NEWS
6 Sep 2013 - Hedge Clippings
Only one day left of the blandest, longest and most tedious election campaign ever. This one's been going on since January 30th this year, when then PM Julia Gillard called the election for September 14th - a record 32 weeks of campaigning.
Of course the real reason for the abnormally long campaign was that it meant her minority government was protected from the risks of a by-election in the meantime, and therefore could maintain power a tad longer.
If we have one thing to thank Kevin Rudd for when he finally plucked up the ticker to depose Gillard it must be that he shortened the campaign to 31 weeks. Phew!
We hope that the incoming government will at least win a clear mandate in both houses to allow them to govern in their own right, and come what may be judged on their record, not that of a hotchpotch of deals and compromise. That said one of the reforms we'd love to see is some real clarity on implementing Mark Johnson's recommendations from his November 2009 report into creating Australia as a Financial Centre.
There's no doubt Australia has the talent and the governance for its financial services and fund management sector to compete on the world stage. While the geographic realities make it difficult, the taxation environment makes it nearly impossible to do so.
It's too easy to sit back and let Australia's ever growing superannuation pool support the financial services industry, in the way we've let the mining industry keep the rest of the economy afloat for the past few years. Australia needs to compete on the global stage, and to do so the taxation treatment of offshore investors in local funds needs to become an incentive, not a disadvantage.
While on our soap box we were reminded this week by one fund manager that the increasing number of "My Super" products being announced by the larger super funds and financial houses will be rated by APRA based on fees, ahead of their net performance. There's nothing wrong with trying to keep fees as competitive as possible, and as transparent as possible, but surely they are not the primary method of comparison?
EVENTS
Just a few more days until the the AIMA Hedge Fund Forum , to be held next week on Tuesday 10th September at Hilton Hotel, Sydney. For further details visit AIMA Australia's website or register here. (This event is FREE for institutional investors).
Another 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.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
Bennelong Long Short Equity Fund returned 2.27% for August bringing the since inception (January 2003) return to 21.18% p.a. achieved with a down-capture ratio over the same time of -1.91% (in other words, the fund rose 1.91% for every 1% fall in the market).
The Monash Absolute Investment Fund returned 1.40% in August with a gross and net exposure of 86%, and a portfolio Beta of 0.59. Monash remarks that the outlook driven stocks reported very strong business growth and outlook statements. These are detailed in the Manager's Month End Note.
Updated AFM Fund Reviews were also completed on the following funds this week:
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 since 2009 with low volatility. The current strategy has seen the Fund return only two negative months since May 2010, leading to annualised returns over the past 36 months (to July 2013) of 12.81% (ASX 200 Accumulation 8.79%), an annualised standard deviation of 1.88% (11.74%) and a three year Sharpe Ratio of 4.62, significantly outperforming targeted returns and risk.
Hedge Funds: Two strategies working in 2013, written for the Eureka Report this week, tracks the performance of all hedge fund strategies over the last 7 years.
For something completely different - if you like the Game of Thrones series, you will love the "how to vote" style of Game of Seats.
On that note, enjoy the week-end, and may the best party win - and not have to return to the polls anytime soon.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
6 Sep 2013 - Bennelong Long Short Equity Fund
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| Manager Comments | The domestic full year reporting season was largely as expected with the market (ex resources) delivering +5% earnings growth an improvement from +2% the previous year from continued cost out which offset weak revenues. Dividends were again increased with the ASX200 payout ratio now 70% and close to its' historic peak. Fund performance was reasonably solid for August, with the long portfolio once again exceeding the negative impact from the short portfolio. Intra-month portfolio volatility increased as there was quite a few large share price swings around the release of full year earnings, with some focus on headline results. The vast majority of outlook statements given during the reporting season were relatively cautious. However, most companies felt that a decisive victory in the upcoming federal election would help confidence and stable policy would help accelerate investment. |
| More Information | » View detailed profile of this fund |
5 Sep 2013 - Hedge Funds: 2 strategies working in 2013
HEDGE FUNDS: 2 STRATEGIES WORKING IN 2013
Just as the various sectors of the stock market are subject to different performances over time, so fund strategies and styles of portfolio management differ over the investment cycle. This makes an investor's selection of managed funds, and particularly actively managed and alternative funds, vital to their portfolio performance.
The attached table shows the performance of each strategy in AFM's database over the past seven years, and highlights the inconsistency of performances, and as investors know well, that of financial markets in general.
There are a number of clear messages to take from this table in addition to the obvious one that the performance of the market itself is subject to extreme swings. Firstly, when the market performs strongly ('07, '09 and 2012) it outperforms most alternative or active strategies. However, when the market falls or performs badly, such as in 2008, 2010 and 2011, nearly all alternative and actively managed strategies perform better than the market.
This is logical and to be expected. Generally non equity assets and markets are not correlated to the share market (although this didn't hold completely true during the GFC) and the "short" side of many hedge fund portfolios acts much like an insurance policy: When the market goes up and the short positions underperform, you don't need insurance even though you have paid for it, but when the market goes down the short insurance "pays" for itself.
It's not quite as simple as that of course, as the ability of many fund managers to reduce their overall market exposure by moving to cash in negative markets also provides a significant opportunity to avoiding risk.
Equally, different funds within each strategy can provide wide ranging performances depending on the skill and implementation of their respective portfolio managers. In the attached report, Chart 1 shows the performance range of individual funds over the past 12 months, with performances ranging from -50% to +75%.
Best Performing Strategies:
Taking the past 12 months the range of performances of differing strategies has once again been wide ranging, as can be seen from Chart 2 in the attached report. Only two outperformed the strongly rising ASX200, but all the top performing strategies were equity based.
Over the past 12 months one strategy that has performed strongly is Equity Long, with an average performance of 26.37% benefitting from the broadly rising market. Some might question why "long only" funds are included in AFM's tables, but such funds generally have very concentrated, high conviction portfolios, some with only 15 or 20 positions, and many are able to adjust overall market exposure by holding significant cash exposure.
Equity 130/30 has performed even better with a performance over 12 months of +29.62%. Why? Because in equity 130/30 the manager short sells 30% of the portfolio by value, and uses the proceeds to increase their long exposure to 130%. Providing the stock selection is on target, the overweight long positions outperform the market, and the short positions either provide some protection, or add to performance if those stocks fall in value.
That's great in a rising market, but the opposite can occur if the market declines and the manager is locked into an overweight long exposure. This is clear when looking back over the seven year strategy performance table at the start of this article. Generally when the market falls, Equity 130/30 funds suffer more than the index and other equity funds as the leverage they provide magnifies the extent of the downside risk.
It is worth noting that there are variations to Equity 130/30 which AFM includes in the overall strategy category, such as 120/20 and 150/50. The logic and implementation tend to be the same, with the difference being the extent of the leverage or market exposure. Effectively these strategies all have fixed net exposures (calculated as their total long positions minus their shorts) of 100%, but with gross exposure (long plus short) of 140, 160 or 200%.
Critics of the 130/30 style argue that being locked into a fixed market exposure in all market conditions doesn't provide sufficient flexibility to dial the portfolio's risk levels either up or down as conditions change. However the strategy is gaining new followers amongst both fund managers and investors, particularly amongst previously long only advocates who are trying to find some risk mitigation in falling markets. Others argue that the leverage created by the gross exposure increases returns, but like all leverage also increases risk.
The alternative to Equity 130/30 is simply Equity Long/Short, which implies that the level of long, short, gross and net market exposure adjusts in line with the fund manager's view of the prevailing market and specific stocks. Normally these funds have a bias to the long side of the portfolio, but performances are governed by both their stock selection and overall market exposure. These funds make up the majority of the "actively managed" universe, both in Australia and overseas.
This in turn does create some bias in these performance tables as they are not adjusted for the weight of funds under management. Equally in those strategies with fewer funds the potential for statistical risk is greater. As always there's no substitute for research, and understanding each fund's investment strategy.
Chris Gosselin, Australian Fund Monitors ©
2 September 2013
Ph: 612+ 8007 6611
This article was written for the Eureka Report and published with permission on 2 September 2013
Hedge Funds: 2 strategies working in 2013 (pdf format)
4 Sep 2013 - Monash Absolute Investment Fund
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| Fund Overview | The fund seeks to identify opportunities in the share market to make positive returns (long and short) irrespective of market conditions. It is style agnostic, as compelling investment opportunities exist across all investment styles from time to time. The Fund places a high priority on capital preservation, and has an absolute return focus in accepting market risk. |
| Manager Comments | The Manager notes that the outlook driven stocks reported very strong business growth and outlook statements. These are detailed in the Manager's Monthly Note. During reporting season the Fund was active closing out 2 Pair Trades, 2 Short Sales and 4 other Event Trades. The Fund also participated in 2 IPOs, 2 placement and added 2 more Event Driven stocks to the portfolio. |
| More Information | » View detailed profile of this fund |
3 Sep 2013 - Fund Review: BlackRock Multi Opportunity Fund
BLACKROCK MULTI OPPORTUNITY FUND
Attached is our most recently updated Fund Review on the BlackRock Multi Opportunity Fund.
We would like to highlight the following aspects of the Fund:
- The Fund offers broad diversification across asset classes including equities, fixed income, currencies and commodities with an attractive risk profile, having provided double digit returns since 2009 with low volatility.
- 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.
- The current strategy has seen the Fund provided double digit returns with only two negative months since May 2010, leading to annualised returns over the past 36 months (to July 2013) of 12.81% and a three year Sharpe Ratio of 4.62, significantly outperforming targeted returns and risk.
Research and Database Manager
Australian Fund Monitors
Fund Review: BlackRock Multi Opportunity Fund (pdf format)
2 Sep 2013 - Intelligent Investor Value Fund
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| Manager Comments | Notably over the last 12 months the Fund's up-capture ratio has been 0.85 with the down-capture ratio -0.74, while the Sharpe ratio has been 2.65 as compared to 1.64 for the ASX 200 Acc. The Manager notes that gains were wide spread across a number of stocks and that given commodity prices have fallen substantially over the past six months, they had been scouring the market for opportunities in mining and mining services companies. As expected there were a lot of companies with serious problems in this area but amongst the wreckage the Fund had found a few interesting opportunities. Unfortunately the panic was short-lived and some of the stocks the Fund had been trying to buy had already risen significantly off their lows. |
| More Information | » View detailed profile of this fund |
30 Aug 2013 - Hedge Clippings
Hey! Big spenders.
Thankfully we only have one more week (well eight days if you want to be pedantic) of this election campaign to endure. I have to say it's been pretty colourless given the leadership events of the past three years. Even (or maybe particularly) the leadership debates between PM Rudd and PM in waiting Abbott have been tedious, save perhaps for one brief "won't this guy ever shut up" moment.
Most people think the outcome's a foregone conclusion, and today's AFR reported that one bookie has already paid out on a bet that the coalition will win. I'm presuming that no-one, not even the man himself, backed Clive Palmer to win his seat, but who knows, stranger things have happened.
What is a certainty is that there'll be a big black budget hole whoever wins, and at the risk of carrying on where we left off last week, sooner or later governments either need to spend less, or increase income (aka tax), to prevent it becoming larger.
Expenditure on health, education and welfare runs at around 60% of federal government's total payments. This has remained reasonably constant since 2007/8, and is forecast to remain so out to 2017. However, in dollar terms these three areas have increased by 38% since 2008, and are forecast to increase by a further 20% by 2017.
That's a compound increase of 66% in ten years, assuming the forecasts are correct, which I doubt.
The difficulty the politicians face, and indirectly the country faces, is that outlining the inevitable solution as part of an election manifesto is likely to see you spend the next three years in opposition, and probably the three beyond that as well.
Anyway, roll on next week's election. After that I promise not to mention it again. By the way, that's likely to be as good as a politician's promise.
In other news, the AIMA Hedge Fund Forum will be held on Tuesday 10th September at Hilton Hotel, Sydney. For further details visit AIMA Australia's website or register here.
Some specific results received this week include the following Performance and News Updates
Pengana Asia Special Events (Onshore) Fund returned 1.09% over July 2013 and 11.35% for the previous 12 months with the Fund maintaining average net and gross exposure of 11% and 179% respectively over the month. Capital Management trades contributed over half of the Fund's absolute performance during July and in terms of country positions Japan and Hong Kong / China proved the most fruitful, while Australian positions detracted slightly.
The Auscap Long Short Australian Equities Fund had a strong July returning 4.70% with an average net exposure of 53.1%. Average gross capital employed by the Fund was 107.1% long and 54.0% short. The Fund's performance since inception is now 25.35%.
BlackRock's Multi Opportunity Fund returned 0.40% for July and 7.18% for the last 12 months and notably this was achieved with a remarkably low risk profile and very strong risk-adjusted statistics. The annualised volatility is 1.59% vs 10.99% for the ASX 200 Accumulation Index over the last 12 months and a Sharpe Ratio of 2.50 as compared to 1.74 for the Index over the same time frame.
Updated AFM Fund Reviews were also completed on the following funds this week:
The Insync Global Titans Fund invests in a concentrated portfolio of 15-25 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection with portfolio selection driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets... more..
BlackRock's Australian Equity Market Neutral Fund is managed by a 12 person Sydney based investment team following a systematic global research process investing in ASX listed stocks. The Fund's portfolio generally consists of approx. 180 stocks in equally weighted long and short portfolios to maximise potential returns while minimising market volatility... more..
The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities with a strong focus on risk. The 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. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. The success of this strategy is shown by the fact that over 87% of monthly performances have been positive and most notably the Fund did not record any negative months in 2008, with the largest drawdown since inception in March 2005 of -2.09%.
For something completely different - following on last week from the photo of a nesting Falcon, we feature this clip featuring a different type of Falcon.
On that note, I hope you have a happy and healthy weekend!
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
30 Aug 2013 - BlackRock Multi Opportunity Fund
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| Fund Overview | - Australian and International Equity Long/Short - Global Fixed Income Long/Short - Global Macro - Commodity Alpha - Alpha Transport The Fund's goal is to provide investors with a source of consistent, risk-controlled, absolute returns that are over time, expected to have low correlations with the returns of major asset classes. The Fund aims to achieve a return of 8% p.a. before fees, above the RBA Cash Rate Target over rolling 3 year periods. In order to achieve its expected return objective, the Fund will target a total expected risk of between 4-6% p.a. over the same rolling 3 year period. |
| Manager Comments | The Fund has a remarkably low risk profile and very strong risk-adjusted statistics. The annualised volatility is 1.59% vs 10.99% for the ASX 200 Accumulation Index over the last 12 months and a Sharpe Ratio of 2.50 as compared to 1.74 for the Index over the same time frame. The Fund had only one negative month over the last year with a maximum draw-down of 0.16% as compared to 6.72% for the Index. The Multi Opportunity Fund delivered positive performance in July with Fixed Income Global Alpha, Global Equity Market Neutral, and Australian Equity Market Neutral strategies performing strongly. Detractions from the Global Macro strategy partially offset the positive performance. |
| More Information | » View detailed profile of this fund |
29 Aug 2013 - Auscap Long Short Australian Equities Fund
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| Fund Overview | The Fund focuses on fundamental long and short investments. The Fund may utilise a multi-strategy approach if short term opportunities to increase returns, hedge the portfolio, protect capital or minimise volatility are found. The Fund is a high conviction fund and the combined portfolio will typically have 25-45 positions, investing primarily in stocks in the ASX200. The Fund may be net long, short or neutral depending on the strategies employed at the time. The Fund may hold cash so that it is in a position to take advantage of market volatility and compelling investment opportunities as and when they arise. The Fund may be geared up to 200% gross long or short and up to 150% net long or short. |
| Manager Comments | In terms of fund characteristics the average gross capital employed by the Fund was 107.1% long and 54.0% short. Average net exposure over the month was +53.1%. At the end of the month the Fund had 22 long positions and 11 short positions. The Fund's largest exposures were spread across the consumer discretionary, telecommunications, healthcare and industrials sectors. |
| More Information | » View detailed profile of this fund |
28 Aug 2013 - Fund Review: Insync Global Titans Fund
INSYNC GLOBAL TITANS FUND
Attached is our most recently updated Fund Review on the Insync Global Titans Fund.
We would like to highlight the following aspects of the Fund:
- The Global Titans Fund invests in a concentrated portfolio of 15-25 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.
- Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.
- Emphasis on limiting downside risk through extensive company research, the ability to hold cash and long protective index put options.
- Strong track record of above MSCI ($A) benchmark performance with limited drawdowns and excellent risk statistics.The Sharpe and Sortino ratio are well above those of the ASX with downside deviation approximately one-half of the same Index since inception. The Fund has a record of 63% positive months and a downside capture ratio of -0.42 over the same time frame.
Research and Database Manager
Australian Fund Monitors
Fund Review: Insync Global Titans Fund (pdf format)
