Two of Absolute Asset Management's three funds recorded positive returns in December. The Absolute Macro Diversified Fund was up +1.45% (-23.53% in 2008) while the Asian REIT Property Fund gained +1.23% (down -49.38% in 2008 including dividend). The Absolute Trading 1 Fund was down -0.80% in December (+5.54% in 2008).

The manager noted that there are some signs the long decline in REIT values was coming to an end, noting positive indicators in Hong Kong and Singapore property markets. Australian REITs however continued to underperform, and the fund believes a reduction in exposure to the Australian sector may be warranted.

The Absolute Macro Diversified Fund ended 2008 strongly after a difficult year, mostly due to positive returns in emerging markets and China equities, and in gold. The fund will look to reduce cash balances in the medium term as volatility decreases. Unlike some other hedge funds, the fund remains open to new investment and redemptions during this difficult period.

Although it was down in December, the Absolute Trading 1 Fund was positive for 2008. The fund profited from closing out its short NZD position, but lost on other positions due to the recent strength of the US dollar.

The Arnott Opportunities Fund, a Pan Asian Equity Long/Short fund, has finished 2008 with a positive performance of +0.38% for December, bringing the total return for 2008 to +1.84%.

The fund reduced exposure in December ahead of significant redemptions which saw Arnott's FUM fall by approximately 35% to US$535 million, all of which were expected to be paid before the end of January. The manager also flagged that 2009 would see a different outlook and implementation towards shorter term trading opportunities around stock specific events.

Arnott's redemption experience is in line with many other successful and positively performing funds as investors and Fund of Funds have reduced their exposure to managers with both good performance and liquidity to shore up poorly performing investments elsewhere.

The Herschel Absolute Return Fund, an Australian equity long/short fund, reported a December return of +2.04% and an overall 2008 return of +0.30%.

The All Ordinaries Accumulation Index in comparison returned -0.08% in December and was down over 40% in 2008. The fund increased its net equity market exposure, and participated in a number of capital raisings in December. Positive returns from QBE, Crown and Tatts Group were offset by losses on positions on Incitec, CSL and Telstra.

Zone Capital finished the year with a positive return in December of 0.5% after several months of strong gains. Over the year the fund gained a total of 17% compared with the S&P 500 which lost around 37%.

The manager said that, while the December result was weaker than the 4.2% gain achieved in November, it was a month of consolidation and they were happy to end the year in the black.

Agora Asset Management's Absolute Return Fund was up +1.25% in December, while the its Leveraged Absolute Return Fund was up +1.38% in a flat market. The 2008 return for these funds was -12.97% and -11.77% respectively.

Both funds significantly outperformed the S&P/ASX 200 Accumulation Index (-38.4%) in 2008, with most of the losses on the Absolute Return Fund coming in January (-9.2%). This means both funds have retained approximately 90% of their capital base, which will enable them to both recover their losses more quickly and invest in more opportunities in the coming months. Much uncertainty remains however on economic and market conditions in 2009, which will impact the funds' strategies.

The Allard Growth Fund (AGF) returned +9.3% in December, however was still down for 2008 by -28.8%, and the Allard Investment Fund (AIF) was up +4.5% in December, but down -1.9% for the financial year-to-date.

Both funds outperformed the MSCI A/P ex-Japan (A$) Index, which returned +0.8% in December and -20.5% financial year-to-date. The AGF and AIF are both equity long only absolute return funds, that use a combination of qualitative and quantitative processes to identify investments in the Asian region.

AR Capital Management's (ARCM) Ascot Fund ended 2008 on a positive note, recording a December return of +0.51%, bringing annual performance to +6.02%.

ARCM noted negative returns in banking stocks, and the poor handling of the Commonwealth Bank capital raising, as a major drag on performance in December. This offset positive returns in Paperlinx (long and short), Australian Agriculture and JB Hi-Fi (both long), amongst others. ARCM remains cautious for 2009, particularly in taking long positions, believing growth and earnings estimates will continue to be scaled back.

Kapstream’s Absolute Return Income Fund achieved a small gain of 0.46% in December bringing the year-to-date cumulative performance to positive 7.37%.

Kapstream employs a fixed income strategy and aims to generate absolute returns over multiple business cycles by incorporating high quality/high conviction trades while taking into account the global macroeconomic view and variables such as duration, yield curve and volatility which support the research and analysis.

The manager's outlook for 2009 says that regardless of whether Australia follows the US into recession it will certainly feel like one, however opportunities will arise for investors on the lookout for high quality short dated credit which should generate solid returns in an uncertain environment.

Platypus Asset Management recorded a small gain of 0.6% in December, bringing the result for the year to a loss of 44.9%. The manager said that the improvement was driven by holdings in consumer stocks such as JB HiFi and David Jones, although Billabong International had a negative impact.

The manager increased the fund's exposure to financial stocks to 35% of assets during the month, buying into NAB and ANZ. With RIO Tinto continuing to weigh heavily on the fund's performance the manager exited this position, instead concentrating on BHP and Woodside in the resources sector.

Naos Asset Management's Absoluite Return Fund remains largely invested in cash (77.8%) and outperformed the manager's Small Company Fund in December 2008. The Absolute Return Fund generated a positive return of 0.83% for the month while the Small Company Fund lost 1.32%. Over the whole year the difference is even more stark with the Absolute Return Fund losing 25.96% while the Small Companies Fund is down 63.28%.

The manager reports that small company stocks are being hit hard by illiquidity and the deleveraging process but believes that the companies held in the portfolio have sound medium term fundamentals and remain over-sold/under-valued.

The investment objective for both funds is to outperform the UBS Bank Bill Index over a rolling three year period regardless of market environment.