• The Supervised High Yield Fund (SHYF) has a 5 year track record investing in fixed interest investments. The Investment strategy aims to deliver returns with zero correlation to
  equity markets by investing in debt securities with minimal default probability and offering a premium return above the risk free rate.
• The Fund is managed by Philip Carden whose experience in debt and capital markets spans 32 years, including time with JB Were's Capel Court Securities and Macquarie Bank, where he was the Executive Director responsible for the Debt Markets Division.
• SHYF is an Alternative Income fund which invests in Global and Australian debt markets, with all foreign currency receivables hedged back to Australian dollars.
• The Fund utilises a top down analysis of the economic environment and market to screen and identify debt market opportunities which it believes offer low risk with high yield. The next stage is the development of a risk matrix and investment strategy, following which detailed research is undertaken on specific investment opportunities which meet the pre-defined criteria established in the investment strategy.
• Prior to approving an investment for the Fund each potential investment is subject to two stress tests. The first of these is for credit and default risk, in which the investment is stress-tested to ensure that in a worst case economic environment it can repay 100% of its principal and interest obligations case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation. Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided The second test examines market risk.  In this case Carden looks at the worst case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation.  Any decline in value under the stress test that exceeds 10% of the Fund's value is

  avoided.
• Annualised return since inception is 11.16% with a very low standardised standard deviation of 2.22%. Other risk statistics are impressive and shows the Funds risk philosophy; over 98% of monthly performances have been positive, the Fund's largest drawdown is -0.12% and the Sharpe ratio 3.19.

Australian Fund Monitors

ATTACHED FILESFund Review: Supervised High Yield Fund March 2014 (pdf format)

• 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 8.07% with a very low standardised standard deviation of 2.71%. Other risk statistics are impressive and shows the Funds risk philosophy; over 88% of monthly performances have been positive with no losing months in 2008, the Fund's largest drawdown is -2.09% and the Sharpe ratio 1.22.
• 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.

Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund AFM Fund Review March 2014 (pdf format)

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESMorphic Global Opportunities AFM Monthly Review March 2014 (pdf format)

INSYNC GLOBAL TITANS FUND

ATTACHED FILESInsync Global Titans Fund AFM Review - March 2014 (pdf format)

This being the last edition of Hedge Clippings prior to the release of the new Treasurer Joe Hockey's first budget next Tuesday, it stands to reason that we may as well join the throng in both guessing what it might contain, and suggesting what it should, or could.

It goes without saying of course that whatever un-pleasantries the budget does contain will not be the fault of the Treasurer, but that of his predecessor from the opposite side of politics. And being his and this government's first budget it also goes without saying that they'll try to get the worst news out of the way as early as possible.

There seems little doubt that the government is intent on making some significant changes on both the income and expenditure side of the ledger, and the convenient timing of the release of the Commission of Audit Report containing 86 significant and in many cases electorally untenable proposals, will enable them to do so if they wish. However there is also a feeling that much of the measures mooted over the past couple of weeks may well just be a case of softening us up so that the news on the night elicits a collective sigh of relief.

There is also little doubt that both the revenue and expenditure lines, or the concepts and logic behind them, are in serious need of a shakeup. Welfare and government assistance should be aimed at the genuinely needy, not the greedy. Unfortunately over the past 20 to 30 years Australia has developed a welfare habit which it is struggling to break. At the same time demographic changes over the next 20 to 30 years will seriously increase government expenditure, particularly in the health and aged care sectors.

One political sacred cow which may, or possibly should, be considered for the chopping block is negative gearing on residential property, particularly given the housing affordability issues currently facing first-time buyers. The Australian superannuation system would also appear to be in the spotlight. While terrific conceptually, it has evolved over the past 20 years to be unwieldy, overly complicated, and as David Murray indicated yesterday in some preliminary comments on his Financial Services Inquiry, is excessively focused on the 40+ year accumulation phase, and not sufficiently on the subsequent 20 to 30+ year retirement phase.

On the income side the complexity of the taxation system, including superannuation, is extraordinary, and only increasing. One would have thought that increasing the GST would be the logical solution, given that Australia's 10% consumption tax rate is way below, and in some cases less than half the prevailing rate in many other developed economies. For some reason that appears not to be on the agenda.

All this is well and good, and I fear I'm likely to be disappointed on Tuesday. The big risk to the economy is not so much that the budget fails to fix the deficit, but that the increased taxation and expenditure cuts are so severe they damage the consumer confidence which is the lifeblood of any economy.

And the big challenge for the Prime Minister and the government is how to convince the electorate that a great big new levy is not in fact a great big new tax.

Specific PERFORMANCE RESULTS received this week include the following:

The Intelligent Investor Value Fund recorded a strong 24.63% over the previous twelve months as compared to the ASX 200 Accum return of 13.46%. 

KIS Asia Long Short Fund returned 0.70% during March with an annualised volatility of 2.67% (Index 11.03%).

The Laminar Credit Opportunities Fund delivered 0.62% during March and 11.52% for the year, with a low volatility of 2.72%.

Pengana Asia Special Events (Onshore) Fund returned 9.27% for the year with an annualised volatility of 3.22% and Sharpe ratio of 1.98.

The Cor Capital Fund returned -1.34% during March and 2.24% for the prior 12 months.

FUND REVIEWS updated this week included:

Bennelong Kardinia Absolute Return Fund - characterised by steady returns and very low risk. The Fund returned 0.87% during March and 13.57% p.a since inception (May 2006).

The Optimal Australia Absolute Trust - very low risk profile with an annualised standard deviation of 3.53% (Index 14.95%) and a Sharpe Ratio since inception of 1.73.

FUTURE EVENTS

19-20 May in Sydney, IBR Conferences presents the Unit Pricing Forum. This is a 2 days forum exploring Unit Pricing operational challenges for 2014 & beyond. Topics include new APRA reporting requirements & implementation; impacts on unit pricing reporting and more.

Wednesday 21 May in Sydney: The Hedge Fund Association, in conjunction with Pricewaterhouse Coopers, is pleased to present an update on key regulatory matters currently affecting the alternative investment industry. A panel of Pricewaterhouse Coopers senior executives will provide a detailed overview of topics, as well as allowing for questions and commentary from attendees.

28-30 May 2014 in Sydney: IBR Conferences presents the Asset Allocation Conference. This event has been designed to both update and educate investors by taking an in-depth look at these more adaptive asset allocation strategies and practices and where the best opportunities for high return lay in the current climate.

If you would like your Event listed in our calendar, please contact us.

And now for something completely different this week, a fascinating look at the Honey Badger and the things that this one will do to escape his enclosure. Having watched it, we are wondering why they don't just let him go.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

This weekend one of our staff members is participating in the Sutherland Shire 24 hour Relay for Life and will be walking a marathon to raise money for her team (Nety Girls) and in memory of family members who have died from cancer. Click here to make a donation or watch a short video to see what all the fuss is about.

1 in 2 Australians will be diagnosed with cancer before the age of 85. All money raised through Relay For Life makes a difference in helping fund Cancer Council's critical research, prevention, education and support services. Relay For Life is a fun, outdoor overnight fundraising event that brings communities together to celebrate and remember the lives of those who have battled cancer. Teams take turns to walk or run around a track whilst enjoying entertainment, activities and heartfelt ceremonies.