BLACKROCK AUSTRALIAN EQUITY MARKET NEUTRAL FUND

ATTACHED FILESBlackRock Australian Equity Market Neutral Fund (pdf format)

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities Fund AFM Review - Dec 2013 (pdf format)

One month into 2014, and one day into the Chinese Year of the Horse, and volatility is back with a vengeance. Not being an expert in such things as lunar cycles, and not believing too much in tea leaves or horoscopes to determine our futures I won't try to draw any conclusions between the two. What is clearly apparent is that markets and investors knew US tapering would have to start eventually, and with the first round occurring in December the next one would be sooner rather than later.

One old market adage is that they (markets) don't repeat themselves, but they do tend to rhyme. When readily foreseen or well telegraphed events finally occur, how come the markets react after, rather than leading up to the tipping point? A primary cause of this must be the psychology of many participants not changing over the decades, or down the centuries. For all the advanced technology available to investors, or maybe in part because of it, markets continue to rhyme.

So volatility has spiked, with emerging markets and currencies being particularly hard hit. No reasonable investor should be surprised given a number of well-known managers and market commentators have been saying for the last few months that the 20% returns from the ASX for each of the past two years would be a hard act to follow in 2014.

Risk will becoming a driving force once more, and with some exceptions, absolute return and hedge fund managers will once again prove their worth as being more adept at avoiding unpleasant surprises. For the record the average equity based fund in AFM's database has matched or bettered the annualised performance of the ASX200 accumulation index over the past one (20%), five (12.5%) and 10 years (9.6%) but with half or less the market's volatility.

The challenge, as always is knowing which are the exceptions, and which are exceptional.

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

Auscap's Long Short Australian Equities Fund delivered 2.57% during December and, taking full advantage of buoyant equity markets, returned 51.86% for the year.

The Pengana Australian Equities Market Neutral Fund returned 3.6% during December and 19.11% for the year to December 2013, a sound performance given it's correlation of -0.03 and neutral market exposure.

Allard's Investment Fund had a flat December and returned 11.64% for the previous twelve months with a low standard deviation of 6.99%, in line with its conservative investment philosophy.

FUND REVIEWS RELEASED THIS WEEK:

AFM's updated Fund Review for Insync Global Titans Fund for December 2013 shows the Fund delivering an annualised return of 11.41% and annualised standard deviation of 8.50% (since inception in October 2009) with sound risk-reward statistics.

Bennelong's 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%.

FUTURE EVENTS

Last days to register for the HFA Sydney Institutional Investor Roundtable  on 5 February 2014: This event is a roundtable discussion with refreshments provided. It is the second of the HFSB 2014 series of global institutional investor roundtables where investors and managers present practical case studies on topical issues. Held at the KPMG offices in Sydney, this is a FREE event, all welcome.

12 February 2014: Investment Administration Conference - Efficiency in a Regulated World. Doltone House, Hyde Park, Sydney.

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 to celebrate the Super Bowl this weekend, here is one of the cute commercials newly released for the occasion, and another that's just plain funny (and gross).

On that note, I hope you have a happy and safe weekend and Happy Chinese New Year (Kung Hei Fat Choi) as we move forward into the year of the Horse.

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

INSYNC GLOBAL TITANS FUND

ATTACHED FILESInsync Global Titans Fund AFM Review - December 2013 (pdf format)

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% pa.
• Fund performance was satisfactory this month despite a major surprise profit warning and substantial correction by one of the long financial positions (QBE Insurance Group).  At the sector level, strong returns were made in Industrials and Health Care and Financials and Consumer Staples recorded negative returns.
• Since inception in January 2003 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 1.26 and the Sortino ratio at 2.20, 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)

It is generally accepted that the bigger a fund becomes, the greater the inflows it receives. That might sound pretty obvious the other way around (in other words, the larger the inflows, the larger it becomes) but the reality was confirmed this week with figures produced by HFR in their Global Hedge Fund Industry Report.

Amongst the numbers showing the industry FUM as a whole now totals US$2.63 trillion, the concentration of inflows by fund size was significant according to  HFR numbers. For the full year to December 2013, investors allocated $40 billion to firms with greater than $5 billion, $16.6 billion to firms with between $1 billion and $5 billion in AUM, and $7.2 billion to firms with less than $1 billion in AUM.

Given the relatively fewer numbers of large funds with $5 billion or more under management, this left the high number of smaller firms, (although $1 billion is significant by Australian standards) fighting over the smallest piece of the pie. What is interesting is that the weighted average return of the HFR Index was only 9.2% for the year, a pretty underwhelming result given the S&P500 gained around 30%.

While not privy to all HFR's data, what is clear is that Australian managers, both large and small, generally performed well above their global peers in 2013, with an average return across all strategies of 15%, and with equity based funds returning over 20%. To be fair these averages were not weighted by FUM, but given the returns of two of the largest managers in AFM's database, Platinum and Magellan, both with over $15 billion, returning an average of 42%, the weighted result would be even higher.

Both Platinum and Magellan invest offshore, so would no doubt receive some benefit from the falling $A, but nonetheless both provided excellent returns.

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

Pengana Australian Equities Fund returned 1.27% during December with a month-end cash balance of 22%. Annual return was 18.60% (S&P/ASX 200 Accum 20.12%) with a volatility of 7.82% (Index 11.43%).

The Optimal Australia Absolute Trust returned 0.54% during December ending the month with a net exposure position of 11.1%.

Aurora Fortitude Absolute Return Fund returned 0.74% during December and 7.57% for the last 12 months with a volatility of 1.58% and only one month of negative returns. The Fund also recorded positive returns for the four months the equity market was negative over the last year.

The Totus Alpha Fund returned -0.39% during December and 60.19% for the year to December. Top contributors to performance over the month were long positions in Australian index futures +1.72%, Japanese index futures +1.6% and a short in Transfield Services +0.75% (mining services).

Intelligent Investor Value Fund returned 0.38% during December and 44.21% over the last twelve months with a set of very strong risk statistics, notably a Sharpe ratio of 3.36.

FUND REVIEWS RELEASED THIS WEEK:

The Bennelong Kardinia Absolute Return Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. The Fund returned 1.11% in December 2013, taking returns for the year to 14.78%, broadly in line with annualised returns since inception in May 2006 of 14.10%. By month-end the Manager had increased the Fund's net exposure to 74.8%, 82.5% long and 7.7% short.

FUTURE EVENTS

5 February 2014: HFA Sydney Institutional Investor Roundtable - Complimentary roundtable discussion with refresments provided. This is the second of the HFSB 2014 series of global institutional investor roundtables where investors and managers present practical case studies on topical issues.

The Hedge Fund Standards Board is a standard setting body for the global hedge fund industry, which brings together investors and managers from around the world to promote high standards of practice in the industry. It is custodian of the Hedge Fund Standards which: (a) provide a mechanism for promoting transparency, integrity and governance; (b) facilitate investor due diligence; (c) help safeguard the reputation of the industry; (d) complement public policy.

12 February 2014: Investment Administration Conference - Efficiency in a Regulated World. Doltone House, Hyde Park, Sydney.

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, Sam Kekovich, Lambassador for Australia encouraging us to throw a bit of lamb on the barbie this weekend.  For the benefit of our overseas recipients, Monday 27 January is an Australia wide public holiday and we will be taking advantage of a relaxing 3 day weekend.

On that note, I hope you have a happy and safe Australia Day long 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. For more information visit www.cpresearch.org.au or contact me by email.