NEWS
13 Mar 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 notes that the equity market had a strong month in February, led by a small group of defensive and financial large-cap names. In terms of sectors, the leaders were Consumer Staples up 9.7% and Financials up 6.5%. The concentration of returns was evidenced by the fact that eight names contributed to 50% of the market increase in 2012 and this phenomenon has accelerated into 2013. Market breadth is therefore very narrow and the performance gap between defensive industrials and resources has reached levels unprecedented in the manager's experience. The Fund is under-represented in these most popular sectors, as the manager finds the combination of high valuations and low (and declining) earnings growth unattractive. Major factors impacting the market include money flows into quantitative funds, retail investors search for yield and investors benefiting from the AUD carry trade. Major contributions to the Fund's return came from long position in banks and insurance and energy and losses from short positions in banks, consumer staples and media. At month-end the Fund was 33.5% long, 14.2% short and had a short equity derivatives position of 10.7% for net risk exposure of 3% and a gross risk exposure of 60.3%. |
| More Information | » View detailed profile of this fund |
13 Mar 2013 - 2012 Five and Ten Year Performance Review
Absolute Return and Hedge Fund Performance over 5 & 10 Years.
As we reflect on the performance of Absolute Return and Hedge Funds over the past five and ten years, and show in the following analysis, "Volatility eats Returns" .
In fact, if 2012 was a year of two halves, so too was the previous decade. For the first five years, from 2003 to 2007, equity investors could do little wrong as they overcame, and then forgot the lessons of the dot-com bubble, just as they had forgotten the previous lessons from LTCM, the Asian Currency Crisis and October 1987 amongst others.
For five years from 2003 to 2007 the ASX200 accumulation index had no problem notching up returns of 20% per annum, supported by easy credit, and lax lending at both corporate and personal levels, and volatility fell accordingly.
Read the entire report from Chris Gosselin, Australian Fund Monitors here.
AFM's Five and Ten year Performance review to 2012 (pdf format)
13 Mar 2013 - 2012 Performance Review
2012 Performance Review: Australian Absolute Return Funds
To use a sporting term, 2012 was a year of two halves for equity markets in Australia. "Risk on" dominated for much of the year as Europe and the Euro threatened to unravel courtesy of debt levels in Greece, Spain, Italy and Portugal. For much of the year the jury was also out seeking clarity on the prospects of a hard or soft landing in China, with iron ore and coal prices suffering accordingly.
However as the second half proceeded risk averse investors were reassured by the ECB "whatever it takes" policy. At the same time, with the Fed continuing to crank the monetary presses, the US economy showed tentative signs of life, and initial jobless claims continued to fall - albeit frustratingly slowly. In time (just) the Fiscal Cliff was averted, and by the end of the year it seemed that China was not only avoiding a hard landing, but resuming growth.
Australia's equity market also alternated between risk on and risk off, only partly in response to these global influences. What seems difficult to reconcile is that in this environment of fluctuating risk the ASX200 Accumulation Index only suffered one negative month in 2012.
To read the entire report by Chris Gosselin, please click here.
2012 Performance Review (pdf format)
12 Mar 2013 - Bennelong Long Short Equity Fund
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| Manager Comments | Fund performance was flat for the month with solid earnings results from several long positions offset by results from the short portfolio which were largely not as poor as expected. The market rally over the past 6 months has been largely driven by large cap stocks with good dividend yields and lower than average risk. Recently the rally has broadened and value has start move higher. The Fund has maintained its focus on high return on equity, quality businesses but several large cap, high yield, low beta stocks are trading at premiums to long term valuations. The Fund reduced its exposure in some stocks that have run ahead of their fundamental valuation. The manager notes that recent performance has run ahead of earnings and that evidence of a earnings growth recovery will be needed to justify recent market strength. |
| More Information | » View detailed profile of this fund |
11 Mar 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. 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 manager notes that the ASX All Ordinaries Accumulation Index was up 5.2% over the month despite a domestic reporting season that was only slightly above expectations and driven mainly by cost-cutting and margin improvement. Within the market the notable sectors were Consumer Staples up 10.8% and Financials, up 8.1%. Large caps rose 5.7%, significantly out-performing small caps, up 0.9%. Large positive contributors to the Fund were NAB,CSL, ANZ and News Corp with negative contributions from Fortescue and Regis. Net equity exposure increased to 63.1% (75.8% long and 12.7% short). |
| More Information | » View detailed profile of this fund |
8 Mar 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 Fund's performance in January was driven by a number of strategies however the Australian long/short equity strategy was a notable detractor. This was due to the strong performances from many of the more volatile and poor quality stocks over the month. Significant contributions came from long positions in selected domestic cyclicals and stable yield names. At month-end the Fund's risk allocation was Equity 30.4%, Fixed Income 34.7% and Global Macro 34.9%. The Fund has now had positive monthly returns since May 2010. |
| More Information | » View detailed profile of this fund |
7 Mar 2013 - Clearing the Volatility Hedge
Clearing the Volatility Hedge
Our CEO, Chris Gosselin writes for Alan Kohler's Eureka Report this week.
Read his article - Clearing the Volatility Hedge here.
7 Mar 2013 - BlackRock Australian Equity Market Neutral Fund
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| Fund Overview | The Fund's portfolio primarily consists of long and short Australian equity positions. The Fund may also invest in other funds managed by BlackRock. Derivative securities, such as futures, forwards, swaps and options, can be used to manage risk and return Key insights into the investment process include: - Analyst Expectations - Relative Valuation - Earnings Quality - Market Signals - Timing Short-Term return enhancing opportunities including: - Dividend reinvestment plans - Manging index changes - Managing cash flows - Arbitrage - Initial public offerings and Seasoned Equity Offerings - Off Market Buybacks |
| Manager Comments | The manager notes that January saw strong performances from many of the more volatile and poor quality stocks. The portfolio suffered from strong rallies in several specific stocks in the resources sector as the market rewarded good news catalysts, despite resources under-performing overall. Significant positive contributions to the portfolio came from long positions in selected domestic cyclicals and stable yield names. Two of the Fund’s top contributors for the month were the long positions in Aristocrat Leisure (ALL) and Flight Centre (FLT). Among the top detractors were the short positions in Linc Energy (LNC) and Alumina(AWC). The Fund has notable sector over-weights in Materials, Consumer Discretionary and Financials and a zero weight in Consumer Staples. |
| More Information | » View detailed profile of this fund |
6 Mar 2013 - Microequities Deep Value Microcap Fund
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| Fund Overview | The Fund makes investments with a medium to long term time horizon of between 12 months to 3-5 years in the companies it selects for investment. The Fund invests in companies generating positive earnings (EBITDA) for at least 2 years with a stable management and track record for delivering value to shareholders. |
| Manager Comments | The Fund used the past month to purchase additional stakes in some of the best businesses in the utilities sector and telecommunications, taking advantage of weaker share prices in those sectors. The Fund also exited Webjet Ltd (ASX:WEB) after a holding period that dates back to the Fund’s inception. The manager notes that they are admirers of Webjet as a business, its management and the board but the decision to dis-invest was based on the fact that it was trading well above intrinsic value. In terms of outlook the Australian economy is poised for an interesting year. A number of industries like construction, manufacturing, and to a lesser extent retailing are experiencing difficult operating climates. Across the services sector there are pockets of buoyancy whilst the mining sector, despite the negative headlines, is still providing a supportive role in economic growth. The overall mix of these scenarios means domestic 2013 GDP is likely to come in below trend growth rate of 3%, and hover between 2.0% to 2.6%. |
| More Information | » View detailed profile of this fund |
6 Mar 2013 - Buffet Pulls Ahead
BUFFETT PULLS AHEAD
Warren Buffett's $1 million bet in January 2008 that an equity Index fund would beat a suite of fund of hedge funds over 10 years has recently received significant press coverage.
The bet was between Buffett and Protégé Partners, a New York hedge fund of funds. Protégé selected five funds of hedge funds to compete against Buffett's selection of a Vanguard fund tracking the S&P 500 Index. A charity chosen by the winner will receive the $1 million when the bet ends on December 31, 2017.
As on January 1, 2013, after five years and half way through the bet, Buffet's choice of index fund has finally moved ahead of the fund of funds for the first time, having returned 8.69% compared with the five fund-of-funds return of 0.13%. At the end of the previous year the Index fund lagged by 0.38%.
The identity of the underlying funds has never been disclosed. However the results of the Dow Jones Credit Suisse Hedge Fund Index have been used as a proxy, as it has roughly tracked the hedge funds chosen, after adjusting for extra fees.
A number of points need to be raised with respect to the performance of the hedge fund of funds. Firstly fund selection can be like stock selection, choosing the best manager is critical to performance.
Secondly Fund of Funds traditionally underperform single funds. They may provide great diversification, but that generally dampens returns even if it does provide much lower volatility.
The main point is that the Index fund had a very significant drawdown of almost -37% in 2008 while the hedge funds fell -24% and deep drawdowns significantly damage the value of compounding. For example, assuming an average return of 5.5% pa over 10 years, $100 accumulates to $170.81 over that time. However assuming a 40% market pullback in year 5 the value declines to $78.41. Even if the 5.5% returns commence again at this point until the end of ten years the value only rises to $97.1 0. Over the decade the investor loses 3%.
Read the entire article from Sean Webster, AFM Research and Database Manager here.
Buffet Pulls Ahead (pdf format)
