K2 Asian Fund
Monthly Report - 30 June 2016
Asia Pacific Market Review
The K2 Asian Absolute Return Fund returned -2.76% for the month of June (MSCI
AC Asia Pac Ex-Japan TR Net AUD Index: -0.64%).
Global markets produced mixed results for the month as the aftermath of the Brexit
vote spooked investors. Once the initial panic selling subsided, equities bounced
strongly from intra-month lows. The FTSE 250 Index, a broader measure of the
domestic UK market, recovered +8.71% to close the month down -5.3%.
The US S&P 500 closed flat for the month, as the Federal Reserve rhetoric is now
suggesting interest rates will remain lower for longer. Futures traders now place the
probability of at least one hike by December at less than 10% (previously 76%).
Asian markets played happy spectator to the Brexit circus having been largely
insulated from any fallout. Japan (-9.7%) was the outlier driven by the stronger Yen,
solidifying its position as a relatively safe haven currency. The mainland Chinese
market (+0.5%) surprised with its resilience as MSCI further delayed A-share
inclusion in their global indices. Elsewhere, activity was more subdued in Hong Kong
(-0.1%), Korea (-0.7%), Singapore (+1.8%) and Taiwan (+1.5%).
The ASX 200 declined -2.7% as investors rotated into the more defensive Utility and
REIT companies and out of Banks due to uncertain future growth prospects. The
AUD increased +2.89% in June to 74.43 cents providing a slight headwind to fund
performance.
Strategy
Performance to 30 June 2016 (net of fees)
1 Month
-2.76%
3 Months
-0.11%
6 Months
-5.04%
1 Year
-17.78%
3 Years (pa)
6.00%
5 Years (pa)
4.96%
10 Years (pa)
6.24%
Since Inception (pa)
9.89%
Growth of AUD $10,000
$70,000
$60,000
K2 Asian Absolute Return Fund (Cumulative Return $38,949)
$50,000
MSCI AC Asia Pac Ex-Japan TR Net AUD ($14,205)
$40,000
$30,000
$20,000
$10,000
The clear implication from 'Brexit' is that those Central Banks who were previously
not on an easing bias, will now at least be dovish. This investment environment of
globally co-ordinated public sector actions will see multiples and equities receive
support. Companies which have a history of revenue and earnings growth will be well
positioned to deliver superior returns.
We continue to believe that equities are the most attractive asset class in a world of
low growth, low inflation and low interest rates.
Outlook
As investors adjust to a sustained period of lower US interest rates and on-going
political uncertainty in Europe around Brexit, the relative stability of the Asia Pacific
region presents a unique opportunity. Forecast GDP growth for the region remains at
a healthy 4.6% led by India (7.60%) and China (6.35%), creating a strong foundation
for equity markets. Credit must go to the Chinese policy makers who continue to
manage the economic challenges presented (ie. currency depreciation, bad debts,
capital flows, etc) and have so far successfully defied the gravitational pull of a hard
landing. With each hurdle overcome we expect investor confidence to further
increase and capital flows will return to the region.
Top 5 Stock Contributions - June
Jun 16
Oct 14
Aug 15
Dec 13
Apr 12
Feb 13
Jun 11
Oct 09
Aug 10
Jan 08
Dec 08
Mar 07
Jul 05
May 06
Sep 04
Jan 03
Nov 03
Mar 02
Jul 00
May 01
Despite market volatility surrounding 'Brexit', the Fund maintained a high level of
equity exposure during the month. Financial companies were the largest detractor
from performance, as the sector was immediately de-rated on the back of increased
uncertainty surrounding funding costs and growth. While we feel that this is not a
systemic event that causes huge credit market dislocations, we do agree that
uncertainty will overhang the sector for some time to come. We continue to monitor
and adjust our holdings accordingly.
Aug 99
$000
Returns are based on NAV per unit plus distributions reinvested net of
management fee and performance fee accruals. The method for calculating
the NAV is set out in the Fund's PDS.
Fund Details (Unaudited)
Exit Price Per Unit:
A$151.14
Fund Size:
A$55.0m
Start Date:
01-Sep-99
Top 5 Large Cap Holdings
Sector
%
BHP Billiton Limited
Basic Materials
5.1
Suncorp Group Ltd
Financial
4.8
RIO Tinto Ltd
Basic Materials
4.7
Macquarie Group Ltd
Financial
2.8
Iron Mountain Inc CDI
Financial
2.5
Geographic Exposure %
Long
Short
Net Equity
Australia
43.7
-
43.7
China
13.7
-
13.7
Hong Kong
12.5
-
12.5
Korea
15.5
-
15.5
New Zealand
3.1
-
3.1
Philippines
1.1
-
1.1
Taiwan
1.2
-
1.2
Thailand
0.6
-
0.6
United States
3.2
-
3.2
Total Equity
94.6
-
94.6
Total Cash
5.4
Largest
China Longyuan Power Group, China Molybdenum Co Ltd, Iron Mountain Inc CDI,
Total Equity and Cash Exposure
100.0
LEE & Man Paper Manufacturin, Vita Group Ltd
Net AUD Exposure AFTER Hedging
47.7%
Smallest
CJ CGV Co Ltd, CYBG PLC, Macquarie Group Ltd, National Storage REIT,
Suncorp Group Ltd
This newsletter is prepared by K2 Asset Management Ltd (“K2”) and is believed to be reliable. However K2 makes no representation or warranty as to its reliability and does not accept any responsibility or liability in relation to such
information or for conclusions which the reader may draw from the newsletter. The information or opinions contained in this newsletter are of a general nature only and should not be construed to be a recommendation to buy or sell
interests in the K2 Fund, securities, commodities, currencies or financial instruments referred to above. K2 is not licensed to give financial advice to retail clients and you should obtain and consider a PDS from K2 or our website
before making a decision in relation to the K2 Funds. A cooling off period is available to some retail clients. The directors and staff of K2 hold units in the K2 Funds. Please note that past performance is not a reliable indicator of
future performance.
K2 Asset Management Ltd ACN 085 445 094 / AFSL No. 244 393