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.

And now for something completely different to start with. Hedge Clippings on a Monday.

The past couple of weeks have seen two "exit" news items out of the USA which have caught the attention of the absolute return sector. Firstly CalPERS, (California Public Employees' Retirement System) a significant and longstanding hedge fund investor, decided to exit their entire $4 billion exposure to the sector, followed last week by the news that investment manager Bill Gross, frequently cited as one of the industry's gurus and a founder and 40 year veteran of PIMCO, with a total of $2 trillion in FUM had quit to join the much smaller Janus Capital Group.

As this article from Forbes explains, while CalPERS' $4 billion seems a significant chunk of capital, it represented only a small portion of the $300 billion they manage in total. If one used the Australian Future Fund's hedge fund exposure of 16% as an example, CalPERS would have to increase their allocations by a massive $44 billion to match it.

CalPERS cited fees, performance and complexity as being amongst the reasons for their exit from hedge funds, and we have no doubt all are a significant factor. But with only just over 1% of their assets allocated to any one sector, it made it difficult (and expensive) to make a significant difference to their overall performance, which incidentally hadn't been too good.

The problem comes down to the trade-off between size and performance. It has long been understood that while the majority of institutional investors' capital flows into the largest 10% of funds, it is equally accepted that this is not where the best returns are to be found.

Take Bill Gross' fund at PIMCO for example. Over the past 15 years he provided returns in the top 12% of his peers, but over the past 12 months he has lagged to be in the bottom 20%. At his new home, Janus Capital Group, he will reportedly have just $13 million in FUM, and be in a significantly better position to outperform once again.

Anecdotal evidence suggests that there were other issues in his exit from Pimco, including differences of opinion over management. While his new fund won't have the luxury of the management fees he was earning, he will have the flexibility and freedom to return to being a nimble investor, one of the key drivers of small to medium funds' out performance of their larger competitors.

It seems size isn't just important, it just matters.

Specific results received this week include the following PERFORMANCEUPDATES:

KIS Asia Long Short Fund returned -0.1% during August and 9.57% over the prior twelve months with a low volatility of 2.65%.

Results for August show the Laminar Credit Opportunities Fund returned 0.53% for a 12 month return of 9.64% (RBA Cash Rate average 2.50%) with a volatility of 0.59%.

The Auscap Long Short Australian Equities Fund returned 5.24% during August, a strong out-performance of the equity market return of 0.62%, with a 12 month performance of 44.87% and a volatility of 6.55%.

Pengana Absolute Return Asia Pacific Fund returned 0.60% in August and 7.57% for the year with a volatility of 2.85% and a Sharpe ratio of 1.72.

During August, the Totus Alpha Fund delivered 2.02% bringing the 12 month performance to 37.96% with a volatility of 15.63%.

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

Monash Absolute Investment Fund; Microequities Deep Value Microcap Fund; Optimal Australia Absolute Trust; Alpha Beta Asian 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 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.

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, this guy should buy a lottery ticket, he wasn't even wearing a helmet.

Best wishes for a happy and healthy week ahead,

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.

AIMA Australia Hedge Fund Forum - 16 September 2014: News Wrap

The AIMA Australia Hedge Fund Forum last week showcased the skill of local managers, their approach to business and their market views to local and international delegates.

Discussion also focused on how the Australian hedge fund industry can better engage with investors, and touched on the regulatory and market forces that are shaping the industry's future. Nearly 300 investors, managers and service providers attended the forum, making it the largest conference of its kind in Australia.

Highlights from the Forum included:

AUSSIES BEST IN LOCAL SHARES

• Australian hedge fund managers are "clearly" skillful in long/short Australian equities and "possibly" skillful in fixed  interest but are lagging international managers in global macro, over the past 10 years, according figures produced by Australian Fund Monitors for AIMA Australia. But, over the past five years, Australian global macro managers have performed as well as their international counterparts.

Read the entire "NewsWrap" here.

ATTACHED FILESAIMA Australia Hedge Fund Forum 2014 (pdf format)

This week saw a return of AIMA Australia's annual hedge fund conference, which under the chairmanship of Paul Chadwick took on the theme of "by the industry for the industry" for the second year in a row, and for the second year in a row saw a packed audience still in attendance well after the designated 5:30 close.

As Paul noted afterwards, the challenge now is how to run the event next year - stick to the winning formula, or try to introduce change?

Winning formulas will work while the quality of the speakers and panels remains, and this year's "fireside chat" (sans flames) with London based Keith Haydon, CIO of $14bn fund of funds FRM will be a hard act to follow next year.

Keith gave an insight into his view of the industry, blending his dry wit with the benefit of experience across a period in which there has been more than a fair share of change and turbulence. In particular his observations on the challenge of balancing manager performance with size was illuminating.

From a performance perspective managers with $500 million to $1bn provide the best returns, while balancing out the business risk of managers with less than $500m. However, according to Haydon this represents only 4% of total industry assets, with over 20% in funds with $1bn to $5bn, and 68% in funds over $5bn.

With close to 90% of FUM allocated to funds with $1 billion or more, the scraps allocated to smaller funds, which dominate the Australian landscape are hard fought for. However, this should be good news for investors in smaller funds, and Australian managers in particular, and no doubt is one of the major factors behind the outperformance of Australian equity long short managers compared with their global counterparts.

AFM's analysis of the 5 and 10 year performance of local long short funds compared with their global peers based on the Eureka Hedge Global Index shows a clear outperformance, totalling 2.54% pa over 5 years, and 2.70%pa over 10.

Statistics as we've often noted can be misleading and there could be other reasons including the dominance of Australian equity strategies amongst local long short managers, currency movements and a myriad of others. However the bottom line is that local managers have outperformed their global peers, and these local managers are predominantly in the under $1,000 billion size range.

With institutions generally unable or unlikely to be able to participate in the sweet spot the beneficiaries are local investors, be they retail, HNW, SMSF's or family offices.

Finally last night saw one of Australia's most successful managers, Regal, take out the Hedge Fund of the Year at the industry's annual awards night for their Atlantic long short fund, and followed this up by their Tasman fund winning the best market neutral fund, with Jenny Harding from Harbridge wining the award for contribution to the industry. Congratulations to all concerned, they are well deserved.

Specific results received this week include the following PERFORMANCE UPDATES:

The Monash Absolute Investment Fund returned 2.30% during August, above the Index return of 0.6%, with an annual return of 21.14% (Index 14.40%).

With overall performance at 25.92% over the last 12 months, the Microequities Deep Value Microcap Fund fell slightly in August.

Bennelong Kardinia Absolute Return Fund returned 0.56% during August bringing 12 month performance to 6.60% with a volatility of 4.27%.

With a very low volatility of 1.71% the Optimal Australia Absolute Trust returned 0.06% during August and 6.29% for the prior 12 months.

The Paragon Fund returned -1.1% during August and 39.83% for the prior twelve months with a volatility of 13.91%.

Aurora Fortitude Absoloute Return Fund returned 0.30% during August and 3.56% over the previous 12 months with a very low volatility of 0.96%.

The Cor Capital Fund  returned 0.10 % during August bringing 12 month performance to 1.93 percent with a volatility of 3.62%.

With a volatility of 4.18%, the Alpha Beta Asian Fund returned 0.90% during August and 10.62% over the prior 12 months.

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, Sunday is Leonard Cohen's birthday.  For someone who spent a reasonable part of his mis-spent youth listening to tracks such as "Suzanne" and "Bird on a Wire"  I thought you might like to listen to the great man's live recording (and his explanatory preamble) of the Chelsea Hotel.

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.

Hedge Clippings has endured a challenging (or should that be frustrating) week. As usual the first frustration came out of the ongoing two-step being danced in Canberra, where the government proudly announced it had delivered on at least one election promise, that of repealing the mining tax.

Of course it can only do anything at present with the approval of Clive Palmer and his PUP colleagues in the Senate, and in this case it seemed as if the trade off was the deferral for 7 years of any increase in the Superannuation Guarantee Levy or SGL. At the present time the SGL is 9.5% of every employees' wages or salary, and is levied as a tax on the employer, not the employee.

While there are plenty of arguments as to the rights and wrongs of the SGL and how it is levied, who should pay, and the cost of superannuation tax benefits to the federal budget, it is hard to argue about the logic of a system designed to cover the retirement benefits of all workers, given that one of the major expenditure items in the Federal budget is the cost of the aged pension.

It is also widely accepted by most (although possibly not the Federal Treasurer) that even after 40 years of the SGL at 9.5%, the retirement benefit for most employees will be insufficient to cover their income needs in retirement, particularly given ever extending life expectancies. Figures published in an article on news.com.au today indicate the average 50 year old male currently earning $79,700 can expect to receive an income of $27,600 when he turns 70 in 20 years' time.

Hardly enough one would have thought, and therefore any encouragement (whether it be using carrot or stick) should be applauded rather than the current government's policy of deferring or reducing even this meagre ration.

Maybe one of the reasons that Treasurer Hockey doesn't seem to think this is important is that the same article indicates that when he leaves Federal Parliament he will be in line for a pension of at least $270,000 a year.

Who says the age of entitlement is over? None other than the Treasurer of course!

The other challenge or frustration this week was altogether different, and altogether more enjoyable, having attended yet another Bob Dylan concert (my fifth or sixth from memory, but the ones I was at in the late 60's are for some strange reason rather vague). Bob is one of my favourite artists, sadly not one of the world's greatest communicators. Having said that, this was one of his best performances I had seen, with his rendition of his classic "Blowin' in the Wind" for his final number perfect for current times, just as it was way back in 1963.

Specific results received this week include the following PERFORMANCE UPDATES:

The Auscap Long Short Australian Equities Fund returned 2.95% during July and 43.54% for the prior twelve months with a volatility of 6.30%.

Returning 24.47% for the year ended July 2014, the Avenir Value Fund returned -1.12% during July.

Pengana Absolute Return Asia Pacific Australian Fund returned 1.18% during July and 8.03% for last 12 months with a volatility of 2.88%.

With a volatility of 8.95% the Nanuk Global Alpha Fund returned -1.26% in July and 17.01% for the prior 12 months.

The Supervised High Yield Fund returned 0.77% during July and 7.17% over the previous 12 months with a very low volatility of 0.72.

AFM are now accredited by the Financial Planning Association of Australia to issue CPD points for FUND REVIEWS.
This week's updated reviews include:

Aurora Fortitude Absolute Return Fund

Read the most recent Fund Review for any of our research clients, and then answer 5 straightforward questions, these are presented in multiple choice format. An 80% or more success score will provide 0.5 CPD points, with a certificate provided as proof of completion. There is no charge for this service.

UPCOMING EVENTS:

Tuesday 9 September in Brisbane , from 12pm to 4.30pm - ARRIA is hosting a further round table discussion, providing a valuable opportunity to meet with like-minded advisers. Free to Financial Advisors.

Tuesday 16 September in Sydney AIMA Australia's Hedge Fund Forum - and event by the Industry for the industry featuring quality Australian and international speakers.

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 and in keeping with our musical theme... I imagine it would be surprising to be shopping for groceries and find yourself in what might appear to be a scene from an opera, or Shopera as some might say. Well, I thought it was from an opera, but it's not. If anyone else is interested, the history of the song is here.

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.