Some disconcerting statistics...

Equity markets fluctuate on a daily basis, and as a result investors can become very, if not short sighted, at least short term in their outlook. Fund managers on the other hand need to have both a short and longer term vision: Short term to make sure that their monthly performance, upon which the investor judges them, encourages inflows, and longer term to ensure that they are at least investing in the right direction.

In many ways at both Hedge Clippings and Australian Fund Monitors we are part of the problem, reporting as we do on each fund's monthly performance. As such we can be accused of adding to the short termism, although we would argue that we are also focused significantly on the longer term, and particularly longer term risks. This ties in with the regulator's requirement, where investors are warned that investment in a managed fund (unlike a share on the ASX which can be traded daily) should be looked at over a 3 to 5 year time frame.

So where are we going with all this? Well, yesterday Hedge Clippings went to a seminar which featured a presentation from the Hon. Bernie Ripoll, talking about the influence of technology in general, but also financial services, and on financial advice in particular. He also touched on one of our favourite subjects, namely the accelerating change in demographics, but more of that in moment.

When talking about technology, Bernie reminded his audience that it is 10 years since launch of the iPhone, at which time Steve Jobs said that there were three essential pieces of technology which he used frequently, namely his mobile phone, computer, and music player. With the release of the iPhone he only need one piece. This is not to promote Apple or the iPhone, but it is amazing how rapidly technology advances, and keep advancing. How could we contemplate our lives without one now - which with camera now included, makes four essential devices?

As far as financial services are concerned, technology has been slow to keep up with other industries or service sectors. Thanks to the dangers of money laundering and terrorism, purchasing a financial product has until recently ( excuse a small plug here for our Olivia123 online application system here) remained firmly in the pen and paper bucket. However one of the big advances, and buzzwords in financial services, at the current time is Robo Advice.

According to recent research by Investment Trends, 62% of financial advisers apparently believe that Robo Advice will not affect them. We beg to differ. Technology will increasingly affect every aspect of our lives, and financial services and advice will not be immune from change. It might not be pure push button, algorithmic, robo advice, but financial services, like all industries or sectors, will be revolutionised by technology, either resulting in better decisions, or driving down the cost.

As mentioned earlier, Bernie also brought up some interesting statistics on demographics and the ageing population. Whilst happy to criticise the current government (not surprisingly given his political persuasion) the reality is that governments of both parties have dropped the ball, lost the plot, call it what you will, when it comes to providing for the long term financial future of both individuals and the nation. They are not structuring superannuation, which in its original form was designed to reduce the drain on the public purse caused by people retiring and drawing a pension, for the long-term

Consider these uncomfortable statistics (especially if you still expect to be around for some time to come): According to Bernie's research:

• In 1975 there were 7.3 working people (PAYE taxpayers) in Australia for every person over the age of 65 (and therefore presumably eligible for a pension).
• As of 2017 this has dropped to 4.5 working people for every person over the age of 65.
• Fast forward to 2055, and it is estimated that there will be only 2.7 Australians working for every person over the age of 65.

The taxation burden on those 2.7 people will obviously be enormous, particularly if they are not encouraged to become self-supporting in their retirement in the meantime. We would argue that they shouldn't be encouraged to become self-supporting, wherever possible they should be forced to become self-supporting. Restricting the amount of money that Australian workers can put into their retirement simply to balance the short term budget doesn't make sense in the long-term,.

While talking about superannuation and demographics, a couple of other scary statistics:

• By 2055 is estimated there will be twice as many people over the age of 65 than there are today.
• There will be four times as many people over the age of 85 than there are today.
• By 2035 it is estimated there will be $9.5 trillion in superannuation, even though this will be insufficient to keep the majority of people in the manner to which they would like to be accustomed.

RBA puts the cat amongst the pigeons - and then tries to retrieve it.

Most news was pretty normal this week. The Greens lost another couple of senators as they tried to get their act together; The Donald continued his war of words with everyone (possibly with the exception of Mr Putin); and Tony Abbott continued to break his promise of no wrecking and no sniping.

However a couple of things put a rocket up the Aussie dollar, taking it towards the US$0.80 mark when most analysts were probably feeling comfortable that any currency risk was on the downside. Firstly Janet Yellen made some soothing remarks about the potential for rate rises in the US, which had the effect of softening the Greenback. And then the RBA decided to announce that the neutral rate for Australian interest rates should be 3.5%, which, given the current historically low rate of 1.5%, gave the markets a serious case of the jitters.

So much so that Deputy Governor of the RBA, Guy Debelle slipped a retraction, or explanation, into his speech to the CEDA Mid-Year Economic Update in Adelaide today, saying "no significance should be read into the fact that the neutral rate was discussed" and that "at most meetings the Board allocates some time to discussing a policy relevant issue in more detail, and on this occasion it was the neutral rate".

Hedge Clippings' guess is that henceforth the RBA will think twice before announcing all  the "policy relevant issues" they discuss at their meetings.

The simple fact is that the prospect of a 200 basis point rise in the official rate from the current level of 1.5% would have more than dampened the "animal spirits" that the Deputy Governor also referred to in his speech as one of the major drivers of economic growth, and therefore RBA's views on monetary policy. It might have solved the current property price problem, but would have created a property crisis of its own in its place.

For those with little to do on a Friday evening, there is a link to the speech here, and it actually makes interesting reading if you enjoy that kind of thing. Assuming it was written well ahead of time, we would imagine that the two sentences regarding the "neutral rate" were probably a late edit, or an addition following the market's reaction.

Sell in May and go away?  Maybe, or take a lead from a hedge fund.

The old adage relating to avoiding the equity market in May looked as if it was true - and good advice if taken at the start of the month, possibly less so by the end, by which time the ASX200 accumulation index had fallen 2.75% as a number of clouds were threatening on the horizon.

Meanwhile the average fund on the Fund Monitors database had gained 0.79%, outperforming the local index by over 3.5% clearly indicating their defensive nature, and no doubt bringing a smile to the faces of their investors, and a sense of relief to the managers themselves after the tough times of the past 12 months or so.

Tough for most, although not for all, but with equity valuations being bolstered to record levels by a combination of Trump, complacency and most importantly by record low interest rates and the TINA (There Is No Alternative) effect it has not been the easiest of times for active managers who have been reluctant to hold stocks at unrealistic, or at least unheard of levels.

Locally there has been some recovery, reportedly supported by pre-end of FY and legislative changes resulting in asset allocations from the SMSF sector, but the market, both here and overseas, remains prone to shocks as outlined in last week's Hedge Clippings, including varying political fortunes. On that note it was interesting to see that in the first round of the French elections, voter turnout was less than 50%.

That may be an indication of voter apathy, but it also reinforces the danger of changes in government being decided by minorities who choose, or can be bothered to vote under a voluntary system. As opposed to Australia's compulsory system where it seems minorities are destined to rule the day!

See below for a selection of positive returns for May, or visit AFM the website.

PERFORMANCE NEWS

APN Asian REIT Fund rose 3.37% for the month of May, outperforming the Bloomberg Asia REIT Index which returned +3.14%, by 0.23%. The Fund has an annualised return since inception of 14.7% p.

Cyan C3G Fund posted a small 0.2% gain in May, outperforming the S&P/ASX 200 Accumulation Index's return of -2.75%. Since inception, the Fund's has an annualised return of  25.03% p.a.

NWQ Fiduciary Fund returned +0.81% in May and has returned +5.82% p.a. since its inception in May 2013.

Optimal Australia Absolute Trust reported a net return of +0.17% in May 2017, to take the annualised return since inception to 8.02% p.a.

Totus Alpha Fund rose 1.01%, outperforming the ASX 300 Accumulation Index which was down 2.7% for the month of May. Since inception, the Fund's has an annualised return of 19.7% p.a.

FUND REVIEWS: Bennelong Long Short Equity 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.

There's nothing to worry about, is there?

Today's AFR's article "Gurus nervous it's 2008 all over again" provides a fair warning.

Valuations are at all time highs. The VIX is at all time lows. What is there to worry about?

• Trump might be impeached.
• May may (and more likely will) lose the unlosable UK election as we pre-empted in last week's Hedge Clippings.
• The Middle East is a mess. OK, so that's been the case for the best part of 70, 100, or 2,000 years depending on your point of view and which side you are, or were, on.
• North Korea's only a rocket or two away from overstepping the mark.

And Australia, in spite of recording record growth - at least from a longevity perspective - is a political, economic, taxation and legislative mess because neither side of politics are prepared to compromise for the long-term benefit of the country, and neither can govern without the support of a tiny minority. And they call that democracy.

Meanwhile some clown on the radio say's "don't worry about the threat of terrorism, you're statistically more likely to be killed by a bee sting than a lunatic with a driving licence and a knife", carefully ignoring the fact that one is accidental, the other deliberate.

Relax. Be Happy!

PERFORMANCE NEWS

Allard Investment Fund increased 1.87% during the month of May 2017 and is up 19.71% for the latest 12 months. The Fund has an annualised return since inception of 9.43% p.a.

Bennelong Long Short Equity Fund rose 2.86% for the month of May, outperforming the S&P/ASX 200 Accumulation Index, which returned -2.75%, by +5.61%. Since inception, the Fund's has an annualised return of 16.85% p.a.

Quay Global Real Estate Fund delivered a +1.8% return for the month of May 2017, outperforming the FTSE/ EPRA NAREIT Developed Index Net TR AUD Index, which returned +1.3%, by 0.5%. Since inception in July 2014, the Fund has an annualised return of 16.1% p.a.

Paragon Australian Long Short Fund gained 1.30% for the month of May, outperforming the S&P/ASX 200 Accumulation Index by +4.05%. The Fund has an annualised return since inception of 11.83% p.a.

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.

Curiouser and Curiouser...

This week Hedge Clippings turns to the mystery of Philip Parker and Altair Asset Management, the previously unheard of fund manager who made it to the front pages with his bold decision to hand back investors' money (actually not that much it seems - from what we can discern there was only $5 million in one fund, and $7 million in another) because he thought market valuations were unrealistic, and that the property market was due for a crash.

Our first thought was that Mr Parker is not Robinson Crusoe in his view of the markets. Plenty, if not most fund managers on AFM's radar have been concerned about stretched valuations for some time, and have been particularly concerned about the excessive multiples that Australia's banks are or were trading at. Equally, one would have to have been living on a different planet (or with Robinson Crusoe on his desert island) if you weren't aware of the fact that Australia's property prices are sky-high, as they are in many other countries of the world, including Hong Kong, Canada and the UK.

Of course there are opposing opinions as to whether this is going to lead to a property crash, or just a slowing of the price increases. The former would certainly lead to a significant fallout across the economy, and particularly affect the banks, and their share prices. The issue however is quite simply: Why would a fund manager simply hand the money back to investors given his view of the market, rather than managing their money responsibly to protect their investment?

One argument might be that Altair's funds were "long" only, and indeed two of them were, and on the latest numbers available both were fully invested with only 1% held in cash. One of them had an exposure to the major banks of 30%, and the other over 20%. Surely the responsible approach would have been for Mr Parker to write to his investors, advising them of his opinion, and giving them the option of redeeming their investment.

As it turns out, since June 29, 2012 Altair Assets Ltd has also been licensed by ASIC to operate the Parker Absolute Return Fund (ARSN 159 082 630) which, as the name suggests, is licensed to hold derivatives. There is a little clue there in the word "derivatives" as to what he might have done to protect his investors.

If Mr Parker was so concerned about equity valuations and an impending property crisis, then surely put options over the banks, or an index put over the whole market would not only have protected his investors, but could have provided them with a significant return if his doom and gloom forecast was proven to be correct.

Curiously, or not surprisingly, once the other side of the story, (namely a minor issue in the courts relating to his mother's shares which had been sold without her knowledge) came to light, Mr Parker was much keener to communicate through his solicitor, rather than through the lens of the camera and via the front pages of the financial press.

Given that the market was down sharply in May, with the worst performance since January 2016, Mr Parker may well be right in his market view, but we would have thought completely wrong in his implementation. Hedge Clippings suspects there is more to this story than meets the eye.

On a different note, there are reports that the UK election result may continue the run of political suprises of the past few years. Unless Hedge Clippings is hallucinating (again) this seems improbable based on logic, but so did Macron, Brexit, and Trump. For that reason we'll leave political comment to others more qualified, and stick to subjects we're at least supposed to understand.

PERFORMANCE NEWS

As above, early days for May performance updates, but with the market having had its worst month since Janaury 2016 it is fair to expect that most absolute return and hedge funds will significantly out-perform. In the meantime below is a selection of April's results.

Affluence Investment Fund increased 0.53% in April, resulting in a +11.18% return for the latest 12 months. Since inception, the Fund's has an  annualised return of 9.77% p.a.

APN AREIT Fund gained 2.27% for the month of April, to take the latest 24 months return to +22.79%. The Fund has an annualised return since inception of  16.69% p.a.

Bennelong Australian Equities Fund returned a positive 2.79% in April, outperforming the S&P/ASX-300 Accumulation Index which returned 0.98%, by +1.80%. Over the past 12 months, the Fund has returned +15.24%, taking the annualised return since inception to 13.82% p.a.

Bennelong Concentrated Australian Equities Fund outperformed the market (S&P/ASX 300 Accumulation Index) posting a positive return of 2.91% for the month of April 2017. Since inception in January 2009, the Fund has an annualised return of 17.96% p.a.

Bennelong Kardinia Absolute Return Fund rose 0.89% in April, taking the annualised return since inception to 11.09% p.a.

Bennelong Twenty20 Australian Equities Fund returned +1.25% for the month of April, slightly outperforming the S&P/ASX-300 Accumulation Index by +0.26%.  For the most recent 12 months, the Fund has gained 16.25%, taking the annualised return since inception to 10.5% p.a.

Cyan C3G Fund returned +1.9% in April, to take the Fund's one year return to +14.49%. Since inception, the Fund has an annualised return of +25.8% p.a, against the S&P/ASX200 Accumulation Index's +6.6% p.a. return.

Insync Global Titans Fund increased 5.2% in April, outperforming the MSCI All Country World ex-Australia Net Total Return Index ($A), which returned 3.7%, by +1.5%. The Fund has an annualised return since inception in October 2009 of 9.58% p.a.

NWQ Fiduciary Fund returned +0.25% in April and has returned +5.74% p.a. since its inception in May 2013.

Pengana Global Small Companies Fund returned +6.7% in April, outperforming the MSCI AC World SMID Cap Index, which returned 4.0%, by +2.7%. The Fund has returned a positive 24.74% over the past 12 months and +9.93% p.a. annually since inception in April 2015.

Pengana Absolute Return Asia Pacific Fund finished up 0.7% for the month of April 2017, compared to Asia Pacific markets which posted a gain of 1.3%. Since inception, the Fund has an annualised return of 8.26% p.a.

Pengana PanAgora Absolute Return Global Equities Fund returned -1.17% for the month of April. The Fund has a low systematic risk (beta) to the ASX 200 and the MSCI World Indices of 0.07 and 0.08 respectively. Since inception the Fund has an annualised return of 9.79% p.a.

Touchstone Index Unaware Fund recorded a net gain of 3.5% for the month of April, which was broadly in line with the FTSE 50/50 Infrastructure Index, which returned 3.62%. Since inception in March last year, the Fund has an annualised return of 14.34% p.a. 

FUND REVIEWS released this week: Bennelong Long Short Equity Fund; APN Asian REIT Fund; Bennelong Kardinia Absolute Return Fund; Optimal Australia Absolute Trust;  Bennelong Twenty20 Australian Equities Fund; Pengana Absolute Return Asia Pacific Fund; Insync Global Titans 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.

The financial media is full of the news that Philip Parker of Altair Asset Management - a fund manager variously described as a "star" and a "veteran" - is liquidating all assets in the funds he manages, and will return the proceeds to investors as believes the current environment for equities and property is excessively risky. In the meantime he will take a year off.

On one hand he should be congratulated for putting investors' interests first, rather than "charging our clients fees when there are so many early warning lead indicators of clear and present danger". However if his prediction is proved correct, it should be a fair warning to all those investors who have happily given their money to other index, long only or ETF fund managers, that they have some sleepless nights ahead.

Alternatively, had his investment mandate provided sufficient flexibility, he could manage the downside risk with index put options, which intelligently and appropriately managed could not only manage the downside risk of a sharp fall across all equity or property prices, but also potentially provide significant upside reward.

Meanwhile not only has he captured the headlines, it seems he may in fact be part of the catalyst to cause the very sell off he's predicting, and if so it will be interesting to see if investors at large, including his own, will thank him. Plenty of long short or alternative managers however may well do as those are just the conditions they are designed for.

A Political Budget, but no long term solutions

This week's Federal Budget was generally viewed in the media as being designed as the final "cheerio" to the disastrous effort from Joe Hockey and Tony Abbott back in 2014, which was in large part the catalyst which eventually resulted in both of them losing their jobs. We don't get to see or hear too much of Joe these days, while this week (for a change) we haven't heard much from Tony either. Thank heavens for small mercies.

As far as it went this budget seemed a pretty unspectacular, reasonable and responsible document, but one has to feel alternatively sorry, or frustrated, that due to our political situation it is unlikely we are ever going to get a budget that will fix the major structural issue(s) involved: Neither side of politics seems to have the gumption, the will or the nerve to reduce the reliance on personal income tax, rather than introducing a higher, (or broader, or both) GST to bring Australia into line with the rest of the developed world.

Other targets missed would seem to be multi-nationals, particularly tech companies, but no doubt others as well, who derive significant income from Australia, but pay little or no tax on that revenue. Once again, an increase in GST would collect some, but from the consumer, not the vendor. Surely it can't be too difficult?

Raising a new tax on banks is always a good way to get on side with the electorate, as Scott Morrison was quick to point out. However, one way or the other either shareholders, or customers, or both are going to either be the loser or have to pay.

After last year's meddling with the superannuation rules, the sector was broadly left untouched this time around. However, once again where is the political will to clean up super's complexity, and REALLY encourage Australians to save for their own retirement, rather than rely on welfare? After all, that was Paul Keating's original objective of the system. And while on the subject of super, why not encourage and fund the (welcome) increase in infrastructure spending by ensuring that a portion of all super balances are allocated to long-term infrastructure projects such as inland rail or Western Sydney airport?

From the funds management perspective, there seemed little in the news, so it was left to Platinum and K2 to make headlines by cutting their management fees, presumably in the face of the ongoing pressure of investors' appetites for low cost, index based ETF's. Hedge Clippings has long held the view that provided the performance and risk profile of a fund is sufficiently attractive, fees are not the primary issue. Certainly, the current market, with volatility at all-time lows based on the VIX, is a great boon to ETF's, but those managers who can differentiate AND add real value should still be able to charge an appropriate fee.

I guess it just depends on one's view of "appropriate".

LATEST PERFORMANCE NEWS

Allard Investment Fund increased 2.23% during the month of April 2017 and is up 21.51% for the latest 12 months. Since inception in July 2003, the Fund has an annualised return of +9.34% p.a.

APN Asian REIT Fund rose 3.12% for the month of April, outperforming the Bloomberg Asia REIT Index which returned +1.98%, by 1.14%. The Fund has an annualised return since inception of +14.28% p.a.

Richard Fish may have announced his retirement, but that didn't stop theBennelong Long Short Equity Fund rising 5.84% for the month of April, outperforming the S&P/ASX 200 Accumulation Index, which returned 1.03%, by +4.81%. Since inception in January 2003, the Fund has an annualised return of +16.74% p.a.

KIS Asia Long Short Fund returned -1.59% in April, taking the return for the most recent 12 months to 8.51%. Since inception in October 2009, the Fund has an annualised return of +14.07% p.a.

Bennelong's Quay Global Real Estate Fund gained 3.89% for April 2017, outperforming the global real estate (FTSE/ EPRA NAREIT Developed Index Net TR AUD) which returned +3.11%, by 0.78%. For the latest 12 months, the Fund has returned +7.52%, taking theannualised return since inception to +15.88% p.a.

Optimal Australia Absolute Trust reported a net return of +0.07% in April 2017, to take the annualised return to 8.08% with volatility of just 3.74% since inception.

MARCH FUND REVIEWS: APN Asian REIT Fund; Optimal Australia Absolute Trust; Bennelong Kardinia Absolute Return Fund; Bennelong Twenty20 Australian Equities 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.

ETF's are only cheap (good value) in a rising market

One of the great financial product success stories of the past few years has been the dramatic increase of flows into ETF's, which not surprisingly, have had a significant effect on the rise and rise of the overall market.

Based on the concept of a rising tide lifts all ships, ETF's have assisted those tidal flows, as investors, no doubt encouraged by the manufacturers and marketers of ETF's, have sought a simple and low-cost approach to gaining equity market exposure. As investors' funds flow in, by definition they find a home across all stocks in the index according to their weight, and which naturally helps support and/or lift the market.

In turn, the rising market helps the marketers sell the benefits of their products to more and more investors, who are encouraged not only by the performance but the low fee structure. And so it goes on.

Or at least it will until there is a market correction, and - however buoyant the market may seem - there will be one eventually.

When this does occur there is a danger that the rising tide effect of ETF's reverses, and becomes a falling tide. As investors, concerned about capital losses, redeem from ETF's, it will in turn create downward selling pressure on the market, which in turn well result in more investors redeeming or withdrawing. And so it will go on.

Hedge Clippings is not against ETF's as such, and many smart investors use them to gain low-cost exposure to equity markets. However, many other investors ignore the fact that a simple index ETF employs no risk process in the event of a falling market, and therefore they offer no downside protection.

This is relevant at the current stage in the cycle, as markets continue to rise (in spite of a minor bump in the past week), so it is worth looking at recent comments in February investor newsletters from some well-respected active equity managers.

For instance, Richard Fish of Bennelong Long Short Equity, (who has returned an average of 16.5% per annum over the past 15 years) noted:

"The US S&P 500 index has rallied almost 15% since Trump's election victory in early November. Accordingly the forward P/E multiple of the S&P 500 is now over 18 times (its highest level since the unwind of the early 2000's tech bubble) and the relative strength index (a momentum indicator) has moved into the mid-70s (historically a sign that the market is overbought). It's as though the issues plaguing markets 12 months ago, such as China's growth challenges, US policy rate normalisation, European fiscal reform, no longer exist. Yet such issues have far from disappeared."

Meanwhile, George Colman from Optimal Australia (one of the most risk averse funds in AFM's database) wrote:

"Our strategy often underperforms a broader market when it rallies strongly, as we favour downside investor protection when we see many stock prices move well above fundamental fair value. We believe we are at such a junction at present and we continue to worry about downside risk."

And as Mike Surridge from KIS Capital (annual returns of 14.67% pa over 7 years and a Sharpe Ratio of 2 since inception) observed this week when discussing the forward P/E multiples of many stocks now over 20 "At these high levels many investors and brokers don't like to memntion these high P/E multiples as it makes the stock look expensive. They're much happier talking about a yield of 5% which given current cash rates, makes them look cheap."

ETF's may be cheap, but the old adage that you only get what you pay for is often worth remembering.

PERFORMANCE NEWS

Affluence Investment Fund increased 1.20% in February, resulting in a +13.41% return for the latest 12 months. Since inception in November 2014, the Fund has an annualised return of 9.98% p.a.

Pengana Absolute Return Asia Pacific Fund returned -0.04% for the month of February 2017, compared to Asia Pacific markets which posted a gain of 2.4%. The Fund has an annualised return since inception of 8.49% p.a.

Collins St Value Fund rose 0.46% for the month of February, taking the latest 12 months return to 23.85%.

Pengana Global Small Companies Fund was up 0.8% for the month of February, compared to a 1.1% return for the MSCI AC World SMID Cap Index. Over the past 12 months, the Fund has returned +16.45%, taking the annualised return since inception to 5.57% p.a.

Bennelong Australian Equities Fund gained 1.58% in February, taking the Fund's one year return to 11.87%. Since inception, the Fund's has an annualised return of 13.27% p.a.

Touchstone Index Unaware Fund returned +3.16% in February, outperforming the ASX 200 Accumulation Index 2.25%, by +0.91. The Fund has gained +7.80% over the latest 6 months.

Pengana PanAgora Absolute Return Global Equities Fund returned +0.87% in February, taking the annualised return since inception to 10.15% p.a.

FUND REVIEWS released this week: Bennelong Twenty20 Australian Equities Fund; Optimal Australia Absolute Trust; APN Asian REIT 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.

He may not fit the presidential mould, but the market likes the President

The US market is continuing to be buoyed overall by the "Trump Effect", albeit that certain sectors are benefiting considerably more than others. That's life in general, and it is certainly going to be life under this president. Any sector related to the $1 trillion intended to be spent on new infrastructure projects are looking positive. On the other side of the ledger, Trump's move against Obamacare, renewable energy and others are going to suffer.

As a result of the overall Trump Effect the US market has seen a significant upward trend, with hardly a pause, let alone a pull back, over the past three months. In fact since Trump won the November election, the US market hasn't had a one day fall of 1%. As a result volatility, as measured by the VIX index sits currently at 11.21, although that's fractionally higher than the 10.58 it touched at the end of January. Not even a 0.25% rate rise announced during the week in the US was able to upset Trump's rally, which has also reached across the Atlantic as the British market set a new record high overnight.

Compare the VIX to the PC (Political Correctness) Index which the Tweeting Mr Trump has sent into overdrive! In fact, we wonder if Trump is the beneficiary, or benefactor, of the Twittersphere?

Closer to home local funds managers have been making the headlines over the past couple of weeks. Bronte Capital's John Hempton won both the war of words with and bragging rights over Pershing Square's Bill Ackman based his short in US pharmaceutical company Valeant. Meanwhile, Russel Pillemer's Pengana Capital seems to have pulled off a coup with their bid (in conjunction with WH Soul Pattinson) for listed fund manager Hunter Hall,  winning the backing of Hunter Hall's board.

Most in the industry are still wondering why founder and CIO Peter Hall chose to sell a 19.9% stake in Hunter Hall to Soul Patts back in December for $1 a share, way below the then market price, although he has since agreed to sell them the balance of 24% for a more respectable market price of $2.60 a share. If nothing else he did trigger the bidding war which ensued, will hardly be left penniless, and according to the Financial Review is committed to "making the world a better place", so overall not a bad result for him either. 

From Pengana's perspective, the deal looks like one with excellent synergy. They add an additional $900m in funds under management to their current $2.2b without having to cannibalise their existing suite of managers, with a similar target client base of premium investors, while gaining a foothold in the increasingly interesting ethical investing space. 

We're not sure how ethical investing fits with The Donald's casino empire, but we think investors will like it.

PERFORMANCE NEWS

Bennelong Long Short Equity Fund returned +2.07% in February, to take the annualised return since inception to 16.47% p.a.

Paragon Australian Long Short Fund returned -5.0% for the month of February and +9.96% for the latest 12 months. The Fund has an annualised return since inception of 13.63% p.a.

APN AREIT Fund rose +3.02% in February, to take the latest 12 months return to +8.68%. The S&P/ASX 300 Property Trust Accumulation Index also gained in February, returning +4.13%. Since inception in January 2009, the Fund has an annualised return of 16.71% p.a.

Allard Investment Fund increased 0.75% for the month of February. The Fund has gained +18.54% over the latest 12 months, taking the annualised return since inception to 9.03% p.a.

Bennelong Kardinia Absolute Return Fund returned +0.25% in February, taking the annualised return since inception to 11.07% p.a.

Cyan C3G Fund returned +0.1% in February, taking the Fund's one year return to 22.44%. Since inception, the Fund's has an annualised return of 26.16% p.a.

APN Asian REIT Fund returned -0.19% in February, outperforming the Bloomberg Asia REIT Index which returned -0.81%, by  0.62%. Since inception, the Fund has an annualised return of 13.99% p.a.

Quay Global Real Estate Fund increased +3.1% for the month of February and +4.84% for the prior 12 months. The Fund has an annualised return since inception of 15.35% p.a. Global real estate returned +1.8% for the month in AUD terms, with around 3.2% in underlying stock returns, while the stronger AUD deduced -1.4%.

Totus Alpha Fund fell -0.46% in February, to take the latest 24 months return to +23.02%. Since inception in April 2012, the Fund has an annualised return of 19.63% p.a.

Bennelong Twenty20 Australian Equities Fund increased 2.03% in February and 18.2% over the latest 12 months.

NWQ Fiduciary Fund returned -0.35% in February, to bring the annualised return since inception in May 2013 to +5.87% p.a.

Optimal Australia Absolute Trust returned -0.98% in February, a rare negative month for one of the most consistent performers, to take the annualised return since inception to 8.11% p.a.

FUND REVIEWS released this week: Bennelong Long Short Equity Fund; Bennelong Kardinia Absolute Return Fund;  

And on that note, have a great, and if you're in Sydney, a wet and windy 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.

Bigger ain't necessarily better...

This week's Hedge Clippings comes to you from New Zealand or Aotearoa - the "land of the long white cloud" - a name which seems ironic as the country is in the grip of a drought, with bushfires in both the North and South Island, and not a drop of rain. Hence the magnificent countryside is more reminiscent of outback Australia than NZ's usual verdant green.

One cannot help but be impressed by New Zealand. Geographically it is stunning. Moving around is easy, (with the exception of peak hour in Auckland) courtesy of a population of less than 5 million people, who, either by nature or lack of pressure, or both, seem universally polite and friendly. The locals seem to have both the time and inclination to make sure visitors are enjoying their country, of which they are justifiably proud. Understandably we don't raise the subject of rugby.

New Zealand, and New Zealanders, punch above their weight in so many respects, and not only on the rugby field. I am not sure if this is their natural instinct, or a necessity in order to make their presence felt on the world stage amongst countries with populations, and resources, many times larger than their own. Whichever, they succeed in so many areas - and have adapted where necessary to do so, swapping sheep farming to dairy production, creating a world-class wine industry producing some wonderful (trust me) vintages of chardonnay and pinot noir.

To its credit NZ can lay claim to a number of firsts: The first country, way back in 1893, to give women the vote, and in 1898 the first country in the British Empire to introduce pensions. Sensibly (Malcolm, you'd love this) NZ has only one house of parliament, with the upper house abolished in 1950. In spite of this, or possibly because of it, New Zealanders can point to a history of one of the most stable governments in the world.

There's a similarity in many ways with the fund management industry, and hedge funds in particular. While size is important, bigger is not necessarily better. Smaller fund managers rely on performance more than FUM, and being smaller are more adaptable to change - either economic or market driven. And while some may grumble about their fees compared with large, index orientated, long-only funds, performance is worth paying for, provided of course that they provide appropriate levels of risk and reward. 

Back to the similarity with NZ, where a good bottle of pinot noir costs as much as a dozen of a lesser variety. Meanwhile our Kiwi friends have made an art form of charging top dollar for top end tourism spots such as Huka Lodge and Cape Kidnappers - the latter coincidentally or otherwise developed and owned by Julian Robertson, founder of the US Tiger hedge fund - and where tourists from the US and Europe are prepared to travel, and pay, for the privilege.

PERFORMANCE NEWS

January represented a mixed performance across the share markets. The local market declined slightly (S&P/ASX 200 Index -0.8%) with most sectors declined over the month. The Asian markets were also a mixed bag with the MSCI Asia ex-Japan Index up +6.2%, while Japan flat (Nikkei Index -0.4%). The S&P 500 Index and the MSCI ACWI were up +1.8% and +2.73% respectively.

Bennelong Long Short Equity Fund returned +4.95% in January, outperforming the S&P/ASX 200 Accumulation Index by 5.74%. The Fund has an annualised return since inception in January 2003 of 16.41% p.a.

Allard Investment Fund returned +0.83% for the month of January 2017. The Fund has returned +14.27% over the past 12 months, taking the annualised return since inception in July 2003 to 9.03% p.a.

Cyan C3G Fund increased 1.90% in January, outperforming the Small Industrials Index that fell 3.8%, by 5.70%. The Fund has returned +17.96% over the latest 12 months, taking the annualised return since inception to 27.09% p.a.

Bennelong Kardinia Absolute Return Fund returned +0.12% in January 2017, taking the latest 12 months return to +1.13%. Since inception in May 2006, the Fund has an annualised return of 11.14% p.a.

Optimal Australia Absolute Trust returned -1.0% in January.  taking the most recent 12 months return to +3.68%. Since inception in September 2008, the Fund has an annualised return of 8.32% p.a.

Paragon Australian Long Short Fund rose 2.30% in January, taking the most return 12 months return to +9.79%. The Fund has an annualised return since inception in February 2013 of 15.44% p.a.

APN Asian REIT Fund returned -0.39% in January, against the Bloomberg Asia REIT Index which returned -1.07%. The Fund has returned +5.96% over the past 12 months, taking the annualised return since inception to 14.26% p.a.

KIS Asia Long Short Fund rose 1.43% in January, taking the return for the most recent 12 months to 15.55%. Since inception in October 2006, the Fund has an annualised return of 14.67% p.a.

Totus Alpha Fund returned -2.0% in January, taking the annualised return since inception to 20.12% p.a.

Bennelong Australian Equities Fund beat the market posting a positive return of 0.79% for the month of January. The Fund has returned +8.10% over the past 12 months, taking the annualised return since inception to 13.19% p.a.

Affluence Investment Fund increased 0.33% in January resulting in a +11.84% return for the latest 12 months, taking the annualised return since inception to 9.78% p.a.

APN AREIT Fund returned -3.81% in January to take the latest 12 months return to 8.80%. Since inception, the Fund has an annualised return of 16.46% p.a.

Pengana Global Small Companies Fund generated 2.60% in December 2016, taking the latest 12 months return to +12.38%. Since inception in April 2015, the Fund has an annualised return of 5.75% p.a.

Insync Global Titans Fund returned +2.76% in December, however, fell -2.24%, taking the annualised return since inception to 8.75% p.a.

FUND REVIEWS released this week: QATO Capital Market Neutral Long/Short Fund; Insync Global Titans Fund; Bennelong Kardinia Absolute Return Fund; Bennelong Long Short Equity Fund;

And on that note, have a great weekend. Now where's that pinot.....?

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.