1. finance
2. investing
3. stocks

Ellerston Global Equity
Managers Fund
PERFORMANCE REPORT April 2015
Fund performance^
Investment Objective
1
Month
3
Months
1
Yr
3 Yr
p.a
5 Yr
p.a
Strategy
Since
Inception
p.a
GEMS A
Net
3.80%
12.79%
24.81%
15.56%
13.16%
13.22%
GEMS B
Net
3.80%
12.79%
24.79%
15.11%
12.65%
13.00%
The investment objective is to generate
superior returns for Unitholders with a focus
on risk and capital preservation.
Investment Strategy



Global long/short equity
Overlays fundamental stock selection
with macroeconomic outlook
Bias toward Australia
Commentary
Key Information
Strategy Inception
Date
1 January 2002
Fund Net Asset Value
A$133M
Liquidity
Quarterly
Class A Redemption
Price
A$1.5422
Class B Redemption
Price
A$1.5030
No Stocks
115
Gross Exposure
165%
Net Exposure
75%
Management Fee
1.5% p.a
Buy/Sell Spread
0.25%
Performance Fee
16.50%
Firm AUM
A$4,141 M
Ellerston Capital Limited
ABN 34 110 397 674
AFSL 283 000
The Ellerston Global Equity Managers Fund posted a solid return of 3.8% in April,
despite the month proving to be a cruel and surprisingly volatile month for global
investors. Key contributors to the positive performance of the Fund included the
Fund’s holdings in Bellamy’s, Blackmores and Nabors Industries.
Many investors had bet the US dollar would continue to firm, oil prices would come
under further pressure and the rally in global bonds would gain further steam.
Instead, trades that had proved to be winners in the last six months completely
backfired, as a confluence of negative economic data suddenly dimmed the outlook
for the US economic recovery, prompting many investors to push back their
expectations for when the Federal Reserve will raise key interest rates.
US equities continued to rally in April, with the S&P500 climbing 0.9% to 2,086 and
the Nasdaq finishing 0.8% higher at 4,941. The eagerly awaited US Q1 earnings
season kicked off, with analysts expecting the strong dollar and the cold snap to
weigh on corporate profits. Household names like Ford, 3M, LinkedIn and Google all
missed analyst expectations, with social-media company Twitter shares tumbling
22% in the month (in the first quarter, Twitter’s stock rallied a staggering 40%). Of the
75% of companies that have reported thus far in the US, EPS growth across the
S&P500 is running at +1.9%.
China was the standout performer, with the Shanghai Composite Index finishing
+18.5%, boosted by further stimulus from the PBoC which cut the reserve
requirement ratios for financial institutions in an attempt to fuel lending and sustain
growth. Hot on the heels of China, Hong Kong equities also rallied, climbing 13% in
the period. The moves were fuelled by the opening of “the connect”, which allows
Chinese investors access to Hong Kong markets. Japanese equity markets also
climbed over the month, with the Nikkei putting on an additional 1.6%, taking it to
19,520.
Level 11
179 Elizabeth Street
Sydney NSW 2000
Tel: 02 9021 7797
Fax: 02 9261 0528
[email protected]
www.ellerstoncapital.com
APIR Code: ECL0002AU
APIR Code: ECL0007AU
European markets were generally weaker (Germany -4.3%, Spain -1.2% and Italy -0.5%) as enthusiasm for the ECB’s
quantitative easing program waned and uncertainty around Greek debt negotiations continued. The performance was
negative, despite European corporate earnings generally delivering solid results, with 60 out of 107 European firms beating
analyst expectations. The UK market escaped the continent’s fate with the FTSE ending the month 2.8% higher at 6,961,
having traded through 7,000 earlier in the month. This was despite intense campaigning ahead of one of the UK’s most
uncertain elections in decades.
Australia underperformed most global equity markets (MSCI World Index +2.2%) during the month. The S&P/ASX200
Accumulation Index ended the month 1.7% lower, which included a savage three-day sell-off at month-end. Led by the
Energy sector (+8.5%), Resources (+4.3%) outperformed ex Resource’s (-2.7%), while Banks (-5.9%) recorded their weakest
performance in more than 6 months. Over the course of the month, the Australian market repeatedly tried to break the
critical 6,000 point barrier, failing on each attempt. In April, we saw a sharp rally in the iron ore price after BHP announced
that it would defer its inner-harbour debottlenecking project, effectively slowing its expansion plans. The Australian dollar
rallied to briefly trade above the US80c mark (the A$:US$ reached a mid-month high of $0.802) before closing up 3c for the
month at $0.791.
Currency was a key focus for markets with the US$ reversing its recent upward trend on signs the US economy has hit a soft
patch. Weaker than expected Q1 GDP growth (just 0.2% annualised) and a moderation in labour market strength have
pushed out expectations for Fed tightening, with many observers now ruling out a June “lift-off” and some commentators
even suggesting interest rate rises could be delayed until 2016. The US$ finished the month lower versus most major
currencies including the Euro (-4%), AUD (-4%), GBP (-3%) and CAD (-5%). The move in the currency added to local
concerns, with the stronger A$ weighing on businesses with offshore earnings. Notwithstanding the spate of disappointing
economic data, bond yields backed up with the US 10-year rate climbing +11 basis points over the month to finish at 2.03%.
Oil saw a significant rally in the period with West Texas approaching US$60/bbl and Brent north of US$66/bbl, moves partly
driven by the continued reduction in US rig counts, as well as heightening geo-political tensions in the Middle East. The
escalations in the region and constant naval activity in the Straits of Hormuz added to the tensions, stoking energy prices.
Meanwhile on the domestic front, more positive signs from the labour market (stronger than expected jobs growth, rising
participation and a surprise fall in the unemployment rate to 6.1%), coupled with a benign CPI outcome, saw the RBA cut
interest rates by 0.25% to a historical low of 2% on May 5.
We remain constructive on markets, but have moderately reduced our exposure, taking profits in some of our strong
performing stocks. Markets remain supported by low interest rates throughout the developed world and accommodative
Central Bank policy. However after rallying strongly for the past 6 months, we wouldn’t be surprised if they stalled around
current levels for the next few months.
Concerns about Greece are holding European markets back, while slower than expected first quarter growth, and an
expectation that the Fed will raise interest rates later in the year are holding the U.S. market back.
Universal Corporation (UVV) is a new position in the fund. Based in Richmond, Virginia, Universal Corporation is the largest
leaf tobacco merchant globally. They are the intermediary between the farmer and the cigarette companies. Universal
sources and processes tobacco leaf to their customers specifications. This is a cyclical industry, where we believe the cycle
is turning upwards. Operating margins are at the low end of their historical range and we think they are heading
upwards. Global tobacco inventories are at historically low levels, the Brazilian Real has weakened (leaf processors buy in
Real and sell in U.S. dollars), and the large tobacco companies are vertically de-integrating, handing work back to the leaf
processors. At the bottom of the cycle, UVV is trading on a p/e of 13.9x, a price/book value of 0.93x and a dividend yield of
4.4%, while maintaining a strong balance sheet. The company has increased its dividend for 44 straight years.
.
Ellerston Global Equity Managers Fund – Monthly Newsletter
2
Market Exposure as a % of NAV
GEMS Strategy Performance & Volatility ^
14%
180%
160%
12%
GEMS Strategy
10%
S&P/ASX 200 Accum
Index
140%
Gross
Net
Since Inception
Return % p.a.
120%
100%
80%
60%
40%
8%
S&P 500 US Accum
Index (USD)
6%
MSCI World Accum
Index
4%
20%
0%
-20%
Europe
Australia
& NZ
Asia
Emerging North
Markets America
Grand
Total
2%
MSCI Europe Accum
Index
0%
MSCI Asia Pacific
Accum Index
0%
10%
20%
Standard Deviation (Since Inception) % p.a. #
The GEMS strategy since inception has achieved
higher returns than all of the major indexes since
inception with lower risk over the same time
period.
Top Holdings (Alphabetical, Long only)
•
•
•
•
•
Aristocrat Leisure
Bellamy’s Australia
Bentham IMF
Blackmores
Elis
•
•
•
•
•
Key Service Providers
-
Enel Spa
GWA Group
Nufarm
Reckitt Benckiser Group
Verizon Communications
-
Registry: Link Market Services Limited
Auditor: Ernst & Young
Prime Broker: Morgan Stanley Intl & Co PLC & Goldman
Sachs International
Administrator: Citco Fund Services (Australia) Pty Ltd
Custodian: State Street Australia Limited
Material Matters
During the month there were no material changes to the Fund in terms of its risk profile, investment strategy or changes to investment staff which
would impact this strategy. There have been no changes to the key service providers described above.
Disclaimer
^ Actual performance for your account may vary from that set out in this newsletter and will vary for investments made in different classes, or at different times throughout the year. Some
performance data is estimated and preliminary and subject to change.
^^For the period 1 January 2002 to 30 April 2006, the CPH Group GEMS Portfolio was not operated within a separate fund structure. The underlying investment assets of the CPH Group GEMS
Portfolio were owned during that time within corporate entities of the CPH Group for which audited accounts were prepared on an annual basis. Accordingly, in order to provide relevant historical
performance information for the period 1 January 2002 to 30 April 2006 (Historical Returns) net returns were calculated on the basis of the actual dollar returns of the CPH Group GEMS Portfolio
adjusted to reflect a fund structure similar to the Fund and including all fees. For GEMS B, GEMS A returns have been used between 1 May 2006 and 2 November 2009.
The returns of the Fund and the relevant Indices are net of fees, expenses and taxes and assuming distributions are reinvested.
The performance figures presented are for the Ellerston Global Equity Managers Fund GEMS A and B Units. The one month return figure may be an estimate and not the final return. This
estimate also impacts other performance information provided. Estimated performance figures are preliminary and subject to change. Returns for other classes may differ slightly. Past
performance is not indicative of future performance. Ellerston Capital Limited ABN 34 110 397 674 AFSL 283 000 is the responsible entity of the Ellerston Global Equity Managers Fund ARSN
118 887 095 (Fund). This newsletter has been prepared by Ellerston Capital Limited without taking account of the objectives, financial situation or needs of investors. Before making an
investment decision you should consider your own individual circumstances and obtain a copy of the Product Disclosure Statement for the Fund dated 31 January 2014 which is available by
contacting Ellerston Capital. This material has been prepared based on information believed to be accurate at the time of publication. Assumptions and estimates may have been made which
may prove not to be accurate. Ellerston Capital undertakes no responsibility to correct any such inaccuracy. Subsequent changes in circumstances may occur at any time and may impact the
accuracy of the information. To the full extent permitted by law, none of Ellerston Capital Limited, or any member of the Ellerston Capital Limited Group of companies makes any warranty as to
the accuracy or completeness of the information in this newsletter and disclaims all liability that may arise due to any information contained in this newsletter being inaccurate, unreliable or
incomplete.
# The standard deviation is often used by investors to measure the risk of an asset. The standard deviation is a measure of volatility: the more an asset’s returns vary from the average return,
the more volatile the asset. A higher standard deviation means a greater potential for deviation of return from the average return of the asset.
Ellerston Global Equity Managers Fund – Monthly Newsletter
3