NEWS
28 Nov 2014 - Hedge Clippings
Potential is one thing, reality is a greater challenge.
A recent research report by ANZ Bank [entitled "Caged Tiger: the Transformation of the Asian Financial System"] forecast that Asia's share of the global economy will move from 25% currently to 35% in 2030, and then to 50% by 2050.
ANZ's report noted that with the exception of Japan and the newly industrialised economies, Asia's rapid industrialisation of the past 2 decades has not been matched by an extensive development of its financial system. Many Asian countries have relatively closed and highly regulated financial systems, with a dominant banking sector and heavily managed exchange rates.
But in order to move to the next stage of development the financial systems of many Asian economies must be reformed, opened and become less regulated.
The development of the financial system is one part of what is need to move these economies through middle income levels, with other factors including other economic reforms and improved legal structures.
Policy responses to the Asian Crisis in 1997 led to the situation whereby countries built up large foreign exchange reserves, with this surplus recycled back into the international system through the purchase of government bonds. However as these countries liberalise their financial systems they will play a much bigger role in allocating Asian savings to a far broader set of markets and investments.
ANZ modelling estimated that Asian bond markets will grow seven times over the next 15 years, and the capitalisation of equity markets will move from $9 trillion to almost $55 trillion by 2030.
Turning to Australia, in 2010 around 2.5% of China's total foreign investment was invested in Australia. Even if that percentage remains unchanged, the total level of Chinese investment into Australia could reach over A$200 billion, or according to ANZ's estimate, about 15% of Australia's forecast GDP by 2030.
Where are we headed with all this?
In the financial services and fund management sector, currently less than 20% of Australia's funds under management is sourced from offshore. This will continue to grow as Asia's transformation progresses, with Sydney likely to be the largest beneficiary. However it is not clear if the benefits to all capital market activities will flow equally, with debt, trade finance and insurance likely to face competition from other Asian financial centres such as Singapore and Hong Kong, and no doubt Shanghai at some stage in the future.
The point is that in spite of the opportunities facing Australia's banking and financial sector, it must be remembered that opportunity and reality are often significantly different. Australia has a wealth of educated talent in place, with plenty more experienced expats keen to return home, a regulatory system that is generally first class, and passably sound infrastructure (NBNCo notwithstanding).
The key will be the Government's role, and those who know Hedge Clipping's views will not be surprised that this is where potential and reality can come unstuck. The government - of whichever persuasion - needs to put the correct tax, structural and regulatory policies in place to ensure the framework is created to allow Australia to compete in the Asian, and global financial marketplace.
In the next week or so David Murray's Financial System Inquiry (FSI) report is due to be released. We can only hope that this government grasps that opportunity, and not waste it in the way the previous Henry Tax Review, or Mark Johnson's 2009 report were squandered.
Specific results received this week include the following PERFORMANCE UPDATES:
The Auscap Long Short Australian Equities Fund recorded a return of 2.25% in October with the annual return 29.93% and a volatility of 6.95%.
Alpha Beta Asian Fund returned -0.51% during October with annualised performance since inception of 7.58% with volatility of 5.24%.
The Aurora Fortitude Absolute Return Fund returned -0.29% during October bringing annualised performance since inception to 7.55%.
Allard Investment Fund recorded a performance of 0.60% during October bringing the annual return to 13.30%.
FUND REVIEWS released this week, all with the potential for earning CPD points:
Microequities Deep Value Microcap Fund; Bennelong Kardinia Absolute Return Fund; Supervised High Yield Fund
Tuesday 9 December 2014 - ARRIA Round Table in Brisbane. Hosted by Pengana Capital.
18 February 2015 in Sydney - Efficiency in a Regulated World
25-27 March 2015 - Digital Marketing for Banking and Financial Services Summit.
For this week's "and now for something completely different", we were going to bring you a video montage of the Palmer United Party's Clive Palmer, but it proved overwhelming. Instead, for those who wonder why we're worried about the role of governments and those in high places...
Best wishes for a happy and healthy weekend,
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.
28 Nov 2014 - Efficiency in a Regulated World
INVESTMENT ADMINISTRATION CONFERENCE
Efficiency in a Regulated World
18 February 2015, Ivy Ballroom Sydney
This industry-leading event will bring together those shaping the future of investment fund administration in Australia to explore the key issues defining investment operations over the next five years.
The event will showcase the latest developments in efficiency, technology, strategy, reporting, processes, compliance and custodian relationships, with a focus on reducing costs and increasing returns for your fund.
This is a must attend for chief executive officers, chief operating officers, and senior operations staff from superannuation funds, funds managers, custodians and other providers.
Key issues to be examined include:
- Driving efficiency through the enhanced measurement, reporting and analysis of investment data
- Managing increasing data volumes - people, technology, value, compliance
- Implementing effective systems to support forecast growth in fund and member volumes
- Examining the ideal investment models for your fund
- Opportunities and challenges posed by new APRA reporting regulations
- New technology - tools to enhance the investment administration of increasingly diverse portfolios
- The changing relationship between funds and custodians
- Reducing costs and improving returns for funds administration
- Creating a profit centre from operations including securities lending
An Advisory Board comprising of the industry's top thought leaders is guiding the Investment Administration Conference. The Advisory Board includes:
- Peter Curtis, head of investment operations, AustralianSuper
- Lounarda David, investment operations manager, Sunsuper
- Stephen Huppert, partner, Deloitte
- Mark Neary, managing director Asia Pacific, Milestone
- Kyle Ringrose, head of investment operations, QSuper
- Rohan Singh, managing director, country head, Northern Trust
- Drew Vaughan, owner, Dymond, Foulds & Vaughan
View the full AGENDA and REGISTER before 15 December 2014 for early bird pricing.
For further information regarding registration please contact Elena Chatz, Conference Operations Manager.
Efficiency in a Regulated World (pdf format)
28 Nov 2014 - Fund Review: Bennelong Kardinia Absolute Return Fund Oct 2014
- The Fund is long biased, research driven, active equity long/short strategy investing in listed ASX companies with an eight year track record.
- The Fund has significantly outperformed the ASX200 Accumulation Index since its inception in April 2006 and also has significantly lower risk KPI's. The Bennelong Kardinia Absolute Return Fund returned 1.22% in October and has volatility of 7.52% pa, compared to the ASX200 Accumulation's 14.31%.
- The Fund also has a strong focus on capital protection in negative markets. Portfolio Managers Mark Burgess and Kristiaan Rehder have significant market experience, while the Bennelong Group provide infrastructure, operational, compliance and distribution capabilities.
28 Nov 2014 - Fund Review: Supervised High Yield Fund Oct 2014
We would like to highlight the following aspects of the Fund:
- The Supervised High Yield Fund (SHYF) has a 5 year track record investing in fixed interest investments. The Investment strategy aims to deliver returns with zero correlation to equity markets by investing in debt securities with minimal default probability and offering a premium return above the risk free rate.
- The Fund is managed by Philip Carden whose experience in debt and capital markets spans 32 years, including time with JB Were's Capel Court Securities and Macquarie Bank, where he was the Executive Director responsible for the Debt Markets Division.
- SHYF is an Alternative Income fund which invests in Global and Australian debt markets, with all foreign currency receivables hedged back to Australian dollars.
- The Fund utilises a top down analysis of the economic environment and market to screen and identify debt market opportunities which it believes offer low risk with high yield. The next stage is the development of a risk matrix and investment strategy, following which detailed research is undertaken on specific investment opportunities which meet the pre-defined criteria established in the investment strategy.
- Prior to approving an investment for the Fund each potential investment is subject to two stress tests. The first of these is for credit and default risk, in which the investment is stress-tested to ensure that in a worst case economic environment it can repay 100% of its principal and interest obligations case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation. Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided The second test examines market risk. In this case Carden looks at the worst case scenario for the asset by examining the highest margin over the risk rate that the investment has previously experienced in a crisis situation. Any decline in value under the stress test that exceeds 10% of the Fund's value is avoided.
Research and Database Manager
Australian Fund Monitors
Supervised High Yield Fund AFM Review Oct 2014 (pdf format)
27 Nov 2014 - Allard Investment Fund
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| Manager Comments | Since inception in July 2003 the Fund's return is 9.0% p.a. as compared to the MSCI Asia Pacific Index of 10.6% with a lower volatility of 7.9% (Index 13.4%). The Sharpe ratio since inception is 0.57. The Fund's geographic investment break down is Hong Kong 44%, Singapore 11.1% and Korea 7.5%. In terms of industry the largest sector is Financial Services 19.9%, Conglomerates 11.1% and Telco's at 8.5% with Cash and Fixed Income 21.4%. The top 5 stocks are 40.9% of the portfolio. |
| More Information | » View detailed profile of this fund |
26 Nov 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 | Mergers and Acquisitions was the best performing strategy (+0.28% net return). Wotif.com Holdings Limited produced good returns as a result of receiving both ACCC and shareholders' approval for Expedia to acquire them. The New Zealand Commerce Commission approval was the last remaining condition and this was received shortly after month end with the scheme consideration due to settle in mid‐November. The Funds Options Overlay was the main detractor from performance (‐0.37%). Woodside Petroleum Ltd Woolworths Ltd and National Australia Bank Ltd all suffered losses from both theta; a loss of option value as it approaches expiry, and vega; the change in an option price due to moves in the volatility. This was particularly the case later in the month when implied volatility was sold down as a result of the market recovery. |
| More Information | » View detailed profile of this fund |
25 Nov 2014 - Alpha Beta Asian Fund
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| Fund Overview | The investment objective of the Fund is to produce positive annual returns without excessive risk. This is achieved through the use of a quantitative approach to invest both long and short in large cap companies listed on Asian stock exchanges. The Fund may also use index futures to manage risk. Stock prices and company fundamental data are decomposed into directional and mean reverting components. Each of Alpha Beta's models are based on either of these known behaviours with capital management built into each model. The benefit of a quantitative approach is that it is both repeatable and unemotional, and allows a different source of returns to be extracted from a very noisy market environment. |
| Manager Comments | The has recorded 62% positive months since inception and a maximum draw-down of 2.93%. Fund beta is 0.11 mapped to the MSCI Asia Pacific Index with a correlation of 0.20 to the same Index. The Fund generated a return of -0.51% during October, driven largely by the surprise BoJ stimulus move on the last day of the month, prior to which we had been up roughly 50bps. Although we are generally hedged to movements in the Japanese market due to our market neutral bottom up portfolio construction and deployment of index futures hedges, the strong movement hit our quantamental short side significantly on that day. |
| More Information | » View detailed profile of this fund |
24 Nov 2014 - Fund Review: Microequities Deep Value Microcap Fund Oct 2014
MICROEQUITIES DEEP VALUE FUND
Attached is our most recently updated Fund Review on the Microequities Deep Value Fund.
- The Microequities Deep Value Fund has a 5 year track record investing in ASX listed equities. The Fund is a fundamental, research-driven Fund investing in equities with a market cap below $250m. The Fund uses a value philosophy based on the view that microcaps are often under-researched and under-valued.CIO Carlos Gil has over 15 years financial market experience across a broad range of equities.
- The Fund does not short, use derivatives or borrow i.e., it is long only and is concentrated; usually with 15 to 20 companies across industrial sectors.
- Resource stocks are avoided.
If you have any questions in relation to the Fund Review or the CPD points, please do not hesitate to contact us.
Sean Webster
Research and Database Manager
Australian Fund Monitors
Microequities Deep Value Microcap Fund Oct 2014 (pdf format)
24 Nov 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 Fund's Sharpe ratio is 3.49 (0.41) and the Sortino ratio 10.45 (0.55) over the last 12 months with Up and Down Capture ratios notable at 1.32 and -0.33. Average gross capital employed by the Fund was 169.5% long and 36.3% short. Average net exposure over the month was +133.2%. The Manager's monthly report is entitled 'Why The Big Iron Ore Producers Face The Ultimate Prisoners' Dilemma' and is available on the AFM website at the Fund's Profile. |
| More Information | » View detailed profile of this fund |
21 Nov 2014 - Fund Review: Bennelong Alpha 200 Fund Oct 2014
BENNELONG ALPHA 200 FUND
- The Bennelong Alpha 200 Fund is a new fund opened in December 2013. The Fund is broadly modelled on the strategy used for Bennelong's original Equity Long Short Fund which uses a market neutral "pairs trading" approach to invest in Top 100 stocks, and which has been managed by Richard Fish since the inception of BLSEM in 2002.
- The Alpha 200 Fund however primarily invests within the top 200 by market capitalisation, using a similar "pairs trading" approach while remaining broadly market neutral on a cost basis.
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The Fund will hold 70 - 90 stocks comprising 35 to 45 pairs,although it can hold up to 100 stocks and 50 pairs. Each pair contains one
long and one short position each of which is thoroughly researched and,where possible, from the same market sector. The pair positions are dollar neutral at cost, limited in terms of sector exposure, and give theportfolio a target beta of zero over time.
- In addition to Richard Fish, the team is composed of Sam Shepherd who joined BLESM from Credit Suisse, where he ran the Melbourne institutional equities desk. Shepherd's 20 year experience also covers JP Morgan and Norwich Investment Management. Tim Hall recently joined BLSEM as a specialist mid and small-cap portfolio manager to work on the expanded universe of the 200 Alpha Fund. The team is supported by experienced investment analyst, Sam Taylor.
Sean Webster
Research and Database Manager
Australian Fund Monitors
Bennelong Alpha 200 Fund AFM Fund Review Oct 2014 (pdf format)
