• The Aurora Fortitude Absolute Return Fund  (AFARF) has a 8 year track record investing in ASX listed equities. A Market Neutral overlay is used across a multi strategy approach which allows for flexible asset allocation to maximise returns and minimise risk under a variety of market conditions and cycles.CIO John Corr has over 20 years financial market experience with a strong focus on risk.
• Significant use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. Annualised return since inception is 7.94% with a very low standardised standard deviation of 2.70%. Other risk statistics are impressive and shows the Funds risk philosophy; over 88% of monthly performances have been positive with no losing months in 2008, the Fund's largest drawdown is -2.09% and the Sharpe ratio 1.19.
• ASX listed Aurora Funds Limited was established on the merger of three existing fund management businesses, managing approx. $230m on behalf  of more than 2,500 retail and wholesale investors.

Australian Fund Monitors

ATTACHED FILESAurora Fortitude Absolute Return Fund - AFM Fund Review May 2014 (pdf format)

Earlier this week Hedge Clippings attended the ARRIA Roundtable in Brisbane. For those not familiar with ARRIA it is a relatively recently formed group of investment advisers, generally unaligned or independent from the major banks or product issuers, whose objective is to raise their knowledge of Real Return Investments, and as a result improve the investment outcomes of their clients.

Hence the name ARRIA, which stands for the Association of Real Return Investment Advisers with Real Return defined as "investments or strategies other than long only, buy and hold, Static Asset Allocation (SAA) to traditional asset classes". For pretty obvious reasons Hedge Clippings and ARRIA are pretty much on the same page when it comes to wanting to raise the knowledge of, and to improve, the investment outcomes of such strategies.

However the discussion in Brisbane spent some time discussing whether Real Return was the correct term, or even the correct asset class given that there are a myriad of other terms which are also in use to broadly define the same sector. These include Absolute Return, Hedge Funds and Alternative Investments, none of which necessarily fit into the long only, buy and hold or SSA of traditional asset classes.

Definitions are difficult, especially when one is talking about investment products which don't fit into a neatly defined bucket or group. The investment industry is full of jargon and terminology at best, and as any investor would know there is no such thing as perfection, otherwise everyone would do the same thing. Asset consultants, research houses and the overall advisory industry like or need to be able to pigeonhole products either to make their life easier, or to make their business more defensible.

By necessity ASIC likes to pigeonhole products as well, and defines a hedge fund as having two or more of five specific features. However an increasing number of long only or traditional investment products now include one of these, namely charging a performance fee. Many others now make some use of one of ASIC's other defining features, namely the use of derivatives.

Apart from the confusion that can result, (or in the case of ARRIA's meeting, considerable discussion) there are a number of important and far-reaching results and implications from specific product categories and definitions. ASIC won't allow fund managers to issue a short form PDS for a product categorised as a hedge fund. Many Approved Product List's or APL's use by the retail advisory industry either won't include or limit the use of products which might be termed "Alternatives". The ASX doesn't include long form PDS products as part of it's new mFund offering.

Insurance companies providing professional indemnity cover to advisers take an equally structured view, and thus many advisers are unable to recommend many funds to their clients simply because they are unable to easily tick the right boxes for their APL.

What is often missed in all this debate about product buckets and box ticking is that a large number of the funds in question are not investing in a different asset class at all. Rather they use a different strategy or investment style to invest in the same underlying asset, whether it be equities, commodities or fixed income.

This is inconvenient at best for the investor as many such funds provide what the investor is looking for at the end of the day, namely an attractive return at an acceptable level of risk. Whether this is provided by a Real Return Fund (defined as one targeting an investment return above inflation) or an Absolute Return Fund (defined as targeting a return above zero), a Hedge Fund which seeks to avoid risk or reduce volatility, or a combination of above, the bottom line is Performance and Risk, or a combination of the two.

No doubt none of this will change the debate about which bucket or name to use, but as Harold Geneen from IT and T once said: "Words are words, and promises are promises. Only performance is reality."

For advisers or fund managers who would like more information on ARRIA, their website can be found here, or you can send their General Manager, Philip Reid an email.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The KIS Asia Long Short Fund returned 0.21% during May and 11.23% for the year ended May 2014.

May returned a strong 2.60% for the Allard Investment Fund with the annual return coming in at 5.05%.

The Cor Capital Fund returned -0.26% during May and 3.14% for the previous 12 months.

At a volatility of 0.73%, Supervised High Yield Fund returned 0.61% during May bringing annual performance to a solid 7.75%.

With it's annual performance recording 31.12%, the Avenir Value Fund returned 1.41% during May.

The Laminar Credit Opportunities Fund returned 0.62% during May and a sound 11.78% for the prior twelve months.

Insync Global Titans Fund took advantage of stronger equity markets and returned 1.70% during May with the annual return 12.50%.

A sound return in a choppy market, the Auscap Long Short Australian Equities Fund returned a 3.82%, with the full year return at 55.82%.

Aurora Fortitude Absolute Return Fund returned 0.19% during May with annual volatility of 1.00%.

The Microequities Deep Value Microcap Fund has a robust 12 month return of 28.56%.

The 12 month return is now at 42.05% for the Totus Alpha Fund with performance in May of 3.99%.

Fund Reviews released this week included:

Bennelong Alpha 200 Fund, still in it's first year.

FUTURE EVENTS:

14-15 August in Sydney: Alternative Investments Conference - Investigating the rise and rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

If you would like your Event listed in our calendar, please contact us.

And now for something completely different. This link outlines the efforts of one well-meaning and well-to-do hedge fund manager in the USA seeking to combine his interest and goats with the interests of the residence of a small part of the city of Detroit. As admirable as that may be he might have missed the fact that goat is one of the most commonly eaten meats in the world, and it may just be that his goats disappear more quickly than he anticipates.

On that note, I hope you have a safe and happy weekend.

Best wishes,

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.