However, short positions across key sectors such as lossmaking, high multiple technology and consumer discretionary stocks seem to be strong contributors to relatively solid fund performance.

Inflation sticks

Meanwhile, the Australian CPI surged 5.1% for 12 months to 31 March this year, and the US CPI rose 8.6% for May year on year, potentially moving towards levels not seen since 1970-1980. And while last year central banks and economists were calling for the inflation spike to be transitory, the pathway of inflation over the last 18 months has been anything but. Inflation tends to be stickier than imagined.

Source: Bloomberg

Of course, the message can change over time, but futures markets are currently forecasting a 170bps increase in US and Australian rates by December.

Source: Bloomberg

Source: Bloomberg

It’s often said the central banks will keep pushing until something breaks. The only way interest rates will not follow that trajectory is if US summer economic data is so weak that a pause in hikes is considered, which is becoming more likely by year’s end.

The risk for markets

If the futures markets are correct, homeowners will see a significant increase in mortgage repayments by December. The RBA’s 50bp rate rise in June woke many people up, and the domestic housing market is already coming under pressure.

The biggest risk for markets is whether the US enters a recession. If it does, S&P500 could fall another 15% – which would have an impact on Australia. If not, the falls will be more modest.

In the global economy, wage pressure continues to build as the consumer is squeezed by higher costs of everything, from rents to fuel. We believe high debt levels make the global and Australian economy particularly vulnerable.

The current level of inflation likely also explains why consumer confidence is falling, and it’s pushed the University of Michigan index just below record lows. Consumer confidence is a key driver of consumer consumption, which drives around 70% of the US GDP.

Source: Bloomberg

Heading for recession?

Every recession in the past 40 years has been preceded by an inverted yield curve, and the yield curve inverted in early April. Looking historically, the time interval between inversion and recession averages about 10 to 12 months.

The US Fed needs to slow demand and can only do so by delivering “shock therapy” – by impacting consumers’ wealth (via stocks and house prices). The Fed will take every rate rise the market gives it, but at the end of the day raising rates is a blunt instrument.

It’s rare for central banks to engineer soft landings, particularly when inflation is above 5%. So, we believe the US is headed for a recession. This view runs somewhat counter to consensus. Until recently, most US economists had been suggesting there were no signs of a slowdown in US economic data, but the stock market indicates otherwise.

There’s also, of course, an unwind of the central bank’s balance sheet, which started this month in the US. The expansion of central bank balance sheets has inflated share prices in multiples since the GFC. It stands to reason that the opposite is also true. Federal Reserve Chair Jerome Powell’s mandate is to tame inflation.

We’re very early along the tightening journey – we’ve only had three interest rates rises so far, and the pain may be ahead of us more so than behind us. Although, it’s way too early in the rate hiking cycle to think about fighting central banks.

Source: Bloomberg

Our outlook

We’re long some defensive businesses, including Bapcor, Tabcorp and The Lottery Corporation. Auto parts are generally essential for car maintenance, while lottery tickets have proven to be very defensive during recessions.

The market wants current earnings, not future long-dated earnings, and certainly not loss makers. Loss makers have no valuation support and 17% of ASX300 are loss makers (even if some are temporary like FLT, WEB). Some don’t even have any significant revenue. This basket is where we are hunting for short ideas.

We’re short high multiple stocks – those with long earnings duration and loss makers. Of course, a constant risk for us is “bear market rallies” – these can be violent, so we’re cautious of being too aggressive in our short book.

We haven’t seen the capitulation yet. It is worth noting Cathie Wood’s beaten-down ARK Invest is still seeing inflows, even though ARK is off c.60%. This shows investors are still looking to buy the dips. The MSCI AC World 12m forward PE has derated from a peak 20x to 14x. However, global equity markets do not yet look especially cheap against history. For example, a drop to the 10x multiple seen during the 2011-12 Eurozone crisis would imply another ~30% derating.

We’ll be watching the economic data closely, with a particular focus on inflation, bond yields and whether central banks are forced to pause their tightening due to economic damage.

The post Finding solace in the short appeared first on AdviserVoice.

Inflation looking less transitory

Signs continue to indicate that inflation is creeping into the system.

Central and global banks don’t tend to agree, but we think the tone will shift. In the face of a constant inflation rhetoric, the global consensus continues to push back on the structural shift in inflation. However, evidence of price inflation and supply chain disruptions are now showing up at every corner.

• Volvo has slashed the size of its IPO in the face of soaring energy costs and persistent supply chain delays.
• Nike’s first quarter sales missed Wall Street expectations by 7% due to production and shipping delays.
• Swiss food giant Nestle has increased prices in 2021 and will increase prices a further 2% in the final quarter and in 2022 to offset input costs of more than 4%.
• Unilever, which sells more than 400 brands into around 190 countries, announced that it will be raising prices of all its goods by 4.1% in the third quarter to pass on higher production costs.
• The price for durum wheat, the key ingredient in pasta, is up 60% this year.
• Delta Airlines just logged its steepest one-day drop (-6%) in a year, after warning that rising fuel costs could lead to an operating loss this quarter despite a lift in travel demand.

The Fed still sees inflation as temporary, with upticks in inflation explained away as simply the economy normalising after the pandemic shock and supply chain bottlenecks causing temporary disruption. But our US contacts note that those bottlenecks could last until 2022 or later. US Transportation Secretary, Pete Buttigieg, suggested in a recent interview that US supply chain issues may last ‘years and years’^[1]. Both Dubai Ports and Singapore-based Ocean Network Express, which carries more than 6% of the world’s containerised freight, have suggested an easing in supply chain disruption may not come until as late as 2023.

Listening to the key metrics

Let’s take a look at what prices have been doing in the key categories of food, energy and wages.

The UN’s Food Price Index is up 33% year on year. The index measures the global monthly price change in a basket of five food commodities, with vegetable oils up 61%, sugar up 53%, cereals up 27%, meat up 26% and dairy up 15%.

Rising fears about supply and energy security have also pushed Brent to above US$80/bbl, up 40%, and spot Asian LNG prices to US$35mmbtu, up 600% since 2019.

Source: Refinitiv, Jarden

Meanwhile, the USA labor market is already tightening. The drop in unemployment to 4.8%, and rapid 0.6% month on month wage growth, is indicative of a structural shortage of workers.

We expect the US experience to be repeated in Australia as our two largest economies emerge from lockdowns. We’re paying close attention to wage inflation in this country, given the Reserve Bank of Australia has indicated it is unlikely to raise interest rates while this metric remains subdued.

Is history repeating itself?

If higher inflation becomes entrenched, like turning the Titanic it takes time to reverse. We saw this phenomenon in the late 1970s, when three Fed Chairmen tried to stuff the genie back into the bottle – with only Paul Volcker, the last of the three, delivering the silver bullet.

We believe what we’re seeing today is remarkably similar to the experience in the 1970s. Back then, food and energy supply ‘shocks’ led the decade’s inflationary surprises. Firstly, bad weather saw CPI for food up 20% in 1973 and 12% in 1974; then came the Middle East conflict in 1973, which drove a rapid spike in the oil price.

History may not repeat itself, but it can rhyme. Today it is fuel prices, unfavourable weather and the impact of coronavirus on supply chains leading to food inflation. For the oil market, it’s the rapid move towards ‘green’ renewable energy (coupled with strong demand as the world emerges from the ravages of coronavirus) and freight costs that has led to a 70% surge in global oil prices this year.

Why does it matter?

In the 1970s, inflation had a critical effect on pushing rates higher, further entrenching inflationary expectations. According to the RBA, the 3 month Bank Bill rate was 6.6% in 1971 and 9.3% in 1974, which then jumped to 16.2% by early 1982.

Today, as inflationary pressures continue to build, several advanced economies have already increased rates, including the Norges Bank, the Reserve Bank of New Zealand and the Monetary Authority of Singapore, with the Bank of England potentially moving shortly.

The recent Australian quarterly CPI release (3.0% year on year) has ensured that inflation will remain a heated debate into 2022. At the very least: if inflation expectations build, interest rates launch sooner and bond prices continue to fall, then we should expect higher volatility in equities. Individual sector returns will diverge with winners and losers.

Equity returns historically beat inflation, within which commodities and energy sectors tend to do well. Banks and sectors which exhibit monopolistic pricing powers and hard assets, such as property, also perform strongly; whereas rate-sensitive sectors such as IT and loss-making stocks tend to underperform. We have seen this before and have positioned the Kardinia portfolio accordingly.

———-

[1] Buttigieg: Some Supply Chain Issues May Last ‘Years and Years’, Bloomberg, 8 October 2021

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Growth of online sales

With so many Australians stuck behind their computer screen during the day, it is no surprise that they have been spending online with a vengeance, fast-tracking the structural move from bricks and mortar to online shopping. The CEO of Australian online book seller Booktopia stated “the pandemic was a massive bump for people buying online … online retail in FY21 was 13% of all retail. In three years by FY24 online retail will be 24% of all retail, almost double”^[1].

Source: Booktopia FY21 Results Presentation

Australian online home furnishing retailer Temple and Webster (TPW) is another such example, where FY21 revenue is up 85% on prior calendar period. We also got a glimpse of current trading, with July month to date revenue growth accelerated to +39%. We expect TPW to report a tremendous uplift in gross profit, enabling significant reinvestment in FY22.

Savings rate still elevated

The savings rate among Australians has fallen, but remains at elevated levels (at ~12% of disposable income). Reporting season saw a record in dividends declared, with over $40bn of dividends to be paid: almost double that paid in the same period last year.

Most of these dividends will be paid in September and October. Consumers’ banks balances will swell as a result of these record dividends as well as buybacks and the proceeds from a record year of M&A deals. Retail will remain a beneficiary, as will the share market (given a significant amount of this cash will undoubtedly be recycled back into Australian equities). FY21 has seen some of the biggest deals in Australian history with Square’s takeover bid for Afterpay, BHP Petroleum’s proposed merger with Woodside Petroleum, MIRA/Aware Super’s acquisition of Vocus, Seven Group’s partial takeover of Boral and the bid for Sydney Airport by a consortium of super funds.

Internet data usage swelling

Many Australians no longer find themselves catching the train to work in the city. Instead, government-imposed COVID restrictions mean they are housebound, working from home and juggling the demands of home learning for schoolchildren. For this, they need a fast and reliable internet connection – and as a result, demand for high speed broadband has gone through the roof. Uniti Group’s share price increased by 133% for the year, with “work-lifestyle changes making fibre networks an essential commodity”^[2]. Aussie Broadband (ABB) has seen revenue growth of more than 80% from its residential and business customers.

Solid demand for cars

While at home, people are getting onto jobs that usually take a back seat, such as renovating the house or upgrading the family car. Based on VFacts, the Australian new vehicle market grew +38% over Jan-May 2021. Strong demand, reduced discounting and a normalisation of parts and servicing demand has contributed to explosive car dealers’ results.

We have seen very strong profit results and growing forward order books from dealers like Eagers Automotive (APE) and Autosports (ASG) – both companies’ share prices have appreciated over the previous 12 months, at 145% and 118% respectively. APE’s “order bank growth is expected to continue as new vehicle demand remains strong and vehicle supply remains constrained”^[3].

Source: Morgans, ABS

Renovation explosion

Further to the above, Australians are building and renovating their homes with vigour, driven in large part by support from the Federal Government’s Homebuilder program. James Hardie’s Asian Pacific region’s sales growth increased 55% in the three months to the end of June. As an aside, the US restore and restoration market also grew at around 15% in the previous quarter.

Bluescope’s Australian Steel Products division, where around a third of product goes to the Dwellings segment, reported the “strongest domestic despatches since 2H FY2008, driven by record demand across both residential and non-residential construction segments … homebound consumers continued with trend of redirecting discretionary funds to renovations”^[4].

Source: J.P. Morgan, ABS

Weak travel results

This spending around the home has come at the obvious expense of travel, with significant losses reported by the listed travel companies (Qantas $1.8b loss, Flight Centre $507m loss, Corporate Travel $33m loss). It’s refreshing to hear from a CEO who states it as it is, and Rex was perhaps the most direct of the airlines with its outlook statement, saying “the second half will still be struck by further waves of infection given the experience of other highly vaccinated countries. As such the outlook for the FY is pessimistic.”^[5]

“It’s not for lack of trying. Australians are ready to travel. Qantas Chief Customer Officer, Stephanie Tully, commented: “So we [have] obviously been researching our customers throughout the pandemic on their desire to travel and doing that monthly and in the last couple of months, particularly for international, we’ve seen the highest demand levels we’ve ever seen. When you compare that to pre-pandemic levels of people that are likely to travel in the next 12 months, we’re seeing triple the amount of people looking to travel internationally in the next 12 months.”

Aircraft are being pulled out of storage, including the A380s, and reconfigurations are currently underway with the intention to return to the skies when the magical 70% and then 80% vaccination rates are achieved. Bolstering management’s confidence was the strength of the domestic business in the June quarter of FY21 – by the end of June, management basically saw the domestic business booking curves back to pre-COVID levels.

Concerning inventory levels

Arguably the number one theme of reporting season has been online retailers ending up with too much inventory.

Everyone seems to want to ‘invest’ in inventory as a strategic play. A stretched global manufacturing and supply chain is creating challenges – including longer lead times, higher freight costs and shipping delays – leading to companies growing inventory levels. Supercheap Retail (SUL) management said: “If it’s [inventory is] not in the shed or on the shelf today, for Christmas this year I think the chance of it being [in stock] come that peak time is incredibly remote.”^[7]

However, we do not want inventory growth outstripping sales growth, and this is something we’ll watching closely in future periods. Retailers (BRG, SUL, KGN) continue to show higher levels of inventory and it’s concerning us. Only JBH and BBN have managed to keep inventory days down so far. Whether customers will be the major beneficiaries of heightened promotion activity (for inventory vulnerable to obsolescence such as technology) remains unknown; only time will tell.

What does all this mean for the future?

With COVID vaccinations accelerating across the country, we believe Australians can look forward to a happier 2022; with blunt lockdowns less likely, and more targeted measures introduced when COVID hospitalisations or deaths spike. At the time of writing, ~60% of Australians over the age of 16 have received one dose of vaccine while ~35% have received two doses. Globally, more than 5 billion doses have been given.

Source: Australian Government, Department of Health

We predict the 70% threshold for vaccinations will be reached by the end of October, which will be around the same time as AGM season. Our view is CEOs will start to get more optimistic around this event. This is likely going to continue the rotation towards coronavirus-impacted sectors.

The Kardinia portfolio is positioned for re-opening, with stocks that benefit from this comprising ~30% of the long book and lockdown stocks only ~10%. We believe some themes, such as the shift to online, are enduring, and we continue to hold exposure to the technology sector. Of course, new COVID variants and government nervousness around a likely rising death rate (as witnessed overseas) present risks to our view, but the Kardinia fund’s ability to shift its net exposure to markets in a range of -25% to +75% allows us to quickly respond to any change in outlook.

———

[1] Booktopia FY21 Results Presentation
[2] Uniti Group FY21 Results Presentation
[3] Eagers Automotive FY21 Results Presentation
[4] Bluescope FY21 Results Presentation
[5] Rex FY21 Results Presentation
[6] Qantas FY21 Earnings Call
[7] ‘Zero chances of it arriving on time’, Sydney Morning Herald, 22 August 2021

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Meanwhile, most central banks – including the Reserve Bank of Australia – are of the view that any up-tick in inflation will only be temporary. The bond market, however, has already begun to price in an increase in inflation, with the US 10-year Treasury yield rising 68bp to 1.59% for the calendar year to 9 May and the Australian 10-year bond yield rising 65bp to 1.63%.

Warren Buffet made the following comments regarding inflation at the recent Berkshire Hathaway AGM: “We’re seeing very substantial inflation. It’s very interesting. We’re raising prices. People are raising prices to us, and it’s being accepted …. we really do a lot of housing. The costs are just up, up, up. Steel costs, just every day they’re going up … So it’s an economy really, it’s red hot. And we weren’t expecting it.”

Just as Warren Buffett didn’t expect to see inflation, we don’t believe consumers are expecting it either. Inflation expectations have fallen significantly since the GFC, but the winds of change are here.

Food is perhaps the most obvious commodity where inflation will be quickly noticed by consumers; and this could be soon, if a recent report by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is to be believed. ABARES believes the price of a range of fruit and vegetables could rise between 7-29% due to a drop in supply caused by the COVID-induced absence of Australia’s traditional “backpacker fruit pickers”. The Food and Agriculture Organization of the United Nations Food Price Index, which tracks monthly changes in the international prices of commonly-traded food commodities (including meat, dairy, cereals, vegetable oils and sugar) is up 30% year on year and has risen for ten consecutive months. This will have quite an impact on the purchasing power of consumers, particularly in third world countries.

There are certain parallels between the economic and political backdrop of today and that of the 1970s. Housing and commodities were two of the few asset classes that acted as effective inflation hedges then, and we suspect they will similarly perform strongly today. Right now, with inflation rising, borrowing costs reasonable and the supply of homes quite low in some Australian states, the stage is set for homes to once again become an inflation hedge. The housing market in the US and Australia has leapt, and we believe is still in the early stages of this rally.

Meanwhile, over the past year the copper price has risen 90% to US$4.47/lb, benefiting from strong demand (as government and central bank stimulus drive a recovery in global growth) and weak supply (due to years of underinvestment). With a tight market and a very low starting point for inventories, we believe the copper bull market has further to run. Indeed, Goldman Sachs believes that copper’s critical role in decarbonisation will force the price to US$15,000/t (US$6.80/lb) by 2025 – 50% higher than the current price. According to Bloomberg, Glencore’s CEO echoed those thoughts recently, suggesting a US$15,000 price is required to incentivise new copper projects.

Copper is not the only commodity that is seeing strong price growth, as can be seen from the table below.

Looking more short term, Friday’s US payroll report showed 266,000 new jobs were created against market expectations of around 1 million. But what piqued our interest was the rally in the US market that ensued after the release, with the market simply shrugging off the poor economic news. The conclusion to draw is that weaker employment growth will motivate the US Federal Reserve to extend stimulus and maintain a lower for longer interest rate setting, giving the equity market plenty to cheer about.

We believe higher inflation and higher global debt are here to stay. But the day of reckoning is still some way off.

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Kristiaan Rehder (left) and Mark Burgess.

With winter in full swing, investors are going on a yield hunt.

Central banks are increasingly controlling volumes and prices as they attempt to set the shape of yield curves.

In the US, investment grade 10-year corporate bonds typically offer more than a 2% yield, significantly higher than the 10-year Treasury yield of approximately 70bps. It was therefore a curious move by the US Federal Reserve to target corporate bonds. What is the Fed seeing that spooked it to take such action? Restoring liquidity to credit markets was one cited reason, but regardless of the motivation the end outcome is clear – corporate bond yields are going to fall, potentially closing off an additional asset class offering income to ever-hungry investors.

It’s a similar theme at home, where the Reserve Bank of Australia (RBA) has pushed interest rates so low that as an asset class, term deposits are no longer an option for investors requiring income.

In response to COVID-19, on 19 March 2020 the RBA announced a cut in the overnight cash rate target to a record low of 0.25%. In fact, the RBA went one step further and announced it would also target a yield on three-year Australian Government bonds of 0.25%, purchasing across the yield curve to achieve the target.

This unconventional measure is set to remain in place until progress is made towards the RBA’s goals of full employment and the inflation target (2-3% on average, over time).

Given the spike in unemployment due to COVID-19 and the risks of further increases once the government’s stimulus measures (JobKeeper and JobSeeker) are wound back, as well as the RBA undershooting its 2-3% inflation target for more than four years, this does not appear likely anytime soon. In fact, at the ANU Crawford Leadership Forum on 22 June 2020, RBA Governor Philip Lowe said that due to the pandemic and an excess of global savings relative to investments, interest rates would remain at their current record lows for years to come.

To us at Kardinia, yield-producing equities are increasingly looking like the last asset class standing. We believe investors will continue to move capital into equities to chase yield in a world seemingly devoid of such opportunities. The need for income is a powerful force – particularly for those transitioning to or already in retirement. At some point, we believe this need will tip bond investors into the equities market. Consequently, we have increased our exposure to this thematic.

Share trading at an all-time high

At a time when investors are grappling with unprecedented uncertainty, a new phenomenon is taking hold in equity markets which is causing quite a stir. Retail investors are setting up accounts and trading securities with enormous enthusiasm. A range of online trading platforms, such as Robinhood, are being embraced by a new generation of retail investors and the impact on markets has been noted.

Populist investment forums are encouraging investors to participate and with a lack of sport, gambling and other entertainment options available, combined with increased free time, many have turned to share trading. The Australian Securities and Investment Commission’s recent report, Retail investor trading during COVID-19 volatility, highlights the doubling of average daily securities market turnover by retail brokers; between 24 February 2020 (the first trading day after the market peak) and 3 April 2020, it rose from $1.6 billion to $3.3 billion.

Whether this retail trend has truly divorced fundaments from asset prices, or whether the professional investment community is clutching at explanations for the recent market moves, is open to much debate. Either way, Kardinia believes central bank actions remain the most powerful driving force behind market returns.

Kardinia’s strategy

Since inception over 14 years ago, Kardinia has deliberately restricted its maximum net exposure to the market (that is, long positions minus short positions) at 75%. This ceiling has proven itself time and time again in its ability to limit the drawdown of the fund. This has been the case again this year during the COVID-19 pandemic, when the fund’s drawdown was 3.93% versus the market drawdown of 36.17%.

The true value of this key structural element of the Kardinia fund comes to fruition when markets fall. Drawdowns of more than 5% in the Australian market tend to occur at least once every year, and our capital protection is invaluable during these periods. As the current swift rally in the market takes hold, the chances of a sell off will only increase with time. With volatility likely to remain elevated, we truly believe the Kardinia fund is a strategy for the times.

Kardinia Capital is a boutique asset manager investing in Australian equities via an absolute return, variable beta, long/short strategy which was incepted in 2006. Kardinia aims to generate consistent positive returns through an investment cycle, and not lose money in falling markets. Rather than trying to generate the highest possible returns which tends to result in heightened risk and volatility, the team strives to provide growth via superior risk-adjusted returns.

By Kristiaan Rehder, Portfolio manager 

The post The Long and The Short #1 – The yield hunt appeared first on AdviserVoice.

Kardinia was formed in 2011 by Mark Burgess and Kristiaan Rehder in partnership with Bennelong Funds Management to manage the Fund’s strategy. The Bennelong Kardinia Absolute Return Fund aims to achieve absolute returns in excess of 10% per annum over the long-term.

Zenith considers the investment team “to be of a high calibre and was recently bolstered by the addition of Senior Analyst, Stuart Larke, in January 2016”.

Zenith reports “Kardinia maintains an equal focus on meeting its performance objectives and capital preservation”. Zenith has confidence in the ability of the Fund to deliver on its performance objectives given “the attractiveness of the underlying investment philosophy and process”.

Zenith’s report also highlights the Fund is among the more dynamic variable beta strategies available to investors, able to preserve capital in falling markets by materially lowering its net equity exposure.

Kardinia’s Fund is available on an extensive list of platforms and has recently been added to CFS FirstWrap.

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Previously, Peter was Executive Director – Head of Melbourne Institutional Sales with Nomura Australia, where he played a key role in establishing their Australian equities business. He also worked for boutique fund manager AR Capital Management as a portfolio manager for their absolute return hedge fund. Peter’s professional history also encompasses a variety of analyst roles in Australia and London with HSBC, Credit Lyonnais Securities, Hill Samuel Merchant Bank and Barclays Bank.

Mark and Kristiaan said they were delighted with the addition of Peter to the team. “Peter brings with him a wealth of investment markets experience, which will further strengthen the team’s analytical capabilities,” said Mark.

Kardinia was established by Mark Burgess and Kristiaan Rehder, in partnership with Bennelong Funds Management, in August 2011. The team manages the Bennelong Kardinia Absolute Return Fund, a long/short Australian equity product with the long-term objective of achieving double-digit annual rates of return without compromising on capital protection.

The post Kardinia expands team with new appointment appeared first on AdviserVoice.

Kristiaan Rehder

Kardinia Capital has won the ‘Australian equities – alternative strategies’ Manager of the Year in the Professional Planner/Zenith Fund Awards.

Kardinia beat Perpetual and Zurich to win the 2013 industry award, announced at a ceremony in Sydney on 11 October.

Last year, Kardinia took home the Professional Planner/Zenith ‘Australian equities – long/short’ Manager Award.

“The Professional Planner/Zenith Awards are a significant industry acknowledgement so we are really proud of the win. It’s great recognition for the team and our investment strategy,” said Kristiaan Rehder, Portfolio Manager of the Bennelong Kardinia Absolute Return Fund.

Kardinia was established by Mark Burgess and Kristiaan Rehder, in partnership with Bennelong Funds Management, in August 2011

The Fund is a long/short Australian equity product with the long-term objective of achieving double-digit annual rates of return without compromising on capital protection.

The Bennelong Kardinia Absolute Return Fund has delivered investors 14% p.a. over seven years. This ‘variable beta’ strategy (which means the manager has the flexibility to adjust the Fund’s exposure to the underlying market) has ensured a positive return in every calendar year since inception in 2006. This includes the heart of the Global Financial Crisis in 2008, when the Fund returned positive 0.30% whilst the market fell close to 40%

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