September Fund Performance

With close to 90% of single fund performances to hand, September is looking to be a pretty normal month for AFM's database of over 300 funds. By normal, I guess we're talking about averages - the ASX200 accumulation index rose 2.19% and the AFM Equity Fund Index as good as matched that at +2.17%.

Beyond that the breakdown and distribution of returns, be it by individual fund or strategy, was anything but stable: Equity based funds significantly outperformed those in the non-equity category, which only managed to return 0.49%.  Based on returns to date 32% of all funds outperformed the ASX200 and 84% provided positive returns, with individual performances as varied as ever, ranging from -12% through to +13%. While that might seem extreme, it is not particularly unusual as the distribution of returns over the past 12 months ranges from -42% through to +70%, with just over 25% outperforming the ASX200.

So there's nothing "normal" about hedge funds, each and every one is individual.

Meanwhile the Hedge Fund Association's Australian chapter held a seminar this week with David Walter of PAAMCO as the guest speaker. David has extensive industry experience and discussed the current environment for local funds wanting to raise institutional capital offshore. Amongst his other insights were:

• Cayman is the preferred fund domicile for international investors, although Europe and UCITS structures are making some inroads.
• An independent and appropriately experienced board of directors is becoming mandatory.
• Operational issues and compliance are increasingly important, including independent reporting lines to the board for risk and operations executives.
• The days of the "2 and 20" fee structure are gone, as are lockups and long redemption terms (although AFM's data shows this has long been the case locally).
• Transparency is essential, quoting one investor whose policy is "Why should we trust you with our money if you won't trust us with your information".

With the exception of the Cayman Island structure it would seem there's little difference between the demands of institutional investors here and overseas, it is just there are less of them locally and they allocate to the sector less.  So David's advice to managers wanting to raise FUM offshore to (apart from the above prerequisites) "travel, travel, travel" would seem spot on.

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

The Auscap Long Short Australian Equities Fund gained 5.84% in September, taking YTD performance to an impressive 34.48% as they approach thier first anniversary.

Pengana's Asia Special Events (onshore) Fund rose 0.88% in September and 3% for the quarter, noticing a significant pick up in opportunity.

The Intelligent Investor Value Fund  has a 12 month return of 42.68% and annualised return since inception (November 2009) of 15.09%.

Pengana's Australian Equities Fund returned 1.38% in September to take it's 12 month performance to 24%, matching the ASX Accumulation Index, but with significantly less volatility.

FUND REVIEWS that have been updated this week include:

The Optimal Australia Absolute Trust is a specialist Australian equity investment manager with a long/short strategy, and has out-performed the market since it's inception in September 2008.

Insync's Global Titans Fund shows the fund delivering an annualised return of 9.26% and annualised standard deviation of 8.34%.

The Morphic Global Opportunities Fund recently completed it's first year of operation, having returned 29.91% over 12 months with volatility of under 10%.

BlackRock's Australian Equity Market Neutral Fund has a market neutral strategy that gains exposure to long and short positions in Australian equities.

EVENTS

Hedgeopolis New York is being held on 4 November at the Metropolitan Club. Use AFM's discount code "fundmo" to obtain a discount, or contact Adriana Costov for additional information.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on 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.

And now for something completely different, this video is called Funny Friday and I hope it brings a smile to your face.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities Fund (pdf format)

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. The Bennelong Kardinia Absolute Return Fund rose 0.93% in September.

Long positions in Bank of Queensland, Seek and JB Hi-Fi were all meaningful positive contributors. The largest detractors from performance were Share Price Index Futures contracts (hedging long positions), CSL and BHP. Net equity market exposure including derivatives was increased slightly to 29.6% (67.7% long and 38.1% short).

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.

Australian Fund Monitors

ATTACHED FILESBennelong Kardinia Absolute Return Fund (pdf format)

Wiser heads than mine (and the market) all predicted that the US debt ceiling debacle would be resolved prior to the deadline simply because the option of not finding a resolution was going to be completely unacceptable. I have to admit to not being as confident based on the view that Obama was intent on defining his presidency on Obamacare, and he had to draw a line in the sand somewhere, having compromised previously. I think I got that part right.

What I failed on was the view that the Tea Party hardheads would cave in as they did, making somewhat of a mockery of their previous rhetoric and arguments.

As it came to pass they (the wiser heads) were correct, but there still seems to be the issue that we are likely to have to go through the whole exercise again early in the new year. That's not to say that the Tea Party minority might not wake up to themselves in the meantime, who knows.  What does seem certain is that Obama scored a major victory, and will be encouraged to continue to stand his ground next time around.

What is interesting is that in spite of the world's largest economy going to the brink of defaulting, the S&P500 was still within a whisker of all-time highs even if volatility did increase over the previous few weeks. That presumably is a reflection on the market's view that QE3 is unlikely to be tapered any time soon under new Treasury Secretary Janet Yellen.

On a different note there was an article in last Friday's Financial Times entitled "Population growth and the labour market" from 1950 through to 2100 which, if you are a student of demographics as an indicator for economic growth and activity, made for interesting reading. In total the global working age population has grown from  1.53 bn in 1950 to 4.54 bn today, and is forecast to reach 6.53 bn by the end of this century.

The breakdown by various countries however is of greater interest and significance with China (currently with a working age population of 1 bn, up from 332m in 1950) and India (800m, up from 223m) and to a lesser degree the US (210m up from 102m) dominating the numbers at present.  Looking forward to 2100 however China's working age population is forecast to decline to 614 million, while India's will increase to 1.1 bn by 2050 before declining to 930 million. The US will steadily increase to 261 million by 2100 with the real game changer being Nigeria, which having had a working age population of only 20 million in 1950, and has less than 100 million now, but is predicted to reach 600 million by 2100. 

Indonesia is currently in fourth place at somewhere north of 150 million, reinforcing the point made to me during the week by Wayne Peters of Allard Partners that 43% of the world's population currently live in China, India and Indonesia, and hence their focus on investing in those three countries. The interesting question of course is not only the growth of each country and region, but as the FT article points out how to find jobs for those of working age, and how to support their variously expanding aging populations. 

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

The Optimal Australia Absolute Trust recorded 0.43% in September bringing it's since inception (Sept 2008) return to 10.85% vs 5.00% for the ASX 200 Accum. The Fund's risk controls are indicated by the very low annualised volatility of 3.62% vs 15.37% for the Index over the same time frame. 

Despite very rich valuations, defensive yield and financials still seem to attract the majority of fresh money flows in our market, and the Fed's recent actions may continue to limit the perceived utility of valuation for a while longer, dangerous as that is. In this environment, hedging risk has been a frustrating and expensive exercise, although in the Manager's view, an increasingly essential one. Risk still strikes the Manager as being asymmetrically priced, with only low single-digit returns on offer from equity and debt securities if things hold together, and the prospect of much more substantial losses if they do not.

Insync Global Titans Fund has just completed its fourth year with a return of 9.26% (ASX 200 Accumulation 7.03%) and annualised volatility of 8.34% (Index 12.35%) since inception. The main detractors for the month were GlaxoSmithKline, General Mills and SAP. The largest positive contributions came from our holdings in Reckitt Benckiser, British Sky Broadcasting, Safran and Nestle. Safran has more than a 75% market share in narrow-body aircraft engines, an industry with very high barriers to entry.

The Morphic Global Opportunities Fund  returned 0.26% during September and 29.91% for the last 12 months achieved with a notable Sharpe ratio of 2.91. The Fund had a net exposure of 98% and gross exposure of 139% at month-end. The Fund ended the month underweight the US and overweight Japan, Europe and Emerging Markets; reflecting the view that a trend that began in April of industrial and cyclical stocks outperforming more defensive equities is set to continue.

BlackRock Australian Equity Market Neutral Fund has a low overall risk profile with an annualised volatility of 5.69% (13.19% for the Index) since inception in Sept 2001. The Fund returned -0.64% during September.

The Fund had little net exposure to the global risk sentiment effects, with offsetting long mining and short mining services positions. Stock picking within the domestic sectors added value, especially during the lead up to the August reporting season, when many companies made pre-emptive announcements to foreshadow poor results.

FUND REVIEWS that have been updated this week include:

The Bennelong Kardinia Absolute Return Fund The Bennelong Kardinia Absolute Return Fund rose 0.93% in September. Long positions in Bank of Queensland, Seek and JB Hi-Fi were all meaningful positive contributors. The largest detractors from performance were Share Price Index Futures contracts (hedging long positions), CSL and BHP. Net equity market exposure including derivatives was increased slightly to 29.6% (67.7% long and 38.1% short).

EVENTS

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

A free event being held for Fund Managers next Friday 25 October at KPMG Sydney offices that may be of interest is the HFA Australia Charter Symposium. Register here.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace Hotel in Sydney. Details are here.

Hedgeopolis New York is being held on 4 November at the Metropolitan Club. Use AFM's discount code "fundmo" to obtain a discount, or contact Adriana Costov for additional information.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on 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.

And now for something completely different, a good example of why you should not stop to assist stranded vehicles.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook