Last week we wrote of the unfamiliar weakness of the ASX in November, and the apparent disconnect between the local market and the US. In December the ASX200 has continued to decline with a range of less than positive news damaging investor confidence and enthusiasm. November's general market weakness was put down to some pre-Christmas fatigue, profit taking to chase a range of new IPO's (which have been largely uninspiring on debut) possibly some broader political/economic concerns, and finally some offshore selling on concerns for a weaker A$.

Not so long ago there was hope for returns of 25% for the ASX200 in 2013, which with a week and a half to go look more likely to be 15%. To the end of November Equity based funds in AFM's database had returned just under 20% YTD, much in line with the ASX200, with 82% of funds to date outperforming in November.  

With the A$ trading below US$0.90 the currency view was certainly correct, assisted by some overnight comments from RBA Governor Stephens who would be happy to see it fall further.  Elsewhere this week the decision by General Motors to finally bite the bullet and cease manufacturing Holden cars in Australia from 2017, based on uncompetitive labour costs and agreements and the equally uncompetitive currency, probably helped. 

Coupled with the previously announced decision by new Treasurer Hockey to knock back the foreign takeover of GrainCorp, and the posturing about "eavesdropping" on our neighbours by Australia's security agencies (after all, amongst other things, isn't that what they're there to do, and don't they do the same to us?) and there hasn't been too much positive news on the political or economic front.

All is not lost though. The Wallabies seem to be getting their mojo back. Australia are two up in the cricket against the "old enemy" England... surely we can't blow it from here? And there you have it: The sun's shining, the beach beckons, the Christmas parties are in full swing.  It's all a case of priorities!

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

Morphic's Global Opportunities Fund returned 5.48% in November and 41.50% for the previous twelve months with a volatility of 9.06% p.a. Fund exposure was 112% net at month-end and 169% gross with a VAR of 1.30% at the 95th percentile.  Largest sector exposures were Financials, Information Technology and Consumer Discretionary with geographic exposure dominated by North America.

The top three active positions were US financials, a Global Cylical Basket and a Data Centre Spread with the first two positions net long and the last position net flat. The Fund also had currency position in the USD/Yen and an interest rate position that was long European Rates.

The Bennelong Kardinia Absolute Return Fund returned 0.15% during November and 14.73% for the previous 12 months as compared to the S&P/ASX 200 Index return of 23.18% but with a volatility of 2.83% as compared to 11.51% for the Index. Since inception in May 2006 the Fund has delivered 14.10% p.a. (4.69% Index) with a volatility of 7.78% (14.70% Index).

Short positions in Westpac and Westfield and long positions in Henderson and Macquarie were the largest positive contributors to performance, whilst long positions in Sirius and Carsales were the largest detractors. The Fund's net equity market exposure decreased to 56.9% (86.6% long and 29.7% short).

Monash Absolute Investment Fund returned -0.58% in November and 35.0% over the last year with a Sharpe Ratio of 3.49. The Fund had a month-end net exposure of 98% and gross exposure of 107%. Notable risk statistics for the Fund are the draw-down of -1.35% (S&P/ASX 200 Accum -6.72%), Up capture ratio of 0.69 and Down capture ratio of -0.13 with 76% positive months. All data is since inception in May 2012.

The Manager discusses a number of portfolio holdings including Emerchants, Technology One, Ozforex and Emeco Holdings.

The Insync Global Titans Fund returned 4.4% during November and twelve month return of 23.47% with low volatility of 6.67% p.a. The Fund's continues to record sound risk statistics with an annualised volatility of 8.36% p.a. (S&P/ASX 200 Accumulation Index 12.24% p.a.), a maximum draw-down of 4.39% (15.13%) and a down capture ratio of -0.52.  

The biggest contributors for the month were Time Warner Cable (a subject of takeover speculation), Coach, Wyndham Worldwide, Reckitt Benckiser and Oracle. The Fund benefited from the depreciation of the Australian dollar during the month, having no foreign exchange hedging in place.

FUND REVIEWS updated this week include:

BlackRock's Multi Opportunity Fund offers broad diversification across asset classes including equities, fixed income, currencies and commodities with an attractive risk profile, having provided double digit returns in 2009 through 2012 with low volatility of 4.17% since inception. 

The current strategy has seen the Fund record only three negative months since May 2010, leading to annualised returns over the past 48 months (to October 2013) of 11.74% and an annualised volatility of 2.16% pa. The four year Sharpe Ratio is 3.60, indicating an excellent reward-to-risk ratio.  BlackRock's Active Scientific involves extensive research into every aspect of the investment process starting with the identification of fundamental investment insights. These are thoroughly tested to ensure that the outcome consistently adds to performance: Quantitative analysis is also applied to balance both performance and risk ensuring the position is only taken when the potential for reward is adequate. Only insights meeting this multi level process are implemented into portfolios.

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.

While on the subject of cricket, today's the anniversary of the birthday WG Grace in 1850. And now for something completely different, Dionne Warwick's birthday was yesterday. Here she is in 2000 in a live tribute to Burt Bacharach and Hal David. It's a long clip, but you don't have to watch it all.

On that note, enjoy the week-end!

Regards,

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.

BLACKROCK MULTI OPPORTUNITY FUND

ATTACHED FILESBlackrock Multi Opportunity Fund Monthly Performance Report October 2013 (pdf format)

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