Low inflation and low returns - Peter Costello weighs in.

For some time Hedge Clippings has been flagging that investors will need to lower their return expectations in the current low interest rate, low inflation environment.

Peter Costello, the architect of Australia's Future Fund, and now its chairman, made much the same call this week, warning that the fund's double digit returns of the past few years were unlikely to be repeated, and that the "inflation +5%" target will be a big ask in the current environment.

Given that Australia's inflation rate is negligible, and looking forward a few years is likely to be no more than 1 to 2 percent, this means investors are unlikely to achieve returns of 5% at best. With government bonds returning little more than 2%, and the local equity market seemingly up against a hard ceiling around the 5500 level, and many key areas of the property market looking soft, (which in turn will impact the banks) achieving the 10 to 15% returns many investors have become used to will not be easy.

To reinforce that unpleasant truth, in the 12 months to the end of April the ASX 200 accumulation index fell 4.93%, compared with an average of the active equity funds in AFM's database which gained 2% and providing an outperformance of 7%. 

73% of funds in AFM's database outperformed the ASX 200, although individual 12 month returns ranged widely from -35% through to +44%. Within those extremes smart and well informed investors still picked up the elusive 10 to 15% per annum return with limited risk by investing in the better managers.

While some may accuse Hedge Clippings of bias, the facts prove that actively managed and absolute return funds provide significant benefits provided investors have the ability to sort the wheat from the chaff.

If Peter Costello's right, and we believe he is, most investors in Australia's $1.8 trillion superannuation sector, plus those relying on the Future Fund's $117 billion, are going to have to tighten their belts over the next 3 to 5 years.

The ASX200 Accumulation Index returned+3.37% in April, with a range of fund returns as follows:

The Paragon Fund returned a +10.80% after fees for the month of April, outperforming the Index by 7.43%.

Alexander Credit Opportunities Fund increased 0.57% to take annualised return since inception to 17.18% p.a.

Cyan C3G Fund rose 7.90% in April 2016, outperforming the ASX 200 Accumulation Index by 4.53%.

Optimal Australia Absolute Trust returned -0.69% to take annualised return since inception to  9.00% p.a.

Bennelong Twenty20 Australian Equities Fund returned 2.31% for the month of April.

Jamieson Coote Bonds Active Fund rose 0.33%, outperforming the Bloomberg Australian Government Bond Index by 0.21%.

Bennelong Kardinia Absolute Return Fund returned 0.52% in April. Since inception, the Fund has an annualised performance of 11.79% p.a.

Totus Alpha Fund returned -1.37% in April to take the latest 12 months return to 20.66%. 

Pengana Absolute Return Asia Pacific Fund rose 1.32% for the month of April, compared to the HFR Event Driven Index, which returned 0.43%. 

NWQ Fiduciary Fund returned 0.27% bringing the net performance for the trailing 12 months to 6.25%.

Pengana Global Small Companies Fund returned 1.01% for the month of April.

Affluence Investment Fund returned 1.92%, to take annualised return since inception to 8.78% p.a.

FUND REVIEWS released this week: Meme Australian Share Fund; Bennelong Long Short Equity Fund; Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust; Jamieson Coote Bonds Active Fund; 

And on that note, have a great weekend.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Sell in May and go away - at your peril!

We are never quite sure whether the above adage is simply a useful way to remind investors that markets quieten down over the northern summer, or a serious warning about potential market declines. In any event the rocky and volatile markets of the past 12 months, and the first quarter of 2016 in particular would certainly be encouraging many investors to hold fire from making serious investment decisions for the next few months.

While the worst of January and February's volatility would appear to be behind us, the rebound has not been kind to many fund managers when much of the bounce in some stocks has not been based on fundamentals. While there have only been a few funds report April numbers so far they are at least positive, alongside the ASX 200's accumulated return of 3.37%.

The big question facing most investors now is whether the rally of over 8% in March and April is sustainable, or whether it is merely a bounce from an oversold position based on oversold commodities, and overdone fear on China's outlook. They're still appear to be as many followers of the hard landing scenario as there are of the soft, and so many investors are left with the challenge of whether to hold their gains from the recent rally, or fold their cards and cash in their chips.

The past week has been a big one on a couple of fronts. The RBA cut interest rates by 0.25% just a few hours before Tuesday's federal budget to a historic low of 1.75%, a level not seen since the days of Capt Philip and the first Fleet (and doubtfully not even then). Admittedly this cut was driven more by exceptionally low (negative) inflation than low economic growth, but it now has the pundits wondering if there will be a further cut over the coming months.

Scott Morrison delivered his first budget which on the face of it seemed responsible, including changes to high-end superannuation entitlements, albeit that they were undeniably overly generous in the first place. However justified, making these changes retrospective would appear to be a dangerous precedent. That aside we are now expecting at any moment to officially be in election mode. Hence politics will not only dominate the airwaves, but are likely to dominate investor concerns and uncertainty for the next couple of months until July 2.

Overseas Donald Trump seems to have done what many thought was impossible just six or 12 months ago. Without being an expert on US politics, it would appear that winning the Republican Party nomination was one thing, getting enough people to vote him into the White House might be an altogether more difficult challenge given the multitude of voters who have been insulted or sidelined during the nomination process. The flow on effects of Trump's success so far are unknown, but are likely to be significant and damaging to the Republican Party, whether he makes it to the Oval Office or not.

Abraham Lincoln was quoted as saying that you can "fool some of the people all the time, or all of the people some of the time, but not all of the people all the time". We sincerely hope that is correct!

Meanwhile, the Australian share market returned+3.37% (ASX200 Accumulation Index) in April, assisted mostly by better commodity prices boosting major resource company shares.

Meme Australian Share Fund rose 8.60%, outperforming the ASX 200 Accumulation Index by 5.23%. Since inception, the Fund has an annualised return of 18.90% p.a.

Bennelong Long Short Equity Fund returned -2.30% for the month of April. The long term performance since inception, remains strong with annual returns of 17.51% p.a. over 14 years.

Clarity Multi Strategy Fund returned -8.82% for the month of March. Since inception, the Fund has achieved double-digit annualised returns of 23.43% p.a, which has been achieved with a volatility of 14.14% p.a.

Newgate Real Estate and Infrastructure Fund was flat (-0.06%) for the month of March to take annualised return since inception to 12.20% p.a.

FUND REVIEWS released this week: QATO Capital Market Neutral Long/Short Fund; Insync Global Titans Fund; Supervised High Yield Fund; 

And on that note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

It's a rocky road, but unlikely to change soon.

Looking at the performance (-2.45%) of all funds through to the end of March they broadly matched the ASX 200 Accumulation Index (-2.75%) on a year-to-date basis. Averages of course cover a multitude of underlying performances, but 58% of all funds outperformed the ASX 200 Accumulation Index over the first three months of this year.

Over the previous 12 months however funds outperformed significantly, while just managing to keep their noses above water, returning a positive 0.87% against the ASX 200 Accumulation Index which fell 9.59%. Over the longer term 85% of funds in AFM's database outperformed the index, with just over 50% in positive territory. In fact using AFM's proprietary research analysis and taking 15 key risk and performance criteria into consideration, the ASX is performing amongst the bottom quintile of all Australian focused equity-based funds. So much for the benefits of ETF's.

But no wonder fund managers and investors have been struggling to make decent returns this year:

According to Richard Coppleson of Bell Financial Group, and reported in today's Financial Review, 50% of trading days in 2016 have seen the ASX move up or down by 1% or more. This in itself is not necessarily a problem, provided the up and down days were skewed to the upside. Unfortunately they are balanced 50-50 which means rather than having a flat line trend, the market has been whipsawing both the average investor, and a fair few fund managers as well.

For market neutral and long short managers being skewed to the downside would not be an issue either, but to have gone through the volatility that's been seen over the past four months, only to have the market pretty much back to where it started in January, makes life difficult.

But these are difficult times, both in Australia and globally, and Hedge Clippings' crystal ball is looking particularly murky. Locally the economy has yet to transition from the resources boom, and to be fair that wasn't going to happen overnight anyway. This has not been assisted by the politics of the last few years, and neither has it been helped by a global economy which is struggling in some areas to register a pulse, and where it is, struggling to overcome the combination of low inflation, low growth, and zero or negative interest rates.

China probably represents both the greatest threat and the greatest opportunity. The potential for there to be a major credit crisis in China would seem to be significant, but getting a real handle on the actual numbers is as difficult as ever.

Meanwhile politics both locally and abroad also represent further risks. Think Trump in the USA, and BREXIT in the UK and Europe, and that's before we consider our domestic situation ahead of the Federal budget next Tuesday, followed by a two-month election campaign with an outcome that is anything but certain. The prospect of "Wee Willie Shorten" for the next three years would certainly skew the negative market days to the downside.

On the positive political side the Prime Minister has announced the introduction of an Infrastructure Fund to be funded through infrastructure bonds. While we take no credit for the announcement, Hedge Clippings has long suggested that infrastructure bonds would be an ideal investment for superannuation funds, and further it should be either mandatory for a percentage of all superannuation inflows to have an allocation to them, or to tie taxation benefits to investments in long term Infrastructure Bonds.

With almost $2 trillion currently tied up for the long term in Australia's superannuation pool, and which is forecast to rise to $7 trillion by 2030, an allocation of 10 or even 20% to government infrastructure bonds would be significant. Maybe this is a rabbit to be pulled out of his hat on Tuesday evening by the Treasurer?

Meanwhile as markets, particularly in Australia, seem to continue to rally from the first quarter's sharp sell off, further March fund results came in as follows:

Pengana Global Small Companies Fund generated a return of 1.48% in March compared to a 0.76% return for the MSCI AC World SMID Cap Index.

NWQ Fiduciary Fund returned -1.48% in March bringing the net performance for the trailing 12 months to 6.07%.

Bennelong Twenty20 Australian Equities Fund rose 4.07% against the ASX 200 Accumulation Index's return of 4.73%.

Jamieson Coote Bonds Active Fund returned -0.30% in March. Since inception, the Fund has an annualised return of 5.47% p.a., achieved with relatively low volatility of 2.54%.

Totus Alpha Fund returned -6.15% for the month of March to take annualised return since inception to 24.72% p.a.

KIS Asia Long Short Fund returned a positive 2.39% for the month of March to take latest 24 months to 17.24%.

Alexander Credit Opportunities Fund rose 0.46% to take annualised return since inception to 17.31% p.a.

Affluence Investment Fund rose 1.20% in March to take annualised return since inception to 7.80% p.a.

Pengana PanAgora Absolute Return Global Equities Fund returned -1.41% for the month of March.

APN AREIT Fund returned +2.83% in March, outperforming the S&P/ASX300 Property Trust Accumulation Index's return of 2.50%, by 0.33%.

FUND REVIEWS released this week: Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; APN Asian REIT Fund; Pengana Absolute Return Asia Pacific Fund; Bennelong Twenty20 Australian Equities Fund; Totus Alpha Fund; 

And on that note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Bubble Bubble, Toil and Trouble.

Hedge Clippings is probably not the only party to be frustrated by what has broadly been portrayed as "debate" about the upcoming budget, or for that matter the overall political stand-off that now seems to be the norm in Australia.

With Parliament due to resume next week, and the budget now only a few weeks away, we hope things will become a little bit clearer. However what seems to be abundantly clear is that while everyone understands that as a nation we are living beyond our means, the reality is that the only way to fix it is to either reduce expenditure, or increase revenue.

It really doesn't matter whether this is applied at the household, corporate or government level, the rules remain the same. Unfortunately at government level reducing expenditure translates into either reduced welfare, or reduced services such as health and education. Meanwhile increasing revenue translates into higher taxation, or a reduction of various tax breaks.

Under the Abraham Lincoln political rule that you can "please some of the people all of the time, or all of the people some of the time, but you can't please all of the people all of the time," whatever is handed down in this year's budget is going to disappoint. Everyone wants more, while no one wants to give up what they've already got.

Added to that is the problem that the Turnbull government, which kicked off with so much optimism, seems to have been backed into a corner of having to rule out most budget options before they started. We guess the PM will be ruing the day that he didn't take over and call an early (read "immediate") election last November, and use the following three years to get on with it. We certainly are.

Finally this week the IMF downgraded forecasts for world economic growth, while interestingly also being a bit more optimistic about China's outlook. We take this news with a pinch of salt, as the IMF's track record for economic fortune telling hasn't been too good over the years. Whether it's the economic models they are using, or the possibility that they are cocooned in ivory towers, it's a long time (if ever) since the IMF predicted world economic growth accurately, instead consistently having to downgrade their previous forecasts as they catch up to the real world economy.

Meanwhile as markets, particullary in Australia, seem to continue to see-saw, some March fund results came in as follows:

Meme Australian Share Fund returned a positive 3.38% to take their latest 12 months return to 9.20%.

Pengana Absolute Return Asia Pacific Fund finished up +1.68% for the month, compared to the HFR Event Driven Index which rose +2.6%.

The Paragon Fund rose an impressive 7.40% for the month to take annualised return since inception to 17.13% p.a.

Optimal Australia Absolute Trust recorded a positive 2.30% to take prior 12 months return to 12.59%.

Bennelong Kardinia Absolute Return Fund returned +0.30% to take annual returns since inception to 11.83% p.a.

APN Asian REIT Fund returned -2.70%, compared to the BBAREIT Index's return of -4.29%, to give an outperformance of 1.59%.

Cyan C3G Fund fell 3.38% to take latest 12 months return to 27.86%, after posting a gain of 48% in calendar 2015.

Bennelong Long Short Equity Fund returned -6.73% to take 12 month performance to 22.71% with annual returns since inception of 17.81% p.a.

Supervised High Yield Fund returned a positive 0.20% for the month of February, to bring annualised performance since inception to 9.39% p.a., Standard Deviation of 2.1% and a Sharpe Ratio of 2.86.

FUND REVIEWS released this week: Meme Australian Share Fund; Morphic Global Opporunities Fund; Bennelong Long Short Equity Fund; Insync Global Titans Fund; QATO Capital Market Neutral Long/Short; Supervised High Yield Fund;

And on that note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

"Beta" Rally does some damage, and so long Ronnie Corbett. RIP.

While no fund performances for March are available as yet, anecdotal evidence suggests it has been a pretty tough month for many active managers courtesy of a "beta" rally, particulary in stocks of pretty dubious quality, or those that had previously been oversold. This can make it difficult for non index type funds, such as hedge or those seeking absolute returns, as they normally have good reason to either avoid, or short stocks with poor management or a poor outlook, only to see a significant bounce in the price against all apparent logic or fundamentals.

These situations work themselves out over time as the cream always floats to the top, and the dregs sink to the bottom. However, it can take a while for the turbulence to end, and the froth to subside before the end product declares itself and is worth consuming. In this environment investors are best either sitting tight in funds which have a sound long term track record and good risk adjusted performance, or sitting on the sidelines, as many SMSF's have done over the past few years.

The problem with sitting on the sidelines in the current interest rate environment is evident, and sooner or later investors will have to lower their targeted returns from the previously acheivable double digits, to a more realistic single digit number. And if cash is only hovering around 2-3% (and unlikely to move higher in the foreseeable future) then a return of 2 to 3 times that, provided it doesn't come with excess risk, is likley to be pretty attractive.

On a different note we have uploaded an excellent piece to our library by Hugh Dive of Aurora Funds Management on the subject of short selling. Clear and concise the article takes you through the history, mechanics, logic and rationale for short selling in a brief 3 pages which won't send you to sleep or have you reaching for a glass of something.

Against a backdrop of further volatility in March the ASX200 rose 4.17% for the month to halve the YTD losses to 4.02%. Meanwhile:

APN AREIT Fund rose 3.13%, outperforming the S&P/ASX300 Porperty Trust Accumulation Index's return of 2.81%, by 0.32%.

Jamieson Coote Bonds Active Fund rose 1.08% to take annualised performance since inception to 6.10% p.a., achieved with low volatility of 2.53%.

NWQ Fiduciary Fund fell 2.53% bringing the net performance for the trailing 12 months to 9.27%.

The Bennelong Twenty20 Australian Equities Fund returned -2.67% against the ASX 200 Accumulation Index which returned -1.76%.

Affluence Investment Fund returned -0.20% against the Australian equities market return of -1.76%, to give an outperformance of 1.56%.

Pengana Absolute Return Asia Pacific Fund rose 1.10%, compared to FTSE All World Asia Pacific Index which fell 2.05%.

Newgate Real Estate and Infrastructure Fund delivered a negative 0.70% outperforming the ASX200 Accumulation Index, by 1.06%.

Insync Global Titans Fund returned -1.80%, compared to the MSCI All Country World ex-Australia Net Total Return Index in $A, which returned -1.6%.

Pengana PanAgora Absolute Return Global Equities Fund returned -1.62% for the month of February. The Fund has low systematic risk (beta) to the ASX200 and the MSCI World Indices of 0.10.

FUND REVIEWS released this week: Bennelong Kardinia Absolute Return Fund; Meme Australian Share Fund; APN Asian REIT Fund; Totus Alpha Fund; Pengana Absolute Return Asia Pacific Fund; Bennelong Twenty20 Australian Equities Fund

We have not been publishing our usual "and now for something completely different" for some time, partly due to the time it took to find original, and hopefully funny, or original content. However the sad passing of Ronnie Corbett overnight, the "little" half (or should that be one third) but the remaining one of the Two Ronnies should have provided plenty of material.

Sadly the choice was so great it was difficult to choose, but here's a selection put forward by the Independent.  Meanwhile I couldn't find my own favourite, although I can't recall which of the two Ronnies delivered it, dead pan as only they could:

"And now some late news in from Sydney, Australia where a woman has been taken to hospital after being bitten on the funnel by a finger-web spider."

And on that note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Fed backs off next rate rise

With negative interest rates ruling in many parts of Europe it is probably no surprise to many Fed watchers that the next rise has been kicked further down the track. And as much as the Fed would like the economy to be performing sufficiently well to warrant a further 0.25% rise from historically low levels, the reality is that it is not much more than tepid economic recovery at best. So the "no" decision probably came as no great surprise.

Equity markets liked the news however, but no doubt rallied broadly on a relative yield basis. One has to wonder however, with more debt out in the market than there was pre GFC, what is going to happen come roll-over time if rates ever get back up towards even mid-single digits? No doubt the Fed is hoping there will be sufficient strength in the economy to sustain debt servicing levels, but the way it's looking the world seems well and truly locked in to a low inflation-low growth-low rates scenario for some time to come.

So in spite of the stability of that 3 way "low" scenario, volatility is likely to continue as central banks simply don't have any levers left to pull if they need to.

Meanwhile our attention was drawn to a headline in today's Financial Times titled "Hedge fund closures back to crisis highs" as some of the biggest names in the industry returned funds to their investors after suffering losses. The difference is that this time around the closures are voluntary, not forced on the managers by liquidity mis-matches and (panic) redemptions, and much of the returned capital will be re-allocated into other funds. Certainly some of the largest global funds, with many billions invested (often the manager's own capital) have had disappointing returns, but returning investor's capital because the manager sees that the time is not right for their strategy is a long cry from the chaos of 2008.

Performance updates and reviews received this over the past week included the following PERFORMANCE UPDATES:

Against a backdrop of further volatility in commodities and general de-risking in February the ASX200 Accumulation Index fell 1.76%  to take 12 month performance to -13.73% . The S&P500 fell 0.13% for the month and -6.19% over 12 months. With a sharp "beta" rally towards the end of the month some funds found the going tough. Meanwhile:

Clarity Multi Strategy Fund rose 6.04%, outperforming the AFM Global Equity Index which fell 1.45%, by 7.49%. Over the past 12 months the fund has returned 26.79%.

Bennelong Kardinia Absolute Return Fund fell 1.78% in February taking 12 month performance to 0.59%, outperforming the index by over 14%. Since inception in 2006 the Fund has an annualised return of 11.91% p.a. with Standard Deviation of 7.36% for a Sharpe ratio of 1.02.

Meme Australian Share Fund returned -1.71% for February bringing the Fund's 24-months performance to 36.16%. 

The Pengana Global Small Companies Fund returned -0.33% for the month of February, compared to a -0.44% return for the MSCI AC World SMID Cap Index.

The Paragon Fund returned -5.20% for February, brining the Fund's annual return since inception to 14.73% p.a. and a Sharpe ratio of 1.05

Signature Quantitative Fund fell -2.50% in February to take latest 24-month return to 12.47%.

The APN Asian REIT Fund rose 6.53% for February. Since inception the Fund has an annualised return of 17.42% p.a.

Totus Alpha Fund returned -11.27% for the month of February. The Fund has returned +31.26% over the past 12 months.

FUND REVIEWS released this week: Optimal Australia Absolute Trust; Bennelong Long Short Equity Fund; Morphic Global Opportunities Fund; 

And on that note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Hedge funds aren't nasty, they're sensible!

Certain sections of the media have been getting excited about the prospect of those 'nasty' hedge funds with short positions losing money thanks to a "short squeeze" rally in the price of the banks and Fortescue Metals Group (FMG). Of course there are some who think (Gerry Harvey for instance, who has always been ready and willing to talk his own book) that all short sellers should "be put up against a wall and shot" (his words, not mine). Others seem to believe that the only reason share prices fall is because of short selling by hedge funds.

Let's put this in perspective: Firstly the banks:

The price of CBA fell from $95 twelve months ago to $72 during September, following which there was a rally back up to $85 by the end of the year. Then a further fall to $72 followed towards the end of February, since which time it rallied back towards $75.

So apart from the fact that most of the downward pressure on CBA has come from "long" investors exiting or reducing their holdings because it was overpriced, any smart hedge fund should have been "short" at prices of over $90, and would have been more than happy to exit  those positions between $70 and $75.

Only about  3% of the total big four banks' stock is "borrowed", which includes borrowing by traders who need to cover their option positions. While the banking sector may be large, that's not enough to have enabled short sellers to have cut the price by 20%. The reality was that at $95 the CBA was overpriced and conditions for banks were, as George Colman from Optimal Australia said at the time, "as good as they get", and the downside was inevitable.

Let's take a look at Fortescue:

In June 2008 FMG was trading at close to $11, riding high on the back of iron ore prices of around $140 a tonne. By January 2009 the price at fallen to $1.94 before rallying over two years to $6.65 in January 2011, before falling to $1.60 in January 2016.

FMG's share price might well have bounced $1.00 from that low, but that completely ignores the fact that they had fallen from $11 to $1.60 during their volatile journey.

It's not only short sellers that push the price of stocks down. It is the outlook for the company's earnings and profitability. Long only investors reduce their holdings, and just as importantly buyers pull bids back because there is limited value, or the stock is overvalued.

Message: Don't blame short sellers for the company's prospects and share price. Having said that manipulation of news and research (whether positive or negative) should not be allowed to benefit the peddlers of such information.

Performance updates and reviews received this over the past week included the following PERFORMANCE UPDATES:

Against a backdrop of further volatility in commodities and general de-risking in February the ASX200 Accumulation Index fell 1.76%. The S&P500 fell and the Asia Pacific ex Japan Index fell 0.63%. Meanwhile:

The Optimal Australia Absolute Trust recorded a positive 0.80% return, in another tough month to outperform by 2.56%.

The Bennelong Long Short Equity Fund rose 2.37%, to outperform by 4.13%.

KIS Asia Long Short Fund returned a positive 0.67% for the month, to give an out-performance of 1.30% against the Asia Pacific ex Japan index.

The Alexander Credit Opportunities Fund returned +0.55% for the month of February.

Morphic Global Opportunities Fund fell 2.24% in February, underperforming its benchmark (MSCI AC World Total Return in Australian Dollars), which fell 1.65%, by 0.59%.

The Newgate Real Estate and Infrastructure Fund returned -0.24% for the month of January.

FUND REVIEWS released this week: Insync Global Titans Fund  

And on that note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

We're searching for a confident economist, but can't find one!

This week Hedge Clippings seemed to be in the company of economists and other experts more than normal. It's not that we have a habit of avoiding them, even if we wanted to, it was just the way the week unfolded. And having paid attention to what they were variously either saying and putting up on the screen, you'd have to say it was a pretty sobering experience, particularly in a week when the once big Australian, BHP, cut their dividend by 75%.

Now trying to distil close to four hours of economic opinion and expertise into a few paragraphs is not the easiest thing to do - so much so that I'm just going to jot a few dot points down and hope they're the right ones. Here goes, and no doubt I will be reminded either that I got it wrong, or missed other more pertinent points:

• Demographics across the globe are changing, and causing some major issues. More people are earning, but not much, and therefore not spending or paying much tax, and more people are getting older and relying on welfare of one sort or another.
• China is in serious transition from their infrastructure boom of the past decade or so, to a consumer and consumption and service based economy. Transitional economies (Australia's included) are always difficult.
• Interest rates are at all time lows, and either negligible or negative. This leaves central banks with no room to move, and no levers left to pull.
• Over supply and inflation. As one who grew up, or at least experienced the '70's, '80's and '90's, it is almost unthinkable that rates would be close to zero, and deflation is the problem, rather than inflation.
• Profit share has overcome labour - and there's signs of political pushback as evidenced by Donald Trump's appeal in the US.

Amongst all this returns of double digits from traditional portfolios are going to be hard to find. Mid-single figures possibly, but that's not attractive if it comes with anything like equity volatility. Choosing the correct, and diversification of, asset class is going to be vital.

And in case you think we're not grateful for their views, we were, and are. Thanks to Charlie Jamieson of JCB Bonds, Saul Eslake, Mark Burgess (ex Future Fund), Daniel Blake of Morgan Stanley, Ben Silluzio of QATO Capital, and Deloitte for their hospitality.

Performance updates and reviews received this over the past couple of weeks included the following PERFORMANCE UPDATES:

For January, the Alexander Credit Opportunities Fund rose 0.43%, to bring 12 month performance to +7.08%.

The QATO Capital Market Neutral Long/Short Fund returned a solid +4.90% versus the S&P/ASX-100's fall of -5.48%; an outperformance of +10.38%.

Pengana Absolute Return Asia Pacific Fund finished -2.0% for the month, compared to the HFR Event Driven Index which closed -3.8%. Asia Pacific markets sold off sharply -8.0%, with volatility measured by VIX hitting a high of 30.

Totus Alpha Fund rose 0.67% for the month of January, compared to the ASX 200 Accumulation Index that fell 5.48%, an outperformance of 6.15%.

The NWQ Fiduciary Fund returned -1.62% for the month of January and has returned +14.06% over the last 12 months.

Signature Quantitative Fund returned -0.6% for the month of January, compared to the S&P/ASX 200 Accumulation Index's return of -5.5%, an outperformance of 6.08%.

APN AREIT Fund rose 0.55% for the month of January to bring annualised return since inception to 17.60% p.a.

Supervised High Yield Fund decreased by 0.51% for the month of January, to bring annualised performance since inception to 9.47% p.a.

FUND REVIEWS released this week: Meme Australian Share Fund; APN Asian REIT Fund; Morphic Global Opportunities Fund; Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust; QATO Capital Market Neutral Long/Short Fund; Pengana Absolute Return Asia Pacific Fund; Totus Alpha Fund 

And on that sobering note, have a great week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

In the race of life, always back self-interest... at least you know it's trying

Paul Keating once used this quote, and reviewing the resistance from a range of self interested parties, (including a bunch of government back benchers) to an increase in the GST having any part in the GBT (Great Tax Debate), it seems self-interest, rather than the longer term interest of Australia's budgetary and fiscal future, is alive and well. At least we now know three things:

1. Trying to sell a tax increase - sorry package, whether necessary, logical, sensible or otherwise, shortly before an election is not possible, and,
2. If nothing else, Wee Willie Shorten can run a great scare campaign, even if he has to deal leniently with the truth to do so, and;
3. The Prime minister has shown himself to be ultra-pragmatic in understanding that there's no point in flogging a dead horse in the face of said scare campaign if it's going to lead to defeat in the media, or worse still, at the polls.

In amongst all the rhetoric and rubbish spoken was someone on the ABC claiming, and being allowed to get away with it, that a pensioner spending his or her $30,000 a year will pay as much extra GST on that as Jamie Packer will on his $30,000 spend. Quietly ignoring of course that young Jamie will go through his $30,000 somewhat more quickly or more often than once a year.

Next was the cash economy, be it from the local cafe, tradesman, cleaner or whatever. While cash payments avoid income tax, it is presumed they are spent in the real economy and at least taxed. We could go on, but what's the point, the subject is dead and buried. Well done self-interest!

Now to performance and the markets which are being subject to increasing volatility, making it difficult for the average investor to do anything other than hang on, or stay on the sidelines. Even the experts are finding the going tough, although based on the selection of results below they're still proving more than capable of protecting their investors' capital to a large degree. We have about 50% of January results in to date, with the average of all funds -1.85% against the ASX200's -5.48%. Over the 12 months to 31 January the outperformance is +12%.

As with all bear markets and negative volatility the selling pressure tends to accelerate as support levels and confidence crumbles, and the weight of money that has flowed into index and mutual funds, (here and overseas over the past 3 years) and is now flowing out equally quickly is not helping the market.

On the subject of the economy AFM is pleased to be offer subscribers and readers of Hedge Clippings an opportunity to join Jamieson Coote Bonds' Charlie Jamieson, in conjunction with Deloitte to hear the combined thoughts of noted economist Saul Eslake, and the ex-head of the Future Fund, Mark Burgess, at a breakfast presentation in Sydney on 25th February. Seats are strictly limited, so please respond directly to this link. 

Performance updates and reviews received this over the past couple of weeks included the following PERFORMANCE UPDATES:

For January, the Bennelong Long Short Equity Fund returned -0.29% compared to the ASX 200 Total Return Index which fell -5.5%.

The Jamieson Coote Bonds Active Fund rose 1.39% for the month of January 2016.

Meme Australian Share Fund returned -4.89% for the month of January, outperforming by +0.59% the ASX200 Accumulation Index's return of -5.48%.

The Paragon Fund returned -0.5% for the month of January, outperforming the ASX 200 Total Return Index which returned -5.48%, by 5.98%.

Morphic Global Opportunities Fund fell 1.98% in January, outperforming its benchmark (MSCI AC World Total Return in Australian Dollars), which fell 3.35%, by 1.36%.

The APN Asian REIT Fund rose 1.95% for January. Since inception, the Fund has an annualised return of 16.15% p.a.

Bennelong Kardinia Absolute Return Fund Fund fell 3.42% in January. Since inception, the Fund has an annualised return of 12.22% p.a.

Optimal Australia Absolute Trust recorded a flat return in January, against a 5.48% fall in the ASX 200 Total Return Index.

FUND REVIEWS released this week: Jamieson Coote Bonds Active Fund; Bennelong Long Short Equity Fund; 

And on that note we trust you have a happy and safe week-end - and be good to each other this Sunday on Valentine's Day!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.

Welcome back - but not to a great start to the New Year!

Not a great start to the New Year is probably an understatement in anyone's language. Whether it is equity prices across the globe, commodity prices, a refugee crisis in Europe threatening widespread economic, security and social problems, or the Chinese authorities hamfisted approach to stablising markets, the news has been dismal to say the least - unless you're a motorist filling the car at a nearby petrol station, or taking advantage of lower airline prices.

At the current time the ASX200 is down around 5.5% since the start of the year, for a fall of around 12.5% over the past 12 months, having at one stage during the month looked even worse. Ugly to say the least, and while not wishing to forcast more gloom and doom, it does seem that volatility will remain entrenched across the globe for some time to come. To what extent the US rate rise late last year has had anything to do with equity market weakness in difficult to fathom given it has been clouded, or at least overshadowed by the exteme volatility and weakness in Chinese markets.

So if we can't (or don't want to) forcast the future beyond the obvious, let's look back at the previous year, as we usually do at this time: Over the 12 months to December 2015 the ASX200 absolute return struggled to gain 2.56%, while excluding dividends  the ASX200 recorded a loss of -2.13%. Probably the only reason it performed as well as it did was the unquenchable thirst for yield that those two statistics indicate.

Over the other side of the Pacific the S&P500 fell -1.58% or on an accumulation basis it rose a paltry 1.38%.

Not unsurpisingly the Equity based hedge and absolute return fund sector out-performed underlying markets significantly - with the average performance of all funds in AFM's database (unweighted for size) up 12.49%. Non equity funds, including credit, fixed income, commodites and FX for example, fared less well, but still managed a return of just over 4% for the year. Almost 80% of all funds - equity and non equity - outperformed the ASX200, and only 12% finished the year in negative territory. 

As usual the spread of performances was dramatic, and after stripping out the top and bottom 1% of funds, ranged from -10% to +55%. From a strategy perspective equity based funds such as Market Neutral (+14.82%), Active Long Only (+14.2%), Long/Short (+13.22%), and 130/30 (+10.34%) all performed well, while at the other end of the scale, only two strategies, Commodities/CTA and Managed Futures, averaged negative returns.

Some highlights are shown below, or for full details follow the link to www.fundmonitors.com 

Performance updates and reviews received this over the past couple of weeks included the following PERFORMANCE UPDATES:

Bennelong Long Short Equity Fund rose 6.22% in December, to bring latest 12-month return to 37.14%.

For the month of December, the Meme Australian Share Fund gained 4.40% compared to the ASX200 Accumulation Index's return of 2.73%, an outperformance of 1.67%.

Optimal Australia Absolute Trust recorded net return of -0.1% to bring the year 2015's return to +8.05%.

The Paragon Fund returned 0.3% for the month of December, to take latest 12 month return to 16.44%.

Bennelong Kardinia Absolute Return Fund rose 1.74% in December, to bring annualised performance since inception 12.74% p.a.

Totus Alpha Fund rose 4.5% net of fees in December taking the latest 12 month return to 53.40%.

NWQ Fiduciary Fund returned +2.22% for the month of December, to bring latest 12 month return to 17.18%.

Pengana Absolute Return Asia Pacific Fund rose 0.72% for the month, outperforming the HFR Event Driven Index which closed down -0.9%, by 1.62%.

Signature Quantitative Fund rose 2.50% for the month of December, to bring annualised performance since inception to 10.40% p.a.

Morphic Global Opportunities Fund returned -2.48% in December to bring latest 12 month return to 9.08%.

APN Asian REIT Fund returned -0.48% in December. Since inception, the Fund has an annualised return of 15.97% p.a.

Freehold Absolute Return Fund  delivered a positive 1.95% for the month of December.

Jamieson Coote Bonds Active Fund rose 0.25% in December.

APN AREIT Fund  rose 4.67% in December to bring annualised return since inception to 17.73% p.a.

Laminar Credit Opportunities Fund returned +0.66% for the month of December.

Qato Capital Market Neutral Long/Short Fund rose 2.70%, compared to the S&P/ASX 100 Price Index, which returned 2.40%.

Supervised High Yield Fund produced a return of +0.37% for the month of December, to bring annualised performance since inception to 9.68% p.a.

Insync Global Titans Fund returned -1.90% for the month of December, to take the latest 24 months to 18.72%.

KIS Asia Long Short Fund rose 2.90% for December, outperforming the AFM Asia Pacific ex-Japan Index by 4.32%

FUND REVIEWS released this week: Meme Australian Share Fund; Bennelong Long Short Equity Fund; Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; Totus Alpha Fund;  Morphic Global Opportunities Fund; Pengana Absolute Return Asia Pacific Fund; APN Asian REIT Fund

And on that happy note it's good to be back, and as always I trust you have a safe and enjoyable week-end.

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy. For more information visit www.cpresearch.org.au or contact me by email.