Who's buying the Aussie $??

There are a few people scratching their heads this week, wondering what's pushing the A$ towards US$0.93 when most of them are of the view that it's heading towards $0.83. Of course it may well be a temporary correction having fallen over 15%, or it might be a reflection that the market feels that the next move from the RBA will be up, even if not in the short term. Alternatively there's the view that there might be stimulus package in the offing in China in an attempt to head off a slowdown in the event of a credit crunch.

Whatever the reason, and whoever is buying, it is probably frustrating Australia's export efforts, as well as some local fund managers investing in global equities, as the rise in the A$ has been widespread. Many of those same managers have had the benefit of a falling currency adding to the returns from buoyant US equity markets, so March results from that sector will be of interest, especially given the inflows to some of the larger managers such as Magellan and Platinum over the past 12 to 24 months.

Meanwhile, this week Deloitte Access Economics released a report which focussed on the five industry sectors which they expect to drive the growth of the Australian economy over the next 20 years. Needless to say the financial services sector was one of them, along with gas, agribusiness, international education and tourism,  with a number of demographic and other factors behind the prediction. 

"With the combination of the world getting older and wealth in our region continuing to grow - wealth management services will continue to be in high demand," Deloitte wealth management leader Neil Brown said. "This offers the Australian industry the perfect opportunity to trade on its expertise and the probity of its wealth management sector."

By 2030, three billion people in Asia will join the middle class and by 2050 the region will account for more than half the world's financial assets. Brown said this combination, together with Australia's domestic success in building the fourth largest superannuation asset pool in the world, is an attractive proposition to both the domestic and the growing Asian middle classes.

We certainly concur regarding the opportunity for the financial services industry, with technology and communications reducing Australia's previous limitations of distance. However potential is one thing, achieving it is another. If Australia is to succeed in the financial services sector on a global rather than merely a local stage, the structural and regulatory environment has to be in place, including a level taxation playing field for offshore investors.

In that regard the Financial System Inquiry headed up by the former head of CBA David Murray is perfectly timed to make appropriate recommendations when it reports to the Treasurer in November of this year.  This week the government announced the addition of four overseas members of the inquiry, including Sir Michael Hintze, one of Australia's most successful hedge fund managers whose $13 billion CQS Global Multi Strategy Asset Management business is based in London.

While confident that David Murray and his panel will come up with the solutions, the challenge will be to see if the current Government implement their findings. Sadly their predecessor's failed to make the most of the opportunities provided by the the Henry Tax Review, and Mark Johnson's "Australia as a Financial Centre" report before it.

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

Auscap's Long Short Australian Equities Fund had strong performance during February to return 5.32% (ASX 200 Acc 4.97%) bringing annual returns to an impressive 58.90% (Index 10.56%).

The KIS Asia Long Short Fund returned 1.76% during February and 15.99% (10.56% Index) for the previous twelve months with a volatility of 2.71% as compared to 11.49% for the ASX 200 Acc Index.

Pengana Asia Special Events (Onshore) Fund recorded 0.48% during February and 11.76% for the preceding twelve months with a very low standard deviation of 2.39%.

The Cor Capital Fund benefited from buoyant asset markets to return 2.34% during February with positive performances from all the underlying assets. .

Laminar's Credit Opportunities Fund returned 0.57% during February and a creditable 11.93% for the prior 12 months with a volatility of 2.71%.

Updated FUND REVIEWS released this week included:

Bennelong Kardinia Absolute Return Fund. The Fund is characterised by steady returns and very low risk. The Fund returned 2.69% during February and since inception (May 2006) the Fund has returned 13.85%

FUTURE EVENTS

27-29 March 2014: Superannuation Fund Back Office: 2014 Forum in Sydney convenes those responsible for superannuation member administration and investment operation services. It has been designed to explore emerging efficiencies and best practice in a number of key areas.

Tuesday 1 April 2014: The Future of Financial Services Regulation breakfast seminar at Cockle Bay, Sydney. At this upcoming Leaders Series breakfast, Money Management and Super Review will bring together key players involved in this inquiry, including the deputy chairman of ASIC, Peter Kell, and one of the politicians at the centre of the Parliamentary Inquiry into ASIC, Senator David Bushby. They will provide unique insights into what the future of the financial services regulator will look like and the implications which may flow from the Financial Systems Review.

Tuesday 1 April 2014: AdventConnect 2014, Sydney. Stay up to date on industry trends with fresh insights from industry thought leaders, fund managers, and the executive management team at Advent Technology. Also in Melbourne on Thursday 3 April.

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

And now for something completely different this week, perhaps you use some medication? Have a laugh at Mr Bean.

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

Best wishes,

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.  To celebrate the 20th anniversary of their #CBDGolf Escape! charity golf event, Cerebral Palsy Alliance are holding an online raffle. The prize will be a Toyota Yaris YR Hatch 3 Door, plus many amazing prizes inside the car - A total prize value of $22,000...See more

For more information visit www.cpresearch.org.au or contact me by email.

SRLeaders Series 2014 Powered by Super Review

Tuesday 1 April 2014 7:45 - 10am, Cockle Bay Wharf, Sydney

What is the future of financial services regulation?

It's fast becoming apparent that an understanding of the potential scope and impact of the current Parliamentary Inquiry into ASIC, will have an enormous impact on professionals and businesses in financial services.

At our upcoming Leaders Series breakfast, Money Management and Super Review will bring together key players involved in this inquiry, including the deputy chairman of ASIC, Peter Kell, and one of the politicians at the centre of the Parliamentary Inquiry into ASIC, Senator David Bushby. They will provide unique insights into what the future of the financial services regulator will look like and the implications which may flow from the Financial Systems Review

HEAR FROM SPEAKERS AT THE CENTRE OF THE INQUIRY

Peter Kell, Deputy Chairman, ASIC

Senator David Bushby, Liberal Senator for Tasmania

This seminar will provide you with opportunities to:

• Hear the scope of the possible changes and their likely impact on your business.
• Examine how you and your business can prepare for and manage any potential changes in policy.
• Share your opinion and experiences of how the regulator has performed and whether a change is actually needed.
• Debate whether Australia needs three regulators or will just one do?
• Gain insights into the possible scope of the changes from a panel of industry leaders.

By attending this event, not only will you gain valuable insights into the looming changes at ASIC and their impact on you and your business, but it's also an opportunity to be a part of an important agenda setting event.

Expert Panel

Sam Dastyari, ALP Senator for NSW
Phil Anderson, COO, AFA
Andrew Bragg Director, FSC
Dante De Gori, GM, Policy and Conduct, FPA

View Agenda
Register Now

FoFA stalls, QE falls, Taper and the new era of the dot plot.

In the first Hedge Clippings of 2014, way back in mid-January, we wrote that we had polled a number of fund managers on their views of the market's direction for 2014. The general consensus was for a more subdued return than in 2013 but with higher volatility, and in that regard they were spot on. Year to date the ASX200 has gone nowhere, although it has hardly flat lined, after falling over 3% in January, rising almost 5% in February, and falling a further 1.6% so far in March.

For the record, in 2013 the 12 month rolling return of the ASX 200 Accumulation Index only fell below 20% for one month (in March, and even then it was 19.98%) while in May it reached an impressive 26.5%. By comparison in the first two months of 2014 the rolling 12 month performance in January was 11% and 10.6% in February. Month to date in March the twelve-month return is 11.31%.

It would seem that the fund managers we spoke to in January got it right, at least so far. However it does mean that if the market is to repeat the 20% returns enjoyed in each of the last two years it will need to get a move on, with almost one quarter of the year already history.

Changing tack, in more ways than one, the proposed changes to FoFA would appear to have stalled as the Bill amending the legislation has been referred to a Senate Economics Committee enquiry which is not expected to complete its task until mid-June. Coupled with the upcoming Murray enquiry into the financial system, due to release it's interim report mid-year, with the final report expected to be delivered in November, the potential for a changing landscape is considerable - or should that be inevitable?

And on the subject of changing landscapes, overnight the new chair of the US Federal Reserve, Janet Yellen, confirmed the continuing unwinding of the great ongoing experiment known as Quantitative Easing, with the third consecutive monthly reduction, or Taper as it has become known. Expectations are now that QE will be a thing of the past by October or November this year, while expectations for a tightening of interest rates in the US have increased, albeit only marginally, by the end of 2014, but with a more significant shift in expectations for both 2015 and 2016.

In doing so Yellen has introduced into every day financial speak the concept of the dot plot as a way to graphically illustrate the expectations of the individual FOMC participants for the timing and extent of the inevitable start of rate hikes. As someone who much prefers to look at a picture that paints a thousand words than having to read and then hopefully understand them, I'm rather taken by the dot plot and its graphical simplicity, even if Yellen suggested that we should not pay it too much attention.

The bottom line was that there has been a shift - marginal but quite pronounced - in FOMC expectations for a tightening. Even so, more than half the FOMC participants expect the Fed funds rate to still be 1% or less by the end of 2015. The problem is that with everyone hanging on every word Yellen utters it is inevitable that her suggestion not to follow the "dot plot" too closely is likely to be ignored, and I would be very surprised if we don't hear a great deal more of the term going forward.

While on the subject of looking forward, keep an eye out for natural gas prices in the US which have jumped sharply on the back of President Putin and his slightly clumsy attempt at democracy for the Crimea; a sharp rise wheat prices, and even more alarming, the price of coffee on the back of the drought in Brazil forcing up the price of my multiple daily doses of caffeine. 

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

Totus' Alpha Fund has taken full advantage of the buoyant equity markets over the last twelve months to return 51.45% over that time. The fund returned 1.44% during February.

The Pengana Australian Equities Market Neutral Fund returned 2.90% during February with a net market exposure of 2.7%.

Insync's Global Titans Fund benefited from stronger equity markets during February returning 2.39% and 24.17% over the year with a notable down capture ratio of -0.84.

The Paragon Fund returned 3.80% for February, with a net exposure of 73.6%, and 21.72% (10.56% ASX 200 Acc Index) for the previous twelve months. Over this time average cash holdings were 35% contributing to the lower volatility number of 7.56% as compared to the Index 11.49%.

Intelligent Investor's Value Fund returned 0.48% in February and a very sound 31.94% for the year to end-February (ASX 200 Acc Index 10.56%).

FUTURE EVENTS

27-29 March 2014: Superannuation Fund Back Office: 2014 Forum in Sydney convenes those responsible for superannuation member administration and investment operation services. It has been designed to explore emerging efficiencies and best practice in a number of key areas.

Also in Sydney on 27-28 March 2014: Operations Risk Management and Mitigation seminar enables participants to prepare and manage the planning and implementation of operational risk management processes.

Tuesday 1 April 2014: The Future of Financial Services Regulation breakfast seminar at Cockle Bay, Sydney. At this upcoming Leaders Series breakfast, Money Management and Super Review will bring together key players involved in this inquiry, including the deputy chairman of ASIC, Peter Kell, and one of the politicians at the centre of the Parliamentary Inquiry into ASIC, Senator David Bushby. They will provide unique insights into what the future of the financial services regulator will look like and the implications which may flow from the Financial Systems Review.

Tuesday 1 April 2014: AdventConnect 2014, Sydney. Stay up to date on industry trends with fresh insights from industry thought leaders, fund managers, and the executive management team at Advent Technology.

If you know of any upcoming hedge fund industry Events, or would like your Event listed in our calendar, please contact us.

And now for something completely different this week, it has been a long time since I have had any interaction with a bouncer, and when I did I'm sure I was blameless (?) so "giving bouncers a taste of their own medicine" struck a chord!

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

Best wishes,

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.  To celebrate the 20th anniversary of their #CBDGolf Escape! charity golf event, Cerebral Palsy Alliance are holding an online raffle. The prize will be a Toyota Yaris YR Hatch 3 Door, plus many amazing prizes inside the car - A total prize value of $22,000...See more

For more information visit www.cpresearch.org.au or contact me by email.