NEWS
16 Apr 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 | Australian equities gave back part of their recent strong gains in March, and underperformed most other developed world equity markets. The Trust finished the month with a flat return. The manager comments that they had felt markets were due a pause, and maintained low net exposure for most of the month. Further they comment that investors need to be clearly aware that equity markets remain in thrall to central bank bond-buying and the consequent strangulation of interest rates. The impact of these policies on economic growth is unconvincing, but they have certainly served to distort liquidity flows and capital allocation on a grand scale. This has come as a boon to equity markets, which have re-rated earnings yields and dividend yields downwards in step with falling bond yields. But, in the absence of real growth, equity markets may be worshipping a false god. This environment is dangerous from the perspective of capital preservation, and increasingly so, because it requires wilful suspension of any risk consideration by equity investors other than “relative value” as measured against a highly artificial bond/cash yield construct. The manager has previously written at length about the unusually narrow breadth of market leadership in Australia, and the unusual concentration of returns in a handful of defensive/yield leaders. These trends continued through most of March, with Financials finishing the month flat, and Materials down another 10.5%. On a rolling year basis, Financials are up 29% and Materials are down 15%, while Consumer Staples are up 30%, Telcoms 37%, and Healthcare 43%. The manager comments that with an investment process grounded to a large extent in fundamental valuation, they are unable to buy grocery retailers at between 18-20x forward earnings, with low and declining earnings growth, with asset level ROIC that has already been rebased up sharply, and with the prospect of increasing competition and regulatory risk. Similarly, they could not regard dividend yield sourced from highly-leveraged financial equity featuring 70%+ payout ratios, astonishingly low credit loss provisions, and price-to-book multiples of 2-3x as a logical substitute for fixed income yield, even ignoring the apples/oranges duration mismatch. Yet it has been just those investments that have clearly paid, but, again, to an overwhelming extent, only due to the revaluation of yield. The performance gap between defensive industrials and resources stocks continues to confound the manager. This gap has reached levels unprecedented in Optimal's experience, at least for those time intervals when Chinese demand data points seem to be stabilising, and when the market has already worked itself into lather over well-advertised supply additions in the bulk commodity group. Major contributors to the Trust’s return for the month by industry sector included: Longs (-0.26% attribution) Positive: transport, media, gold, banks Negative: resources, energy, REITs. Shorts (0.29% attribution) Positive: REITs, staples, index futures Negative: gaming, diversified financials. |
| More Information | » View detailed profile of this fund |
15 Apr 2013 - Insync Global Titans Fund
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| Manager Comments | Global equity markets were mixed in March, with rises in the US and Japan offset by subdued European markets impacted by events in Cyprus, and by falls in the Chinese and HK markets. US data continues to be consistent with moderate economic growth, with the US corporate sector more inclined to hoard cash than invest. Europe remains mired in recession, with the Eurozone unemployment rate rising to 12% in February (over 19 million people), the highest rate ever recorded since the EU formed. China’s economy continues to grow but the rate of growth is likely to be lower than it was in the past decade. Markets are being held up by quantitative easing in more parts of the world now, with real growth hard to come by. Only the very best companies are likely to prosper in this sort of environment. The Fund’s unit price increased by 1.2% in March. The solid performance was driven by positive contributions coming from Sanofi, Reckitt Benckiser, Wyndham, BAT and IBM. The biggest detractor to performance was Oracle, which announced lower than expected quarterly earnings on the back of a problematic hardware transition. Insync’s approach is to focus on investing in exceptional businesses with high Return on Invested Capital, strong free cash flow, solid balance sheets, attractive valuation and a long track record of returning cash to shareholders through increasing dividends and share buy-backs. At month-end the Fund's investments had a weighted forecast yield of 2.68%, a PE ratio of 15.5 times and a Return on Equity of 21.5%. There was no currency hedging in place at the end of March. |
| More Information | » View detailed profile of this fund |
12 Apr 2013 - Hedge Clippings
In last week's Hedge Clippings on the latest changes to Australia's superannuation system I remarked that "few comments seen so far have been negative". What has transpired of course is that on closer inspection the numbers and assumptions provided by Treasurer Swan were to put it politely, a touch rubbery.
Swan proudly claimed that the new 15% tax on superannuation pension incomes over $100,000 would only affect those with fund balances of $2 million. His assumption was based on a fund returning 5% per annum, which coincidentally is the annualised return from the ASX 200 over the past 10 years. What most investors would recognise is that this return is not only unattractive, but that for the first five years the return of the ASX 200 averaged closer to 20%. The following three years are seared into most investor's memory, and the return in the past 12 months has yet again hit 20%.
So in six years in the last decade a relatively modest retirement balance of $500,000 could have triggered the new 15% tax, assuming an allocation of 100% to equities and that the market's gains were realised. Swan also claimed, or tried to have everyone believe, that all this was fair and reasonable based on taxing the rich who were ripping the system off. He was also aghast at any comparisons between his initiatives (although many believe they will be unlikely to come into force prior to the election in September) and the haircut that investors in Cypriot banks have just taken.
It is worth remembering that funds allocated to superannuation during the 40 year accumulation phase are locked in. People commit, willingly or otherwise, to superannuation over a long period of time and should be able to expect that the basis for doing so remains intact without politicians of the day, who have been unable to make their books balance, raiding it. Retrospective tax changes, which in effect is what Swan is proposing, are not as far away from Cyprus as he would have us believe.
Meanwhile on to fund performance in March. Against a backdrop of the ASX 200 accumulation index which lost 2.27%, and with just over 40% of fund returns to hand, the average return was minus 0.25% with 54% of funds providing positive returns, and 85% outperformed the index. View full details here.
Performance and News Updates on www.fundmonitors.com this week:
Platinum Asset Management's International Fund's overweight position in Japanese equities continued to contribute to the Fund's recent six-month performance of 12.17%, much in line with their annualised performance since inception in April 1995 of 12.08%.
Morphic Asset Management's Global Opportunities Fund, which was launched in August 2012 and is headed by industry veteran Jack Lowenstein (ex Hunter Hall deputy CIO) returned 0.99% in March, taking six month performance to 9.34%. The new fund invests in globally listed shares with a macro overlay.
The Aurora Fortitude Absolute Return Fund returned 0.42% in March. The Fund has the distinction of providing positive returns every year since inception in 2005, and in every month during the GFC in 2008.
SEI Knowledge Partnership release their sixth annual survey of 107 global institutional hedge fund investors ranging in size from less than $500 m to more than $20 billion in assets. The survey concludes that "while it is clear that the hedge fund industry is here to stay, there is no doubt that the industry's value proposition is being seriously questioned, and not only by investors".
Bennelong Kardinia's Absolute Return Fund continued its consistent long term performance track record. The fund's March return was +1.42%, taking 12 month performance to 14.4% and their annualised return since inception in May 2006 to 14.44%.
Meanwhile Bennelong stablemate, the market neutral Bennelong Long Short Equity Fund (BLSEF) returned 0.69% in March taking 12 month performance to 15.46% and an annualised return since inception in January 2003 of 20.33%. The BLSEF remains closed to new investors.
And now for something completely different, while on the subject of Cyprus and just in case you thought the "best of" anything awards really mean that.
On that note, I hope you have a happy and healthy weekend!
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
| AFM's Featured Fund profiles provide thorough research and performance data on the best Funds across Australia. This week, we look at Morphic Global Opportunities Fund. | Fund Managers and paid Subscribers also have access to details on Individual Managers and Funds, with historical results, key performance indicators, latest news and performance reports. | Tune into Sky Business on Foxtel every week on Monday at 2:20pm for AFM's weekly comment on Hedge Funds. |
12 Apr 2013 - Platinum International Fund
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| Fund Overview | Typically, the Fund's portfolio will have 50% or more net exposure to stocks. The Fund's portfolio is constructed in accordance with Platinum's Investment Methodology. |
| Manager Comments | The Fund is 92% long and 12% short individual shares and indices with cash and liquids at 8% for a net invested position of 80%. The market moved upward in March however $A appreciation saw the MSCI World Index flat in $A terms. Despite concerns over Cyprus markets like France, Germany and the UK were all up 1%. The US market rose 4% on the back of stronger economic data like manufacturing, payroll and industrial production. Emerging markets fell 2% as money flows preferred developed markets and China (-5%). Equities in Japan continued to move higher, up 5%, and the Yen continued its fall on talk of the BoJ using monetary policy to re-inflate the country's declining economy. The manager notes that consistent out-performance and relative over-weight position of Japanese equities continues to contribute to Fund performance. |
| More Information | » View detailed profile of this fund |
11 Apr 2013 - Morphic Global Opportunities Fund
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| Manager Comments | The Fund amplified its holding in Wells Fargo through a series of short dated call options ahead of the unveiling of a US regulatory report on the capacity of the industry and individual banks to absorb economic shocks. The Manager was confirmed in its expectation that positive results would drive a sharp re-rating, as they have in the past. The Fund also made further gains on a short position in a Hong Kong listed global retailer and its long position in Irish listed cardboard box maker Smurfit Kappa. Stock losers were led by Chinese electric bike battery maker, Tianneng Power, where the market reacted badly to signs of margin pressure despite strong sales growth. The Fund also saw losses in India’s J&K Bank; and Hong Kong property company Emperor and US car parts maker TRW. All except J&K were exited during the month. Gains on market index exposures to Mexico and Turkey were slightly more than offset by losses in Thailand, China and Hong Kong. All of the latter were closed out in the month. Market tone was again dominated by uncertainty in Europe, this time caused by negotiations for a financial bail-out for Cyprus, which included a controversial levy on local bank depositors. As a precaution the Manager trimmed the Fund’s overall exposure, especially to Europe and the Euro, when the Cyprus bail-out terms were first announced. However this proved costly as markets shrugged off these concerns, and the US hit new highs towards the end of the month. Although the Manager partially rebuilt the Fund’s market exposure as its initial concerns about the ramifications of the Cyprus ‘rescue’ package seemed overblown, the Fund’s net investment level remained slightly lower at month end than at the beginning. Within this, the Fund is overweight Japan and the US, and underweight Europe. The Manager’s conviction about the sustainability of recent gains is ebbing as global market returns become increasingly dependent on the US despite deteriorating earnings revisions and economic data there. The Fund remains un-hedged into Australian dollars. The Manager believes slowing mining capital expenditure and falling commodity prices limit the risk of the dollar breaking out of its current range of US$1.02 to US$1.05 even if the RBA makes no further rate cuts. Some of the fund’s yen and Euro exposure is hedged into US dollars. |
| More Information | » View detailed profile of this fund |
9 Apr 2013 - Aurora Fortitude Absolute Return Fund
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| Manager Comments | The S&P/ASX200 Accumulation Index finished down ‐2.21% in March putting an end to a nine month positive streak. Within the Aussie Index, Australian banks continued to perform relatively well and again it was resources that lead the market lower. Of note,both BHP and RIO fell by more than 10%. Concerns out of Cyprus, namely the treatment of bank deposits, and the possible ramifications for other debt ridden European economies forced risk back into the spotlight. Commodity price declines also weighed heavily on our market as lower demand lead to lower spot pricing. The manager makes the following comments regarding each of the strategies; Convergence was the best performing strategy for the month (+0.26%). The Wesfarmers position was the biggest contributor again due to an increase in the value of the protection as the share price fell in line with the market. Long/Short generated a loss for the month (‐0.10%). Gains from holding a long position in Treasury Wines were offset by losses from being long Newcrest Mining and Downer EDI. Mergers and Acquisitions added +0.12% for the month. The best performers were Real Estate Capital Partners USA Property Trust and Challenger Infrastructure Fund. The protective Options strategy was also a small detractor for the month (‐0.04%). Volatility around the Cyprus situation produced good returns, but as the market grew more comfortable with the situation and the Aussie market approached a four day holiday weekend option prices were marked down aggressively. The Yield book provided a positive return of +0.17%. All hybrid instruments were positive for the month but the Macquarie Convertible Preference Security was the biggest contributor with only three months left to run until redemption or conversion, subject to some mandatory conversion conditions. |
| More Information | » View detailed profile of this fund |
9 Apr 2013 - 6 Ways Hedge Funds need to Adapt now
SEI's sixth annual survey of institutional hedge fund investors was conducted in November 2012 by the SEI Knowledge Partnership. Online questionnaires were completed by senior investment professionals at 107 institutions.
Endowments and foundations account for 19% of all survey respondents. Pension plans account for another 18% of respondents, with public plans dominating. Family offices account for 9% of responses. Funds of hedge funds (FoHF) accounted for one-third of all responses. FoHF data was tabulated separately from other institutional investor responses. Remaining responses came from banks, insurance companies, and non-profit organisations.
To read the full report, please click here.
6 Ways Hedge Funds need to Adapt now (pdf format)
9 Apr 2013 - Bennelong Kardinia Absolute Return Fund
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| Fund Overview | The Fund consists of a concentrated long/short portfolio typically comprising 30 to 40 ASX300 listed stocks, generally with a long bias aligned to the overall market direction. There is a slight bias to large cap stocks in the long side of the portfolio, although in a rising market the portfolio will tend to hold smaller caps, including resource stocks, more frequently. The Fund was launched on 17th August 2011 following the resignation of Portfolio Managers Mark Burgess and Kristiaan Rehder from Herschel Asset Management in late July 2011. While at Herschel Burgess and Rehder had managed the Fund under the name of the Herschel Absolute Return Fund. As a result management of the Fund was transferred to Kardinia Capital, a new boutique fund manager 65% owned by Burgess and Rehder, with the balance owned by Bennelong Funds Management. The Fund's investment strategy and prior track record remains intact. |
| Manager Comments | The Australian All Ordinaries Accumulation Index fell 2.2% in March with events in Cyprus and the terms of its bail out affecting investor sentiment. The Australian equity market was particularly weak, under-performing global peers as the mining sector was weighed down by falling commodity prices, and negative sentiment related to property tightening measures in China. The Australian dollar finished the month higher at US$1.04. Most US economic readings surprised on the upside, however Chinese data revealed moderating manufacturing activity combined with higher inflation. This weighed on commodity prices with Resources (-9.6%) the weakest performing sector for the month. Consumer Discretionary (+2.4%), Utilities (+0.7%) and Financials (+0.7%) held up well, whilst Materials (-9.6%), Energy (-3.4%) and REITs (-2.7%) fell sharply. The Bennelong Kardinia Absolute Return Fund rose 1.42% in March. Share price index future contracts hedging long exposure, Sirius Resources, Mayne Pharma and Bank of Queensland were all significant contributors to performance, whilst long positions in Rio Tinto, Oil Search and GPT were the largest detractors. The Fund’s net equity market exposure (including derivatives) was progressively reduced to 36.7% (67.9% long and 31.2% short). |
| More Information | » View detailed profile of this fund |
8 Apr 2013 - Bennelong Long Short Equity Fund
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| Manager Comments | The manager notes that stock markets took a breather in March as investors reassessed the outlook after strong returns for several months. European sovereign risks flared again as did concerns about policy tightening in China. The resulting decline in the resources sector pulled the Australian market lower with the ASX 200 finishing 2.7% lower despite global markets posting small gains (MSCI +1.9%). Fund performance was slightly positive due to gains from our shorts in the Materials sector, particularly profit downgrades in the Chemical sector. This was somewhat offset by losses in our short book in Consumer Discretionary. The fund was active in the Energy, Resources and Transport sector during the month. Despite positive global monetary policy settings there has recently been a large divergence in performance between the Resources sector (-11% ytd) and the rest of the market (+5% ytd) and investors will need to consider this when forming views on the growth outlook. The domestic economy has stabilised and the prospect of a majority government by year-end may provide confidence to the business sector. The domestic earnings picture is still sluggish though and ultimately needs to improve for stocks to push higher. |
| More Information | » View detailed profile of this fund |
7 Apr 2013 - Meet the Manager - InSync - now closed
Last year we hosted a series of lunch presentations entitled "Understanding Hedge Funds" which provided investors with a more balanced view on the sector than is sometimes portrayed in the media. Following feedback from a number of our guests we also organised briefings and presentations for a small group of investors to "meet the manager" and hear from individual fund managers in person.
Our next "Meet the Manager" briefing is with Monik Kotecha from Insync Funds Management on Wednesday 10 April 2013.
Monik's fund, the Insync Global Titans Fund, invests in a concentrated portfolio of large cap global stocks with a focus on those companies that can consistently grow dividends and earn high returns on invested capital. The latest copy of our Research Review of the Fund is here.
Monik will share his views of the market and the opportunities and risks which lie ahead. Having just returned from the UK and meeting many leading multinational companies he will also be able to provide an update on the global trends and observations they provided.
If you are interested in attending this Meet the Manager briefing, please reply by email and we will send you confirmation of your registration and inform you of the Sydney city venue.
Wednesday 10 April 2013 at midday
Sydney city venue to be advised
RSVP by Thursday 4 April 2013
AFM Fund Review (pdf format)
