Further details of the new MySuper rules emerged this week, even if drowned out somewhat by other announcements from Canberra. However in principal the thrust of MySuper is admirable, if the stated objectives are achieved:

• creation of a simple, low cost default superannuation product
• cheaper and easier processing of transactions, and
• strengthen the governance, integrity and regulatory settings of the superannuation system, including SMSF's.

Anything that simplifies Super, or creates a lower cost structure, particularly for super accounts with lower balances, is to be applauded. In this regard, the push for more transparency can only assist. However the risk is that the focus falls more on the fee structure than the actual risk adjusted returns after fees.

While it is easy to point to high fees as a destroyer of an investment's value, performance has a far greater effect, particularly in negative markets. Hopefully the new MySuper transparency and reporting regime will recognise this.

Elsewhere, we noticed a good article in InvestorDaily quoting Pengana's CEO Russel Pillemer, who (correctly in our view) points to the flawed logic of placing many hedge and absolute return funds into the "alternatives" bucket. All too often anything that can't be categorised easily ends up as an alternative, with no real analysis of its return profile or correlation to other asset classes.

Russel's suggestion is to allocate to a category called "uncorrelated", as that is what most investors are seeking from a true alternative investment. In our opinion, the majority of equity long/short strategies might then more correctly fit in the equities bucket, or at least active equities.

At the end of the day simply having a low correlation to equities doesn't really work 100% of the time. What investors want, or need, is an asymmetric return profile where the fund captures the market's upside (a high up capture ratio) and avoids the downside (a low downside capture ratio).

Easier said than done in a single fund, and not always easy when constructing a portfolio, but worth the effort. 

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

The Pengana Australian Equities Market Neutral Fund had a good March 2013 returning 3.2% bringing it's since inception (September 2008) return to 9.21% pa with a zero correlation to the market of -0.02.

BlackRock Multi Opportunity Fund had a sound March 2013 with a return of 1.09% and a twelve month return of 9.70% with positive returns in each of the 3 months of the quarter.

The Pengana Asia Special Events (Onshore) Fund returned 0.83% for March 2013 and 3.28% for the quarter to end-March.  Notably the Fund has a volatility of 6.7% as compared to its benchmark volatility of 17.8% (since inception).

Pengana Australian Equities Fund had a flat March with a return of 0.0% but strong 12 and 24 month returns, delivering 22.5% and 33.06% respectively to the end of March 2013. At month-end cash (including notes and preference shares) represented 32% of the Fund.

The K2 Australian Absolute Return Fund had a strong April 2013 delivering 4.54% with its annual return to the end of April, 23.99%.

Continuing our successful Meet the Manager presentation series, on Thursday 16 May, AFM is holding a city lunch time briefing featuring Jack Lowenstein from Morphic Asset Management. The Morphic Global Opportunities Fund is a global equity long/short manager with a macro-economic overlay. The Fund's portfolio construction has a long bias and favours value based and momentum strategies, with a strong emphasis on risk management. If you would like to join us for the presentation, please reply to this email.

And finally, for something completely different, we bring you a short clip from Cancer Council NSW on Relay for Life.  This weekend our Administration Manager Alexis will be camping out and walking for 24 hours out at the Sutherland Shire Relay and we support her in this worthy cause.  

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

Regards,

Chris Gosselin
CEO, AUSTRALIAN FUND MONITORS

"MySuper product providers will be required to disclose investment risk, the dollar value of fees and their investment performance in an easy to read way, the Minister for Financial Services and Superannuation, Bill Shorten revealed today.

The Government has issued draft regulations that represent the final stage of the Government?s MySuper reforms and are aimed at helping Australians better understand how their fund is performing".

You can read Mr Shorten's comments here.  And the draft Regulation is published on the Treasury site.

We recently reviewed an article in The Economist which provided an excellent summary of the challenges of establishing a hedge fund in the current environment, even if the article's title, "Launch Bad" left a little to desired, assuming it wasn't a simple typo. Actually the first sentence was somewhat off the mark also, claiming that when starting a hedge fund "bar inheritance or winning the lottery, there are few swifter paths to immense riches".

However, back to the excellent article which (excluding the title and the first sentence) does paint an accurate picture of the challenges facing not only any aspiring fund manager, but the vast majority of the existing funds as well.

Although the Economist's focus was naturally on the challenges in the US and Europe there are many parallels in Australia for aspiring managers, with increased due diligence, a focus on fees, and regulations all featuring to a greater or lesser degree.  What is interesting to us is that there have been a number of start up funds in the past 12-18 months, with the trend being towards better levels of strategic thought, business process, and risk management than in the past.

As a result the investors who back early stage managers continue to do so partly because research shows that while not without some risks, early stage, smaller or boutique fund managers provide significantly better returns, better transparency and more personal investor relations. Read the balance of our review here.

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

Magellan Global Fund was up 1.92% in March 2013 taking its 12 month performance to 19.78% as compared to an index (MSCI World Net) return of 11.1%. All stocks in the portfolio produced positive local currency returns and the portfolio was fully invested.

Auscap Long Short Australian Equities Fund had a strong return of 1.46% over March with an average next exposure of 116.5%. Performance benefited from exposure to property trusts, healthcare and materials sectors and avoiding the mining sector

Allard Investment Fund fell 2.1% over March impacted by the $A and generally weaker Asian markets. Twelve month performance was 6.72% and since inception performance 8.47% net compound annual return. Notable is the Funds low volatility at around two-thirds of the MSCI Asia Pacific ex Japan Index.

Monash Absolute Investment Fund returned a solid 2% over March bringing its six month return to 17.17%, achieved with an average net exposure of 62%. The portfolio avoided defensives, Telstra, consumer staples and utilities.

Continuing our successful Meet the Manager presentation series on Thursday 16 May, AFM is holding a city lunch time briefing featuring Jack Lowenstein from Morphic Asset Management. Contact us to reserve your seat.

As a tribute to yesterdays ANZAC Day, we would like to show this short clip of The Last Post from the Sydney Symphony.

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

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS