Quarterly Investor Report April 2013 Davin Hood - Portfolio Manager Cor Capital Pty Ltd AFSL: 419924 ABN: 37 155 801 817 www.corcapital.com.au
Dear Investor, As at the conclusion of March the Cor Capital Fund had posted its third consecutive positive return quarter since its inception in August last year (including a partial Sept 2012 quarter). We are pleased to be off to a good start; however over time we will simply be happy to achieve our return target of inflation plus four per cent per annum with relatively low volatility. Our aim is to keep our investors wealthy throughout what we believe may be a difficult period ahead, and to do so without the complexity of derivatives, gearing, short selling, predictions, forecasts and market timing. Performance â€“ Quarter ending 31 March 2013 Over the quarter equities were again the strongest contributor to portfolio returns with the ASX200 index up 8.6 per cent (including dividends). Cash and fixed interest securities were slightly positive and gold subtracted from returns. In line with the Fund rebalancing policy we reduced our exposure to equities at the end of February. Cor Capital Fund - $1 invested at inception Consumer Price Inflation + 4% p.a. 1.10 1.08 1.06 1.04 1.02 1.00 0.98 31 JUL 31 AUG 2012 2012
31 SEP 2012
31 OCT 2012
31 NOV 2012
31 DEC 31 JAN 28 FEB 31 MAR 2012 2013 2013 2013
Total Return Since inception: Since Inception p.a.: Last quarter: 1 year: 2 years p.a.: 3 years p.a.:
6.06% na 1.36% na na na
Risk Indicators No. negative quarters: No. negative years: Worst quarter: Best quarter: Worst year: Best year:
0 na 0.30% 4.33% na na
Performance attribution - Last quarter (%)
Performance attribution - since inception (%)
Portfolio adjustments - Last quarter
Portfolio adjustments - since inception
All returns quoted above include income and are net of fund costs. Past performance is not an indication of future returns.
Observations With reference to the Fund’s strategic asset allocation our main prosperity asset has been moving up in value and our main insurance asset has been falling. The problem of course is that these market movements are not occurring following a global debt purge, or increased demand and employment growth. Indeed, a significant component of corporate earnings improvement has come from lower interest costs. Equities markets are going up due to interest rate manipulation and injected liquidity chasing yield, and this cannot go on indefinitely.
“Unbelievably we’re repeating the same cycle all over and expecting a different outcome. That’s not to say you can’t own equities but own them knowing it’s all going to end in tears. . . You’ve got leverage starting the cycle from a new all-time high. . . There’s been a lot of talk about deleveraging, but that’s about it. . . My view is, it’s not imminent, it’s not this week’s story, but let’s give this whole process another year of low rates, and loose liquidity and increasing mispricing of risk, and further scope for increased leverage, and we’ve potentially getting quite fragile again.” Gerard Minack - Morgan Stanley Australia April 2013
“Credit spreads nor interest rates cannot be artificially compressed forever, nor can stock prices rise perpetually on their coattails. Be rational, be optimistic if so inclined, but temper it with a commonsensical conclusion that we have seen something similar to this before, and that previous outcomes seldom matched the exuberance.” Bill Gross – PIMCO March 2013
Artificially low interest rates will cause asset inflation and that’s what central bankers want. However bubbles burst and so for investors the consequences of unfortunate active asset allocations will be magnified. A key Cor Capital assumption is that humans aren’t generally very good at predicting the future. However forecasts and predictions around the timing of bursting asset bubbles are even more difficult. We believe this means strategic asset allocation and true balance are now more important than perhaps they have been in a long time.
As I write this report the gold price has fallen significantly so far for April. 500 tons (US$20 billion) of gold was â€˜dumpedâ€™ into the futures market on April 15 and the seller intended to do so quickly as it appears it may have cost them US$1.2 billion (relative to slower selling). 500 tons of gold is more than annual industrial demand globally and about a quarter of annual global jewellery demand. It is similar to the total amount of gold owned by India. If this was an attempt at market manipulation it succeeded in the short term as speculators were immediately spooked into selling. Prices have recovered somewhat over the last few days supported by physical buying.
Gold is held in the Cor Capital Fund as a bedrock financial asset and not for speculation, and the reasons for holding it remain. While it is disconcerting that some (so far) faceless entity can influence an otherwise relatively liquid market to such a degree, in context of what the Cor Capital Fund attempts to achieve, this short-term volatility in one asset class is not an uncommon event. As an investor in the Fund you should expect that weakness in one asset will generally be offset by strength in others, and also that the portfolio manager will take advantage of volatility by rebalancing the portfolio in line with the stated policy, one that is necessarily contrarian and unemotional. I will have more to say on this matter at a later date.
Asset Allocation - 31 Mar 2013
With eight months of performance history we now have the beginnings of a track record but we expect the true benefits of our approach to play out over a longer period. Chart 1 shows the initial performance of the Fund in context of how we expect the strategy to behave over time. Please note that we do not expect the Fund strategy to outperform equities over the very long-term however we do expect it to be a lot less volatile.
Cor Capital Fund Actual Aus Equities
Cash DJCS Hedge Fund Index
Cor Strategy 1.25 Note: Chart 1 displays the change in value of $1 invested in each of the Cor Strategy (as described in the Information
Memorandum – August 2012), bank bills, Australian equities and the Dow Jones Credit Suisse Hedge Fund Index between November 2004 and March 2013. It also shows the
performance of the Cor Capital Fund since inception in August 2012. All results apart from those of the Cor Capital Fund are theoretical and do not represent actual results. The
analysis should not be taken as a prediction of likely future
returns. Source: Cor Capital Pty Ltd, IRESS, Credit Suisse.
Please call me should you have any questions. Davin Hood Managing Director and Portfolio Manager T: 03 9823 6296 M: 0431 700 939 Important Information: This report (‘Report’) has been produced by Cor Capital Pty Ltd (‘Cor Capital’) ABN 37 155 801 817, AFSL 419924 and has been prepared for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security of financial product or service. Any such offer or solicitation shall be made only pursuant to an Information Memorandum or other offer document (collectively ‘Offer Document’) relating to a Cor Capital financial product or service. A copy of the relevant Offer Document relating to a Cor Capital product or service may be obtained by calling Cor Capital on 03 9823 6296 or by visiting www.corcapital.com.au. This Report does not constitute a part of any Offer Document issued by Cor Capital. Past performance is not necessarily indicative of future results and no person guarantees the performance of any Cor Capital financial product or service or the amount or timing of any return from it. This material has been provided for general information purposes and must not be construed as investment advice. Neither this Report nor any Offer Document issued by Cor Capital takes into account your investment objectives, financial situation and particular needs. In addition to carefully reading the relevant Offer Document issued by Cor Capital you should, before deciding whether to invest in a Cor Capital financial product or service, consider the appropriateness of investing or continuing to invest, having regards to your own objectives, financial situation or needs. Cor Capital strongly recommends that you obtain independent financial, legal and taxation advice before deciding whether to invest in a Cor Capital financial product or service. The information contained in this Report may not be reproduced, used or disclosed, in whole or in part, without prior written consent of Cor Capital.