12 months ago the Reserve Bank Govenor Glenn Stevens was trying to talk the Aussie dollar down to US$0.85, and whilst it held stubbornly above that for some time, it looks like he's got his wish. Not content with that however he has now lowered his target to US $0.75 as he looks forward to 2015.

To be fair there has been a significant deterioration to commodity prices, particularly iron ore and coal, on the back of the outlook for Chinese growth, and is difficult to see any rapid rebound in these, certainly not back to the halcyon days of 24 months ago.

More recently of course the oil price has plunged, although driven by a different set of circumstances with the Saudis seemingly intent on spoiling the energy industry in the United States, while at the same time, intentionally or otherwise, putting even further pressure on Vladimir Putin.

It seems pretty obvious that the RBA would rather let commodities, along with some tough talking, push the Aussie dollar down to even more competitive levels rather than cut interest rates further and risk pushing property further upwards as a result. Having said that anecdotal evidence suggests that with Christmas just around the corner a fair amount of the exuberance in certain parts of the property market has already been taken care of.

None of this will necessarily help the Treasurer Joe Hockey as he wrestles with trying to get his May 2014 budget approved through the Senate before he needs to start drafting the next one. It's looking as if there are going to be some significant budget deficits for some time to come, with some forecasters thinking five years or more. Having lost a fair amount of political capital in the last 12 months, the available options, including taking a look at GST and negative gearing, would seem to be diminishing.

What will also be interesting to us next year will be the governments reaction, or at least their resolve, to do anything about David Murray's FSI released last Sunday. In our opinion we couldn't find much wrong with the 44 recommendations in the report, but as we have mentioned before recommendations are easy, implementation is another matter.

Meanwhile a reminder that next year on Thursday February 12^th we are holding a lunchtime seminar for investors and advisers in conjunction with Deloitte entitled "Looking Forward, Looking Back" featuring the opinions and experience of some of Australia's best fund managers, including Simon Shields of Monash Investors, and George Colman from Optimal Australia. Save the date, and reserve your place here.

Next Friday will see the last edition of Hedge Clippings for 2014, and we will then be taking a short break over Christmas and the summer holidays for some welcome R&R. In case you're going away yourself before then, best wishes for a happy festive season, and we look forward to touching base again in 2015.

Specific results received this week include the following PERFORMANCE UPDATES:

November performance brings the Monash Absolute Investment Fund annual return to 4.08% with a volatility of 8.14%.

The Morphic Global Opportunities Fund returned 5.24%, bringing the annual return to 15.35% with a volatility of 8.85%.

Bennelong Kardinia Absolute Return Fund returned 1.31% during November and 5.33% over the previous 12 months with a volatility of 4.08%.

The Paragon Fund performance is in for November with annual returns at 16.72% (Index 4.30%) with a volatility 15.11% (Index 10.84%). .

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 Clippings is in part concerned, and in part excited by the fact that after today there are only two more Fridays before Christmas. On the one hand there seems an awful lot to do in a short space of time, while on the other a welcome break beckons. Maybe even a chance return of a good old-fashioned Friday lunch, which sadly (or gladly) are not as frequent as they once were.

We are however looking forward to 2015 and all it has to offer, and take this opportunity of giving you a heads up regarding an event we have scheduled in Sydney at midday on Thursday the 12^th of February in conjunction with Deloitte to kick the new year off. The theme will be "Looking Forward, Looking Back" and will feature an expert panel of fund managers, each covering different strategies and geographies, who will provide the audience with their collective wisdom on the economic and market outlook for 2015.

If you want to register your interest in receiving an invitation to the event please click here.

Others who might be looking forward to a welcome break will no doubt include the Prime Minister and his Treasurer, both of whom have endured what could be best described as a 'difficult year', or at least a particularly difficult six or seven months since the budget was announced last May. The fact that there seem to be so many issues still open to resolution in the Senate will not only be causing the government some headaches over the holidays, but will also have some negative effect on consumer confidence, and the very economy the Treasurer is trying to manage.

With the potential, and in some quarters expectations, of a further cut by the RBA to interest rates, there is a strong indication that the economy is not the greatest of shapes. Certainly the commodities boom, while possibly not bust, is not what it was, and only the largest and lowest cost iron ore producers are likely to be operating profitably. None of this is helping the Aussie dollar, but Hedge Clippings has felt for some time that it has been stubbornly overpriced, with probably some further room to fall. No doubt that prediction will be enough to kick some life back into it!

Prior to that David Murray will finally announce the findings of his Financial System Inquiry. All will be revealed this Sunday (you can register for access to the report here), with significant expectations that the Inquiry's recommendations will be wide ranging, and in some cases controversial. As we've mentioned before, previous inquiries such as the Henry Tax Review, and Mark Johnson's 2009 report on the financial sector created plenty of stir, but not much action once the politicians of the day had finished with them.

And on that note, enjoy the weekend, and if you have nothing better to do on Sunday than download the FSI report, Happy Reading!

Specific results received this week include the following PERFORMANCE UPDATES:

It's early days for November results, but those received so far include the Bennelong Long Short Equity Market Neutral Fund, which bounced back with a return of 3.12%, whilst the Bennelong Alpha 200 Fund returned 5.08%.

Supervised High Yield Fund returned 0.41% during October and 6.50% over the prior 12 months with a volatility of 0.74%.

FUND REVIEWS released this week, all with the potential for earning CPD points:

Alpha Beta Asian Fund; Optimal Australia Absolute Trust; Totus Alpha Fund

Best wishes for a happy and healthy weekend,

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.

Potential is one thing, reality is a greater challenge.

A recent research report by ANZ Bank [entitled "Caged Tiger: the Transformation of the Asian Financial System"] forecast that Asia's share of the global economy will move from 25% currently to 35% in 2030, and then to 50% by 2050.

ANZ's report noted that with the exception of Japan and the newly industrialised economies, Asia's rapid industrialisation of the past 2 decades has not been matched by an extensive development of its financial system. Many Asian countries have relatively closed and highly regulated financial systems, with a dominant banking sector and heavily managed exchange rates.

But in order to move to the next stage of development the financial systems of many Asian economies must be reformed, opened and become less regulated.

The development of the financial system is one part of what is need to move these economies through middle income levels, with other factors including other economic reforms and improved legal structures.

Policy responses to the Asian Crisis in 1997 led to the situation whereby countries built up large foreign exchange reserves, with this surplus recycled back into the international system through the purchase of government bonds. However as these countries liberalise their financial systems they will play a much bigger role in allocating Asian savings to a far broader set of markets and investments.

ANZ modelling estimated that Asian bond markets will grow seven times over the next 15 years, and the capitalisation of equity markets will move from $9 trillion to almost $55 trillion by 2030.

Turning to Australia, in 2010 around 2.5% of China's total foreign investment was invested in Australia. Even if that percentage remains unchanged, the total level of Chinese investment into Australia could reach over A$200 billion, or according to ANZ's estimate, about 15% of Australia's forecast GDP by 2030.

Where are we headed with all this?

In the financial services and fund management sector, currently less than 20% of Australia's funds under management is sourced from offshore. This will continue to grow as Asia's transformation progresses, with Sydney likely to be the largest beneficiary. However it is not clear if the benefits to all capital market activities will flow equally, with debt, trade finance and insurance likely to face competition from other Asian financial centres such as Singapore and Hong Kong, and no doubt Shanghai at some stage in the future.

The point is that in spite of the opportunities facing Australia's banking and financial sector, it must be remembered that opportunity and reality are often significantly different. Australia has a wealth of educated talent in place, with plenty more experienced expats keen to return home, a regulatory system that is generally first class, and passably sound infrastructure (NBNCo notwithstanding).

The key will be the Government's role, and those who know Hedge Clipping's views will not be surprised that this is where potential and reality can come unstuck. The government - of whichever persuasion - needs to put the correct tax, structural and regulatory policies in place to ensure the framework is created to allow Australia to compete in the Asian, and global financial marketplace.

In the next week or so David Murray's Financial System Inquiry (FSI) report is due to be released. We can only hope that this government grasps that opportunity, and not waste it in the way the previous Henry Tax Review, or Mark Johnson's 2009 report were squandered.

Specific results received this week include the following PERFORMANCE UPDATES:

The Auscap Long Short Australian Equities Fund recorded a return of 2.25% in October with the annual return 29.93% and a volatility of 6.95%.

Alpha Beta Asian Fund returned -0.51% during October with annualised performance since inception of 7.58% with volatility of 5.24%.

The Aurora Fortitude Absolute Return Fund returned -0.29% during October bringing annualised performance since inception to 7.55%.

Allard Investment Fund recorded a performance of 0.60% during October bringing the annual return to 13.30%.

FUND REVIEWS released this week, all with the potential for earning CPD points:

Microequities Deep Value Microcap Fund; Bennelong Kardinia Absolute Return Fund; Supervised High Yield Fund

Best wishes for a happy and healthy weekend,

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 this week's Clippings: FoFA, the Senate circus, and budget deficits as far as the eye can see.

Irrespective of the rights or wrongs of either side's opinions and arguments over the Government's Future of Financial Advice (FoFA) reforms, this week's about-face in the Senate seems to confirm a number of thoughts:

Firstly that the government has done a pretty average job of selling their proposed changes to the original legislation. Secondly, the Senate, which had seemed to be much like a circus looking for some new clowns, appeared to have found them; and thirdly that the level of uncertainty created as a result is simply unacceptable.

As far as the government's sales job goes this is hardly surprising given the success of their other PR and communication efforts over the past six months. What is surprising is that many commentators still seem to think that commissions for dodgy financial advice were still on the table. As far as we could see the new legislation made it absolutely clear that this was not the case.

That's not to say that everything in the government's changes were perfect, but it was pretty plain that financial advisers had to act in their client's best interests, and that conflicted remuneration had been banned. However given the various misdemeanours in the financial services industry, large and small, over the past few years most minds had a really been made up, irrespective of the facts.

As for the Senate, it is somewhat ironic that Clive Palmer, who has been known to do the odd ungainly reverse somersault in the past, found himself subject to some of his own behaviour.

What will be interesting will be to see what compromises are made between now and June next year, because undoubtedly compromise will be required. But the really important part is the confusion created both within the industry, and presumably in the minds of the average investor, the very people who the legislation is designed to protect. Uncertainty benefits nobody.

Changing subjects, Hedge Clippings attended the Ernst & Young (EY) Global Hedge Fund Symposium this week for a presentation on the findings of their 2014 Hedge Fund and Investor Survey. Apart from a presentation on the results of the survey, which were of significant interest to the industry, there was an excellent keynote speech made by John Daley, the CEO of the Grattan Institute.

This was fascinating stuff, and entertainingly presented, even if the overall impression was that State and Federal budget deficits are likely to remain a serious problem for the foreseeable future irrespective of which political party is in power, and in spite of their rhetoric about fixing the problem.

The bottom line seem to be that in order to fix the problem issues such as the taxation of superannuation, GST, and negative gearing all need to be raised as potential solutions. With all of these there is likely to be significant pain not only for the current beneficiaries, but also for the politicians who try to implement them.

Specific results received this week include the following PERFORMANCE UPDATES:

The Paragon Fund returned -2.50% (ASX 200 Accum 4.43%) during October with annual returns at 23.80% (Index 6.39%) with a volatility 14.39% (Index 10.33%).

Totus Alpha Fund returned 0.87% during October and 15.65% over the prior 12 months with a volatility 8.94%.

The Avenir Value Fund returned -1.92% during October with annual performance of 18.68% and volatility of 9.00%.

Bennelong Kardinia Absolute Return Fund returned 1.22% during October and 4.31% over the previous 12 months with a volatility of 4.02%.

The Laminar Credit Opportunities Fund returned 0.51% in October with the 12 month return coming in at 9.28% with a volatility of 0.62%.

FUND REVIEWS released this week, all with the potential for earning CPD points:

Morphic Global Opportunities Fund; Monash Absolute Investment Fund; Bennelong Alpha 200 Fund

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 this week's clippings: Not the G20, ASX top 20 concentration, Bank Valuations, the Property Market, and a new Fund in Focus video interview.

We'll leave any comment on the G20 well alone this week (apart from mentioning that we won't go there, either physically or metaphorically) firstly because it hasn't happened yet, and secondly because it has little to do with absolute return. Unless we could find an analogy with Tony "Shirt Front" Abbott's comments on Vladimir Putin and things making an absolute return bite you.

But we will spare you that.

Instead we'll draw on more words of wisdom from Optimal Australia's CEO George Colman who noted in his October performance report that the ASX top 20 index now represents 68% of the ASX200, compared the with 55% just prior to the 2007 market peak. Within that banks are now 31% of the ASX 200 index and the financial sector overall represent 47% - an all-time high.

Optimal's view is that investors in the Australian stock-market are assuming concentration risk of unprecedented levels, and that this skew in index concentration typically occurs at market extremes. However his view also is that he should save his breath, as YAAP, or yield at any price, continues to push these stocks up irrespective of the risk.

Other factors also highlight that bank prices possibly represent an "as good as it gets" scenario at current levels irrespective of the attractiveness of their yields. What was interesting in the recent round of bank results was that two thirds of their growth in earnings came from reductions in bad and doubtful debts, to record low levels of just 0.15% of gross loans.

As we said, it might look as if bank prices are as good as they get, so maybe Gail Kelly's departure from the top job at Westpac is smart indeed.

Bank prices are obviously closely tied into the current property market, and we took the opportunity of bouncing this off a well respected and trusted developer who knows much more about these things than we do. His view was that whilst the market is undoubtedly buoyant he thinks Armageddon is unlikely, rather that there are more likely to be long periods of low growth than the doomsday outlook of a property crash.

His logic was that affordability significantly drives property prices, and this in turn is driven by two key factors, namely unemployment and interest rates. Provided the former remains at reasonable levels, homeowners and borrowers will go to extraordinary lengths to maintain ownership of their home.

It's not only the banks that are enjoying the current property boom, with real estate agents, whose commission rates don't seem to have been trimmed in spite of the significant increase in prices, also enjoying the flow. State and local governments must be loving it too, with our favoured developer estimating that on a 20 unit block of two-bedroom apartments in Brisbane he is paying a total of well over $1 million in stamp duty, fees and taxes, and net GST to governments of various hues, on top of which the buyers also have to pay stamp duty.

Elsewhere this week we interviewed Jack Lowenstein from the Morphic Global Opportunities Fund, who gave an interesting overview of the fund's performance in October's global markets, which he described as the most difficult environment he had experienced since launching the fund two and a half years ago. You can view the video by selecting the image below, or the Fund's profile and the AFM Fund Review are here.

UPCOMING EVENTS:

25-27 March 2015 Digital Marketing for Banking and Financial Services Summit.

Specific results received this last fortnight include the following PERFORMANCE UPDATES:

Morphic Global Opportunities Fund returned 1.12% during October bringing the annual return to 15.62% with a volatility of 8.62%.

The Bennelong Alpha 200 Fund returned -2.49% during October with a net exposure of 1.2%.

Optimal Australia Absolute Trust returned -0.71% in October with annual returns at 5.42%, with a volatility of 2.08%.

The Cor Capital Fund returned -0.13% during October bringing the annual return to 1.72% with a volatility of 3.43%.

Best wishes for a happy and healthy weekend,

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.

The Choice: Tip Top Returns, or Capital Protection?

For a while it looked as if October's equity market performance was set to continue September's fall of over 5%, but a "V" shaped recovery mid month saw markets bounce back into positive territory, no doubt to the relief of most Fund Managers and their investors, particularly those in the long only category.

In Australia that saw the ASX200 Accumulation Index rise 4.43%, recouping some, if not all of September's 5.38% fall, while the US market, which hadn't suffered as much in September (for example the S&P500 had only fallen 1.4%) rose 2.44%, although broader global indices such as the MSCI All Country Index only managed a positive return of 0.25% in A$ terms.

Meanwhile, at this stage it is too early to tell how Australian absolute return funds fared in October with only a handful of results to hand. However looking back at September most earned their keep, with the average avoiding almost all of the market's fall, by posting an average return of -0.17%. Within that average the usual wide spread of returns was evident, with the best up 7.6%, and the worst down -13%.

On a year to date basis the average equity based fund had returned 4.97% to the end of September, outperforming the ASX200 Accumulation Index which had returned 2.42%, a far cry from the buoyant returns of 2012 and 2013. Over the past 12 months the same pattern emerged, with equity based funds up 10.8% vs the Index at 5.93%, and with 75% of all funds outperforming the market.

Often criticised for being risky, this puts hedge funds' performance in unmistakable perspective: Absolute return funds (on average) provide better risk adjusted returns than the underlying markets, albeit that in particularly strong periods they may lag them. As capital protection takes precedence over performance in most investors' minds this makes a good case for both the funds, and the industry as a whole.

However, not all funds are alike, so make sure you select the right fund!

UPCOMING EVENTS:

Don't miss out! Thursday 13 November in Sydney Best Cellars Night of Global Investment Themes.
Presented by Insync Funds Management, enjoy an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore, together with a tasting of some truly interesting wines from all corners of the world.

25-27 March 2015 Digital Marketing for Banking and Financial Services Summit.

Specific results received this last fortnight include the following PERFORMANCE UPDATES:

The Allard Investment Fund returned 3.20% in September, ahead of the benchmark MSCI Asia Pacific ex Japan (A$) at -1.0%, with 12.96% annual return.

Microequities Deep Value Microcap Fund returned 1.66% during October as equity markets rebounded, with 12 month performance at 16.37% and a volatility of 7.41%.

The Monash Absolute Investment Fund returned -0.3% in October with 12 month performance at 4.83% with a volatility of 8.02%.

CPD points are available for all FUND REVIEWS released this week including:

Insync Global Titans Fund; Totus Alpha Fund; Bennelong Long Short Equity Fund; Nanuk Global Alpha Fund

Best wishes for a happy and healthy weekend,

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.

The great QE policy experiment ended overnight, (or at least QE3 ended) with the sky failing to fall in. In fact far from tanking, the market took the well telegraphed end of taper in its stride, with the S&P500 up 0.6%. Whether this was a case of relief that "nothing" happened or not will remain to be seen, but in reality it is hardly likely that the FED will start to tighten interest rates for at least six months.

As far as economic experiments go QE1, 2 and 3, along with the Taper have been pretty extraordinary. Like them or loath them, the US economy, particularly employment, has managed to pick itself up off the floor having been knocked there by a combination of lax (or minimal) regulation, some financial wizardry, and plenty of good old fashioned greed.

Rising interest rates now remain the big test, not only to the economy, but also to the markets. All the economic indicators suggest the US economy will be able to manage the orderly raising of rates reasonably well. Markets may well be a different matter if there's a stampede out of equities, but the question is, where to?

Any increase in rates will see falling bond prices, particularly at the short end. Over time higher bond yields will prove attractive, but coming off such a low base this will certainly take time. Volatility, or at least the fear of it, would appear to be the biggest risk to equity prices while there are so few alternatives other than cash.

Assuming the FED can manage an orderly increase in rates (sufficient to avoid spooking the equity market) then inflation might be the great unknown risk. However with the recent declines in energy prices, and the strengthening US dollar, this would seem unlikely also.

The problem is that risk always appears when least expected, and often from the least expected direction. (Think 9/11).

That still leaves plenty of opportunity for China, Europe, emerging markets and geopolitical factors to play their part.

And on that note, have a happy and relaxing, worry free week-end.

UPCOMING EVENTS:

Don't miss out! Thursday 13 November in Sydney Best Cellars Night of Global Investment Themes.
Presented by Insync Funds Management, enjoy an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore, together with a tasting of some truly interesting wines from all corners of the world.

25-27 March 2015 Digital Marketing for Banking and Financial Services Summit.

Specific results received this last fortnight include the following PERFORMANCE UPDATES:

In a difficult month for equities the Insync Global Titans Fund returned 3.81%, bringing it's 12 month return to 13.86% with volatility of 8.09%.

The KIS Asia Long Short Fund returned -0.08% during September and 8.21% for the prior year with a volatility of 2.73%.

Bennelong Long Short Equity Fund returned -3.59% in September, a weak month for domestic equities (ASX 200 Accum Index -5.38%).

With a volatility of 0.57%, Laminar Credit Opportunities Fund returned 0.84% during September and 9.54% for the prior year (compared with the RBA Cash Rate of 2.50%).

The Cor Capital Fund's diversification was seen in September when the Fund fell 1.03% compared with the ASX 200 Accum Index which fell 5.38%.

CPD points are available for all FUND REVIEWS released this week including:

Bennelong Alpha 200 Fund; Alpha Beta Asian Fund

This week's Now For Something Completely Different... Why didn't the skeleton go to see a scary movie? He didn't have the guts.

Best wishes for a happy halloween and healthy weekend,

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 what was an interesting week, hedge clippings met with Steve Hall from Brookvine, a Sydney-based group who specialise in the distribution of alternative and private equity type funds to family offices (FO's) and high net worth (HNW) investors. Steve was good enough to provide some insights gleaned from a recent discussion that he organised with a group of experienced Chief Investment Officers and advisers to high net worth and family offices in Australia.

While not all recipients of hedge clippings necessarily fall into this category, much of what was discussed, and the resulting report that Brookvine produced has significant relevance to self-directed investors. One of the major aspects of the discussion was the objective of encouraging fresh investment thinking, particularly with a view that much of what is known and used in Australia depends on the theory, data, practice, experience and characteristics of large institutional US investors.

It was therefore relevant to question whether this US influence is necessarily relevant in an Australian environment. Whilst much of it is, and there is much to learn from the US, it seems there are specific requirements of HNW/FO's in Australia that are relevant in a local context. In particular the question was asked what investment advantages do Australian HNW/FO's have over larger institutions, whether it be here or offshore. Amongst other things:

1. Overall it appeared there was a broad endorsement for alternative investments, with most participants favouring active management supported by a strong belief in their ability to identify and access top tier managers;
2. Equally the group whilst being very cost conscious, focussed more on net of fees returns, rather than a blind (could we call it an obsessive) opinion approach by some local institutions that fees were more important than performance;
3. When it came to risk, the loss of capital dominated the opinions of local investors, broadly in line with the approach of most local managers.

Brookvine have kindly allowed us to upload the full report, entitled "Whiteboarding 1.0 ... The Report", which can be found here.

Specific results received this last fortnight include the following PERFORMANCE UPDATES:

Alpha Beta Asian Fund returned -0.70% during September, a difficult month in which global equities fell 2.9%, with an annual return of 7.07% and a volatility of 3.99%.

The Paragon Fund returned 0.30% in September as compared to the ASX 200 Acc Index which fell 5.38% and the twelve month return was 33.18% (Index 5.93%).

Auscap Long Short Australian Equities Fund delivered -2.09% in weak month for equities, 34.01% for the year with volatility of 7.61%.

The Totus Alpha Fund returned 1.02% bringing the annual performance to 30.85%.

Nanuk Global Alpha Fund returned -1.69% in September, with the Fund's twelve month return at 8.86%.

The Aurora Fortitude Absolute Return Fund returned -0.07% with a volatility of 0.98%.

CPD points are available for all FUND REVIEWS released this week including:

Monash Absolute Return Fund; Bennelong Kardinia Absolute Return Fund; Morphic Global Opportunities Fund; Supervised High Yield Fund

UPCOMING EVENTS:

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

Thursday 13 November in Sydney Best Cellars Night of Global Investment Themes. Presented by Insync Funds Management, enjoy an evening presentation on some of the powerful global investment themes that will help to build your wealth offshore, together with a tasting of some truly interesting wines from all corners of the world.

This week's Now For Something Completely Different... I'm sure many of you have seen this clip before, it's a feel good moment. All the best to Nick and his beautiful bride Courtney this weekend, and forevermore.

Best wishes for a happy and healthy weekend,

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.

Volatility Reigns

The volatility that has been threatening markets for the past 12 months has finally taken effect, but even so the lifeline that central banks in both the US and Europe have thrown the financial system over the past few years still seems to be distorting how markets are reacting.

In part this could be a result of comments in some quarters in the US that there should be a pause in the QE taper. Looking at the trading on the S&P 500 over the past few days shows an extraordinary level of intraday volatility, with Wednesday probably the prime example when the market fell from 16,200 to below 15,900 in a matter of hours, only to immediately bounce just as sharply back to where it had come from (almost).

Bond markets have been equally volatile. There certainly seems to have been plenty to be concerned about over the past six months, and the surprise to many has been that the markets have not given way earlier. This undoubtedly has been due to central banks on both sides of the Atlantic distorting "normal" market action, and one can only wonder how much of the intraday activity noted above has also been central bank related.

In the face of all this absolute return fund managers tend to come into their own. This was certainly the case in September for Australian fund managers. Against a fall of 5.38% by the ASX 200 Accumulation Index, the average of all funds' September returns to date is -0.22%. Separating equity-based hedge funds makes some, but little difference, with their average return -0.43%, effectively an outperformance of 5%. Most importantly they are, by and large, protecting their investors' capital.

Obviously it hasn't all been plain sailing, and those funds with US dollar exposure have benefited accordingly, and no doubt improved the averages. Also benefiting the absolute return sector is that many funds have been increasing their cash allocation, while most also been reducing their net exposure over the past six months.

While there are various commentators urging investors to treat this as a great buying opportunity, it would seem to us that caution in the current environment is a more prudent strategy.

Specific results received this last fortnight include the following PERFORMANCE UPDATES:

Supervised High Yield Fund returned 0.54% during August and 6.95% for the year (RBA Cash Rate average 2.5%) with a volatility of 0.70%.

During August, the Nanuk Global Alpha Fund returned 0.52% and 16.39% for the prior year with a volatility of 8.98%.

The Monash Absolute Investment Fund returned -4.30% during September, a very weak month for domestic equities, which fell 5.4%. The Fund's annual return was 8.27%.

Still in it's first year of operation, the Bennelong Alpha 200 Fund returned 0.56% during September.

Optimal Australia Absolute Trust returned 0.64% during September, a month in which the ASX 200 fell -5.38%. Optimal's 12 month return is 6.51%.

The Morphic Global Opportunities Fund returned 3.20% in September and 17.93% for the prior 12 months with a volatility of 8.39%.

In a weak month for domestic equities the Microequities Deep Value Microcap Fund returned -2.59% bringing 12 month performance to 16.31% with volatility of 7.40%.

Bennelong Kardinia Absolute Return Fund returned -0.31% during September, while ASX 200 Acc stocks fell 5.38%, bringing annual performance to 5.29%.

CPD points are available for allFUND REVIEWS released this week including:

Supervised High Yield Fund; Totus Alpha Fund; Morphic Global Opportunities Fund; Aurora Fortitude Absolute Return Fund; Optimal Australia Absolute Trust; Microequities Deep Value Microcap Fund

UPCOMING EVENTS:

21-22 Octoberin Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.

Next Friday 24 Octoberin Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

This week's Now For Something Completely Different...Bill Bailey, who is performing in Sydney tonight, teams up with Robin Williams keeping it Royal.

Best wishes for a happy and healthy weekend,

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.

The volatility that had been threatening Australian equities for the past few months, but which had stubbornly refused to be reflected in the market, hit home severely in September with the ASX 200 Accumulation Index down -5.4%.

To put that into context, it's the worst performance by the Australian market since May 2012 (-6.64%) and the first time since August 2012 that the rolling 12 month return (+5.93%) has dipped into single figures. On a year-to-date basis the accumulated return of the ASX 200 is now just 2.42%.

At the same time, and undoubtedly connected, the Aussie dollar also took a bath (or at least a cold shower) as a combination of poor commodity prices, particularly iron ore as China's buying slowed, a resurgence in the US dollar on the back of the end of QE, and the threat of impending increases in US interest rates saw capital outflow across the Pacific.

The funds in the best position are likely to be those with offshore and US dollar exposure in particular, provided they had limited currency hedging in place.

None of this was particularly surprising, and in fact to many fund managers it was somewhat inevitable. Investor's incessant chase for yield, particularly in the banking sector, had seen valuations stretched, with more than a few managers struggling to outperform while staying true to type. While it is early days yet for accurate indications for September returns, those that we have seen indicate the manager's ability to outperform in falling markets.

For hedge funds in particular the past two years have not been the easiest of times, and whilst none will particularly like the falling market, the increase in volatility, and their general ability to protect capital will reinforce their value to investors.

Specific results received this week include the following PERFORMANCE UPDATES:

The Allard Investment Fund (Asian equity) returned 0.40% during August and 9.35% over the preceding year with a volatility of 5.46%.

During August, the Morphic Global Opportunities Fund delivered a return of 1.28% and 14.57% over the previous 12 months with a volatility of 8.23%.

CPD points are available for all FUND REVIEWS released this week including:

Insync Global Titans Fund; Bennelong Kardinia Absolute Return Fund; 

UPCOMING EVENTS:

15-17 October Grace Hotel, Sydney - Investment Performance Measurement, Attribution & Risk Management Forum will have leading experts sharing up-to-date, cutting edge ideas and insight on frontiers of recent developments in performance measurement.

21-22 October in Sydney Post-Retirement Australia 2014 conference. Comprehensive two day forum for high profile cross industry participants to provide updates, insights and ongoing discussion into the key issues central to achieving optimal financial outcomes.

Friday 24 October in Sydney Financial and Media Markets Charity Regatta Day out of Middle Harbour Yacht Club. Promises to be a fantastic day.

5-6 November, Grace Hotel, Sydney. Alternative Investments Conference - Investigating the rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

This week's Now For Something Completely Different... with a long weekend approaching, double demerit points are in force, so whatever you do, drive safely or take alternative forms of transport. This clip is quite sobering, but should be watched by everyone to remind us that we aren't invincible. 

Best wishes for a happy and healthy weekend,

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.