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Morphic Global Opportunities Fund Performance Report for September 2014
1,2
Unit price: $1.3619
Fund Objective: To provide long term capital growth by investing globally across asset classes. The Manager combines bottom up equity research
with top down macroeconomic analysis. The Manager aims to preserve capital in falling markets through proactive risk management. The Fund
generally consists of 20 to 60 stocks with selected other positions to optimise risk/reward - including cash, short sales and derivatives.
Key Facts
3
Performance of AUD $10,000
Launch Date
August 2nd, 2012
Minimum Initial Investment
AUD 10,000
16,000
Pricing and Liquidity
Distributions
Management Fee4
Daily
January and July
1.35%
15,500
Performance Fee
5
16,500
15,000
14,500
14,000
15.375%
13,500
Entry and Exit Fees
Zero
Buy/Sell Spread
0.3% each side
Performance
Morphic Global Opportunities Fund
13,000
12,500
12,000
6
11,500
Month
3.20%
Index7
3.42%
Quarter
Half year
3.76%
5.38%
9.80%
8.69%
1.10%
Year
Inception (annualised)
17.94%
18.95%
-1.01%
25.81%
26.48%
-0.67%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
YTD
4.17%
4.12%
0.05%
Jan
0.90%
1.87%
-0.97%
Feb
0.99%
-0.01%
1.00%
Mar
2.80%
3.30%
-0.50%
Apr
6.77%
7.97%
-1.20%
May
1.84%
1.68%
0.16%
Jun
7.71%
6.88%
0.83%
Jul
-1.57%
-1.34%
-0.23%
Aug
0.26%
0.17%
0.09%
Sep
3.14%
2.71%
0.43%
Oct
5.48%
5.09%
0.39%
Nov
3.85%
3.91%
-0.06%
Dec
42.49%
42.51%
-0.01%
YTD
-1.66%
-1.56%
-0.10%
-0.71%
2.21%
-2.92%
-2.63%
-3.02%
0.39%
0.75%
0.98%
-0.23%
3.91%
1.67%
2.24%
1.07%
0.46%
0.61%
-0.73%
0.29%
-1.02%
1.28%
1.60%
-0.32%
3.20%
3.42%
-0.22%
-
-
-
4.39%
6.06%
-1.66%
Fund
Relative
-1.62%
11,000
10,500
-0.22%
*Past performance is no guarantee of future performance.
10,000
9,500
Historical Monthly Performance
2013
MGOF
Index
Relative
2014
MGOF
Index
Relative
Risk Measures
Fund Equity Exposure Summary
8
101%
Net Exposure
Gross Exposure9
141%
Telecommunication Services
VAR10
% Positive Months
1.01%
Materials
% Negative Months
23%
Utilities
% Outperforming Months
46%
Health Care
% Underperforming Months
54%
Industrials
77%
Benchmark
Energy
7.71%
Consumer Staples
Worst Month
-2.63%
Consumer Discretionary
Average Gain in Up Months
2.94%
Information Technology
Average Loss in Down Months
-1.30%
Financials
Asia Pacific
Western Europe
North America
0%
9.05%
10%
20%
30%
Top 10 Active Positions
Name
Name
Short Euro vs USD & GBP
Long Aust. Dollar vs US Dollar
Long US Dollar vs Yen
Region
Financials
Consumer Staples
Utilities
Financials
Consumer Staples
Industrials
Consumer Discretionary
Information Technology
Information Technology
Health Care
Active FX Positions
Name
6.8%
1.0%
2.0%
None
Weight
20%
Gross
18.3%
8.4%
5.5%
4.6%
4.5%
4.0%
3.1%
2.9%
2.8%
2.4%
North America
Asia Pacific
Europe
North America
Asia Pacific
North America
North America
North America
Asia Pacific
North America
Active Commodity Positions
Weight
0%
40%
60%
11
Industry
US Banks
Japanese Drug Stores
UK Water Utilities
US Fund Managers Spread
Japanese Supermarket Spread
US Capex
International Game Tech Takeover
Mentor Graphics Corp
Printer Manufacturers
Aetna Inc
Morphic Global Opportunities
Fund
Eastern Europe
Central Asia
Best Month
Annual Volatility
Africa / Middle East
South & Central America
Active Bond Positions
Name
Short US Bonds
Long
12.4%
6.6%
5.5%
4.1%
2.2%
4.0%
2.5%
2.9%
2.8%
2.4%
Short
5.9%
1.9%
0.0%
0.5%
2.2%
0.0%
0.6%
0.0%
0.0%
0.0%
Active Credit Positions
Name
Weight
7.5%
Net
6.5%
4.7%
5.5%
3.7%
0.0%
4.0%
1.9%
2.9%
2.8%
2.4%
None
Weight
MORPHIC GLOBAL OPPORTUNITIES FUND
Commentary and performance
The Fund rose 3.20% in September while its benchmark (MSCI AC World Total Return Net Index in Australian Dollars) rose 3.42%,
resulting in underperformance of 0.22%. Since inception (August 2012), the Fund has returned 25.81% (annualised and net of fees),
against benchmark returns of 26.48%.
The absolute gains were due to Australian dollar weakness and the Fund’s decision to be completely unhedged. Although US
economic indicators are still strong, global markets finished the month down over 3% in US dollar terms. The market weakness can
be ascribed variously to rising political tensions in Hong Kong; China and Europe growth fears; and worries that Ebola might
spread out of Africa. The most resilient market was the US which managed gains over the quarter.
The Fund’s main win again came from its oldest thematic holding - the Japanese drugstore chain basket. The long positions in
national store chain Welcia and regional player Kusuri no Aoki were increased, but Sundrug and a short position in Sugi were
closed. A short position in a highly priced regional player and the long position in national chain Tsuruha were maintained. The
other main stock contributor was Japanese automotive manufacturer Mitsubishi Motors.
The Fund’s largest losses came from Austrian industrial rubber goods producer Semperit, and Canadian automotive component
maker Magna. Semperit has sold off along with most small to midcap stocks in Europe, but in particular has suffered from anxieties
about its exposure to Russia and litigation in Thailand. The position was reduced over the month to reflect these concerns.
Magna was part of the formerly large automotive basket that had been progressively reduced over the year. The sector has come
under further pressure with EU auto sales stalling and Ford announcing that its earnings will not meet expectations. Since month
end Magna and the other members of the basket, Mitsubishi Motors and Korean part maker Sungwoo Hitech have been sold.
The second major disappointment was the Fund’s UK Water Utilities position which underperformed for a second month as
investors began to reconsider yield plays. A risk-off environment in Europe also reduced the willingness of investors to hold these
stocks for merger optionality. With yields above 4% and regulatory news continuing to improve we used this weakness to add to
the position.
September saw the diverging economic trends in the US and most of the rest of the world intensify. The US is coming to the end of
QE and the probable start of an interest rate hikes cycle. By contrast the European Central Bank is trying to expand its balance
sheet through the purchase of credit instruments, and Japan’s QE programme continues unabated. The result has been a
significant rally in the US dollar against most currencies, which benefited hedges the fund had in place, but is raising a range of
new anxieties in equity markets.
The Fund remains positioned for a continuing bull market, though somewhat more tentatively than in recent months. Nevertheless
the Fund remains close to fully invested. For the equity bull market that began in 2009 to end now, before the first rate increase in
the cycle, with a backdrop of good economic data and earnings, would be to believe that “this time is different” – and whilst the
Manager is always open these possibilities, it is not our base case for now. All assets remain unhedged to the Australian Dollar. The
Fund has hedged some of its euro exposure into Sterling and US Dollars, and some of its Yen back to US dollars, as US Dollar
strength is most likely at the early stage of a bull market as discussed at length in our December 2014 half yearly report.
This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security by the sender or Morphic
Asset Management Pty Ltd (“Morphic”) (ACN 155 937 901) (AFSL 419916). This report does not take into account the investment objectives, financial situation or particular
needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision. Any
person considering investment in the Morphic Global Opportunities Fund (“MGOF”) should first review the Product Disclosure Statement (PDS) for the Fund issued by
Perpetual Trust Services Ltd dated 23/01/2014. Initial Applications for units in the MGOF can only be made pursuant to the application form in the PDS. Morphic does not
guarantee repayment of capital or any particular rate of return from the MGOF. Past performance is no guarantee of future performance. Investment returns have been
calculated in accordance with normal industry practice utilising movements in unit price and assuming reinvestment of all distribution of income and realised profits.
Statements of fact in this report have been obtained from and are based upon sources that Morphic believes to be reliable, but Morphic does not guarantee their
accuracy, and any such information may be incomplete or condensed. All opinions and estimates included in this report constitute Morphic's judgement as at the date of
this communication and are subject to change without notice.
1
Please see disclaimer
6
2
ISIN AU60PER06735, APIR PER0673AU
7
The Index is the MSCI All Countries World Daily Total Return Net Index (Bloomberg code NDUEACWF) in Australian Dollars
3
Not Annualised and net of fees
All fees shown are inclusive of GST
8
Includes Equities and Commodities - longs and shorts are netted
4
The Manager may also recoup a maximum of 0.27% in expenses related to operating the Fund
9
Includes Equities, Commodities and 10 year equivalent Credit and Bonds - longs and shorts are not netted
5
The Performance Fee is payable semi-annually in respect of the Fund’s out-performance of the Index. Performance Fees are only payable in the
10
VAR is Value at Risk based upon the 95th percentile with a 1 day holding period using a 1 year look back
11
Baskets include a variety of stocks or indices chosen to optimise exposure
event the Fund achieves positive absolute performance and is subject to a high water mark.