SUPERVISED HIGH YIELD FUND

Attached is AFM's updated Fund Review on the Supervised High Yield Fund.

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

• The Supervised High Yield Fund (SHYF) has a 6 year track record investing in fixed interest investments. The Investment strategy aims to deliver returns with zero correlation to equity markets by investing in debt securities with minimal default probability and offering a premium return above the risk free rate.
• The Fund is managed by Philip Carden whose experience in debt and capital markets spans over 33 years, including time with JB Were's Capel Court Securities and Macquarie Bank, where he was the Executive Director responsible for the Debt Markets Division.
• SHYF is an Alternative Income fund which invests in Global and Australian debt markets, with all foreign currency receivables hedged back to Australian dollars.
• The Fund utilises a top down analysis of the economic environment and market to screen and identify debt market opportunities which it believes offer low risk with high yield. The next stage is the development of a risk matrix and investment strategy, following which detailed research is undertaken on specific investment opportunities which meet the pre-defined criteria established in the investment strategy.
• Prior to approving an investment for the Fund each potential investment is subject to two stress tests. The first of these is for credit and default risk, in which the investment is stress-tested to ensure that in a worst case economic environment it can repay 100% of its principal and interest obligations case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation. Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided The second test examines market risk.  In this case Carden looks at the worst case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation.  Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - March 2016 (pdf format)

INSYNC GLOBAL TITANS FUND

Attached is our most recently updated Fund Review on the Insync Global Titans Fund.

We would like to highlight the following:

• The Fund's unit price decreased by 4.1% in March. The performance was driven by positive contributions from the holdings in Mead Johnson, Oracle Corp, Zimmer Holdings and Time Warner Inc. The main negative contributors were Sanofi, Roche, PayPal, and Medtronic. The Fund continues to have no foreign currency hedging in place as Insync consider the main risks to the Australian dollar to be on the downside.

• The Global Titans Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.

• Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.

• Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - March 2016 (pdf format)

QATO Capital Market Neutral Long/Short Fund

Attached is our most recently updated Fund Review on the QATO Capital Market Neutral Long/Short Fund.

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

• Qato Capital is a Melbourne-based boutique fund manager backed by single family office, Larkfield Funds Management.
• Qato has a systematic, market-neutral strategy which invests exclusively in S&P/ASX 100 stocks.
• The QATO Capital's Q-score process captures and quantifies six broad fundamental factors, which assess multiple underlying sub-categories. Those companies with the top score (quality companies) are included in the "long" portfolio, those with the lowest score are sold short.
• The Fund seeks to preserve capital and maximise absolute returns through active and constant risk management, targeting monthly a net market exposure of 0% to hedge broader market risks through 30 S&P/ASX-100 positions (15 long & 15 short equally-weighted positions).
• Qato Capital's process is entirely systematic - stock selection and risk management are employed in a rules based approach. The Fund employs no financial leverage/gearing to purchase securities, no derivatives and no financial products to imitate leverage.

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

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - March 2016 (pdf format)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

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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.