There's been widespread comment in both the mainstream and industry media over the past couple of weeks about the proposed changes to FoFA, particularly relating to conflicted remuneration (a.k.a. commissions) and financial advisers' fiduciary obligations (a.k.a. acting in the client's best interests).  Without wishing to enter into the debate in too much detail we would have thought both were only aimed at a small minority of financial advisors, with the vast majority complying irrespective of any legal obligations.

As with many such things it is always the actions of the minority that lead to the creation of laws, rules and regulations, as generally common sense and sound ethics prevail. In the case of financial services when a product issuer has to offer significant incentives, such as a commission of over 5% to an advisor, to gain support for their product it is pretty safe to assume there's a catch, and its the investor who's caught. Think Trio's Astarra for example.

As a result the whole industry ends up with a significant ongoing regulatory burden, and as at present, more change and potential uncertainty. To be fair the government's stated objectives of the current changes to FoFA are to reduce compliance and the regulatory overhead, but one aspect which does help the consumer is simple and clear transparency. Generally speaking disclosure over fees and costs is now transparent, even if not always easy to fully understand. Similar disclosure over an advisor's potential conflicts, commissions and parent ownership would not go astray.

Meanwhile regulatory changes around licencing and custody of assets are also in the wind, both of which will increase compliance costs for fund managers, and hopefully towards the end of 2014 we will see the outcome of the David Murray chaired inquiry into financial services, which is almost guaranteed to change the regulatory landscape further.

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

Monash Absolute Investment Fund returned 0.80% for January, a strong performance against the Index (-3.03%) and 26.7% for the latest 12 months.

The Pengana Australian Equities Market Neutral Fund returned -2.5% during January, a weak month for local equities which fell -3.03%, and 12.52% for the previous 12 months.

The Paragon Fund focusses on core competencies in the resource and industrial sectors. The Fund deploys a high conviction, long bias strategy, focusing on proprietary, fact based research. The fund returned -1.1% for January and 14.10% over the previous six months. It has recorded a Sharpe ratio of 2.00 since inception and strong up and down capture ratios of 0.70 and -0.18 respectively

FUND REVIEWS RELEASED THIS WEEK:

Bennelong Kardinia's Absolute Return Fund returned -2.12% in January 2014, taking returns for the year to 9.91%, with annualised returns since inception of 13.62%.

FUTURE EVENTS

27-29 March 2014: Superannuation Fund Back Office: 2014 Forum in Sydney convenes those responsible for superannuation member administration and investment operation services. It has been designed to explore emerging efficiencies and best practice in a number of key areas.

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

On that note, I hope you have a happy and safe weekend.

Best wishes,

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.  

Cerebral palsy is the most common physical disability in childhood. But despite the incidence of CP, on average only $1 million is invested into CP research each year. To put that into perspective, Australia spent over $10 million on New Year's Eve fireworks last year. We're not suggesting that fireworks money should be spent on CP research, but it just goes to show how drastically underfunded research into cerebral palsy is.

If you believe, like us, that something must be done about this, please sign the pledge and share with your friends today. Your name will help us raise awareness for more CP research funding. Thank you! For more information visit www.cpresearch.org.au or contact me by email.

What a difference a year makes! If you're getting older (like me) another year under the belt - sometimes literally - doesn't change much except to add a fraction more experience, a couple of kilo's move downwards from the chest, while on the negative side one subtracts a few grey cells.

If you're at the other end of the scale, and just arrived into the world like young Molly, the latest addition to the extended Gosselin "Brady bunch", then a year makes a massive difference, as she grows, and goes, from crawling to walking. OK, so she might not be reading this, but I'm sure you get the picture.

To most investors however an extra year falls between the two, depending on what year it is, or was, and where on the timeline of life one sits.

I was reminded of this during the week by Sean Webster, AFM's Head of Research, who had put together some tables and charts of one, five and ten year returns for a range of absolute return and hedge fund strategies, comparing them against the ASX200. In addition to the wide diversity of returns of each strategy from year to year, the headline statistics looked pretty impressive, and from the perspective of the annualised returns of the funds and the ASX, reasonably consistent.

For the record to December 2013 the annualised returns of each were as follows:

Over ten years the ASX200 Accumulation index returned 9.63%, while hedge funds returned 10.95%.

Over five years the ASX200 returned 12.45%, while hedge funds returned 12.57%.

Not bad, and pretty consistent as mentioned earlier, except for the range of returns by individual sector or strategy which varied dramatically.

Add in one year though to take in 2008, and what a difference a year makes:

Over six years the ASX200 returned 1.72% per annum, while hedge funds returned 5.91%

If there was one consistent statistic over all three time frames it was their respective levels of risk, with hedge funds running at half the volatility of the underlying market which ranged from 13.21% (five years), 13.53% (over ten years), to 15.79% (over six years), compared with 6.90%, 7.80% and 8.75% from hedge funds.

Whichever the time frame, the ASX200's volatility was invariably higher than its return.

And on that sobering note..

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

Morphic's Global Opportunities Fund primarily consists of Global listed shares, and will generally have at least 50% of its net assets invested in same. The fund returned 34.52% for the previous twelve months.

The Optimal Australia Absolute Trust returned 0.57% during January, a weak month for domestic equities, and 1.60% for the last twelve months with a volatility of 1.83%. Since inception in September 2008 the annualised return is 10.34%.

Bennelong Kardinia's Absolute Return Fund is an Australian domiciled equity long/short fund investing in ASX listed securities. The fund has returned 9.91% over the previous twelve months.

The Aurora Fortitude Absolute Return Fund returned 0.32% during January and 8.12% for the previous 12 months with a very low volatility of 1.39% (S&P ASX 200 Accum 11.54%).

Insync's Global Titans Fund investment strategy is driven by fundamentals combined with active risk management. The fund returned 23.33% over the last year with a Sharpe ratio of 2.47.

FUND REVIEWS RELEASED THIS WEEK:

BlackRock's Multi Opportunity Fund current strategy has returned 8.85% pa since inception (July 2004), annualised volatility of 4.14% and 13.88% and only three negative months since May 2010.

FUTURE EVENTS

21 February 2014 in Sydney: AIMA's Hedge Fund Regulatory Update provides an update on Hedge Fund regulations including the Investment Manager Regime; ASIC Regulatory Guides 166 and 133 plus more. No charge to attendees.

27-29 March 2014: Superannuation Fund Back Office: 2014 Forum in Sydney convenes those responsible for superannuation member administration and investment operation services. It has been designed to explore emerging efficiencies and best practice in a number of key areas.

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

And now for something completely different, I would simply like to wish my beautiful wife a Happy Valentines Day. As they say, "happy wife, happy life".

On that note, I hope you have a happy and safe weekend.

Best wishes,

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.  

Cerebral palsy is the most common physical disability in childhood. But despite the incidence of CP, on average only $1 million is invested into CP research each year. To put that into perspective, Australia spent over $10 million on New Year's Eve fireworks last year. We're not suggesting that fireworks money should be spent on CP research, but it just goes to show how drastically underfunded research into cerebral palsy is.

If you believe, like us, that something must be done about this, please sign the pledge and share with your friends today. Your name will help us raise awareness for more CP research funding. Thank you! For more information visit www.cpresearch.org.au or contact me by email.