News & Media

Suspension of applications and redemptions and suspension from trading on ASX From 25th February 2016, applications, redemptions and dividend reinvestments for the Aurora Absolute Return Fund
(Fund) are temporarily suspended. This means you will not be able to apply for or redeem your units in the Fund until further notice.

The Fund is also suspended from trading on the ASX.

Background

The Aurora Absolute Return Fund wholly invests in the Aurora Fortitude Absolute Return Fund (Master Fund). The Master Fund holds Antares Energy Limited Convertible Notes (ASX Code: AZZG) (Antares Notes) which have been suspended from trading and are, consequently, currently illiquid. The note is due to be repaid on 31st March 2016, but information has become available to us which leads us to believe there is a possibility that repayment will not occur on this date, and therefore we are unable to accurately determine a value for the Antares Notes. This uncertainty means we do not believe it is the best interest of unit holders to continue to accept applications and redemptions, and to allow on market trades whilst there is doubt about the liquidity of a position within the Master Fund’s portfolio. The Antares Notes currently comprise 8.03% of the net asset value of the Master Fund, but this percentage may change as the value of the Antares Notes, and the value of the Master Fund’s other assets change.

Acting in the best interests of Investors

Aurora has determined that, in these circumstances, it is in the best interest of investors in the Master Fund and subsequently ABW, as a whole to temporarily suspend applications and redemptions and halt market trading to ensure all investors are treated equally so there is fair treatment between investors who choose to remain invested in the Fund and investors who choose to exit the Fund in the short to medium term.

What this means for you

The Fund has ceased accepting any off market applications for units or processing off market redemption requests effective from 25th February 2016. Any application funds received will be returned to you. A request for voluntary suspension to suspend ASX trading has also been lodged with the ASX.

The temporary suspension does not affect the distributions paid by the Fund or the way the investment strategy of the Master Fund is made.

As more information becomes available to us, we will be in better to position to advise when liquidity is likely to be restored.

If you currently have a Distribution Reinvestment Plan in place, your future distributions will only be paid via direct credit into your nominated account and cannot be reinvested in the Fund until further notice. You will need to provide your bank account details by contacting our security registrar, Registry Direct on 1300 55 6635. Alternatively, you can provide your banking details online at www.registrydirect.com.au/investor.

Further information

If you have any queries or concerns, please contact us.

Telephone: 02 9080 2377 or 1300 553 431 (within Australia) or 0800 447 637 (within New Zealand)
Email: enquiries@aurorafunds.com.au
Post: PO Box R1695, Royal Exchange NSW 1225

Aurora Funds Management Limited | ABN 69 092 626 885 | AFSL No. 222110
29 February 2016

 

 

Foreign hedge funds are talking up a collapse in the local housing market and taking short positions in the big four banks, but their enthusiasm is misplaced, Aurora Funds Management says.

Hedge funds have stepped up their positions in the “widow-maker” trade of short-selling Australia’s banks, anticipating falls on the back of what they see is a housing bubble due to burst.

Short-sellers have enjoyed some success. Share prices in the big four had fallen between 20 per cent and 30 per cent since capital requirements sent them tumbling from, or near, record highs last April.

Yet, the housing market wasn’t in crisis, despite the hedge fund doomsaying, Aurora senior portfolio manager Hugh Dive said.

Foreign investors apply the same metrics that have seen the Irish, Spanish and US housing market decline in the past decade.

“Whilst Australian housing can be viewed as expensive globally, we see a range of factors that strongly encourage Australian households to maintain mortgage payments,” he said.

“These include recourse lending, homes are exempt from capital gains tax and strong cultural desire to own one’s own home.”

Foreign investors are also sceptical of the scale of Australian banks. All four sit in the top 15 globally by market capitalisation, beefed up by record-banking profits, their attractive yields, and higher interest rates relative to Europe, Japan and the US.

“The basis of their thesis is that four banks from a small backwater in the financial world have little business being among the largest in the world,” Mr Dive said.

Of the top 10 banks by market capitalisation, four are from Australia and Canada, despite the more than 20 per cent falls in their respective currencies in the past two years.

Mr Dive said, historically, owning the world’s biggest (and most loved) banks in 1985, 1995 and 2005 proved to be a poor investment over the following decade.

Yet, the position of local banks in the global landscape had more to do with the losses and fines incurred in Europe and the US during the global financial crisis relative to Australian banks rather than any “world-conquering strategy”, Mr Dive said.

The banks’ record profits and healthy interim profits and updates posted this reporting season and bad debts at historically low levels meant the banks still had a place in local investors’ portfolios, he said.

“There is a little too much pessimism towards Australian banks,” he said.

“The underlying fundamentals are still very strong. The likes of Deutsche Bank and Credit Suisse would be delighted to be reporting profits that CBA are reporting.”

Reporter: Vanessa Desloires. Read more here.

On Monday a Swiss friend was bemoaning the dramatic fall in the share prices of Credit Suisse and UBS. Indeed in terms of market cap UBS, CS and Deutsche Bank combined were worth slightly more than Commonwealth Bank. Despite working in finance, the Swiss friend has not heard of this Australian bank.

Probably the biggest question that any Australian equity fund manager faces is what weight in a portfolio to allocate to the banks. Over the past few years, the Australian banking sector has grown to represent 31% of the ASX100 on the back of record bank profits, weakness in other sectors and a chase for yield by investors globally as monetary policy settings across Europe, Japan and the US have pushed interest rates to multi-century lows. All of this has contributed to all 4 of the Australian banks now being in the top 15 banks globally by market capitalisation, despite their relative lack of importance in the global financial system. In this week’s piece we are going to look at the change in banks over time.

Click here to read.

Two weeks ago Australia’s largest private health insurer Medibank Private (MPL) provided a surprise upgrade, boosting its operating profit guidance for the 2016 financial year from “above $370 million” to “Operating profit of above $470 million”. This caused a spike in MPL’s share price, making it one of the top performing stocks in the miserable equity markets of 2016, returning +13% vs. the ASX200 fall of -9.3%. This upgrade on the back of improved margins was treated as a shock by some well-respected sell side analysts who then scrambled to upgrade their financial models of the company.

In this week’s piece we are going to look at privatisations and the reasons why they tend to perform better under private ownership than in government hands.

Read more here.

 

Last week Qube submitted a formal proposal to acquire national rail freight and cargo port Operator Asciano for A$9billion, which is being touted as a company changing acquisition that will make the smaller company Australia’s leading logistics provider. Company changing events are typically major acquisitions or significant new investments requiring equity or debt issues, designed to dramatically boost earnings or change market perceptions of a company, both of which should be beneficial for shareholders. Whilst the valuation or market capitalisation of a company listed on the ASX can vary dramatically with market sentiment, in reality a company’s core business normally changes quite slowly and often the company-changing investment designed to buy growth can actually be very negative.

In this piece we are going to look at recent company changing events from major purchases to significant investments, the entering of new markets that were both positive and negative for shareholders.

Read more here.

Over the past few weeks there have been no shortage of headlines detailing the woes of the large oil companies as the oil price has continued to fall. Indeed this week, the oil price came under further pressure (hitting 12 year lows), as the prospect of lifting sanctions on Iran raised the spectre of an additional 500,000 barrels of Iranian oil daily hitting the global market. Whilst this has placed a significant amount of stress on oil producers and in particular companies such as Santos and Origin Energy that are completing export LNG projects that require a high oil price to generate commercial returns; the dramatic and sustained fall does have some positive impacts for investors and the economy.

In the first weekly piece of 2016 for The Alternative View we are going to look at the beneficiaries of the sustained decline in hydrocarbon prices.

Read more here.

The “Dogs of the Dow” is an investment strategy that is based on buying the ten worst performing or highest yielding stocks in the Dow Jones Industrial Average (DJIA) at the beginning of the year. The strategy then holds these ten stocks over the calendar year and sells these stocks at the end of December. The process then restarts, buying the ten worst performers or highest dividend yielders from the year that has just finished.

Following outsourcing services provider Spotless’ 49% fall in December (which wiped A$1.2 billion off its market capitalisation), in this week’s piece we are going to look at the “dogs” of the ASX, focusing on large capitalisation Australian companies with falling share prices.  Additionally I am going to sift through the trash to try to discern any fallen angels.

Unloved Mutts

The Dogs of the Dow made famous by O’Higgins in his 1991 book “Beating the Dow” and seeks to invest in the same manner as deep value and contrarian investors do. Namely, invest in companies that are currently being ignored or even hated by the market; but because they are included in a large capitalisation index like the DJIA or ASX 100, these companies are unlikely to be permanently broken and may have the financial strength or understanding capital providers; (shareholders and banks), that can allow the company to recover over time.

Read more here.

Written by Vesna Poljak and Philip Baker – Australian Financial Review

Unlike most investors, John Corr does not want to be the next Warren Buffett, the legendary value manager who is considered the greatest of all time. Certainly Buffett’s style of long-term investing, as well as the old adages of buying good companies at the right price and the value of fully franked dividends, will always be important.

But equally, there’s money to be made every single trading session by riding the short-term moves, taking advantage of stocks that rise and fall too much, and that is where Corr does his best work.

“What we try and do in our business is a lot of short-term trades. We think a lot of the market in Australia concentrates on trying to be the next Warren Buffet and focuses very much on picking long-term earnings and waiting for share prices to reflect that,” the Aurora chief investment officer says.

So instead of waiting for shares to go up and panicking when they don’t, he concentrates on other opportunities often using derivatives and options. This style of investing is broadly known as alternatives.

“I believe there’s a lot of value in trying to pick long-term earnings and long-term investments. I don’t think there’s a lot of value in all your portfolio being in that long-only style. Some people are very good at it and you should stick with those people, but we’re not like that,” he says. “We like volatility, we like things to move around.”

CRASH LESSONS HAVE STAYED

Corr, who started his career as a bank teller at the Commonwealth Bank in Warrawong near Port Kembla in 1982, is an investor who looks for numbers that just don’t add up.

Working through the 1987 sharemarket crash as an advisor at AC Goode showed him how quickly markets can turn, and those lessons have always stayed with him.

For a start, there can be a greater risk reward trading in options and derivatives than just buying stocks and going long.

Rather than estimating how high a stock can go, the first question that Corr always asks is: what can possibly go wrong?

“For most parts of ’87 I thought this was the greatest thing in the world, and how good was I? Of course October ’87, as markets do teach you great humility, I went from thinking I was really rich to realising technically I was broke. The important thing about that is one of the philosophies of our fund is the markets can be much more volatile than people expect and that’s certainly a lesson from that part of my career,” he says.

“I know markets can go to irrationally high levels and markets can go to irrationally low levels … if there’s no catalyst, markets can go off on their merry way for a long, long time.”

ILLOGICAL MARKETS CAN LAST

Referencing John Maynard Keynes, “markets can be illogical much longer than I can be solvent”, he adds.

A fertile ground for Aurora has been trading around renounceable rights issues, which have been popular in 2015 amid huge capital raising efforts. The recent Westpac issue was a good example.

The bank raised $3.5 billion in a one-for-23 entitlement offering in order to strengthen its capital reserves to meet new regulatory requirements. Renounceable rights can lapse or be traded if a recipient doesn’t want to subscribe for more equity.

“Generally we look for the share price to bottom about the time that the rights trading finishes, we tend to buy a lot of the renounceable rights when they’re trading on market because they give us a limited downside.

“We were buying Santos rights when they finished trading for as low as 20¢ because they give us all the upside on the shares for the next couple of weeks with a very limited downside.”

Aurora hedges the position post the rights trading, as the share price tends to recover.

STRONG SEPTEMBER QUARTER

“It’s something we used to do on the retail desk at AC Goode, that’s how long it’s been happening.

“There is a supply of equity or equity exposure that comes out and it tends to come out at relatively cheap prices. When that supply dries up there’s a natural opportunity for the market to bounce.”

The September quarter was strong for Aurora amid a revival in volatility. Back when Corr was running Fortitude Capital, which he set up in 2004, the hedge fund got to $200 million from a $2 million start. A 12 per cent return in 2008 was not enough, however, as the fund-of-funds model went quickly out of favour.

Fortitude merged with Aurora, which earlier this year was acquired by Keybridge Capital. The absolute return fund offers bond-like volatility, has never had a negative year in 10½ years and delivers similar returns to equity.

Corr, who is a passionate South Sydney fan, always thought he would end up in accounting having grown up in a working class area, but financial markets deregulated at the right time, creating lots of demand for numerate people who could communicate.

“I think I was very lucky,” he says. “I just think I had a bit of a natural skill set that was needed, and was happy to work hard. There were some long hours then because there was a lot more paperwork and laborious work before things were so computerised.”

Read more: http://www.afr.com/markets/equity-markets/aurora-funds-managements-john-corr-is-happy-playing-the-short-term-20151127-gl9wqo#ixzz3sucE2qnN

Over the last few weeks Westpac, NAB, ANZ collectively reported profits of $20.8 billion dollars. This resulted in some commentary in the press about banks being too profitable, especially in light of moves to recent moves to reprice loans upward for both investors and owner occupiers. Whilst large corporations generate large profits in dollar terms; what is often ignored in much of the debate on corporate profitability is that these profits have to be shared amongst millions of individual shareholders. For example Commonwealth Bank has almost 790,000 individual shareholders with 1.7 billion shares outstanding, all of which have a claim over the $9.1 billion in cash profit that the bank reported in August. In this piece we are going to look at different measures of corporate profitability for large Australian listed companies, looking beyond the billion dollar headline figure.

Read more here.