Skating on thin ice:

My old friend Patto was the master of market sayings which became known to those who followed him as "Pattoisms". One of his favourites was "when skating on thin ice, the speed at which one has to skate is directly proportional to the thickness of the ice."

Markets have seemed a bit like that this week. In the US the ice appears to be very thin every time Ben Bernanke goes off cue and suggests that QE might end at some stage. The ice in China appears thin whenever the numbers indicate growth might slow below 7%. And in Australia it seems that without the mining and resources sector, we are skating on thin ice as significant parts of the rest of the economy (manufacturing, retail) are struggling.

Over the past couple of weeks the ice actually cracked under those companies whose earnings are reliant on the mining sector.  In the last couple of days it seems that even the yield driven rotation into the banks might also be on thin ice.

April Fund Performance:

Close to 90% of single funds have now reported April results as follows:

From a Strategy perspective the best performances are:

Performance and News Updates on www.fundmonitors.com this week:

The BlackRock Australian Equity Market Neutral Fund had a sound April returning 2.18%, bringing its 12 month return to 8.71%. The portfolio benefitted from the resource under performance due to a tilt toward producers versus explorers, with significant contribution coming from short positions in Kingsgate Consolidated, Newcrest Mining and Oz Minerals, amongst others. The yield theme also proved profitable via our exposure to property trusts and telecoms.  

Pengana Australian Equities Market Neutral Fund delivered -0.9% for April and has an annualised return of 8.82% since inception in September 2008. Two of the largest long positions in April were BC Iron and Skilled Group, while two of the largest short positions were Macquarie Atlas Roads Group and AWE.

The 8IP Asia Pacific Partners Fund delivered -1.17% during April bringing its six month performance to 21.57%.  After five months of strong gains, a number of stocks in the Fund ran into profit taking. Largest sector exposures were financials, real estate and consumer discretionary.

Allard Investment Fund recorded 0.80% over April with it's since inception (July 2003) performance at 8.49% pa. At end-April the asset breakdown was 68.6% equities and 31.4% cash and fixed income. The geographic breakdown was HK/China 32.1%, Sing 12.4% and Korea 9.3% with other countries at lower percentages.

The Pengana Asia Special Events (Onshore) Fund returned 1.31% during April and had a twelve month return of 8.23%. The Fund maintained an average net and gross exposure of 16% and 164% respectively. Largest month end net exposures were China, Japan and Indonesia and biggest gross exposure by strategy was Merger and Acquisitions. April was very eventful led by a significant pick up in M&A activity and the earnings seasons in some markets. Japan was the most active M&A market in Asia, accounting for 6 of the 14 new deals during the month.

And finally, for something completely different, the latest Evian commerical, also featured on Alan Kohler's Eureka report (if you are not a subscriber, I recommend it) last week.

On that note, I hope you have a happy and healthy weekend!

Budget week finally confirmed what most already knew: Australia was not going to be in, or return to, surplus any time soon, irrespective of any change in government in September. Treasury's earlier revenue estimates were far too optimistic, and some (in particular from the mining and carbon tax) have simply not materialised as anticipated by the government.

Coincidentally or not with the confirmation of the federal deficit, the A$ came under pressure as the combined effects of lower rates (down 25 bps to 2.75%), a reduced outlook for resources, and the reality of a mid to long term budget deficit added to the effects of a strengthening US currency.

The current government delivered a strategic budget which promised large social programs such as the disability pension scheme and education reform, cleverly boxing in the opposition and making it difficult for them to abandon them if, or when they assume power.

As previously telegraphed the budget included the gradual increase of the superannuation guarantee levy from the current 9 to 12%, which the opposition promptly announced would be delayed or deferred on their watch. One interesting twist in the ongoing progress or otherwise of reform of the superannuation system was the opposition's successful amendment this week requiring at least one third of industry superannuation fund trustees to be independent.

The current equal representation model requires industry super funds to appoint half their trustees from union representatives and the other half from employer representatives.  Although the Cooper Review recommended that a lack of independent trustees was no longer appropriate, the government chose not to include the changes in the legislation.

The twist came not so much that the amendment was proposed, and passed 72 to 68, but in the fact that the independent MP's voted against a proposal favoring independence, and that it appears four government MP's, including two ministers and a government whip, either abstained, or were absent.

Given the importance and value of the superannuation system it seems incongruous that industry super funds are not subject to the same or similar governance and transparency regime as corporate Australia.

The Bloomberg saga:

While on the subject of governance and transparency, Bloomberg the global leader in financial information with over 300,000 terminals installed, was (or should be) severely embarrassed.  It was revealed this week that Bloomberg has been engaging in a case of "big brother" by enabling their journalists to be able to track who, what and where the terminals were being used, and what was being viewed.

While we haven't yet read of actual cases where the information gleaned has been misused, the potential for misuse (given that each terminal is usually registered to an individual user) is massive, and Bloomberg will no doubt be scrambling to protect their reputation in dealing rooms around the globe, just as users will be demanding changes to the terms of their agreements.  

Performance and News Updates on www.fundmonitors.com this week:

The Monash Absolute Investment Fund returned 1.13% during April, a month of extreme moves on the ASX with Small Cap Resources falling 19% and the top industrials rising 4.7%. At month-end Fund net exposure was 67%.  

Insync Global Titans Fund returned 1.63% for April with the biggest positive contributors coming from a range of stocks including Sanofi, Coach, Roche and Walt Disney.  Average mkt cap of stocks in the portfolio is $A 99.1bn with a weighted average forecast dividend yield of 2.90%. The fund is currently un-hedged. We also released the latest Fund Insync Review for April 2013, which you may read here.

The Pengana Australian Equities Fund had a strong April returning 3.51% bringing its 12 month return to 25.91%. Cash exposure at end April was 29%.

Morphic Global Opportunities Fund had a sound April returning 2.80% with top stock contributors coming mostly from Japan. Performance since inception in August 2012 is now 20.53%. The Fund is fully un-hedged, you can read the most recent Morphic Fund Review here.

The Auscap Long Short Australian Equities Fund had a very strong month, recording 9.83% during April. A major contributor to performance was shorting gold stocks which provided the Fund with a 2.8% return.

And finally, for something completely different, a funny clip on how frustrating it could be to teach a child how to tell the time, almost as frustrating as teaching my wife how to fix her computer.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

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