NEWS
19 Jun 2014 - Auscap Long Short Australian Equities Fund
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Fund Overview | The Fund focuses on fundamental long and short investments. The Fund may utilise a multi-strategy approach if short term opportunities to increase returns, hedge the portfolio, protect capital or minimise volatility are found. The Fund is a high conviction fund and the combined portfolio will typically have 25-45 positions, investing primarily in stocks in the ASX200. The Fund may be net long, short or neutral depending on the strategies employed at the time. The Fund may hold cash so that it is in a position to take advantage of market volatility and compelling investment opportunities as and when they arise. The Fund may be geared up to 200% gross long or short and up to 150% net long or short. |
Manager Comments | The Sharpe ratio was notable at 5.50 and the Fund has no negative months in the year to May. Up and Down capture ratios were 1.55 and -1.98 respectively. Average gross capital employed by the Fund was 117.4% long and 43.5% short. Average net exposure over the month was +74.0%. At the end of the month the Fund had 35 long positions and 10 short positions. The Manager's Newsletter is entitled Avoiding The Double Whammy �" Why We Prefer Value To Growth' and is available on the AFM website. |
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18 Jun 2014 - Aurora Fortitude Absolute Return Fund
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Fund Overview | The Fund aims to produce positive returns irrespective of the direction of the share market. For each investment the manager considers the risk, the timeline of that risk occurring and then the potential return. Low transaction costs and liquidity are other important factors in the success and implementation of the strategies. |
Manager Comments | Since inception in March 2005 the Fund has returned 7.94% (Index 7.65%) with a volatility of 2.70% (Index 13.98%). The Sharpe ratio over this time was 1.19 compared to 0.27. Aurora Oil and Gas was the stand-out in the Merger & Acquisition strategy (+0.145%) with yield (+0.196%) again the best performing strategy for the month. The Protective Option Overlay was again a draw-down on performance (-0.30%). The lack of volatility in global markets has been a major discussion point in the financial press with the continuation of easy monetary policy and low interest rates being seen as the major factors contributing to this ongoing phenomenon. One of the benefits of the option strategy is that it allows us to trade some riskier positions in larger size, and this was reflected in more positive returns in our Long/Short Portfolio (+0.13%). |
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17 Jun 2014 - Microequities Deep Value Microcap Fund
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Fund Overview | The objective of the Fund is to identify undervalued Microcap companies, invest in them and, through a medium to long term commitment, attempt to deliver superior investment returns. The Fund invests primarily in ASX listed Microcap companies, which at the time of initial investment are generally below a market capitalisation of A$250 million. The Fund may also invest in companies with a higher market capitalisation, but these will be limited to no more than 20% of the assets of the Fund. At times the Fund may invest in pre-IPO securities that are due to be listed on the ASX within 3-6 months, and have lodged a prospectus with ASIC. These investments will also be limited to no more than 10% of the assets of the Fund. The Fund will be limited to investing no more than 20% of the Fund's assets in any one security or company. The Fund will make investments with a medium to long term time horizon of between 3-5+ years. The Fund will not speculate in derivatives. It will be permitted to hold other securities that are directly associated with a particular investment such as options granted with a specific company issue etc. The Fund will not engage in short selling or stock lending. The Fund will not hold financial debt of any kind. |
Manager Comments | Since inception (March 2009) the fund has returned an annualised 29.82% (Index 14.89) with a volatility of 15.09% (Index 12.63%). The Sharpe ratio is 1.58 and the Up and Down Capture ratios 1.18 and 0.25 respectively. Notable given the Fund's investment in microcaps is the Fund's average negative return of -2.22 (index -3.00%) and maximum draw-down of 10.86% (Index 15.13%). The month saw no changes to our Fund's constituents. We continued to accumulate the top 5 positions which now make up approximately 40% of the Fund's asset value. These top 5 business partnerships represent our best investments within the context of a risk/reward relationship. |
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16 Jun 2014 - Totus Alpha Fund
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Fund Overview | The Fund is a long/short investment fund principally investing in listed entities, commodities, futures and options in Australia and internationally. The Fund is not a market neutral fund and accordingly may switch between net long positions and net short positions. The Fund may use short sales and derivatives. Gearing may be used to enhance returns and the Fund may be geared in excess of 100% of the Fund's Net Asset Value. There is a limit to net exposure of 150%. |
Manager Comments | At month-end the Fund had net exposure of 50% and a gross exposure of 217% with 112 positions. From an absolute return point of view the last 6 months has been challenging. Many of the optimistic scenarios being touted at the end of 2013 have failed to eventuate and the many of the companies we have had contact with recently are finding things tough (just this week we have seen profit warnings from TRS, PBG and FLT to name a few). |
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13 Jun 2014 - Hedge Clippings
Fridays can be challenging for all sorts of reasons: Sadly, but probably sensibly, the long lunch is a thing of the past. Nowadays a fair proportion of my Fridays are spent trawling through an assortment of manager's monthly performance reports seeking inspiration for the current week's edition of Hedge Clippings.
Sometimes we are assailed by the antics of a politician of one particular persuasion or another, and at other times the economic or industry landscape provides the necessary spark. This week is different again and we have been gifted by the monthly performance report from George Colman of Optimal Australia. Normally we might borrow a few ideas from such a report, but in this case George encapsulates such an excellent summary of the Australian market and the challenges it is facing that there seems little point in trying to do so.
Therefore, we unashamedly, and I might add with full permission from George, have reproduced in full his commentary below; it is longer than our normal clippings, and considerably more cerebral. Take it away George:
We continue to hold our net risk exposure at close to zero. From this point, it seems madness to us to try to replace fixed income or deposit coupon yield through equity securities at these extended valuations without some form of insurance in place.
The Fed continues to 'taper' its QE program. Why take away the punch bowl at this point? To suggest that this is because QE policies have worked is drawing a pretty long bow in view of 1Q US GDP growth at negative 1%, although the narrative has it that this was only due to bad weather. It seems more likely that even the Fed recognises, belatedly, that they've taken QE too far: "...keeping rates very low - will continue to incentivise investors to reach for yield." (the Fed's Esther George, in classic understatement mode).
With the ECB likely to force a residual element of excess European bank liquidity (the major part has already traded on the signalling, most likely in US Treasuries) into the markets and not, sadly, into the real economy, through negative deposit rates, conditions will likely remain distorted and volatile for some time yet. The warning signs are growing, and it looks like pre-2008 history is repeating itself in several key respects:
In the credit markets, the average quarterly volume of US high-yield debt issuance in 2013 was US$90bn, with 65% of that sold on a covenant-light basis, compared with a quarterly average of US$40bn in 2007 with an average of 28% cov-light. Typical debt to EBITDA leverage in private equity deals has reached similar levels to 2007, at up to 7x, but the junior debt in 2007 was priced at up to 12%, compared to today's 7%.
In Australia, the IPO pipeline has turned into a veritable gusher, with private equity and other sponsors seeking to sell every position not nailed down. Even the deals that failed in late 2013 are now getting done, with no obvious price adjustment, and just prior to large wads of escrowed vendor stock becoming tradeable following June 2014 earnings results.
Finally, the M&A cycle continues to heat up, with KKR launching a conditional offer for the hapless Treasury Wine Estates at $4.70/share, and a counter-bid for developer ALZ, at a 25% premium to NTA.
This is all occurring against a slow deterioration in the economy. As expected, the Coalition Government forecast a $30bn F15 budget deficit, and with the exception of a tax levy on high earners, the budget focused on spending cuts. Having barely noticed the effect of the 2008 global crisis, Australians do not much like the concept of budget austerity, much less the removal of their middle-class welfare entitlements.
Post-budget economic data points are limited, but May's Westpac-MI consumer confidence index declined 7% MoM, with the outlook for family finances and the economy over the next 12 months the hardest hit, plunging 23% and 14%, respectively. Anecdotally, the consumer has been very weak since the budget.1Q's impressive 3.5% YoY GDP growth did not capture the budget effect, and was driven by 4.8% growth in exports, just before bulk commodity pricing fell apart.
As for economic rebalancing in Australia away from mining, a study by UBS showed that since June 2012, 95% of all Australian credit growth has gone into property, and 76% of all business lending has gone into commercial property. This still strikes us as a structurally challenged economy with a richly-valued stock market and currency, both driven by carry money.
For the record the Optimal Australia Absolute Trust has a track record of almost 6 years, having launched the day that Lehman's failed in September 2008. In that time the Fund has returned an annualised 10% and has never suffered a drawdown of more than 1.38%, has an annual standard deviation of 3.49%, and a Sharpe ratio of 1.78.
We think George's opinion is worth listening to.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
The Optimal Australia Absolute Trust returned 1.40% over May with an annual return of 4.81% achieved with volatility of 1.70%.
May returned 0.36% for the Bennelong Kardinia Absolute Return Fund and over the previous twelve months, low volatility of 4.27% and returns of 7.49% .
The Paragon Fund had a strong month, returning 3.2% and bringing it's twelve month return to 26.19%.
Taking advantage of stronger global markets, Morphic Global Opportunities Fund also had a strong month with performance for May at 3.91% and 21.73% for the prior twelve months.
18 June in Sydney: MAX: the Marketing, Advertising and Sales Excellence Forum and Awards. Forum 8am - 4:30pm; Awards dinner 7-10pm.
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 week, sad but true, the latest generation of children can usually play Angry Birds better than they can spell.
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.
13 Jun 2014 - Morphic Global Opportunities Fund
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Manager Comments | At month-end the Fund exposures were 167% gross and 101% long with a VaR of 1.06%. Up and Down Capture ratios were 0.62 and -0.86 over the prior year. The Fund closed the month still fully invested, with limited regional biases other than the overweight in India, reflecting the manager's preference not to have large regional positions currently. The continuing rise of the Australian dollar is being partially offset by the Fund having hedging over part of its offshore exposure. The recent move by the European Central Bank to impose negative rates on excess bank deposits and start money printing suggests the local unit's rally may be even more resilient than we expected a month ago. |
More Information | » View detailed profile of this fund |
12 Jun 2014 - The Paragon Fund
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Fund Overview | Paragon accepts that markets are not always efficient in pricing information into securities and that no one investment style works in every stage of the investment cycle. Subsequently Paragon adopts a top down thematic led approach to identify companies exhibiting sustainable or improving returns on capital driven by volume growth, pricing power and competitive advantages. Paragon utilises both quantitative analysis to provide probability weighted high/low/base case valuations and qualitative analysis in assessing management, the business model and likely direction of returns. Paragon will allocate assets to each investment opportunity based on a risk/reward profile. Positions have defined investment parameters and risk limits, which are then monitored on an ongoing basis. |
Manager Comments | The Sharpe ratio was 2.46 (Index 1.49) and the Sortino ratio 4.88 (Index 2.92) were well ahead of the Index, also over the last 12 months. The Up and Down capture ratios were notable at 0.89 and -0.54 respectively. At month-end the Fund was 74.1% long and 2.9% short for net exposure ratio of 71.2%. The top 5 stocks were 25.6% of the Fund. The Fund Update covers two Fund holdings and is available on the AFM website under the Fund Profile. |
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11 Jun 2014 - Bennelong Kardinia Absolute Return Fund
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Fund Overview | The Fund consists of a concentrated long/short portfolio typically comprising 20 to 50 ASX300 listed stocks, generally with a long bias aligned to the overall market direction. There is a slight bias to large cap stocks in the long side of the portfolio, although in a rising market the portfolio will tend to hold smaller caps, including resource stocks, more frequently. On the short side, the portfolio is particularly concentrated, with stock selection limited by both liquidity and the difficulty of borrowing stock in smaller cap companies. Short positions are only taken when there is a high conviction view on the specific stock. The Fund uses derivatives in a limited way, mainly selling short dated covered call options to generate additional income. These typically have less than 30 days to expiry, and are usually 5% to 10% out of the money. ASX SPI futures and index put options can be used to hedge the portfolio's overall net position. |
Manager Comments | The Fund's net equity market exposure including derivatives was reduced to 29.5%(49.7% long and 20.2% short). The Bennelong Kardinia Absolute Return Fund rose 0.36% in May. Long positions in Oil Search, CSL and Ansell were the largest positive contributors, whilst short positions in Treasury Wine Estate and Share Price Index Futures (hedging long exposures) were the largest detractors. |
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10 Jun 2014 - Optimal Australia Absolute Trust
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Fund Overview | The Fund's bias is likely to be net long under normal market conditions, with the core strategy being to construct a portfolio of listed equity securities priced at levels that do not adequately reflect their underlying value. The Fund will seek to boost returns and limit potential market downside by selective short selling of individual stocks which are priced at levels that are viewed as materially above their underlying value. The Fund will also use certain trading strategies both within its core portfolio (through rebalancing stock weights and overall market exposure in response to price movements) and in certain other situations (typically of a shorter-duration and/or opportunistic nature) with the objective of further increasing returns. |
Manager Comments | The Fund continues to hold net risk exposure at close to zero. From this point, it seems madness to try to replace fixed income or deposit coupon yield through equity securities at these extended valuations without some form of insurance in place. As for economic rebalancing in Australia away from mining, a study by UBS showed that since June 2012, 95% of all Australian credit growth has gone into property, and 76% of all business lending has gone into commercial property. This still strikes the Manager as a structurally challenged economy with a richly-valued stock market and currency, both driven by carry money. |
More Information | » View detailed profile of this fund |
6 Jun 2014 - Monash Absolute Investment Fund
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Fund Overview | The fund seeks to identify opportunities in the share market to make positive returns (long and short) irrespective of market conditions. It is style agnostic, as compelling investment opportunities exist across all investment styles from time to time. The Fund places a high priority on capital preservation, and has an absolute return focus in accepting market risk. The Manager's experience across value, growth and discounted cash flow styles allows them to use a comprehensive approach to investment decisions that applies all three. They also have the patience to seek out only compelling opportunities, rather than settling for relative value. The portfolio is somewhat concentrated, looking to diversify across industries and themes, rather than by trying to stay near an index. The portfolio may at times have a large amount of cash or other protection. However once investments are made turnover may be relatively high in order to lock in gains and avoid losses. |
Manager Comments | The Sharpe ratio is high at 2.31 and the Up and Down capture ratios of 0.65 and -0.17 are sound. In May the fund was down -0.5% after fees against the backdrop of a small positive return by the Australian equity market. Risk controls continued to serve the Fund well, with the portfolio weathering poor news from four stocks. The portfolio return was also helped by a number of our stocks continuing to do very well. Net exposure was lower by the end of the month as the Fund continued to trim the weights of stocks that had risen strongly, and also exited stocks that were no longer compelling. |
More Information | » View detailed profile of this fund |