NEWS
11 Jul 2014 - Hedge Clippings
FoFA's twists and turns continue: ASIC's focus on fee disclosure.
Last week's Hedge Clippings jumped the gun by claiming that the much discussed changes to FoFA had become a reality. The real lesson in reality is that at the current time nothing coming out of Canberra can be guaranteed, except perhaps more of the same. As a result the reality is uncertainty, and this uncertainty is only a benefit to the opposition, and the collection of senators in the new Parliament who will control the country's (and the government's) destiny until the next election.
That may come sooner than later.
As we said last week there has been plenty of rhetoric regarding FoFA, and from our reading of the legislation (for the technically minded the Select Legislative Instrument No. 102, 2014) a fair deal of scaremongering along with it. The Explanatory Statement issued by the authority of the Treasurer which accompanied SLI No 102, 2014 ran to nearly 60 pages, or approximately 3 times the length of the actual Select Legislative Instrument, which probably says something in itself.
If the Explanatory Statement from the Treasurer is taken at face value it would appear that, as far as the issue of conflicted remuneration for General Advice is concerned, the proposed situation is pretty clear: In order for benefits to be paid to an individual in relation to General Advice to NOT be considered as conflicted remuneration, a suite of five conditions all need to be met, one of which is that payments commonly known as commissions cannot be paid on products sold as a result of General Advice (see pages 6-8 of the statement).
Not being a lawyer may well mean that I have got the wrong end of the stick on this issue, and FoFA deals with a range of other issues in addition to conflicted remuneration, including definitions between wholesale and retail clients, the need for clients to renew their ongoing fee arrangements (opt in), best interest duties and a range of other issues. As previously stated it sounds as if there are some large and competing interests at play here between the large product issuers and distributors, and the non-for-profit superannuation industry.
Added to which are of course the competing interests of a government that is struggling to win many friends, or take many tricks, either inside or outside of Parliament.
It doesn't help of course that the Commonwealth Bank's compliance woes and failures are also currently front and centre in the media. There were certainly deficiencies in the law when some CBA financial advisers ran riot, but the main issues would seem to have been effective compliance controls at nearly all levels of management.
Changing tack only slightly, this week ASIC also released Report 398 covering Fee and cost disclosure in the superannuation and managed investment product sector. This has only just hit Hedge Clippings' desk so maybe we will park a detailed analysis to another time. Suffice to say that fees and their disclosure will always remain a contentious issue, especially in an industry where asset values are guaranteed to increase dramatically over the next two decades without any corresponding reduction in fees in sight.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
Morphic Global Opportunities Fund returned 1.07% during June, ahead of the global equity index at 0.46%, and financial year performance of 20.81%.
Performance for the Monash Absolute Investment Fund 2014 financial year was 23%.
Optimal Australia Absolute Trust returned +0.63% in June against the ASX200 which fell -1.5% with the fund's low concentration and risk controls mitigating losses on long positions, while shorts significantly outperformed.
Slightly ahead of the index at -1.5%, Bennelong Kardinia Absolute Return Fund returned -0.66% for June.
Bennelong Alpha 200 Fund returned 0.32% in a weak market (ASX 200 Accum - 1.5%).
In a difficult month for the ASX The Paragon Fund returned 4.9% bringing 12 month performance to 30.0%.
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, Ray Jessel, an 84 year old contestant on America's Got Talent may lament his lack of size in certain areas, but makes up for it ... elsewhere.
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
| Registration to AFM is free and provides information and performance data on Absolute Return, Hedge Funds and Alternative Investments, plus detailed infomation on Featured Funds. | Fund Managers and paid Subscribers also have access to details on Individual Managers and Funds, with historical results, key performance indicators, latest news and performance reports. | Tune into Sky Business on Foxtel every week on Monday at 2:10pm for AFM's weekly comment on Hedge Funds. |
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.
11 Jul 2014 - Morphic Global Opportunities Fund
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| Manager Comments | At month-end Fund gross exposure was 132%, net exposure 101% and a VaR of 1.05% (95th percentile with a 1 day holding period using a 1 year look back). The best performing Indian stocks held by the fund were Rural Electrification Corp and Canara Bank. The tactic of writing out of the money calls over a portion of the Fund's positions has been maintained, so as to generate income from the high implied volatility, while still leaving substantial room to participate in the slower share price rises expected from here as the market calms down. Other stock gains came from idiosyncratic stock performance. Japanese printer manufacturer, Seiko Epson, in which the Fund has been building a position, rallied 9.7% after presentations to analysts saw a string of earnings estimate upgrades. Semperit, an Austrian industrial rubber products producer, rose 8.7% after announcing a capacity expansion to take advantage of higher margins. The Fund remains fully invested, with similar levels of low regional biases and a focus on stock specific ideas. The Australian dollar's rally has continued, dampening absolute returns, with the Fund's partial hedge providing some offset. |
| More Information | » View detailed profile of this fund |
10 Jul 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 | At month-end the Fund had a gross exposure of 87%, net exposure of 78% and a VaR of 1.1%. In May the fund was down -1.0% after fees against the backdrop of an even weaker Australian equity market. The portfolio was helped by its property and financials related investments and hurt by its technology and early stage product launch investments. In contrast to the previous month there was a lack of news flow and stocks generally drifted. Our net exposure increased somewhat this month as we have begun to add positions ahead of the upcoming results season. |
| More Information | » View detailed profile of this fund |
8 Jul 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 Fund was 80.9% long and 16.9% short for a net position of 64% at month-end with 24 long positions and 9 short positions. Key drivers of the Paragon Fund performance for June included strong returns from our investment in Liquefied Natural Gas and emerging graphite company Triton Minerals. |
| More Information | » View detailed profile of this fund |
7 Jul 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 | Commenting on the market's negative performance in June, Optimal noted that had it not been for two single day jags of 1.6 and 1.2% respectively the overall market result for the month of June would have been considerably uglier. Optimal has previously noted the warning signs in markets, and believes they are growing rather than diminishing, citing in particular the IPO frenzy, increased M&A activity, and especially recent activity in the credit markets. Optimal sees further evidence of a collapse in sentiment first apparent around the time of the Federal Budget in May leading to more cautious consumers, and companies not investing or hiring. Meanwhile the government is retrenching and cutting expenditure, while the high A$ has further impacted competitiveness and growth. Overall, Optimal feel that a positive outcome on current growth drivers, (and on geopolitical risk) is priced into equity valuations; and a worse outcome, especially coupled with any resumption of inflationary pressure and interest rate normalisation, is very much not. |
| More Information | » View detailed profile of this fund |
7 Jul 2014 - Bennelong Alpha 200 Fund
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| Fund Overview | The core investment strategy of the Fund consists of the active selection of a series of paired long/short investments in Australian listed equities based upon the Investment Manager's fundamental research. The strategy seeks to capture stock Alpha whilst limiting portfolio exposure to market risk by adopting a dollar neutral portfolio market exposure position with the tactical capability to take net exposure of up to +/- 20% of gross assets. Stock selection is based on fundamental analysis to derive a view of a pair of individual stocks. The Investment Manager is style neutral in determining the stock's positioning. This primary 'pairs' strategy may be enhanced by other complementary strategies, including event driven, security and takeover arbitrage, thematic and momentum trading. The paired stock positions comprise long and short correlated securities that are in most cases simultaneously opened. A portfolio of approximately 30-100 stocks will be selected and actively managed in 15-50 pairs to comprise the core minimum (60%) of the Gross Asset Value. Up to a maximum of 40% of the portfolio's Gross Asset Value may be invested in uncorrelated securities and/or uncovered (long and/or short) positions. These 'satellite' positions are intended to enhance returns and to balance overall portfolio risk. In this regard, the Investment Manager recognises that it is not always possible to achieve a suitable paired proļ¬le within the S&P/ASX 200, and that a high conviction long or short stock idea might not always have a suitable pair. |
| Manager Comments | At month-end the Fund was 50.9% long and 49.1% short with month-end leverage of 2.6 times. The fund produced a slightly positive return for the month with the short portfolio generating a positive return in a weak equity market, just compensating for the negative contribution from our long portfolio. At a sector level, Industrials (primarily the Long Austal / Short Spotless pair) and Media made the largest positive contribution. The fund experienced both a positive and a negative impact from the weak consumer environment but overall Retail and Travel made the largest negative sector contributions. Three of our consumer exposed long positions and one our shorts had downgrades to their profit outlook during the month. |
| More Information | » View detailed profile of this fund |
4 Jul 2014 - Hedge Clippings
THE RETURN OF THE BOILING FROG
This week saw the much discussed changes to FoFA become reality, at the same time as the Senate released its report on poor management controls in the financial planning arm of the Commonwealth Bank. There's been plenty of rhetoric, along no doubt with some behind-the-scenes lobbying, regarding the changes to FoFA, and it is fair to suggest that much of the scaremongering has been just that.
From what we've seen of the new legislation (which is a fair amount having trawled through it along with the relevant sections of the Corporations Act) there would appear to be appropriate safeguards and controls in place to protect retail investors from inappropriate actions by financial advisers. Time will tell of course, but the reality is that no legislation will deter those intent on breaking the law, and as has been seen with the Commonwealth Bank, the risks are not so much with the law, but a lack of effective compliance controls at management level.
So back to markets and risk. This week we read an excellent piece of research by Simon Doyle, Head of Fixed Income and Multi Asset at Schroder Investment Management, entitled 2014: The year of the "Boiling Frog" in which he continued with the theme of heightened risk at the same time as excessive complacency that we highlighted a few weeks ago in George Colman's Optimal Australia performance report.
It is difficult to boil down (excuse the boiling pun) the contents of Schroder's five-page article to a couple of paragraphs, but the essence would seem to be that as valuations rise, so the risk of loss increases, while at the same time volatility, (which implies relaxed and comfortable investors) as measured by the VIX is trading at historic lows.
Doyle's alternative interpretation is that "extra easy monetary policy and reassuring words from central bankers is lulling investors into a false sense of security" and that parallels with the proverbial boiling frog come to mind. As such the temperature may be rising, and the risk to investors more significant than they currently perceive. According to his research and return forecasting framework, Doyle concludes that "valuations in key markets are stretched, future returns are diminishing and the risk of loss is high (and uncomfortably so)".
A link to the full article is included here. Doyle puts the responsibility of the current situation firmly at the feet of central banks and exceptionally easy monetary policy, but at the end of the day it is likely to be investors who are hurt.
Specific results received this week include the following PERFORMANCE and NEWS UPDATES:
In the first negative month of the ASX since January the Microequities Deep Value Microcap Fund returned 1.39% and 31.53% for the year.
Fund Reviews released this week included:
Optimal Australia Absolute Trust; Insync Global Titans Fund; Supervised High Yield Fund.
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, more details on the boiling frog analagy can be found here. Please note, no frogs were harmed in the filming of this clip. Unlike this second clip, but at least they were dead first.
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
| Registration to AFM is free and provides information and performance data on Absolute Return, Hedge Funds and Alternative Investments, plus detailed infomation on Featured Funds. | Fund Managers and paid Subscribers also have access to details on Individual Managers and Funds, with historical results, key performance indicators, latest news and performance reports. | Tune into Sky Business on Foxtel every week on Monday at 2:10pm for AFM's weekly comment on Hedge Funds. |
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.
4 Jul 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 in March 2009 the Fund has returned 29.63%, double the ASX 200 return of 14.32% with a slightly higher volatility of 14.97% as compared to the Index volatility of 12.59%. Investors have been rewarded for the higher volatility with a Sharpe ratio of 1.59 and a Sortino ratio of 3.69. Index comparatives statistics are 0.84 and 1.27. Domestically the month has seen a stabilisation in consumer confidence following a post-budget fall. Despite the negative bent in media reporting, the Australian consumer has plenty of good reasons to open their wallets. The labor market is relatively stable, interest rates are near all time lows, property and equity markets have risen, increasing household wealth. On the liabilities side, the GFC saw households take a defensive mindset and reduce their gearing levels. There exists significant pent up demand within Australian households. |
| More Information | » View detailed profile of this fund |
3 Jul 2014 - Fund Review: Bennelong Long Short Fund AFM Fund Review May 2014
BENNELONG LONG SHORT EQUITY FUND
Attached is our most recently updated Ā Fund ReviewĀ on theĀ Bennelong Long Short Equity Fund. Ā
- The Fund is a research driven, market and sector neutral, "pairs" trading strategy investing primarily in large cap stocks from the ASX/S&P100 Index, with a twelve year track record and annualised net returns of 18.26% pa.
- Since inception inĀ January 2003 the Fund has had positive annual returns each year, including an 11.95% return in 2008 and 20.6% in 2011, both of which were negative years for the ASX200.
- Ā The Fund's risk statistics are also sound with maximum drawdown of 12.22% and 68% positive months. Both the Sharpe Ratio at 1.09 and the Sortino ratio at 1.84, indicate a high reward-to-risk ratio.
- The consistent returns across the investment history indicates the Fund's ability to provide positive returns in volatile and negative markets and significantly outperform the broader market.
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Fund performance was muted for the month as the market drifted without any strong thematic and investors were subject to merger andacquisition activity/speculation, yield/defensive buying and stock specific issues. Our assessment is that the April factors thatnegatively impacted fund returns, which were of a more global nature, were persisting early in the period but since have abated. Fund activitywas limited in May as our view of market fundamentals have not really changed.
Research and Database Manager
Australian Fund Monitors
Bennelong Long Short Equity Fund AFM Review - May 2014 2 Jul 2014 - Fund Review: Optimal Australia Absolute Trust May 2014
Attached is our most recently updated Fund Review on the Optimal Australia Absolute Trust.
We would like to highlight the following:
- Optimal Australia is a specialist Australian equity investment manager and 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 Fund returned 1.40% in May with an annual return of 4.81% and a very low standard deviation of 1.70% (ASX 200 Acc 8.87%).
- 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 was -1.38% (Index -33.11%).
- The Fund has sound Sharpe and Sortino ratios at 1.78 and 5.22 since inception, as compared to the Index ratios of 0.21 and 0.18 respectively.
- The investment team comprising George Colman, Peter Whiting supported by Stephen Nicholls and Justin Hay have over 100 years combined experience in equity markets.
For further details on the Fund, please do not hesitate to contact us.
Research and Database Manager
Australian Fund Monitors
