Just as markets in the USA had readjusted to Ben Bernanke's new "no taper" policy update, along come negotiations between Democrats and Republicans over budget negotiations with the potential for the US government to run out of funding by mid October. This would force government employees to face taking temporary unpaid leave, delaying payments to the military, and closure of some administrative departments. Naturally members of Congress would continue to be paid as usual.

At stake it would seem is the passage of the Affordable Care Act, or "Obamacare" as it has become known. Presuming that no-one wants to be responsible for the political fallout of the budget not being passed, the focus will then fall on the so called debt ceiling. This currently sits at just under $17 billion or $53,500 per US citizen, and by mid October there will only be $30 billion to meet commitments which includes a $60 billion social security payment due at the beginning of November.

If you want to look at a neat graphic calculator of the actual numbers involved, click here. The Australian version can be seen here.

There's an element of deja vu in this as the same concerns spooked markets two years ago.  However it highlights two other over-riding issues that seem to dominate markets and economies post 2008. The first is that there aren't too many governments around the world that aren't facing increasing outlays, but are not prepared to increase taxation to balance the books.

The second seems to be that politics and politicians are driving markets as much as, or more than fundamentals. This is not only in the US, but also across Europe. The same might be said of China, except there the politicians are expected to control the outcome, at least have a longer time horizon, and don't have to concern themselves over pesky elections to the same degree.

Australia has the same problem as the US and Europe: Everyone seems to want  more welfare and lower taxation - but no-one's prepared to pay for it or give up what they already have. And no-one wants to factor in an increase in the GST.

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

Pengana Australian Equities Market Neutral Fund completed its fifth year of operation recording an annualised return of 9.60% pa compared to the benchmark (ASX 200 Acc Index) return of 4.63%. Since inception the Fund has an annualised standard deviation of 8.02% compared to 15.48% (Index) and the risk-reward and risk statistics are sound with a Sharpe ratio of 0.7 (0.12 Index) and a Sortino Ratio of 1.06 (0.06 Index).

The Totus Alpha Fund rose 2.1% during August with net exposure of 41%. Since inception in April 2012 the Fund has returned 29.1% (24.2% ASX 200 Acc Index) with a Sharpe Ratio of 1.41, Sortino Ratio of 3.14 and a down capture ratio of -0.84. The Fund also has a negative correlation of -0.209 to the Index.

Allard Investment Fund returned -1.0% during August with an allocation of 67.1% equity and 32.9% cash and fixed income. In terms of geographic allocation the Fund's major allocations are 32.1% HK/China and 13.1% Singapore and in terms of industry the biggest exposure is financial services at 14.5% and conglomerates, 12.2%.

The Intelligent Investor Value Fund returned 1.13% in August and 40.05% over the 12 previous months. The Fund has a since inception (November 2009) annualised return of 14.05% pa as compared to the ASX 200 Accumulation Index of 7.32% return over the same time frame. The Fund's value strategy is shown by the Sharpe Ratio of 0.73 as compared to the Index Sharpe Ratio of 0.32 (since inception).

Updated AFM Fund Reviews were also completed on the following funds this week:

The Insync Global Titans Fund invests in a concentrated portfolio of 15-25 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. The investment strategy has delivered above MSCI ($A) benchmark performance over the medium and longer terms with limited draw-downs and excellent risk statistics. The Sharpe ratio is 0.67 (ASX 200 Acc 0.26) and Sortino ratio 1.17 (ASX 200 Acc 0.28) and are well above those of the ASX with downside deviation approximately one-half of the same Index since inception.

EVENTS

Next Tuesday, 1 October 2013 at 5.30pm sees one of the newer Sydney fund managers, Auscap Asset Management heading to Brisbane to present their current perspective on equities. Tickets are limited, but if interested contact [email protected].

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

If you are visiting Hong Kong, the UCITS Asia 2013 Conference is on 9-10 October. AFM have a 10% discount coupon available, more details here.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace Hotel in Sydney. Details are here.

Back in Hong Kong, the 26th Annual AVCJ Private Equity and Venture Form is at the Four Seasons Hotel from 12-14 November 2013.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

In the last few week's "Clippings" we have mentioned some notable anniversaries - the collapse of LTCM and Lehman Brothers in particular.  This week's "and now for something different" remembers Australia 11 winning the America's Cup, coincidentally in the same week 30 years later as the Americans boat (skippered by an Aussie I might add) won it back from our New Zealand cousins.  At a lunch to remember the time 30 years ago that the then Prime Minister Bob Hawke donned his famous jacket, he wore it again to take the stage and tell this joke. Take it away Bob ...

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

AVCJ Private Equity Forum

12-14 November 2013 - Four Seasons Hotel, Hong Kong

AVCJ is delighted to be hosting the 26th annual AVCJ Private Equity & Venture Forum in Hong Kong this November.

What's new in 2013?

• Emerging market focus groups
• Technical workshops
• Women in private equity roundtable
• Sector focus - energy and real estate
• Meet the managing partners breakfast
• Spotlight on family offices

Meet 1,000+ global PE professionals; Network with more than 250 LPs; Hear from 170+ industry leading speakers.

PACKAGES

Diamond (fees include three-day Investment summit on 12-14 November, PE leaders - Summit and VC Summit, refreshments, luncheons, evening receptions and dinner as per the programme; and all conference documents) US$3,895/HK$31,160 each

Platinum (fees include two-day Investment summit on 13-14 November, refreshments, luncheons, evening receptions and dinner as per the programme; and all conference documents) US$3,295/HK$27,260 each

Please feel free to contact Sally from AVCJ at the numbers below:

Sally Au | Sales Executive, Asia Pacific | Incisive Media
T: + 852 3411 4856 | F: + 852 3411 4811

ATTACHED FILESAVCJ Private Equity Forum (pdf format)

INSYNC GLOBAL TITANS FUND

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

Five years ago this week the world's financial system was in meltdown mode as Lehman Brothers filed for bankruptcy protection (September 15^th 2008) and by September 22^nd a deal was put to the bankruptcy court which saw Barclays acquire Lehman's core business. This was closely followed on 22^nd September by Nomura acquiring Lehman's Asia Pacific businesses, including those in Australia.

Bankruptcy Judge James Peck was quoted as saying that Lehmans was "in effect the only true icon to fall in a tsunami that has befallen the credit markets."  In reality plenty of others fell also, including local Australian companies such as Babcock and Brown and Allco, although whether they were "true icons" is perhaps debatable.

On the 15^th September the Dow closed down 4.4%, and on September 29^th it fell by an even larger 7%.  Panic gripped investors as credit markets froze, counter party risk went off the Richter scale, and wealthy investors reputedly backed their cars up to their local bank branch with empty suitcases at the ready.

To be fair to Kevin Rudd and his so called "gang of four" the decision at the time to effectively guarantee the Australian banks prevented complete panic. Those not prepared to give Rudd any credit for anything will no doubt claim he did the only thing possible, and for once took the advice of others more knowledgeable than himself.

Wind forward five years and the Dow is back at record territory thanks to QE tapering being shelved indefinitely, while the ASX200 is at five year highs but still around 20% below its pre crisis highs. In spite of this some US based funds are rumoured to be shorting the Australian banks, based on their valuations and the risk of a property bubble.

Given the total reported short positions of the big four banks as per ASIC's reports dated 10^th  range from a low of 0.23% (NAB) to 0.72% (WBC) of total outstanding shares they're certainly not piling into the trade with their ears pinned back, which is probably sensible.  Australian house prices might be expensive, but given local factors such as supply and demand, low interest rates, immigration and negative gearing they're unlikely to collapse any time soon.

Meanwhile fully franked bank yields (over 5% pre franking) and the lowest interest rates in most borrower's memory will probably support valuations as well.  Of all these factors the removal of negative gearing probably poses the greatest threat, but given Tony Abbott's only just been elected, he's unlikely to want to jump off the political cliff quite that quickly.

So markets seem underpinned, hooked on QE. Maybe Ben Bernanke didn't want to end his tenure on a sour note.

EVENTS

An upcoming event that may be of interest for Superannuation member administration and investment operation service providers is the Superannuation Fund Back Office conference coming up on 21-22 October. Visit the International Business Review Conferences website for more details.

If you are visiting Hong Kong, the UCITS Asia 2013 Conference is on 9-10 October. AFM have a 10% discount coupon available, more details here.

The Asset Allocation Conference is also coming up from 30th October to 1 November 2013 at the Grace hotel in Sydney. Details are here.

IPARM Australia 2013 is being held in Sydney on 18-19 November on Investment Performance Measurement Attribution and Risk. Speakers include Dr Thomas Gillespie from Aurora Funds Management.

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

Insync Global Titans Fund recorded -1.95% during August with the Fund's low risk shown by the maximum drawdown of -2.04% (ASX Accumulation Index -6.72%) over the last 12 months. The low risk attributes are further indicated by its downside deviation of 3.16% (Index 5.93%) and a down capture ratio of -0.80, also over the last 12 months.

The Pengana Asia Special Events (onshore) Fund returned 1.03% during August 2013 with gross and net exposure averaging 158% and 12% respectively.  Short index futures protected the Fund during the month, while non-directional trades such as M&A and stubs trades also contributed positively to performance. Malaysian and Japanese trades proved particularly profitable during the month.

Auscap's Long Short Australian Equities Fund had a strong August returning 4.28% with an average net exposure of 61.1% (96.1% long and 35.0% short) across 22 long positions and 13 short positions. The Fund's biggest exposures were spread across consumer discretionary, financials, healthcare and telecommunications sectors. The manager has written an interesting article on the relative merits of investing in large and mid cap versus small caps. You can read the report here.

Updated AFM Fund Reviews were also completed on the following funds this week:

The Bennelong Kardinia Absolute Return Fund has returned consistent top decile long short equity sector performance with a since inception (May 2006) return of 14.11% pa (ASX Accumulation Index 4.18% pa) and a standard deviation of 7.89% pa (Index 14.86%) indicating the Fund's ability to generate strong risk-adjusted returns. The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with a seven year track record. 

Optimal Australia Absolute Trust is a specialist Australian equity investment manager and the Fund has recorded out-performance of the market since inception in September 2008 with approximately 84% of monthly performances having positive returns and the largest drawdown -1.38%. The Fund has a long/short equity strategy typically with a low but variable net market exposure comprising 40 to 65 stocks broadly selected from within the ASX200. 

The Aurora Fortitude Absolute Return Fund has an 8 year track record investing in ASX listed equities. Over 87% of monthly performances have been positive, with no losing months in 2008 and a largest drawdown of -2.09%. Strong use of low risk "long" derivatives and option overlays has provided positive returns with low volatility during periods of market dislocation. 

Morphic's Global Opportunities 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 and currencies. 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. Risk management is a primary consideration in portfolio construction and the strong emphasis on risk is evidenced by the Fund's very high Sortino ratio of 14.88 and maximum drawdown of -0.52%. 

For something completely different - tomorrow is Leonard Cohen's 79th birthday. For someone who spent a reasonable part of his mis-spent youth listening to tracks such as "Suzanne" and "Bird on a Wire"  I thought you might like to listen to the great man's live recording (and his explanatory preamble) of Chelsea Hotel. According to Wikipedia the landmark Chelsea Hotel is currently closed for renovations, but remains a feature in many films, songs and books.

On that note, enjoy the week-end!

Regards,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Auscap Long Short Australian Equities Fund

The manager of the Auscap Long Short Australian Equities Fund has written an interesting article on the relative merits of investing in large and mid cap versus small caps. 

This article can be accessed using the following link: Auscap Long Short Australian Equities Fund

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