2012. The Fund has re-allocated to three new funds to provide more upside exposure in buoyant markets while maintaining an ongoing focus on targeting low volatility. 

Aurora Fortitude's Absolute Return Fund returned 0.28% during October and 6.82% for the latest 12 months with a volatility of 1.67%. The Fund continues to deliver steady returns within a low risk framework with 88% positive months, a maximum draw-down of 2.09% (ASX 200 Acc Index 47.19%) and downside deviation of 1.31 (Index 10.80) since inception in March 2005. 

Yield was the best performing strategy for the month (+0.14%) and the Long/Short strategy also had a strong month (+0.11%).  As with many of the stronger monthly market moves, the Options strategy was again a draw-down (-0.12%). The S&P/ASX200 index puts and calls were a cost to the Fund as realisable volatility was lower than the implied volatility paid to own the market protection.

The Pengana Asia Special Events (onshore) Fund returned 1.10% for October with a long term performance (since Oct 2008) of 12.01% pa (Index 7.99% pa) and a low market correlation of -0.1. The Fund's risk statistics are sound with a volatility of 6.28% (Index 14.73%), maximum draw-down of 4.05% (Index 25.80%) and a down capture ratio of -0.46. The positive contribution from M&A positions dominated the performance for the month, and this continues to be the most significant component within the Fund's strategic allocation. Australian and Hong Kong / Chinese markets proved particularly profitable while solid gains were also made in India and Thailand. All strategies made positive contributions for the month. The Fund maintained an average net and gross exposure of 11% and 155% respectively. 

BlackRock's Australian Equity Market Neutral Fund returned 1.12% in October bringing its since inception (Oct 2001) return to 12.01% pa (ASX 200 Acc Index 8.80% pa) with a volatility of 5.67% (Index 13.18%). Notable are the Fund's maximum draw-down of 12.41% (Index 47.19%) and down-side capture ratio of -0.60. The Manager notes that the Fund's performance benefited from an overweight to iron ore producers versus other miners as the iron ore fines price remained above market expectations. Short positions in mining services companies were also profitable with further downgrades across the sector. Other outperforming positions were over-weights in wealth managers which continue to run due to exposure to the rising market, and positive stock selection within the healthcare sector. The main performance detractors came from short positions in domestic cyclicals such as building materials, retail and media.

FUND REVIEWS updated this week include:

The Optimal Australia Absolute Trust 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 has recorded out-performance of the market since inception in September 2008 with approximately 84% of monthly performances having positive returns and the largest drawdown -1.38%.

Bennelong Kardinia's Absolute Return Fund The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. Since inception in May 2006 the Fund has returned 14.24% p.a. as compared to 4.93% (S&P/ASX 200 Accumulation Index) with a volatility of 7.81% p.a., around one-half of the ASX volatility of 14.76% p.a. The Bennelong Kardinia Absolute Return Fund rose 2.17% in October. 

The Insync Global Titans Fund The 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. The Fund's unit price increased by 1.5% in October, with the largest positive contributions coming from our holdings in CR Bard, Reckitt Benckiser, Wyndham Hotels, British Sky Broadcasting and Sanofi. The main detractors for the month included Coach and Dr Pepper Snapple. Portfolio selection is 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. Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.

EVENTS

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

Now for something completely different, something completely different... Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. Although we usually like to include a humorous clip every week, we were moved by watching Gavin's Bridge Climb and urge you to take a few minutes to see it for yourself.

Did You Know?

• Did you know that every 15 hours an Australian child is born with Cerebral Palsy, that means 1 in 500 babies. 
• Did you know Cerebral Palsy is the most common physical disability in children.
• Did you know that 1 in 3 children with cerebral palsy cannot walk; 1 in 5 children cannot talk; 1 in 4 children have epilepsy and 1 in 2 children live with chronic pain every day.
• The Cerebral Palsy Alliance Research Foundation was established in 2005 and over half of the most effective treatments have been discovered since then.
• Before 2005 less than $1 million per year was being spent in Australia on relevant research. 

For more information visit www.cpresearch.org.au or contact me by email [email protected]

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

INSYNC GLOBAL TITANS FUND

ATTACHED FILESInsync Global Titans Fund (pdf format)

BENNELONG KARDINIA ABSOLUTE RETURN FUND

Attached is our most recently updated Fund Review. You are also able to view the Fund's Profile. 

The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. Since inception in May 2006 the Fund has returned 14.24% p.a. as compared to 4.93% (S&P/ASX 200 Accum Index) with a volatility of 7.81% p.a., around one-half of the ASX volatility of 14.76% p.a. The Bennelong Kardinia Absolute Return Fund rose 2.17% in October.

The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provide infrastructure, operational, compliance and distribution capabilities.

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

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESBennelong Kardinia Absolute Return Fund (pdf format)

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:

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 has recorded out-performance of the market since inception in September 2008 with approximately 84% of monthly performances having positive returns and the largest drawdown -1.38% 

The investment team comprising George Colman, Peter Whiting and Stephen Nicholls have close to 90 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 Review - October 2013 (pdf format)

The Government kicked off an overhaul of Australia's financial system this week by announcing the appointment of David Murray, the former CEO of the Commonwealth Bank and inaugural Chairman of the Future Fund to lead the inquiry promised during the election. It has been 16 years since the last major inquiry into Australia's financial system, and with this one due to report to the Treasurer by November 2014 it will be 17 years, and it will then no doubt take some time to implement - assuming the recommendations are accepted.

Given the changes in technology and financial markets since the Wallis inquiry of 1997, on top of the GFC and the ongoing changes to the world order, the report will be interesting. One hopes that the terms of reference are sufficiently broad, and the findings accepted (unlike the previous Government's Henry tax review). Submissions for the draft terms of reference are being accepted by the Government up until Thursday 5th of December 2013.  If you want to have your say, click here.

Meanwhile Business Insider is reporting on a speech by Larry Summers, who until he withdrew from the race was a strong chance to be the next Chairman of the US Federal Reserve. In the speech, Summers raised the issue that in the past the Federal reserve cut short-term interest rates during recessions to spur economic growth, but this time around the Fed has cut rates to zero, but there is still only a slow recovery.

The problem, argues Summers is that "the natural interest rate - were investment and savings bring about full employment - is now negative. However the Fed cannot cut the nominal rate below zero because people will choose to hoard money instead of putting it in the bank." The risk therefore being how would the Fed combat further weakness when rates are already at zero?

There is no doubt that the US recovery is going to take longer than anyone hoped or expected. Meanwhile Bloomberg are reporting that the ECB is considering charging banks 0.10% on their overnight cash deposits, in an effort to encourage them to lend the money instead. If the US recovery has a way to go one gets the feeling that Europe will be some way behind. And if this seems unlikely consider how long it has taken Japan to overcome their financial crisis over 20 years ago.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Pengana Australian Equities Market Neutral Fund delivered 1.0% for October and 8.5% for the last 12 months with a beta of -0.03 with the equity market.  Over the last 60 months the Fund has delivered an annual return of 9.23% as compared to the ASX 200 Accumulation Index return of 11.08%. However the Fund's low risk is indicated by a volatility of 8.03% (13.57% Index), maximum draw-down of 13.47% (15.13% Index) and downside deviation of 5.00 (8.95 Index). 

The Fund's fundamental Earnings Revisions factor rebounded during October as a raft of profit warnings including AMP and Qantas hit the market. Quality was once again favoured as risk appetite remained flat over the month. Against this the Value factor sold off slightly as investors headed back towards stronger balance sheets and more certain cash flows with dividend yield once again being sought out by the market.

Intelligent Investor Value Fund returned 2.5% during October bringing the 12 month return to 50.89% with a volatility of 9.93% p.a. The Fund has a four year track record returning 15.47% p.a. (Index 8.64% pa) since inception in October 2009 with a volatility of 13.86% p.a. (Index 12.38% p.a.) and a Sharpe Ratio of 0.83 (Index 0.42).

The Manager comments 'Buoyed by investor optimism, the market has gained 24.7% over the past 12 months (including dividends). It was significant helpings of luck and, we hope, some skill that allowed the Value Fund to return 50.9% over the same period. It's been a good year, but please don't get accustomed to these returns because they won't be repeated regularly, if ever again".

FUND REVIEWS updated this week include:

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%. Since inception in January 2002 the Fund has had 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. The Fund's risk statistics are also sound with maximum drawdown of 12.22% and 71% positive months. Both the Sharpe Ratio at 1.27 and the Sortino ratio at 2.23, indicate a high reward-to-risk ratio. 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 Morphic Global Opportunities 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 and the strong emphasis on risk is evidenced by the Fund's annualised standard deviation of 8.71% (10.01% ASX 200 Accum Index), maximum drawdown of 1.57% (6.72% Index) and downside deviation of 1.74 (5.30 Index). 

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

EVENTS

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

This week, now for something completely different wishes Jamie Curtis a happy birthday. Here she is in our favourite A Fish Called Wanda clip with another great actor, John Cleese.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

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 a ten year track record and annualised net returns of over 20%.
• Since inception in January 2002 the Fund has had 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.
•  The Fund's risk statistics are also sound with maximum drawdown of 12.22% and 71% positive months. Both the Sharpe Ratio at 1.27 and the Sortino ratio at 2.23, indicate a high reward-to-risk ratio.
• 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.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESBennelong Long Short Equity Fund (pdf format)

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities Fund (pdf format)

It seems as if Janet Yellen's approach to keeping the US market's momentum intact is somewhat similar to Mario Draghi's approach to saving the Euro. Namely "whatever it takes".

There's no doubt ongoing QE is great for equity markets, and probably consumer confidence. In due course it may even fix the employment issue as it is designed to do. In the meantime it is a little surreal, and we wonder if QE will ever end? After all in the short term it is not costing the Fed anything other than paper and ink to keep the printing presses turning. There's no actual hard cost - that will presumably come later, but who knows when?

So US equities look cheap on a relative basis while interest rates remain close to zero. Company profitability is underpinned to a degree, even if forward earnings estimates are reducing. Just when or how the market is going to wean itself off QE is an issue that will need to addressed eventually. And in the meantime, as equities continue to rise so does risk.

Australia's equity market has broadly kept pace over the past 12 months with the ASX200 rising 25.4% on a total return basis. There's no surprise that taken as a whole the absolute return sector has lagged over the past 12 months. Overall 28% of funds in the database have outperformed the ASX, with equity based funds providing 21.65% on average, and equity long, and equity 130/30 well ahead of the pack, and equity long short not far behind.

On another tack John Daley, Chief Executive of the Grattan Institute wrote an interesting article in the October issue of the institute's magazine, linking the futures of the superannuation industry and the Australian economy. Follow this link to read his view on the challenges of the federal budget, an ageing population and increased costs of healthcare and the aged pension.

This week, now for something completely different takes a more humorous look at the challenges facing the rest of the community as a result of the ageing population.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Allard Investment Fund recorded 0.3% for October. Since inception (July 2003) the Fund has returned 8.74% with a low volatility of 8.00% pa as compared to 13.8% for the MSCI Asia Pacific ex Japan (A$) Index and a maximum draw-down of 18.29%. 

At month-end the Fund was 70.7% invested in equities with the remaining 29.3% in cash and fixed income. In terms of portfolio concentration the Top 5 holdings were 41.2% and the next 5 at 16.9% with remainder totaling 12.6%. Industry break-down in terms the largest exposures are Financial Services 15.4%, Conglomerates 12.3% and Telco's at 8.6%. 

Bennelong Kardinia's Absolute Return Fund  recorded a sound performance of 2.17% during October with a net exposure of 71%. Twelve month performance was 15.37% with a volatility of 2.68%. The Fund's longer term record demonstrates the low risk investment approach with the five year performance record showing an annualised standard deviation of 7.15%, 52% of the ASX 200 Accum Index, and a return of 12.84% pa (11.08% Index). 

The domestic market was focussed on the AGM season with trading updates and commentary generally cautious. Banks performed strongly with ANZ and NAB reporting solid results and increased dividends.

The Insync Global Titans Fund  returned 1.47% over October and 20.7% over the previous twelve months with a very low volatility of 6.12%. The Fund continues to show lower risk characteristics with a since inception (October 2009) volatility of 8.26% p.a., maximum draw-down of 4.39% and downside capture of - 0.42. Comparative ASX 200 Accum Index stats are a volatility 12.33% p.a. and maximum draw-down 15.13%. Notably the Fund has moved its holding of cash and puts to 9.9% from 2.2% the previous month. 

Signs of modest economic recovery continue and the US earnings season has been broadly supportive. Although revenue growth is still hard to come by earnings have more often than not surprised on the upside, particularly in the more cyclical sectors such as Consumer Discretionary. Forward guidance by companies is still generally conservative and share prices have risen faster than earnings, making markets look fully priced. 

The Fund's unit price increased by 1.47% in October, with the largest positive contributions coming from our holdings in CR Bard, Reckitt Benckiser, Wyndham Hotels, British Sky Broadcasting and Sanofi. The main detractors for the month included Coach and Dr Pepper Snapple. 

Pengana Australian Equities Fund  returned 2.29% during October with a cash weighting of 22% at month-end. Over the last 12 months the Fund has returned 23.93% (25.48% Index) with a volatility of two-thirds of the ASX 200 Accum Index. The top five holdings by value were: DUET Group, ANZ Bank, Telstra, Resmed and NAB. 

The Fund increased its existing holdings in Resmed (post the sharp reaction to its lower than expected turnover growth by the US market), McMillan Shakespeare, Summerset, Mermaid Marine and David Jones. In addition the Fund acquired a new holding in new listing Australian Industrial REIT (a well-managed high quality industrial property group on an attractive yield). The Fund's exposure to non Australian dollar earnings streams (inclusive of companies with global earnings profiles such as Resmed and Fox Group, NZ based companies and US dollar exposure) stood at 22%. 

The Optimal Australia Absolute Trust returned 0.32% for October 2013 bringing its five year performance to 10.84% p.a. (11.08% pa ASX 200 Acc Index) with a volatility of only 3.66% (13.57% Index). Notably the Fund's maximum draw-down since inception in September 2008 is 1.38% as compared to the Index maximum draw-down of 33.11%, indicating the Manager's strong aversion to capital losses. 

The Manager comments "In our view, a lot of the easy money in equities has been made. Those investors who backed central banks to either print money forever, or to eventually create decent economic growth, have done very well, and continued to do well in October. From here, however, it gets harder. Financial repression has driven equity valuations to levels that require a sharp acceleration in growth for stock prices to hold, and there are still many questions over the degree and sustainability of that acceleration. We believe that we are reaching a point at which the market has to make up its mind as to whether or not QE policies may finally work. While resources stocks have finally stopped falling, the compound under-performance of this group over three years certainly suggests that investors remain sceptical on growth."

FUND REVIEWS updated this week include:

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

Portfolio construction is stock selection agnostic with a bias to value based and momentum strategies. Risk management is a primary consideration in portfolio construction and the strong emphasis on risk is evidenced by the Fund's annualised standard deviation of 8.71% (10.01% ASX 200 Accum Index) and maximum drawdown of -1.57% (6.72% Index) and downside deviation of 1.74 (5.30 Index).

EVENTS

Limited places are still available for IPARM Australia 2013 in Sydney next week on 18-19 November. The conference will cover Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

Also on 19 November, at the Renaissance Hotel in Hong Kong - the Art of Asset Management - free for senior asset management professionals from both global and local asset management firms. View the agenda here.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook