MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESFund Review: Morphic Global Opportunities Fund (pdf format)

BENNELONG KARDINIA ABSOLUTE RETURN FUND

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

Key points regarding the Fund are:

• Kardinia is a boutique Australian based Fund Manager established in August 2011 in conjunction with the Bennelong Group to continue the management of the Herschel Absolute Return Fund.
• Long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record and an annualised return of 14.13% net of fees.
• Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provide infrastructure, operational, compliance and distribution capabilities.
• Consistent top decile long short equity sector performance with Key Performance and Risk Statistics indicating an attractive risk/reward profile. There is a strong focus on capital protection in negative markets.

Sean Webster

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Bennelong Kardinia Absolute Return Fund (pdf format)

Recent market volatility, which saw the ASX200 fall in March, May and June gave way to a much improved month in July, with the ASX200 Accumulation Index rising 5.2% to take 12 month performance to 23.75%.  Equity based hedge funds have on average only marginally underperformed, with average returns for July of +4.24%, and 12 months of 20.61%.

Based on the 39% of funds reported for July, returns to date 35% outperformed the ASX200, with that figure falling to 23% over the past 12 months. The best performing strategy for July was Equity 130/30 at 6.34% taking 12 month performance to +27%.

Rates down to historic lows

That the bulls are out in force in a market which has risen over 20% is positive news, although significant further gains seem to be at odds with some current fundamentals. The past week has seen the RBA cash rate fall to 2.50% on the back of a weaker overall economy, business confidence has reached a four year low, and unemployment a four year high. 

Election / Budget deficit expands to fit a black hole

Add to that an election campaign where the outcome is not the forgone conclusion that it was a month or two ago, and a revised budget deficit of $30 billion, up from the previous estimate of $18 billion which was only provided 10 weeks ago.  Given both sides of politics will no doubt be wanting to tempt voters with further welfare generosity and/or tax concessions over the next four weeks of the campaign, it would seem that whichever party wins the election will have to deal with further increases in the deficit.

Some specific results received this week include the following Performance and News Updates:

Allard Investment Fund returned 0.2% during June and 17.65% for the 12 months to June 2013. Returns since inception (July 2003) are 9.02% annualised.

The AUI Wingate Global Equity Fund returned 3.69% during June bringing the financial year performance for FY 13 to 29.79%.  On a monthly basis for the past 12 months, the portfolio captured 91% of the market's gain when the market was positive but only 54% when the market was negative.

Bennelong Kardinia Absolute Return Fund returned 1.31% during July bringing it's twelve month return to 15.20%. The since inception (May 2006) return is 14.13% pa.

The Morphic Global Opportunities Fund returned 7.71% during July and 41.16% over the previous twelve months.  The Fund is fully invested and overweight in the US and Japan, although the latter overweight has been reduced. The Fund remains un-hedged into Australian dollars and has slowly increased its short position in the currency versus the US dollar and the Euro.

Bennelong Long Short Equity Fund returned 3.52% during July.  Fund performance was solid with the long portfolio comfortably outperforming the negative impact from the short portfolio. At the sector level, the best positions were in Consumer Discretionary, Energy and Materials which were all strong but partially offset by negative returns in Industrials and Financials.

For something completely different - Oh What a Feeling?

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Markets powered ahead in July, with risk taking a back seat once more as the US economy continued its recovery, aided by QE and the absence of any powerful negative forces.  Fears that QE might end seemed to dissipate, or maybe investors began to get used to the fact that it must do so sooner or later.

Fresh highs on the S&P500 make a stark contrast to the performance of the Australian market which has been dogged by China and the resources perception, and more recently lower rates, both of which have accelerated the decline of the $A as offshore investors repatriated funds.  Along with this local investors are increasingly looking to diversify offshore, possibly too little too late, but the experts seem to think the trend will continue for a while yet.

Three pieces of news this week related to the funds management industry: ASIC released Phase 2 of their review of financial advice industry practice, specifically covering the 21^st to 50^th largest financial services licensees.  The 20 largest practices were covered under Report 251.

The new Treasurer, the Hon Chris Bowen released an exposure draft & explanatory memorandum on the proposed final element (stage 3) of the Investment Management Regime, or IMR which resulted from the Johnson report into Australia's standing as a financial services centre, completed in 2009. It still sounds complicated to me, particularly when the objective was to encourage offshore investors into Australia's financial services industry, which incidentally accounts for over 10% of GDP.

Finally the Treasurer also announced a planned five year freeze on major changes to Superannuation (excepting those recently announced) if re-elected.  Legislative certainty is essential for investors' confidence, so maybe the taxation of both local investors in superannuation, and offshore investors in Australian managed funds should both be formalised by whichever party wins the upcoming election.

Some specific results received this week include the following Performance and News Updates:

BlackRock Multi Opportunity Fund recorded a return of 0.10% during June 2013 and an annual return of 9.02%. The Fund is notable for its low risk attributes with a sixty month Sharpe ratio of 1.02, annualised standard deviation of 4.45% and Sortino Ratio of 1.24.

The Intelligent Investor Value Fund returned -0.69% over June and 36.89% over the financial year. The Fund has an annualised return of 11.3% pa since inception (31 October 2009), more than double the 5.1% pa return of the All Ordinaries Index.

Monash Absolute Investment Fund was up 5.6% after fees in July, bringing the 12 month return to 23.4%. The portfolio continued to more than keep up with the broader market this month despite action taken to protect returns by: trimming some holdings; increasing cash, and; adding to the short positions.

Fund Reviews updated this week include:

Morphic Global Opportunities Fund is an early stage, boutique, Sydney-based fund established in 2012 with experienced CIO's, and an investment team of 6 including a risk manager. The Board has a majority of independent members with significant risk and investment experience. The Fund is a global equity long/short manager with a long bias and a macro-economic overlay. The mandate allows the Fund to short sell, use derivatives and invest in assets such as commodities & currencies. Portfolio construction is stock selection agnostic with a bias to value based and momentum strategies. Risk management is a primary consideration in portfolio construction. Morphic's philosophy is that only funds with flexible hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.

The Aurora Fortitude Absolute Return Fund has an eight year track record and has consistently applied a low risk market neutral strategy focusing on ASX listed equities designed to provide investors with returns of 5% to 10% over cash, with low volatility and minimum drawdowns during varying market conditions. The overall strategy is Market Neutral, but the Manager uses five broad sub strategies with uncorrelated returns to build diversification into the portfolio. Over 87% of monthly performances have been positive, with no losing months in 2008 and a largest drawdown of -2.09%.

BlackRock Australian Equity Market Neutral Fund is managed by a 12 person Sydney based investment team following a systematic global research process investing in ASX listed stocks. The Fund's portfolio generally consists of approx. 180 stocks in equally weighted long and short portfolios to maximise potential returns while minimising market volatility. Blackrock's scientific approach is based on their philosophy that by blending highly qualified investment professionals (people skills) with the information, processing power and data collection capacity of powerful computer systems (quantitative) the result will be faster and better investment decisions and therefore outcomes.

For something completely different - getting it wrong: I'm sure we have all done this at some stage!

And for those not familiar with the dubious joys of NSW politics, this week saw the release of ICAC's findings and recommendations for the prosecution of former state Labour ministers Eddie "he who must be obeyed" Obeid, and Ian "Sir Lunchalot" Macdonald.

Not to be outdone, the current State Premier, liberal Barry O'Farrell gave his Finance Minister Greg Pearce his marching orders, admittedly for relatively insignificant misdemeanors.  We have to take our hat off therefore to the editor of the Daily Telegraph for today's photo and accompanying headline.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

BLACKROCK AUSTRALIAN EQUITY MARKET NEUTRAL FUND

ATTACHED FILESFund Review: BlackRock Australian Equity Market Neutral Fund - June 2013 (pdf format)

Research and Database Manager
Australian Fund Monitors

ATTACHED FILESFund Review: Aurora Fortitude Absolute Return Fund (pdf format)

MORPHIC GLOBAL OPPORTUNITIES FUND

ATTACHED FILESFund Review: Morphic Global Opportunities Fund (pdf format)

Averages can be dangerous, or misleading, and frequently both. Take the average 12 month performance of absolute return and hedge funds in AFM's database compared with the ASX200 accumulation index.

Firstly it's not always logical or correct to compare the performance of a fund investing in commodity futures or currencies with an equity index such as the ASX200. Secondly the range of performances, and the underlying range of strategies differ so widely that averages, or conclusions are frequently meaningless. As of course is the performance range of ASX200 companies  where the performance of top and bottom stocks varied from +381% to -90.3%

In simple terms the ASX200 Accumulation index has returned 22.67% in the 12 months to June, compared with an average return of 12% for all funds in AFM's database. Drilling down by strategy shows a wide divergence, with the average Equity 130/30 fund returning 23.71%, closely followed by Equity Long funds at 21.10%. At the other end of the scale Commodity funds and CTA's lost an average of -5.19%, and Currency funds averaged a loss of -4.29%.

Unfortunately (or fortunately as the case may be) the performance divergence doesn't end there. In the 12 months to June the best performing fund returned 65.9%, and the worst -59.9%. Performance spreads within strategies are equally diversified, with the best Long Only funds (investing in industrials) returning over 34% while the worst (which invested in gold) fell 45%.

What's the point of all this? Smart investors need to look beyond the headlines and drill down to the details, as they do when considering the detailed analytics of each fund's performance and risk profile.

Some specific results received this week include the following Performance and News Updates:

The Pengana Australian Equities Market Neutral Fund rose 5.00% during June bringing its since inception (September 2008) return to 9.22% pa as compared to the Fund's equity benchmark return of 3.2% pa.  

Aurora Fortitude Absolute Return Fund returned 0.46% during June for a full year return of 5.70%. The Fund's risk profile is notable with an annualised standard deviation of 2.81% pa compared to the benchmark S&P/ASX 200 Acc with 14.42% pa.

The Pengana Asia Special Events (Onshore) Fund returned -0.92% during June bringing its 12 month return to 10.65%, outperforming both the RBA Cash Rate and the HFR Event Driven Index.

BlackRock Australian Equity Market Neutral Fund reported 1.15% during June with it's since inception (August 2001) return now 12.14% pa.

Fund Reviews updated this week include:

Insync Global Titans Fund is a concentrated, long only equities strategy investing in 15 to 25 large cap ($2 billion and above) global companies. Current average market cap of stocks in the portfolio is USD89bn. These are selected for their ability to consistently increase shareholder value based on return on invested capital (ROIC), and a strong track record of expanding dividends.

And finally, for something completely different - a story on inspiration and self worth.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

INSYNC GLOBAL TITANS FUND

ATTACHED FILESFund Review: Insync Global Titans Fund (pdf format)

Last week the SEC, the US regulator announced a lifting of the ban on hedge funds being able to advertise. The news was greeted with horror in some quarters, with predictions that the move would lead to unscrupulous fund managers and promoters setting out to fleece unsophisticated investors.

In Australia there's been no such ban, and while not perfect, in its place is a much more manageable and effective licensing regime by the local regulator, ASIC. In reality there's no surefire way to prevent those intending to dupe investors from doing so, as shown by Bernie Madoff in the US, or Trio's Astarra in Australia.  However, a combination of the widespread dissemination of information, standardised reporting, transparency, and the education of investors and advisors all go a long way to limiting, if not preventing the problem.

So while the cynics might say that the art or science of advertising is to persuade consumers to purchase products or services they might otherwise not have done, advertising does at least open up the industry, or the advertiser to increased scrutiny. Our opinion has always been that the greater a fund's transparency the better, particularly for the less sophisticated investor.

That's not to say that there isn't a need for investor education or advisor knowledge, or the availability of more objective, in depth and better quality research. However, without transparency none of those will be achieved. For the record the transparency of Australian funds, with very few exceptions, is excellent, and investors are generally (or should be) the better for it.

Some more specific results received this week include the following Performance and News Updates:

The Totus Alpha Fund returned a sound 7.21% during June with a net exposure at June 30 of 24%.  

Monash Absolute Investment Fund recorded +1.1% after fees in June despite another negative month for the market.  Over the Fund's first 12 months, to 30 June, the return was +18.6%.

The Pengana Australian Equities Fund returned -2.50% during June and 12.88% pa over the last five years, against the average RBA cash rate over the same period of 4.1% pa, and the All Ordinaries Accum Index return of 2.2% p.a.

Auscap Long Short Australian Equities Fund returned a solid 8.32% during June with an average net exposure over the month of 116.8%.

Australian hedge funds don't always fit the global mould - commentary on the never ending stream of negative headlines.

Fund Reviews updated this week include:

BlackRock Multi Opportunity Fund is an Australian domiciled multi strategy fund of funds which allocates investors' capital into underlying BlackRock funds at the discretion of the Sydney based investment team. The Fund offers broad diversification across asset classes including equities, fixed income, currencies and commodities with an attractive risk profile, having provided double digit returns since 2009 with low volatility.

The Bennelong Long Short Equity Fund is research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a ten year track record and annualised net returns of 20.97% since inception.  The Fund's Investment history commenced in January 2002 and has positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200.  A consistent return across the investment history indicates the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market.

AFM Prism Active Equity Fund comprises a portfolio of 5 to 10 underlying Australian absolute return managers each investing in ASX listed equities. The Fund's objective is to achieve double-digit annualised returns with significantly lower volatility than the underlying equity markets, with a focus on capital protection. Fund selection is made based on a combination of quantitative analysis of past performance and risk, coupled with extensive analysis and due diligence of the underlying manager's processes and pedigree. The Prism Active Equity Fund had a sound month, with a return of 1.66% compared to the market decline of 4.5% for the ASX 200 Accumulation Index.

The Optimal Australia Absolute Trust is a long/short equity strategy portfolio typically has a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. The Trust has recorded consistent out-performance of the market with approximately 83 % of monthly performances have been positive with a largest drawdown of -1.38%.

Bennelong Kardinia Absolute Return Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record and an annualised return of 14.10% net of fees. Consistent top decile long short equity sector performance, with sound risk statistics indicate an attractive risk/reward profile, and a strong focus on capital protection in negative markets.

And finally, for something completely different - and you thought our lot in Canberra were a rabble.

On that note, I hope you have a happy and healthy weekend!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook