The Choice: Tip Top Returns, or Capital Protection?

For a while it looked as if October's equity market performance was set to continue September's fall of over 5%, but a "V" shaped recovery mid month saw markets bounce back into positive territory, no doubt to the relief of most Fund Managers and their investors, particularly those in the long only category.

In Australia that saw the ASX200 Accumulation Index rise 4.43%, recouping some, if not all of September's 5.38% fall, while the US market, which hadn't suffered as much in September (for example the S&P500 had only fallen 1.4%) rose 2.44%, although broader global indices such as the MSCI All Country Index only managed a positive return of 0.25% in A$ terms.

Meanwhile, at this stage it is too early to tell how Australian absolute return funds fared in October with only a handful of results to hand. However looking back at September most earned their keep, with the average avoiding almost all of the market's fall, by posting an average return of -0.17%. Within that average the usual wide spread of returns was evident, with the best up 7.6%, and the worst down -13%.

On a year to date basis the average equity based fund had returned 4.97% to the end of September, outperforming the ASX200 Accumulation Index which had returned 2.42%, a far cry from the buoyant returns of 2012 and 2013. Over the past 12 months the same pattern emerged, with equity based funds up 10.8% vs the Index at 5.93%, and with 75% of all funds outperforming the market.

Often criticised for being risky, this puts hedge funds' performance in unmistakable perspective: Absolute return funds (on average) provide better risk adjusted returns than the underlying markets, albeit that in particularly strong periods they may lag them. As capital protection takes precedence over performance in most investors' minds this makes a good case for both the funds, and the industry as a whole.

However, not all funds are alike, so make sure you select the right fund!

UPCOMING EVENTS:

Don't miss out! Thursday 13 November in Sydney Best Cellars Night of Global Investment Themes.
Presented by Insync Funds Management, enjoy an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore, together with a tasting of some truly interesting wines from all corners of the world.

25-27 March 2015 Digital Marketing for Banking and Financial Services Summit.

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

The Allard Investment Fund returned 3.20% in September, ahead of the benchmark MSCI Asia Pacific ex Japan (A$) at -1.0%, with 12.96% annual return.

Microequities Deep Value Microcap Fund returned 1.66% during October as equity markets rebounded, with 12 month performance at 16.37% and a volatility of 7.41%.

The Monash Absolute Investment Fund returned -0.3% in October with 12 month performance at 4.83% with a volatility of 8.02%.

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

Insync Global Titans Fund; Totus Alpha Fund; Bennelong Long Short Equity Fund; Nanuk Global Alpha Fund

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.

Global Megatrends and Innovations not available in Australia

13 November at Sydney Royal Exchange

Insync Funds Management would like to cordially invite you to an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore together with a tasting of some truly interesting wines from all corners of the world.

Join us and learn:

• In a post-GFC economy what are some of the mega-trends that will shape the global economy over the next decade;
• The importance of investing in the knowledge leaders who are driving product innovation in their respective industries;
• What exceptional opportunities can be found offshore to complement your Australian shares portfolio.

Venue: The Royal Exchange of Sydney, 1 Gresham Street , Sydney

Date:    Thursday 13th November 2014

Time:    5.30 - 7.30pm

RSVP:    Click here to RSVP or call David Johns from Insync Fund Managers on 0412 679 136

ATTACHED FILESBest Cellars Night of Global Investment Themes (pdf format)

NANUK GLOBAL ALPHA FUND

Attached is our most recently updated  Fund Review on the Nanuk Global Alpha Fund.

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.

• Nanuk's strategy is based on increased economic development, the limitations of conventional energy sources and proliferating energy security issues that are leading to long-term structural shifts in the way energy is generated, managed and consumed. Similar pressures are causing changing landscapes for food, water and environmental management.  These developments present a range of innovative and compelling investment opportunities.
• Nanuk has identified a large, diverse global universe of companies positively exposed to these shifts. Nanuk combines deep fundamental research into these companies with detailed analysis of technological development, policy direction and related economics within each of the relevant sectors to identify profitable trends and opportunities suitable for inclusion in the Fund.
• Nanuk's principal strategy is to invest, long and short, in securities that are mis-priced on an absolute or relative basis. The Fund aims to achieve long term capital appreciation while reducing volatility of returns and risk of capital loss through appropriate hedging and risk management strategies. 

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

Sean Webster

Research and Database Manager

Australian Fund Monitors

ATTACHED FILESNanuk Global Alpha Fund AFM Report September 2014 (pdf format)

BENNELONG LONG SHORT EQUITY FUND

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

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.

• 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 twelve year track record and annualised net returns of 17.49% pa.
• 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.
• Fund performance was muted for the month as the market drifted without any strong thematic and investors were subject to merger and
  acquisition activity/speculation, yield/defensive buying and stock specific issues. Our assessment is that the April factors that
  negatively impacted fund returns, which were of a more global nature, were persisting early in the period but since have abated. Fund activity
  was limited in May as our view of market fundamentals have not really changed.

Sean Webster
Research and Database Manager
Australian Fund Monitors

ATTACHED FILESBennelong Long Short Equity Fund AFM Review - Sept 2014 (pdf format)

• Totus Capital is a Sydney based long short fund manager established in 2012 by Ben McGarry which aims to place equal emphasis on performance and capital preservation.  The Fund invests mainly in Australia, but also in other developed economies, with a primary exposure to equity markets.
• The Totus Alpha Fund?s investment strategy is to identify structural themes, and then seek to drive performance by investing in securities that have concentrated exposure to those themes.  Single stock short positions are used to generate alpha, frequently in under researched parts of the market such as the small and mid-cap space. Index derivatives are used to hedge the portfolio?s market risk.
• McGarry qualified as a Chartered Accountant with PWC in 1999 and has 14 years market experience, commencing his career covering European building materials and construction sectors at Morgan Stanley in London. Previous experience included analytical roles at Ausbil, a Sydney based $10bn+ long-only manager, and sell side emerging companies experience at UBS. McGarry?s emerging company research with UBS included exposure to a range of sectors including energy, materials, industrials, tech, financials, retail and telecommunications.
• The Fund has delivered an annalised return of 26.92% since inception in March 2012 as compared to 16.37% for the ASX 200 Accumulation Index. The standard deviation has been higher than the Index at 13.64% as compared to 10.47% and the Sharpe ratio is 1.62.  

ATTACHED FILESTotus Alpha Fund AFM Review Sept 2014 (pdf format)

The great QE policy experiment ended overnight, (or at least QE3 ended) with the sky failing to fall in. In fact far from tanking, the market took the well telegraphed end of taper in its stride, with the S&P500 up 0.6%. Whether this was a case of relief that "nothing" happened or not will remain to be seen, but in reality it is hardly likely that the FED will start to tighten interest rates for at least six months.

As far as economic experiments go QE1, 2 and 3, along with the Taper have been pretty extraordinary. Like them or loath them, the US economy, particularly employment, has managed to pick itself up off the floor having been knocked there by a combination of lax (or minimal) regulation, some financial wizardry, and plenty of good old fashioned greed.

Rising interest rates now remain the big test, not only to the economy, but also to the markets. All the economic indicators suggest the US economy will be able to manage the orderly raising of rates reasonably well. Markets may well be a different matter if there's a stampede out of equities, but the question is, where to?

Any increase in rates will see falling bond prices, particularly at the short end. Over time higher bond yields will prove attractive, but coming off such a low base this will certainly take time. Volatility, or at least the fear of it, would appear to be the biggest risk to equity prices while there are so few alternatives other than cash.

Assuming the FED can manage an orderly increase in rates (sufficient to avoid spooking the equity market) then inflation might be the great unknown risk. However with the recent declines in energy prices, and the strengthening US dollar, this would seem unlikely also.

The problem is that risk always appears when least expected, and often from the least expected direction. (Think 9/11).

That still leaves plenty of opportunity for China, Europe, emerging markets and geopolitical factors to play their part.

And on that note, have a happy and relaxing, worry free week-end.

UPCOMING EVENTS:

Don't miss out! Thursday 13 November in Sydney Best Cellars Night of Global Investment Themes.
Presented by Insync Funds Management, enjoy an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore, together with a tasting of some truly interesting wines from all corners of the world.

25-27 March 2015 Digital Marketing for Banking and Financial Services Summit.

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

In a difficult month for equities the Insync Global Titans Fund returned 3.81%, bringing it's 12 month return to 13.86% with volatility of 8.09%.

The KIS Asia Long Short Fund returned -0.08% during September and 8.21% for the prior year with a volatility of 2.73%.

Bennelong Long Short Equity Fund returned -3.59% in September, a weak month for domestic equities (ASX 200 Accum Index -5.38%).

With a volatility of 0.57%, Laminar Credit Opportunities Fund returned 0.84% during September and 9.54% for the prior year (compared with the RBA Cash Rate of 2.50%).

The Cor Capital Fund's diversification was seen in September when the Fund fell 1.03% compared with the ASX 200 Accum Index which fell 5.38%.

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

Bennelong Alpha 200 Fund; Alpha Beta Asian Fund

This week's Now For Something Completely Different... Why didn't the skeleton go to see a scary movie? He didn't have the guts.

Best wishes for a happy halloween 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.