NEWS
8 Jul 2013 - Optimal Australia Absolute Trust
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| Fund Overview | The Fund's bias is likely to be net long under normal market conditions, with the core strategy being to construct a portfolio of listed equity securities priced at levels that do not adequately reflect their underlying value. The Fund will seek to boost returns and limit potential market downside by selective short selling of individual stocks which are priced at levels that are viewed as materially above their underlying value. The Fund will also use certain trading strategies both within its core portfolio (through rebalancing stock weights and overall market exposure in response to price movements) and in certain other situations (typically of a shorter-duration and/or opportunistic nature) with the objective of further increasing returns. |
| Manager Comments | The Manager particularly noted the increasing equity market volatility, with recent daily trading ranges of over 2% significantly higher than the typical range since 2000 of around 0.9%, and the distortion on valuations created by QE policies which they believe may persist for years. The Fund's exposure at month end was 34% long and 31% short (including derivatives) for a net exposure of just 3%, and gross of 65%, indicating the manager's favouring a low net exposure and hedged approach to managing risk. On past performance this has served the Fund's investors well, as shown by a Sharpe Ratio since inception of 1.82, a maximum drawdown of just 1.38%, and a record of 80% positive monthly performances (Average +0.73%) when the market (average -3.88%) has fallen. |
| More Information | » View detailed profile of this fund |
5 Jul 2013 - Hedge Clippings
Focus on the Facts
May's performance data is behind us, but reflecting on it will serve to show the risk averse nature of absolute return funds in general. Against the ASX 200 accumulation index which fell 4.5%, (cutting year-to-date performance to just 5.4%) AFM's index of all funds rose by 0.36%.
Drilling down through this data on a regional basis is not quite as compelling, with funds investing domestically in Australia losing an average of -1.53%, although still an outperformance of 3% above the index. However it does bear out our previous view that with the A$ falling out of favour, local investors would benefit by looking for funds investing offshore.
Although just 7% of June fund returns are to hand, June performance is not looking as positive, with an average fall of 0.91% against the ASX 200 accumulation index fall of 2.32%. However it again indicates the potential defensive nature of the sector.
With that in mind we are always surprised that hedge funds are typified as risky. Certainly there are some that have shown significant risk, while there are others that have performed in line with expectations, and some outstandingly. Over 12 months fund returns in AFM's index have ranged from -59% through to +66%.
Recently to overcome the misconception that that there was limited choice of funds for retail investors we analysed the performance of funds with minimum investments of $50,000 or less on behalf of Alan Kohler's Eureka Report. The facts are that over 50% of the funds in AFM's database have minimum investments of $50,000 or less, and of those three quarters have minimum subscriptions of $25,000 or less. Full details of the analysis are available here.
The issue for retail investors therefore is not so much availability, as suitability, with the more complex investment strategies demanding greater understanding by investors, and therefore additional research and due diligence. Unfortunately the quality of some research recommendations available to retail investors has in our opinion been lacking, and in some cases out of date.
Guaranteeing or even predicting the future performance of managed funds is difficult, if not impossible. Analysis of their past performance, and in-depth analysis of processes and systems, while easier, provides some indications, but still requires a critical and quantitative approach. On the occasion of the Guardian newspaper's 100th anniversary in 1921 the editor C P Scott wrote "comment is free, but facts are sacred", a tag line the newspaper retains to this day.
Unfortunately some research on managed funds focuses excessively on comment (and opinion), and insufficiently on the facts.
Performance and News Updates on www.fundmonitors.com this week:
8IP Asia Pacific Partners Fund returned -1.36% during May and 18.58% for the last twelve months. The Fund's exposure in Australia and Japan detracted from performance as the small resource stock exposure continued to suffer and the Japanese financials experienced profit-taking.
The BlackRock Multi Opportunity Fund returned -0.16% during May and 8.98% since inception. The fund delivered a small negative performance in May with Global Equity Market Neutral, European equity long/short, and International Alpha Transport strategies adding value. Australian Equity Market Neutral, Global Macro, and Fixed Income Global Alpha strategies detracted.
AFM Prism Active Equity Fund returned 1.66% during May with the ASX 200 Accumulation Index down 4.5% over the same time. Of the five underlying funds, three had a positive month in May, and two had negative returns. One of the funds delivered a remarkable performance of 9.49% and this was the major contributor to the fund's performance.
The Bennelong Long Short Equity Fund returned 1.1% during May bringing it's since inception (Feb 2002) return to 21.03%. The Manager expects recent volatility to persist as markets and investors grapple with a potential change in ultra-loose monetary policy which has been in place for so long now.
You may also like to watch this most recent episode of Opalesque.TV, discussing Australian Hedge Fund Strategies, attractive liquidity terms and investors.
Now for something completely different, an unruly dog creates havoc in Richmond Park, sparking a host of parodys around the globe.
On that note I wish you a happy and healthy weekend.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
4 Jul 2013 - Self directed superannuation funds
In this Opalesque.TV BACKSTAGE video, Chris discusses:
- The wide range of strategies offered by Australian hedge funds
- The strength of the Australian regulator
- Attractive liquidity terms and general outperformance of Aussie hedge funds
- Who invests into Australian hedge funds?
- High net-worth / self directed superannuation funds: the most attractive investor base for hedge funds
Chris Gosselin has been in the financial markets since 1986, initially in equities broking in Sydney and Melbourne prior to focussing on information distribution. He has been in the hedge fund sector since 2003, and established Australian Fund Monitors in 2006. Australian Fund Monitors provides a range of research services including due diligence, analytics and fund rankings, servicing both local and offshore investors.
4 Jul 2013 - Bennelong Long Short Equity Fund
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| Manager Comments | The local market fell 2.5% in June with a noticeable pickup in volatility across the globe as various macro events took their toll on investor sentiment across all asset classes. As a result, the AUD continued its' recent slide finishing the month down over 4% against the USD ($0.914) while the Materials sector finished down over 10% for the month. Other under-performing sectors included IT (-6%) and Energy (-5.8%). The Fund consolidated the gains made recently with a profit warning from one of the short holdings as well as a general risk-off attitude towards domestically focused businesses contributing to performance. Detracting from performance was a profit warning from one of the Fund's long holdings. The Manager expects recent volatility to persist as markets and investors grapple with a potential change in ultra-loose monetary policy which has been in place for so long now. |
| More Information | » View detailed profile of this fund |
3 Jul 2013 - AFM Prism Active Equity Fund
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| Fund Overview | The Fund will invest in a portfolio consisting of a group of underlying managed funds which focus on investing in ASX listed companies. The Fund will not directly invest in equity markets or derivatives, but the underlying funds may use short selling or invest in derivatives to improve performance or reduce risk. The underlying managers and funds will be selected from Absolute Return Funds managed in Australia. This reduces the risk of currency fluctuations, facilitates due diligence and ensures that each underlying fund manager is licensed by the Australian Securities Investments Commission (ASIC). A combination of quantitative performance analysis and qualitative operational due diligence is used to create a portfolio of five to ten 'best of breed' funds. AFM's research has shown that selecting a relatively small group of funds results in better risk adjusted performance than that of a larger, more diversified group. Significant research from Australia and overseas shows that the performance of boutique funds, (particularly those where the principals remain actively involved in the day to day investment decisions) and smaller managers can provide more attractive returns than larger or more established managers. As a result the Fund may invest in funds managed by boutique fund managers where the principals invest alongside outside investors, creating an attractive alignment of interests. In addition the Fund may also invest in funds managed by early stage managers with less than three years history, but only where the principals concerned have a demonstrated track record of prior performance in a similar role, and where AFM has been able to conduct thorough due diligence on the management company and its operations. The underlying funds are monitored each month by AFM Prism Asset Management and AFM to ensure each fund's strategy and risk limits remain appropriate for current market conditions. The returns of each underlying fund are also analysed to ensure the original basis for inclusion in the portfolio remains relevant, and to allow new or additional funds to be added to enhance overall performance. |
| Manager Comments | May was the month that the search for yield came to an end as investors rotated away from the stocks that had enjoyed strong performances over the last twelve months. Banks fell 11.3% and Telco's 4.9% as did consumer staples, -9.0% and discretionary retail, -10.1%. Of the five underlying funds, three had a positive month in May, and two had negative returns. One of the funds delivered a remarkable performance of 9.49% and this was the major contributor to Prism's performance. On the flip side one of the managers had a weak month losing 2.37%. However with this fund's allocation in the portfolio at 2%, the loss had a minimal impact on Prism's May performance. The Manager continues to conduct research on new managers for investment, but balancing caution remains an important factor given the market's recent activity. |
| More Information | » View detailed profile of this fund |
2 Jul 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 Multi Opportunity Fund delivered a small negative performance in May with Global Equity Market Neutral, European equity long/short, and International Alpha Transport strategies adding value. Australian Equity Market Neutral, Global Macro, and Fixed Income Global Alpha strategies detracted. The Australian equity market fell -5.1% in May as investors rotated out of yield stocks and into resources. The leading sector for the month was Information Technology, led by Computershare, which benefited from its USD exposure. Materials and Energy also enjoyed positive returns, led by some smaller energy stocks, and companies in base metals and coal. Performance of the Australian equity long/short strategy was hurt by the rebound in small/mid cap resources which had been sold down heavily in April, by the out-performance of USD exposed stocks, and by several significant stock specific profit warnings. Our short positions accounted for most of the under-performance with mineral sands miner Iluka Resources and uranium miner Paladin Energy among the biggest detractors. |
| More Information | » View detailed profile of this fund |
1 Jul 2013 - 8IP Asia Pacific Partners Fund
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| Fund Overview | There is a relatively low number of individual securities in the Fund which may result in periods of high volatility. Ideally, investments should be made for a minimum of five years so that short term volatility may be offset by high capital growth over time. Companies are chosen using an active, bottom-up approach with particular attention paid to valuation and the sustainability of return on equity. The Fund takes a long term view when investing. Companies of all sizes are considered for inclusion in the Fund. The Fund invests in a mix of both developed and emerging markets. Investments in emerging markets may carry risk associated with delivery difficulties, failed or late settlement of market transactions and the registration and custody of securities is more complex. The lack of liquidity and efficiency in these markets may mean that from time to time the Fund may experience more difficulty in purchasing or selling securities than it would in a more developed market. |
| Manager Comments | In US dollar terms, Asia Pacific share-markets fell nearly 5% but this was more than offset by a sharp fall in the Australian dollar. We decided to remove the AUD/USD hedge during the month at an average rate of 97.6c. Having initiated the hedge at around 90c in February 2010 and received a positive interest rate carry ever since, the decision to hedge has been a benefit to the Fund. Going forward, the Fund will benefit from any further decline in the Australian dollar. The Fund's exposure in Australia and Japan detracted from performance as the small resource stock exposure continued to suffer and the Japanese financials experienced profit-taking. |
| More Information | » View detailed profile of this fund |
28 Jun 2013 - Hedge Clippings
As Australia's financial year draws to a close, so to it would seem does the outlook for any extension of quantitative easing in the USA; the resources boom in Australia; the Aussie dollar at parity or above; and possibly China's growth trajectory.
Over the past two months the uncertainties created as a result of these will still result in a positive year for Australian equity markets, even if some of the gloss has been taken off the top as rationality returned.
For the record it looks as if the ASX 200 will record one of its better years in the 12 months to June, up nearly 18%, although the second half, since January will struggle to show a gain of 4%.
A comment from one of the fund managers we recently talked to focused on the degree of involvement that politicians have had in global markets over the past three or four years.
Politically it also ends one of the more turbulent years (or three) in Australian politics, although local politicians have had less of an impact on the market than their overseas counterparts.
Looking forward there are significant changes on the horizon for the financial services industry, most notably the introduction of the FOFA legislation relating to the provision of financial advice to retail investors. While it is often considered that absolute return funds and retail investors are, or should be, like oil and water, the reality is that approximately 50% of the funds in our database are open to investment by retail investors, and slightly more than that have minimum investments of less than $50,000 and daily liquidity.
Elsewhere we believe the absolute return industry is gaining considerable traction, while at the same time maturing. AIMA, or the Alternative Investment Management Association has recently indicated that its Australian arm, under the leadership of industry veteran Paul Chadwick is taking a more proactive and outward looking approach. At the same time the US Based Hedge Fund Association or HFA, has recently established an Australian chapter and is being represented by Adriana Kostov.
The Hedge Fund Association, is a US founded, International not-for-profit industry trade and nonpartisan lobbying organisation devoted to advancing transparency, development and trust in alternative investments, and is made up of hedge funds, funds of funds, family offices, high net worth individuals and service providers.
There is no doubt that competition between the two organisations will benefit all industry participants whether they be service providers, fund managers or investors. For too long the industry has been seen as a collection of boutiques without a single voice, and raising its profile is a step in the right direction.
Performance and News Updates on www.fundmonitors.com this week:
Auscap Long Short Australian Equities Fund returned -4.05% during May and 10.51% for the last six months. This compares with the benchmark return of 0.24%. Average gross capital employed by the Fund was 162.3% long and 31.2% short. Average net exposure over the month was +131.1%. At the end of the month the Fund had 25 long positions and 14 short positions.
The Totus Alpha Fund returned 1.84% during May and one year rolling returns are 17.34%. Since inception the fund has averaged returns of +1.45% (net) during months in which the ASX was up and +1.63% (net) during months in which the ASX was down. The fund's short positions in second and third tier mining and mining services stocks continued to deliver strong returns during May while the (more) recently added domestic cyclical shorts also contributed nicely to performance.
BlackRock Australian Equity Market Neutral Fund returned -2.12% during May and 6.09% for the preceding twelve months. Fund performance was hurt by the rebound in small/mid cap resources which had been sold down heavily in April, by the outperformance of USD exposed stocks, and by several significant stock specific profit warnings.
The Pengana Australian Equities Market Neutral Fund returned -1.7% during May bringing its since inception (Sept 2008) return to 8.27% pa. Earnings Revisions was the best performing investment theme in the Fund's model followed by Momentum and Value, while Quality detracted from performance for the month.
AUI Wingate Global Equity Fund returned 8.95% over May and 23.81% over the preceding twelve months. Performance was supported by the weaker Australian dollar as the portfolio's assets are unhedged. Successful stock selection contributed to relative outperformance notwithstanding the Fund's lower than average equity weight.
Fund Reviews were also completed on Insync Global Titans Fund and BlackRock Australian Equity Market Neutral Fund.
Now for something completely different, this week one of Rowan Atkinson's characters visits the bank.
On that note I wish you a happy and healthy weekend and look forward to a prosperous new financial year starting on Monday.
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
28 Jun 2013 - AUI Wingate Global Equity Fund
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| Fund Overview | The Fund primarily invests in global equities, either directly or via derivatives, to generate income from dividends and option premiums, and capital growth. Preservation of investors' capital is an overriding priority. The Fund typically has between 15 and 40 holdings (stock and options) and can invest 98% of its assets in international equities, including direct holdings in shares and option positions over shares, which are fully cash backed. The Fund restricts exposure to any individual company to a maximum of 10% of the net assets of the Fund. Cash that is not used to back option positions is restricted to a maximum of 20% of net assets of the Fund. The Fund's derivatives strategy primarily involves the selling of cash-backed put options to purchase stocks at a price in Wingate's fair price range but below current market price. The sale of the put option can result in either purchase of the stock at an acceptable price to Wingate, or the Fund receiving income in the form of the option premium. Importantly all option positions are fully backed by cash holdings and the Fund does not borrow to make investments. In addition, covered call options may be used to sell stocks that are held in the portfolio. |
| Manager Comments | Performance was supported by the weaker Australian dollar as the portfolio's assets are unhedged. Successful stock selection contributed to relative outperformance notwithstanding the Fund's lower than average equity weight. Wingate continues to position the Fund in out-of-favour companies where the combination of quality and value still resides. As a consequence of the market's prolonged upward trend, Wingate's equity weightings remain at the lower end of its long term expected range. The resultant increased cash weighting leaves the Fund well positioned for any market pullback. |
| More Information | » View detailed profile of this fund |
27 Jun 2013 - Pengana Australian Equities Market Neutral Fund
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| Manager Comments | Earnings Revisions was the best performing investment theme in the Fund's model followed by Momentum and Value, while Quality detracted from performance for the month. Earnings revisions captures the trend in analyst earnings forecasts over the short and medium term where stocks with upward revisions tend to outperform stocks with downward revisions. While Momentum has been the dominant investment theme for the most of this year, the Manager is now starting to see this wane as the market begins to shift its focus to the underlying fundamentals of companies with changes to earnings forecasts. |
| More Information | » View detailed profile of this fund |
