OPTIMAL AUSTRALIA ABSOLUTE TRUST

AFM have released the most recently updated Fund Review on the Optimal Australia Absolute Trust.

We would like to highlight the following aspects of the Fund;

• ARCO Investment Management is a specialist Australian equity investment manager and the Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. 

• The investment team comprising George Colman, Peter Whiting, and Stephen Nicholls bring 100 years combined experience in equity markets.

• The Fund has an annualised return since inception of +8.00%. The Fund's approach to risk is shown by the Sharpe ratio of 1.30 (Index 0.26), Sortino ratio of 2.67 (Index 0.26), both of which are well above the ASX 200 Accumulation Index and has recorded over 79% positive months.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - August 2017 (pdf format)

BENNELONG LONG SHORT EQUITY FUND

Attached is our most recently updated  Fund Review on the Bennelong Long Short Equity Fund.

• The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large large-caps from the ASX/S&P100 Index, with over fourteen-year track record and annualised returns of 16.08% p.a.

• The consistent returns across the investment history indicate the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market. The Fund's Sharpe Ratio and Sortino Ratio are 0.96 and 1.57 respectively.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - August 2017 (pdf format)

A tale of two sucess stories

Company reporting season is coming to a close, happily for some, not so happily for others. As noted in last week's Hedge Clippings it is, or can be the "moment of truth" for many companies, and therefore for their investors. Fund managers have had their head's buried in the results for the past month or so and will no doubt be looking forward to the end of it and a return to normality - until the next time.

As listed companies a number of managers have played a dual role, not only studying the results of others, but having to report the results of their own funds management businesses, including two of the largest, Magellan and Platinum, whose Managing Director and founder, Kerr Neilson provided some insights into the way he's thinking, and in so doing reflecting perhaps on competitor Magellan at the same time.

It is worth noting that while both are highly successful operations, and have been particularly successful at attracting investors, there are some significant differences between the two. Following a stellar career as a fund manager with BT, Neilson left and founded Platinum in the early to mid-90's before listing the management company on the ASX in 2013, and has approximately $22 billion in funds under management investing globally across a range of long-short funds, regions and sectors. Performance has been excellent over the long term, although both performance and FUM suffered in the GFC, but has recovered strongly since.

Magellan, headed up by ex-investment banker Hamish Douglass launched Magellan in 2007, just ahead of the GFC, and also listed the management company in 2013.  In another of Australia's financial services success stories, Magellan has amassed $50 billion in FUM from local and global investors. Interestingly over time, albeit that Platinum has a significantly longer track record, the performance of each manager's flagship funds are similar, although they vary from year to year.

Back to Neilson's comments made with the release of Platinum's results: Acknowledging the reason some investors might have recently shorted Platinum, he was keen to point out that as the funds' investment performance had been strong over the past year, performance fees would add significantly to the bottom line. Equally FUM has recovered from the dip in 2008/2009, and even though management fees across the sector are under pressure, he is not keen to join the "race to the bottom".

Magellan's performance fee income has been under pressure recently, (as has its share price) and management fees are also reducing, although both managers, with $22 and $50 billion in FUM, have a significant annuity income stream - provided, as Neilson pointed out, performance is maintained to ensure existing investors remain, and new investors invest.

The major difference in approach, as Neilson was keen to point out, even if not naming Magellan, was the approach or focus in staffing in their respective investment and sales & marketing operations, where Magellan has built a significant distribution machine. At the end of the day it is difficult to criticise either given the successful business each has created.

Platinum also referred to the current active vs passive management debate, and while acknowledging the funds flow into the latter, suggesting that the key to active management is to pick the right active manager.

Hedge Clippings would agree, and argue that we have been beating that particular drum for over a decade.

BENNELONG KARDINIA ABSOLUTE RETURN FUND

Attached is our most recently updated Fund Review. You are also able to view the Fund's Profile.

• The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with over ten-year track record. 

• The Fund has significantly outperformed the ASX200 Accumulation Index since its inception in May 2006 and also has significantly lower risk KPIs. The Fund has an annualised return of 10.74% p.a. with a volatility of 7.06%, compared to the ASX200 Accumulation's return of 5.27% p.a. with a volatility of 13.78%.

• The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while Bennelong Funds Management provide infrastructure, operational, compliance and distribution capabilities.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - July 2017 (pdf format)

Reporting season - An opportunity or a threat?

George Colman from ARCO Investment Management (formerly called Optimal Australia) probably summed up reporting season best by referring to it as "the moment of truth".  Although the fund had negotiated it well so far, he expected the full season unlikely to be so easy.

Midway into reporting season 2018 and it would seem that Telstra has grabbed the most headlines in the media, and occupied the minds of investors more than most, although whether positively or negatively would depend on their position - long or short.

While many long term retail investors are understandably keen to hold onto their Telstra shares for the (shrinking) dividend, and others may buy it based on its yield, no one could complain the decision to reduce the dividend wasn't well flagged to the market. A payout ratio of 100% was unlikely to be maintained, and Telstra Chairman John Mullen did indicate in a recent interview that if nothing else the issue was one the board was looking at. For the many fund managers who were short the stock it will no doubt be a "told you so" situation, but it does indicate the dangers that investors face as companies delight or disappoint the market.

Particularly so long/short managers who are taking multiple bets, some long, some short, or just to not hold a position in a stock. Not only do they need to get their call correct, there's no guarantee the market will always react to good news positively, or alternately to bad news negatively. Add this to a normally concentrated portfolio, and full year reporting does indeed risk becoming a moment of truth, and not an easy one at that. For those on their game the moment can make them, for those that aren't it can take a while to catch up.

While on the subject of catching up, past mistakes and a lack of judgement regarding issues such as Storm Financial, CommInsure and AUSTRAC all culminated in the board of the CBA taking it one step further for embattled CEO Ian Narev this week, flagging his departure by next July. Any sooner would have smacked of panic and given insufficient time to find a replacement, but following legal action from AUSTRAC, pending investigations from ASIC, and almost unprecedented negative comments from the RBA's Governor Dr Philip Lowe, there was only going to be one outcome for the Kiwi born CEO.

Hedge Clippings assumed that radio host Alan Jones' suggestion today that Narev would be well qualified to take over the CEO's position of the equally inept Wallabies' management was a joke, but on reviewing the article and video it appears not.

Maybe he would indeed be perfect, but would anyone notice a difference?