Denning Pryce Global Income Fund September Quarter 2015

Transcription

1 Denning Pryce Pty Ltd ABN AFSL Tel: Denning Pryce Global Income Fund September Quarter 2015 Quarterly market overview Global share markets suffered their worst quarter in four years. Concerns over global growth, in particular the outlook for the Chinese economy, underwrote the negative sentiment. Market confusion ensued when the US Federal Reserve provided mixed September commentary: an initial announcement of a decision to abstain from a rate rise was re positioned to a suggestion that the Fed would more than likely increase rates this year. The uncertainty created a swirl in markets. Beyond the rates watching hype, the fundamental driver of recent strength in the US dollar is a re balancing of the US trade position. Revitalization of US manufacturing, and increased energy self sufficiency have reduced US reliance on imports and caused a lowering of USD payment to foreign producers. However, the race to maintain competitive advantage continues: 24 out of the 28 OECD & G20 countries have lowered their short term interest rates to retain competitiveness. Three (India, New Zealand, Norway) cut rates in September. Despite positive data out of Europe and the US, bearish elements within the market took the headlines. Consequently, it was perhaps not surprising to see markets suffering. The index falls were Euro Stoxx 11.32%; Nikkei 14.47%; and S&P %. Germany s DAX, with its large manufacturing and exporting base, fell 13.60%. China finished the quarter down 28.6%. Money exited China as fears of a major economic slowdown in the world s second largest economy set in. Globally, single names in the resource and energy space were the worst performers. Glencore (GLEN) the UK listed resources company fell dramatically as questions were raised over its debt burden against a backdrop of low resource prices. A single analyst s report sent the stock into free fall, dragging markets around the globe lower. Market attention now turns to the upcoming corporate earnings season in North America and Europe. Investors will be looking for clarity from those companies directly exposed to China. Under the microscope, in particular, will be the car manufacturers VW (recent emissions fraud troubles aside) and BMW, and tech companies such as Apple. Market volatility remains at the forefront of investors minds. The VIX ebbs and flows as flighty sentiment drives market direction. After a long period of stability and low volatility (fuelled by a QE led rally in the US, Japan and Europe) we are now seeing volatile markets. Since late August volatility has remained elevated, and this pattern will possibly continue into the last quarter. Important investor information relating to the Fund is set out on page 4. Page 1

2 The fund will take advantage of the volatility increase. Many of the option premiums on offer are returning twice the income relative to six months ago. Whilst the downward direction of the market has been disappointing for investors, conditions provide the fund with an exciting opportunity over the coming months. In Australia Industrials and Infrastructure were the only sectors to hold up in a market that fell 8%. Energy was savaged, falling 26% for the quarter, with falls such as Santos (STO) 49%, Origin Energy (ORG) 49% and Woodside Petroleum (WPL) 15.5%. WPL announced a takeover bid for Oil Search (OSH), the PNG based oil and gas producer, suggesting that there is now value in the market. The banks came under pressure as metropolitan property markets started to cool. Lending rates on investment property have been increased. The three bank majors (ex CBA) report and pay dividends in the next two months. With ANZ, NAB and WBC finishing the quarter on 12 month grossed up yields of at least 8.5% there will certainly be investor interest. With the news that Malcom Turnbull was replacing Tony Abbot as PM the media has been optimistic that change in leadership would engender change in economic fortune. For now concerns continue around the outlook for Australia s economic growth (as resources and banks continue to struggle). Fund performance summary September 2015 DP Global Income Fund (Institutional Class) yr 3Year Since Month Months Months Months (p.a.) (p.a.) FYTD Inception (p.a.) % 4.95% 5.17% 0.41% 4.74% 9.29% 4.95% 8.00% Benchmark % 3.57% 3.61% 1.06% 4.91% 7.24% 3.57% 6.03% 1. Inception date is 25 July Past performance is not indicative of future performance % MSCI World Accumulation Index in Local Currency/50% Bloomberg AusBond Bank Bill Index Fund commentary Volatility Despite the VIX trading at lows as recently as July, the market turmoil ensured that it finished the quarter at a 4 year high. There were several large market movements in late August and throughout September. The fund has looked to add long volatility positions throughout the quarter: Citigroup (C), Wesfarmers (WES), ING Bank (INGA), BNP Paribas (BNP), Dicks Sporting Goods (DKS), Flextronics (FLEX), Tyson Foods (TSN), BMW, and Amcor (AMC). The fund also added short directional index positions in the Nasdaq, S&P500 and on Germany s DAX. The majority of these positions were added in early August as we saw levels of both volatility and downside skew suggest to us increased movement in the market was likely. These positions served us well as the market fell. A US listed BHP straddle was added during the quarter. The stock sold down, touching GFC lows, and volatility increased sharply. The fund received 19% cash premium for selling a January at the money put and call combination, highlighting the extreme volatility levels that are in the market. We will take opportunities in the volatility space as fluctuations and uncertainty in the market continue. Banks and Financials The fund purchased puts over Citi, BNP and Allstate in early August which helped protect the fund across the aggressive sell down we witnessed later in that month. Major financial names in our portfolio all came under pressure as US financials weakened. The likely catalyst was that an interest rate increase was being pushed further out. Citi Group (C) ( 10%), Wells Fargo ( 8.70%) and Bank of New York Mellon ( 6.70%) all struggled. European banks were lower with falls including INGA 15%, KBC 6% and BNP Paribas 3% being amongst the better performers. We continue to hold our financial exposures and, despite a disappointing non farm payroll number in September, see the US economy as being on a relatively sound footing. Page 2

3 Financial stocks in Australia were not immune to the sell off with the financial sector falling by 9.1% for the quarter, extending weakness that began back in April. The fund holds existing positions in both NAB and ANZ through short puts which were positioned to take advantage of the increased premiums. Buy Write During the quarter the fund held buy write positions in Apple (AAPL), Martin Marietta (MLM), Cisco (CSCO), Heineken (HEIA), Home Depot (HD), Molson Coors (TAP), Novartis (NOVN) and Prudential (PRU). We have added some of these names as the market pulled back taking advantage of both high premiums and lower share prices to add some blue chip buy writes to the income portfolio. We have also rolled many of our existing written call positions into longer dated expiries including IBM, Manpower Group (MAN), Saint Gobain (SGO), Fox Media (FOXA) and Eaton Corp (ETN). With premiums at elevated levels we been increasing the writing of calls on some of our existing holdings in the portfolio. Portfolio highlights The fund continues to offer low volatility in an increasingly uncertain environment This volatile month of September, the fund reduced the impact of the market fall Several of our strategies allow us to benefit from the market movements Leading exposures Fund Top Ten by % Exposure Fund risk profile Estimated risk for a 20% market decline at 30 September 2015 is 9%. Page 3

4 Investor information As at end September 2015 Ex Net Asset Value 2 Net Returns for the month 3 & 4 Institutional Class Wholesale Class Retail Class Total $46,128, $2,584, $48, % 1.98% 2.00% APIR Code DPR0002AU ZUR0592AU ZUR0591AU Ex NAV Price 5 $ $ $ Distribution CPU Ex Redemption Price 6 Notes: $ $ $ $48,762, Performance since inception is from 25 July 2011, and is measured to each full month end. Past performance is not indicative of future performance. 2 The value of the Fund s assets less the liabilities of the Fund net of fees, costs and taxes. The Class NAV is the amount of the Fund NAV referable to the respective class. 3 Net returns are calculated using net asset value to net asset value, after fees and expenses and assuming reinvestment of income. 4 The buy/sell spread (currently +0.20% / 0.20%) is an estimate of the costs of buying or selling assets associated with an investment in, or withdrawal from, the Fund. This is not a fee paid to us and is reflected in the respective class unit price. 5 The respective Class NAV price is determined by calculating the NAV referable to the class divided by the number of units on issue in the relevant class. 6 The respective class redemption price is calculated by decreasing the relevant Class NAV price by the sell spread (currently 0.20%). There are no related party status declarations to be made at this time. Unless otherwise stated, the source of all graphs and tables contained in this report is Denning Pryce. In addition, please note that the following information remains as set out in the PDS for the Fund dated 20 th May Key service providers to the fund The Fund s strategy The team of individuals who play a key role in the operation of the Fund Additional Important Information Denning Pryce Pty Limited ACN AFSL (Denning Pryce) is the investment manager of the Denning Pryce Global Income Fund (ARSN ) (Fund). One Managed Investment Funds Limited (ABN ) (AFSL ) is the responsibility entity of Fund (OMIFL). The information contained in this document was not prepared by OMIFL but was prepared by other parties. While OMIFL has no reason to believe that the information is inaccurate, the truth or accuracy of the information contained therein cannot be warranted or guaranteed. Anyone reading this report must obtain and rely upon their own independent advice and inquiries. Investors should consider the relevant Product Disclosure Statement (PDS) issued by OMIFL before making any decision regarding the Fund. The PDS contains important information about investing in the Fund and it is important investors obtain and read a copy of the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Fund. You should also consult a licensed financial adviser before making an investment decision in relation to the Fund. A copy of the current PDS and continuous disclosures may be obtained from or Denning Pryce believes that the information contained in this document is accurate when issued. Denning Pryce does not warrant that such information or advice is accurate, reliable, complete or up to date, and to the fullest extent permitted by law, disclaims all liability of Denning Pryce and its associates. This document should be regarded as general information only rather than advice. In preparing this document, Denning Pryce did not take into account the investment objectives, financial situation and particular needs of any individual person. The information contained in this document must not be copied or disclosed in whole or in part without the prior written consent of Denning Pryce, and Denning Pryce accept no liability whatsoever for the actions of third parties in this respect. It is presented for informational purposes only and is not to be construed as a solicitation or an offer or recommendation to buy or sell any securities. Any opinions expressed in this document constitute Denning Pryce s judgement at the time of issue and may be subject to change without notice. Denning Pryce is not obliged to update the information. The information must not be used by recipients as a substitute for the exercise of their own judgment and investigation. Neither Denning Pryce nor any of their directors, employees or agents accept any liability for any loss or damage arising out of the use of all or part of, or any omission, inadequacy or inaccuracy in, this document. Page 4

5 OMIFL and Denning Pryce do not guarantee the performance of the Fund or the repayment of any investor s capital. To the extent permitted by law, neither OMIFL nor Denning Pryce, including their directors, senior executives, employees, consultants, advisers, officers or authorized representatives, are liable for any loss or damage arising as a result of reliance placed on the contents of this document. Denning Pryce only provides services to wholesale clients, as defined in section 761G of the Corporations Act. Past performance is not indicative of future performance. Information in this document is current as at 30 September Third party data is owned by the applicable third party identified and is provided for your internal use only. Such data may not be reproduced or re disseminated and may not be used to create any financial instruments, products or indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. Page 5